G.R. No. 127454 - Mavest Inc. vs. Sampaguita Garment Corp.

Petitioners MAVEST (U.S.A.), Inc. ("MAVEST U.S.A.") and MAVEST Manila Liaison Office ("MLO") are corporations respectively organized under the laws of the USA and acting as its representative in the Philippines.
Respondent Sampaguita Garment Corporation ("Sampaguita") is a Philippine domestic corporation engaged in manufacturing and exporting garments.
The case arose from transactions where petitioners supplied raw materials from abroad to respondent, who manufactured garments and shipped them to petitioners’ foreign buyers, Sears Roebuck and JC Penney.

Between July and August 1989, several purchase orders (POs) were entered into, specifying garment styles and quantities for Sears Roebuck and JC Penney buyers.

Sears Roebuck orders: Styles 33303 (SZ-217), 45712 (S/44759), 45714 (S/SZ-218), 45715 (S/SZ-219) were paid in full via letter of credit.
JC Penney orders: Styles 7511, DJ-1 BR, and DJ-1 XT (Cotton Woven Pants, 8,000 pcs. at $3.65/piece totaling $29,200) were not covered by letter of credit. Despite shipment and receipt by JC Penney, no payment was made by petitioners.

On April 27, 1990, respondent filed a complaint for collection of US$29,200 plus damages before the Regional Trial Court (RTC) Makati City (Civil Case No. 90-1131) against petitioners and two others: MAVEST International Co., Ltd. ("MICL") and Patrick Wang, former general manager of MLO.
Petitioners and co-defendants answered with counterclaim alleging legal compensation, claiming respondent owed them US$34,999.57 for damages due to respondent’s breaches in previous shipments to Sears Roebuck. Alleged breaches included: failure to meet specifications and quantity, delay in shipment, over-declaration of value, short shipment, and failure to return raw materials on undelivered garments.
The parties stipulated facts acknowledging the non-payment of US$29,200 for JC Penney orders but submitted compensation as a defense.
After a protracted trial of four years, RTC ruled in favor of respondent ordering petitioners to pay US$29,200 plus 6% interest from filing date, P300,000 attorney’s fees, and costs of suit.
On appeal, the Court of Appeals (CA) affirmed with modifications: dismissed complaint against MICL and Patrick Wang, deleted attorney’s fees and costs, and upheld the principal amount and interest against petitioners.
Petitioners filed the instant petition for review with the Supreme Court (SC), assigning errors primarily on:

The denial of legal compensation as a valid extinguishment of obligation.
Application of Article 1719 of the Civil Code and acceptance of goods without protest.
Failure to recognize evidence of their damages.
Holding MLO solidarily liable.
Award of actual damages and interest to respondent.

Whether legal compensation applies to extinguish petitioners' debt to respondent based on alleged damages suffered from prior transactions.
Whether the acceptance without protest of the finished garments by petitioners negated their right to refuse payment or claim compensation.
Whether the evidence presented by petitioners sufficiently proved respondent’s liability for damages which could offset the amount claimed.
Whether MLO should be held solidarily liable with MAVEST U.S.A. as principal.
Whether the award of US$29,200 plus interest to respondent was proper, considering the defenses raised.