GR 164791; (June, 2010) (Digest)
G.R. No. 164791; June 29, 2010
SELWYN F. LAO and EDGAR MANANSALA, Petitioners, vs. SPECIAL PLANS, INC., Respondent.
FACTS
Petitioners Selwyn F. Lao and Edgar Manansala, along with Benjamin Jim, leased a building from respondent Special Plans, Inc. (SPI) for their restaurant business. After the original lease expired, it was renewed on a month-to-month basis. SPI filed a complaint for sum of money before the Metropolitan Trial Court (MeTC), alleging unpaid rentals amounting to ₱118,000.00. In their Answer, petitioners admitted non-payment but interposed a counterclaim. They alleged SPI misrepresented ownership of the property and failed to deliver it in a condition fit for its intended use, forcing them to incur substantial repair expenses for structural defects which SPI refused to reimburse. They sought the dismissal of the complaint and prayed for actual, moral, and exemplary damages, plus attorney’s fees.
The MeTC ruled in favor of SPI, ordering petitioners to pay the unpaid rentals. This was affirmed by the Regional Trial Court (RTC). The Court of Appeals (CA) modified the amount to ₱95,000.00, deducting a prior partial payment. Petitioners elevated the case to the Supreme Court via a Petition for Review on Certiorari.
ISSUE
Whether legal compensation under Article 1279 of the Civil Code extinguished petitioners’ obligation to pay the accrued rentals due to their counterclaim for repair expenses.
RULING
The Supreme Court denied the petition and affirmed the CA’s decision. Legal compensation did not apply. For compensation to operate by operation of law, all requisites under Article 1279 must concur simultaneously. These include that each party must be a principal creditor and debtor of the other, and that both debts are due and demandable. The Court found petitioners’ counterclaim for repair expenses did not meet these requisites.
Critically, the alleged debt from SPI (reimbursement for repairs) was not yet liquidated and demandable. Petitioners’ claim for actual damages remained unproven and unresolved by final judgment. A claim that is contingent or unliquidated cannot compensate a debt that is liquidated and due, such as the accrued rentals. The reciprocal debts must both be liquidated and demandable to extinguish each other. Since petitioners’ counterclaim was still pending adjudication, it could not legally offset their clear and admitted rental arrears. The Court emphasized that the principle of compensation requires clear, concurrent, and liquidated obligations.