G.R. No. 175602 - People vs. Valdez

Key Individuals and Context

Petitioner: Mondragon Personal Sales, Inc., a company marketing consumer products through sales representatives.
Respondent: Victoriano S. Sola, Jr., contracted as service provider for product storage, office facilities, and customer handling in General Santos City.

Petitioner’s Contractual Arrangement

Contract of Services (Oct. 2, 1994–Oct. 1, 1997) provided that respondent would maintain a bodega-cum-office and, in return, receive a monthly commission based on net sales:
• P50,000–2,500,000: 5%
• 2,500,001–3,000,000: P125,000
• 3,000,001–3,500,000: P150,000
• Over 3,500,001: P200,000

Acknowledgment of Spousal Obligation and Fee Withholding

Prior franchise agreement indebted respondent’s wife, Lina S. Sola, to petitioner.
On Jan. 26, 1995, respondent wrote to petitioner’s VP for Finance, confirming his wife’s debt of P1,973,154.73 (further P1,490,091.15 subject to reconciliation) and personally binding himself to pay by installments.
Petitioner thereupon withheld respondent’s service fees for Feb.–Apr. 1995 and applied them against the debt.

RTC Proceedings and Pleadings

May 24, 1995: Respondent sued for accounting and rescission, alleging unlawful fee withholding of P222,202.84 and suspension of his operations due to that withholding.
June 14, 1995: Petitioner answered and counterclaimed for the unpaid balance of P1,547,892.55 on the wife’s account, plus damages and delivery of padlocked inventory.
RTC granted petitioner’s motions for preliminary attachment and writ of replevin; respondent’s motions to quash were denied and unsuccessfully petitioned this Court by certiorari.

RTC Decision (July 6, 2000)

Applied the Jan. 27, 1995 commission rates and upheld petitioner’s computation of P125,040.01 for Feb.–Apr. 1995.
Held no ground for rescission under Civil Code Art. 1381 (rescissible contracts) due to absence of fraud or consent defects.
Found respondent bound by his Jan. 26, 1995 letter to pay P1,973,154.73; after deducting P125,040.01, balance due petitioner amounted to P1,543,643.96.
Awarded respondent attorney’s fees; dismissed other counterclaims for lack of proof.

Court of Appeals Decision (Feb. 10, 2006)

Grounded rescission on reciprocal-obligation rule under Civil Code Art. 1191, finding that petitioner’s withholding breached the contract and justified rescission.
Rejected legal compensation, ruling respondent did not assume his wife’s debt; any spousal liability was subsidiary and unproven as the community property was sufficient.
Ordered remand for computation of unlawfully withheld fees and granted respondent P25,000 attorney’s fees; denied petitioner’s counterclaims.

Supreme Court Analysis on Legal Compensation

Emphasized respondent’s Jan. 26, 1995 letter unambiguously made him a principal debtor alongside his wife, solidarily bound to pay P1,973,154.73.
Recognized reciprocal monetary obligations: respondent owed petitioner the confirmed debt; petitioner owed respondent monthly fees.
Applied Civil Code Art. 1279 on legal compensation by operation of law, requiring

Mondragon Sales, Inc. (“petitioner”) sells consumer products through a network of sales representatives.
On October 2, 1994, petitioner and Victoriano S. Sola, Jr. (“respondent”) executed a three-year Contract of Services, under which respondent provided a bodega-cum-office in General Santos City and earned commission based on monthly net sales.
Commission rates ranged from 5% on monthly sales between ₱50,000 and ₱2,500,000 to a fixed ₱200,000 for sales above ₱3,500,001.
Prior to this, respondent’s wife, Lina S. Sola, had an existing Franchise Distributorship debt to petitioner.

On January 26, 1995, respondent wrote to petitioner’s Vice-President for Finance, acknowledging his wife’s indebtedness of ₱1,973,154.73 (with ₱1,490,091.15 pending reconciliation) and voluntarily binding himself to pay in installments.
Petitioner withheld respondent’s service fees for February–April 1995 and applied them as partial payments toward that debt.

On April 29, 1995, respondent closed and suspended his office and bodega, effectively halting petitioner’s sales operations in General Santos City.
On May 24, 1995, respondent filed a complaint in the RTC of Davao for accounting and rescission, claiming ₱222,202.84 in withheld fees and seeking rescission of the contract.

In its June 14, 1995 Answer with Counterclaim, petitioner asserted that respondent’s letter of January 26, 1995 constituted an assumption of his wife’s debt, justifying compensation of ₱125,040.01 from respondent’s February–April 1995 commissions.
Petitioner counterclaimed for ₱1,547,892.55 plus interest, the delivery of padlocked inventory, loss of income, and ₱45,728.30 balance on an advanced ₱100,000.
The RTC granted petitioner’s motion for preliminary attachment and replevin on June 19, 1995.