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TOPIC:LegalCompensation

AdelaidaSorianov.PeopleofthePhilippines
G.R.No.181692,August14,2013
Facts: EvelynAlagao(Evelyn),daughterofprivatecomplainantConsolacionAlagao
(Alagao),asborrowermortgagor,executedaContractofLoanSecuredbyRealEstate
MortgagewithSpecialPowertoSellMortgagePropertywithoutJudicialProceedings
infavorofpetitioneraslendermortgagee.TheinstrumentprovidesforaP40,000loan
securedbyaparceloflandregisteredinEvelynsname.Itlikewiseprovidesthattheloan
wastobepaidtwoyearsfromthedateofexecutionofthecontractandthatEvelyn
agreestogivepetitionerofeveryharvestfromhercornlanduntilthefullamountofthe
loanhasbeenpaid,startingfromthefirstharvest.BasedonAlagaostestimony,thefirst
harvestwasmadeonlyinSeptember1994.Petitionerontheotherhandclaimsthatfrom
thetimetheloanwasobtaineduntilSeptember1994,therewerealreadyfourharvests.
Duringpretrial,itwasadmittedbyAlagaothatshedidnotonlyreceiveP40,000as
providedinthecontractofloanbutP51,730intheformoffertilizersandcashadvances.
Alagaoandsomecompanionsdelivered398sacksofcorngrainstopetitioner.Petitioner
preparedavoucherindicatingthatAlagaohadreceivedtheamountofP85,607asfull
paymentforthe398sacksofcorngrains.Alagaosignedsaidvoucherevenifsheonly
receivedP3,000.AccordingtoAlagao,64ofthe398sackswillserveaspartialpayment
ofherP40,000loanwithpetitionerwhiletheremainingbalancewillcomefromthe
P85,607cashshewassupposedtoreceiveaspaymentforthecorngrainsdeliveredsoshe
canredeemherdaughterslandtitle.
TheRegionalTrialCourt(RTC)ofMisamisOriental,Branch40,renderedadecision
findingpetitionerguiltybeyondreasonabledoubtofthecrimeofestafa.However,the
CA set petitioners conviction aside in the assailed decision. The CA ruled that the
prosecutionfailedtoestablishthatpetitionermadefalsepretenses,fraudulentacts or
fraudulentmeanstoinduceAlagaotodelivertoherthe398sacksofcorngrains.Infact,
in Alagaos testimony, she admitted that she delivered the corn grains to petitioner
becausethelatterwasdemandingpaymentfromherandshewantedtopayherobligation
ofP40,000topetitionersothatshecouldgetbackthetitleofherdaughtersmortgaged
propertyandthebalanceofthetotalcashvalueofthe398sacksofcorn.Thus,theCA
held,intheabsenceofdeceit,petitionersliabilityisonlycivil.Unsatisfied,petitioneris
nowbeforetheSupremeCourtquestioninghercivilliability.
Issue:Whetherlegalcompensationisproper.
Held:Yes.Compensationisamodeofextinguishingtotheconcurrentamount,thedebts
ofpersonswhointheirownrightarecreditorsanddebtorsofeachother.Theobjectof
compensationisthepreventionofunnecessarysuitsandpaymentsthroughthemutual
extinction by operation of law of concurring debts. Article 1279 of the Civil Code
providesfortherequisitesforcompensationtotakeeffectandtheCourtruledthatallthe

requisitesforcompensationarepresentintheinstantcase.
First,petitionerandAlagaoaredebtorsandcreditorsofeachother.Itisundisputablethat
petitionerandAlagaooweeachothersumsofmoney.PetitionerowesP85,607forthe
valueofthecorngrainsdeliveredtoherbyAlagaoinSeptember1994whileAlagao
owespetitionerP51,730byvirtueofaloanextendedbythelatterinFebruary1994.
Second,bothdebtsconsistinasumofmoney.ThereisnoissueastotheP85,607debtby
petitionerthatitconsistsasumofmoney.AstotheP51,730receivedbyAlagaofrom
petitioner, though what was extended by petitioner consists of cash advances and
fertilizers,thereisnodisputethatsaidamountispayableinmoney.Third,bothdebtsare
due.Upondeliveryofthe398sackstopetitioner,shewasundertheobligationtopayfor
thevaluethereofasbuyer.AstoAlagaosdebt,thecontractofloanprovidedthatitis
payable in February 1996. Though it was not yet due in September 1994 when she
deliveredthe398sacksofcorngrainstopetitioner,iteventuallybecamedueatthetime
oftrialoftheinstantcase.Fourth,bothdebtsareliquidatedanddemandable.Adebtis
liquidatedwhentheamountisknownorisdeterminablebyinspectionofthetermsand
conditionsofrelevantdocuments.Thereisnodisputethatthevalueofthe398sacksof
corn grains is P85,607. And lastly, neither of the debts are subject of a controversy
commencedbyathirdperson.TherearenothirdpartyclaimswithrespecttoAlagaos
P51,730loan.AstopetitionersP85,607debtrepresentingthe398sacksofcorngrains,
theallegedotherownershavenotcommencedanyactiontoprotecttheirclaimoverit.
Thus,theP85,607debtcannotbeconsideredsubjectofacontroversybyathirdperson.
Withrespecttothe1/4shareintheharvestduetopetitionerasprovidedinthecontractof
loan,thesamecannotbeconsideredinthelegalcompensationofthedebtsoftheparties
sinceitdoesnotconsistinasumofmoney,saidsharebeingintheformofharvests.
Moreimportantly,itisnotyetliquidated.Thereisstilladisputeastohowmanyharvests
weremadefromthetimeoftheexecutionofcontractofloanuptothetimetheaction
wascommencedagainstpetitionerandevenwhentheprincipalobligationbecameduein
February1996.Thus,theharvestsduepetitionerisnotcapableofdetermination.