YAM v CA (1999) (Topic: Condonation or remission Arts 1270- 1274)

FACTS:

- Petitioners entered into a Loan Agreement with Assumption of Solidary Liability whereby they were given P500,000 by
private respondent. Denominated the first Industrial Guarantee and Loan Fund (IGLF), the loan was secured by a chattel
mortgage on the printing machinery in petitioners’ establishment. Petitioners subsequently obtained a second IGLF loan
of P300,000.

- On May 17, 1986 (a year after they paid their first loan), petitioners made a partial payment of P50,000 on their second
loan. They wrote to private respondent on their proposal to settle their obligation, to which it replied with a counter-offer,
namely, that it would reduce the penalty charges up to P1400,000 provided that petitioners can pay their obligation on or
before July 30, 1986.

- On July 31, 1986, petitioners paid P410,854.47 by means of a Pilipinas Bank check, receipt of which was acknowledged
by Destajo. This amount was the sum of the principal (P259,469.47) and the interest (P165,385) less the partial payment
of P50,000. Since there’s still a balance of P266,146.88 left, respondent filed a case for the collection of this plus
interests, penalties and service charges, or, in the alternative, for the foreclosure of the mortgaged machineries.

- Petitioners claimed that they had fully paid their obligation. They contended that after receiving respondent’s letter of
conditional offer to reduce their penalty charges, they met with Carlos Sobrepenas, president of respondent corporation.

- Apparently, the latter agreed to waive the penalties and service charges, provided that petitioners paid the principal and
interest, less the earlier payment of P50,000. This is why they only paid P410,854.47, with the voucher having the
notation “full payment of IGLF loan”.

ISSUE : WON petitioners are liable for the payment of the penalties and service charges on their loan which, as of July
31, 1986, amounted to P266,146.88

HELD

YES
 - Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the forms of donation. Art.
748, par. 3 provides that the donation and acceptance of a movable, the value of which exceeds P5,000.00, must be
made in writing, otherwise the same shall be void.

In this connection, under Art. 417, par. 1, obligations, actually referring to credits, are considered movable property. In the
case at bar, it is undisputed that the alleged agreement to condone P266,146.88 of the second IGLF loan was not
reduced in writing.


The notation “full payment of IGLF loan” also doesn’t bind private respondent. It merely states petitioners’ intention in
making the payment.

If private respondent really condoned the amount in question, petitioners should’ve asked for a certificate of full payment
from respondent corporation, just like what they did when they paid off their first loan.

Disposition the decision of the Court of Appeals is AFFIRMED.

SPS. GOLEZ v. Meliton Nemeño Sept. 23, 2015

FACTS:

- Meliton Nemeño owns a commercial lot in Zamboanga Del Sur. In 1989 he entered into a Lease Contract with the
petitioners, Sps. Ricardo and Elena Golez, in which the latter bound themselves to construct a commercial building worth
P143,823 on the leased lot. As per contract, instead of paying the rent in the form of money, petitioners would withhold
such payment and apply the accumulated rent to the cost of the building they built on the leased property.
- In May 1992 the building was burned down.

- Because of the destruction of the building, Nemeño sent a letter demanding the accumulated rentals from March 17,
1989 to June 17, 1992 totaling P78,000.00. As the demand was left unheeded, Nemeño filed a complaint for collection of
rentals plus damages before the RTC.

ISSUE 1: Are petitioners liable to pay respondent back rentals?

HELD:
Yes, the SC sustained the award of back rentals in favor of respondent, but did not agree with the amount
imposed by the courts a quo.

The destruction of the building should not in any way be made a basis to exempt petitioners from paying rent for
the period they made use of the leased property. Otherwise, this will be a clear case of unjust enrichment. There is no
dispute that petitioners used the property for several years for their own benefit having operated a restaurant thereon.
The fact that the parties agreed to a different mode of payment – in this case, a building – does not in any way exempt
petitioners from paying compensation due to respondent for the use of the latter’s property because the building was
destroyed.

ISSUE 2: Are petitioners liable for damages?

HELD:
No, the SC finds the awards for moral, temperate and exemplary damages lacking in factual and legal
bases.

As correctly argued by petitioners, these damages were not pleaded in respondent’s complaint nor proven during
trial. It is well-settled that in order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like.

Even the trial court’s finding that petitioner Ricardo was the author of the fire will not make respondent entitled to
moral damages and exemplary damages. As correctly pointed out by petitioners, both parties were prevented from
presenting evidence to prove or disprove that there was arson. Thus, there cannot be a finding on petitioners’ liability of
willful injury as basis of moral damages as provided in Article 222031 and exemplary damages as provided in Article 2232
of the Civil Code.
It is also worthy to note that the criminal complaint for arson filed against petitioner Ricardo was dismissed with finality by
the DOJ thus precluding any criminal liability on his part regarding the burning of the subject building.

As to the award of litigation expenses, we find the same to be justified. As provided under Article 2208 of the Civil Code,
they may be recovered when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest.However, we find no basis for a separate award of attorney’s fees since they were
not prayed for in both the original and amended complaints.

ISSUE 3: Are petitioners entitled to their counterclaim?

HELD:
SC affirms the dismissal of petitioners’ counterclaims.

As correctly ruled by the trial and appellate courts, the possession of respondent of the promissory note
evidencing his debt to petitioners is prima facie evidence of the payment of the same as provided in Section 3(h) of Rule
131 of the Rules of Court. Unfortunately for petitioners, the evidence they presented failed to contradict the above
presumption as they did not conclusively show that respondent’s obligation to them remains outstanding.
GAN TION V COURT OF APPEALS May 21, 1969 (Topic: Conpensation Art 1278-1290)

FACTS

- Ong Wan Sieng was a tenant in certain premises owned by Gan Tion.


- In 1961 the latter filed an ejectment case against the former, alleging non- payment of rents for August and September
of that year, at P180 a month, or P360 altogether.


- Defendant denied the allegation and said that the agreed monthly rental was only P160, which he had offered to but was
refused by the plaintiff. The plaintiff obtained a favorable judgment in the municipal court, but upon appeal the CFI,
reversed the judgment and dismissed the complaint, and ordered the plaintiff to pay the defendant the sum of P500 as
attorney's fees. That judgment became final.


- On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month,
effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate amount of
P4,320.00, corresponding to a period from August 1961 to October 1963.


- Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his favor.


- Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan
Sieng was indebted to him in the sum of P4,320 for unpaid rents.


- The appellate court accepted the petition but eventually decided for the respondent, holding that although "respondent
Ong is indebted to the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum of P500 could not be
the subject of legal compensation, it being a "trust fund for the benefit of the lawyer, which would have to be turned over
by the client to his counsel."


- In the opinion of said Court, the requisites of legal compensation, namely, that the parties must be creditors and debtors
of each other in their own right (Art. 1278, Civil Code) and that each one of them must be bound principally and at the
same time be a principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with
respect to the sum of P500 was the defendant's counsel.

ISSUE: W/N the award for attorney’s fees may be the subject of legal compensation

HELD

YES
 - The award for attorney's fees is made in favor of the litigant, not of his counsel, and is justified by way of indemnity
for damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code.

It is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such
credit, may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to pay
his debt for P500 when admittedly his creditor is indebted to him for more than P4,000.

MIRASOL v. CA February 1, 2001

Facts:

- Petitioner spouses Mirasol are sugarland owners and planters. PNB financed their sugar production venture for crop
years 1973-1974 and 1974-1975 under a crop loan financing scheme, in which the petitioner spouses signed Credit
Agreements, a Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The Chattel Mortgage
empowered PNB to negotiate and sell the latter's sugar, and to apply the proceeds of which as payment for their
obligations.

- Meanwhile, President Marcos issued PD 579 in November, 1974, authorizing PHILEX to purchase sugar allocated for
export to the US and other foreign markets. This decree also authorized PNB to finance PHILEX's purchases, with a
mandate that whatever profit PHILEX might realize (minus commissions, overhead expenses and other liabilities) was to
be remitted to the government and used for public purposes.

- PNB continued to finance the sugar production venture of the petitioner spouses through 1977. Believing that the
proceeds of their sugar sales to PNB, if properly accounted for, were more than enough to pay their obligations, they
asked PNB for an accounting of the proceeds of the sale of their export sugar, which request was ignored by PNB.
Meanwhile, petitioner spouses continued to avail of other loans from PNB and to make unfunded withdrawals from their
current accounts with said bank, prompting PNB to ask them to settle their due and demandable accounts.

- In this regard, they conveyed to PNB real properties valued at P1,410,466.00 by way of dacion en pago, leaving an
unpaid overdrawn account of P1,513,347.78. On August 10, 1982, the balance of their loans stood at P15,964,252.93,
and despite demands, the petitioner spouses failed to settle their accounts. Thus, PNB proceeded to extrajudicially
foreclose the mortgaged properties, and after applying the proceeds from the auction sale, there resulted a remaining
balance of P12,551,252.93 on PNB’s claim.

- Petitioners insisted that PNB account for the proceeds of the sale of their export sugar for crop years 1973-1974 and
1974-1975, claiming that said proceeds, if properly liquidated, could offset their outstanding obligations with the bank.

- As PNB remained adamant that under P.D. No. 579, there was nothing to account for since said law states that all
earnings from the export sales of sugar pertained to the National Government, the petitioner spouses proceeded to file a
suit for accounting, specific performance, and damages against PNB.

- In particular, they asked that PD 579 be declared unconstitutional, and that accounting for the unliquidated profits of
sugar sales for 1973- 1975 be done.

- Appurtenant to their claim that said profits are enough to offset their obligations to PNB, they asked for the court to
declare that the dacion en pago they executed in favour of PNB, as well as the latter’s act of foreclosing their properties,
void for want of consideration. The RTC ruled in their favour but the CA reversed.

Issue/s:

WON the CA was wrong in upholding the validity of dacion en pago and foreclosure on the petitioner spouses properties
considering their claim that these should have been invalidated by virtue of legal compensation of the 1973-1975 sugar
sales on their outstanding obligations with PNB

Ruling:

The court denied the petition and upheld the CA’s ruling.

Ratio:

NO. Petitioner spouses' argument that legal compensation has taken place has no basis in law. For legal compensation to
take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code must be present. Art. 1278 provides that
“compensation shall take place when two persons, in their own right, are creditors and debtors of each other.”

Meanwhile, Art. 1279. provides the requisites for a valid compensation, namely:
 (1) That each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;

(3) That the two debts are due; 


(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in
due time to the debtor."

In the present case, set-off or compensation cannot take place between the parties for the following reasons:

(1) Neither of the parties are mutually creditors and debtors of each other. Under P.D. No. 579, neither PNB nor PHILEX
could retain any difference claimed by the Mirasols in the price of sugar sold by the two firms as said decree already
prescribes for the application of the profits, namely, to a special fund of the National Government subject to the disposition
of the President for public purposes. Hence, the CA was correct in ruling that there was nothing with which PNB was
supposed to have offset Mirasols' admitted indebtedness.

(2) Compensation cannot take place where one claim, as in the instant case, is still the subject of litigation, as the same
cannot be deemed liquidated.

Obiter: The Court dismissed the constitutionality issue raised by petitioner spouses because it was not the lis mota of the
case.

Montemayor v. Millora 27 July 2011

Petition: for Review on Certiorari assails the Decision dated May 19, 2005 of the Court of Appeals (CA) which dismissed
the petition for certiorari seeking to annul and set aside the Orders dated September 6, 2002 and October 2, 2003 of the
Regional Trial Court (RTC) of Quezon City, Branch 98.

Facts:

- Respondent Atty. Vicente D. Millora (Vicente) obtained a loan of P400, 000.00 from petitioner Dr. Jesus M. Montemayor
(Jesus). The loan has a 2% interest and by this time, Vicente had already paid the amount of P108, 000.00 for the period
July 24 to August 23, 1990.

- Subsequently and with Vicente’s consent, the interest rate was increased to 3.5% or P10, 500.00 a month. From March
24, 1991 to July 23, 1991, or for a period of four months, Vicente was supposed to pay P42, 000.00 as interest but was
able to pay only P24, 000.00. Jesus made several demands for Vicente to settle his obligation but to no avail.

- Jesus filed before the RTC of Quezon City. Atty. Vicente filed a COUNTERCLAIM against Jesus claiming that Atty.
Vicente was Jesus’ lawyer on several occasions and that in fact, Jesus owes Atty. Vicente attorney’s fees of not less than
P500, 000.00. Vicente claims that he was summarily dismissed from handling them when the instant complaint for sum of
money was filed.

- On October 27, 1999 RTC ordered Vicente to pay Jesus his monetary obligation amounting to P300, 000.00 plus
interest of 12% from the time of the filing of the complaint on August 17, 1993 until fully paid ADDITIONALLY, THERE
WAS NO PRONOUNCMENT ON ATTORNEY’S FEES AND COST OF SUIT. Jesus filed a motion for reconsideration at
the CA but was denied.

- Upon appeal to the higher court, Jesus contends that the trial court grievously erred in ordering the implementation of
the RTC’s October 27, 1999 Decision considering that same does fix the amount of attorney’s fees. According to Jesus,
such disposition leaves the matter of computation of the attorney’s fees uncertain and, hence, the writ of execution cannot
be implemented.
- In this regard, Jesus points out that not even the Sheriff who will implement said Decision can compute the judgment
awards. Besides, a sheriff is not clothed with the authority to render judicial functions such as the computation of specific
amounts of judgment awards.

Issue: Whether the absence of a specific amount in the decision representing respondent's counterclaim the same could
be validly offset against the specific amount of award mentioned in the decision in favor of the petitioner
.
o Jesus contends that for offsetting to apply, the two debts must be liquidated or ascertainable. However,
the trial court merely awarded to Vicente attorney’s fees based on quantum meruit without specifying the
exact amount thereof.

o We do not agree.

o For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil
Code

ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.

ARTICLE 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

A debt is liquidated when its existence and amount are determined. Also, when the determination of the exact
amount depends only on a simple arithmetical operation. It is not necessary that it be admitted by the debtor. Nor
is it necessary that the credit appear in a final judgment in order that it can be considered as liquidated; it is
enough that its exact amount is known.

In the instant case, both obligations are liquidated.

Vicente has the obligation to pay his debt due to Jesus in the amount of P300,000.00 with interest at the rate of
12% per annum counted from the filing of the instant complaint on August 17, 1993 until fully paid. Jesus, on the
other hand, has the obligation to pay attorney’s fees which the RTC had already determined to be equivalent
to whatever amount recoverable from Vicente. The said attorney’s fees were awarded by the RTC on the
counterclaim of Vicente on the basis of “quantum meruit” for the legal services he previously rendered to Jesus.

There are 2 parts to the decision of RTC

FIRST PART - The computation of the amount due to Jesus which is P300, 000.00 is to be multiplied by the
interest rate of 12%. The result thereof plus the principal of P300,000.00 is the total amount that Vicente must
pay Jesus.
SECOND PART – The computation of attorney’s fees to Vicente. Vicente is entitled to attorney’s fees which is
equivalent to whatever amount recoverable from him by Jesus. Legal compensation or set-off then takes
place between Jesus and Vicente and both parties are on even terms such that there is actually nothing
left to execute and satisfy in favor of either party.

Ruling: WHEREFORE, instant Petition for Review on Certiorari is DENIED. The assailed Decision of the Court of
Appeals dated May 19, 2005 in CA-G.R. SP No. 81075 which dismissed the petition for certiorari seeking to annul and set
aside the Orders dated September 6, 2002 and October 2, 2003 of the Regional Trial Court of Quezon City, Branch 98 in
Civil Case No. Q-93-17255, is hereby AFFIRMED.

Notes: Counterclaim - In civil procedure, a party's claim is a counterclaim if the defending party has previously (in the
present action) made a claim against the claiming party.

Examples of counterclaims include: After a bank has sued a customer for an unpaid debt, the customer counterclaims
(sues back) against the bank for fraud in procuring the debt. The court will sort out the different claims in one lawsuit
(unless the claims are severed).

Quantum meruit - meaning "what one has earned". In the context of contract law, it means something along the lines of
"reasonable value of services".