Case Summary (G.R. No. 74027)
Key Dates
October–December 1975
Sale and delivery of merchandise under several invoices totaling ₱22,213.75, payable within 30 days.
July 1, 1976
Filing of collection complaint by respondent in the Court of First Instance (CFI) of Manila.
April 1, 1976
Intended return of defective stainless‐steel screen by Borden International.
August 25, 1978
Decision of the CFI partially allowing petitioner’s counterclaim for commission.
March 17, 1986
Decision of the Intermediate Appellate Court (IAC) dismissing petitioner’s counterclaim.
December 7, 1989
Decision of the Supreme Court affirming the IAC.
Applicable Constitution and Law
1973 Philippine Constitution (in force at decision date)
Civil Code of the Philippines, Articles 1279–1280 on legal compensation
Factual Background
In late 1975, respondent sold goods to petitioner under invoices amounting to ₱22,213.75. Petitioner failed to pay within thirty days despite repeated demands. Respondent then sued in the CFI of Manila for collection of the principal, interest (₱661.03), and attorney’s fees (₱5,000). In its answer, petitioner admitted the debt but asserted:
• A counterclaim by way of a debit memo for ₱22,200, allegedly representing a 20% commission on a ₱111,000 sprocket sale respondent made directly to Dole Philippines, Inc., in breach of an alleged prior arrangement.
• A claim for the return and cancellation of ₱6,000 corresponding to a defective stainless‐steel screen returned by Borden International.
Procedural History
The CFI (Aug. 25, 1978) confirmed petitioner’s liability on the invoices but offset respondent’s claim by the ₱22,200 commission, leaving respondent only ₱13.75 due, plus interest from July 1, 1976. It rejected the defective‐screen counterclaim as time-barred. Respondent appealed to the IAC, which (Mar. 17, 1986) set aside the offset, dismissed petitioner’s counterclaim for lack of factual and legal basis, and reinstated full recovery of the principal, interest, and attorney’s fees in respondent’s favor. Petitioner sought certiorari review before the Supreme Court.
Legal Issue
Whether petitioner’s unliquidated, disputed claim for a commission constitutes a valid basis for legal compensation (set-off) against respondent’s undisputed debt under Civil Code Article 1279.
Analysis
Article 1279 requires that for legal compensation both debts be (1) principal obligations to one another, (2) in money, (3) due, (4) liquidated and demandable, and (5) free of controversy or third-party claims. Here:
• Petitioner admitted the principal debt of ₱22,213.75.
• Its claim for a 20% commission on the Dole sale was vigorously disputed by respondent—no written or verbal agreement bound respondent to pay any commission.
• The debit
Case Syllabus (G.R. No. 74027)
Facts of the Transaction
- In October, November, and December 1975, Gregorio De Leon, doing business as Mark Industrial Sales, sold and delivered various items of merchandise to Silahis Marketing Corporation under several invoices totaling ₱22,213.75, payable within thirty days.
- Silahis failed to pay the invoices upon maturity despite repeated demands.
- De Leon filed a complaint in the Court of First Instance of Manila for collection of the principal sum, accrued interest of ₱661.03, attorney’s fees of ₱5,000.00, and costs of litigation.
- Silahis admitted the invoice debts but raised two affirmative defenses:
- A debit memo for ₱22,200.00 claiming unrealized profit as a 20% commission for a direct sale of sprockets worth ₱111,000.00 to Dole Philippines, Inc., allegedly bypassing Silahis in violation of their usual practice.
- A claim to return a stainless steel screen worth ₱6,000.00, found defective by Borden International, Davao City, and to have that amount canceled from its account.
Lower Court Ruling (August 25, 1978)
- Confirmed Silahis’s liability for the unpaid invoices totaling ₱22,213.75.
- Allowed Silahis to offset ₱22,200.00 for the alleged commission on the Dole Philippines sale, finding De Leon breached their arrangement.
- Denied the ₱6,000.00 counterclaim for defective screen on grounds of laches, as the propo