GR L 4416; (December, 1908) (Digest)

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“Mutual debts that are liquidated, demandable, and of the same kind may be extinguished by compensation (set-off) to their concurrent amount under Articles 1195 and 1196 of the Civil Code.”

💡 PLAIN ENGLISH SUMMARY

When two people owe each other money, the law allows them to cancel out the smaller debt from the larger one, so only the difference needs to be paid. In this case, after proving what each actually owed, the court subtracted one debt from the other, resulting in a single payment due.

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Compensatio est debiti et crediti inter se contributio | Qui non negat fatetur

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G.R. No. L-4416
MODESTO ACUÑA CO CHONGCO, plaintiff-appellee, vs. EL CHINO DIEVAS, defendant-appellant.
December 16, 1908

FACTS: Plaintiff Modesto Acuña Co Chongco filed a complaint against defendant El Chino Dievas, his clerk and representative in a sugar business, claiming Dievas owed him P2,694.89 plus 15% interest. Co Chongco alleged that a liquidation showed Dievas owing P5,579.36, partially offset by his share of profits (P2,619.78). Co Chongco also admitted receiving lumber worth P1,050.75 from Dievas but claimed it had been paid.

Dievas denied the debt and filed a counterclaim for P19,374.08. He asserted that he was entitled to a share of profits from their business (initially 1/2, then 1/3), claiming a remaining balance of P18,323.33 in his favor from these profits, plus the P1,050.75 for lumber.

The trial court absolved Dievas from Co Chongco’s claim and ordered Co Chongco to pay Dievas P1,050.75 for the lumber. Both parties appealed the decision.

ISSUE: The primary issue is to determine the actual financial obligations and credits between Modesto Acuña Co Chongco and El Chino Dievas arising from their business relationship and accounts, and whether these mutual debts can be legally offset against each other.

RULING: The Supreme Court found that:
1. Co Chongco’s principal claim of P5,579.36 against Dievas was not sufficiently proven. The evidence presented by the plaintiff was contradictory and did not establish the reality of this debit item.
2. Dievas’ counterclaim for P18,323.33 for his alleged share in profits was also not proven.
3. Co Chongco owed Dievas P1,050.75 for the lumber, a fact acknowledged by Co Chongco himself.
4. Dievas owed Co Chongco P754.94 based on a “special account” (Exhibit C), the items of which Dievas did not positively impugn or deny when presented.

Applying Articles 1195 and 1196 of the Civil Code, which define and set the requirements for compensation (set-off) of debts, the Court concluded that the two proven, determined, and demandable debtsP1,050.75 owed by Co Chongco to Dievas, and P754.94 owed by Dievas to Co Chongcoshould be extinguished to their concurrent amount.

Therefore, after setting off P754.94 from P1,050.75, the remaining balance of P295.81 was due to Dievas.

Final Judgment: The Court ordered MODESTO ACUÑA CO CHONGCO to pay EL CHINO DIEVAS the sum of P295.81, with legal interest thereon from February 12, 1907. Both parties were absolved from the payment of the remaining amounts mutually claimed in the complaint and counterclaim. The appealed judgment was affirmed in so far as it agreed with this decision.

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