I.

PAYMENT
a) Agner vs. BPI Family Savings Bank, Inc. (D)
FACTS:
February 15, 2001, spouses Deo Agner and Maricon Agner executed a Promissory Note with
Chattel Mortgage in favor of Citimotors, Inc. The contract provides that for receiving the amount
of Php834,768.00, petitioners shall pay Php17,391.00 every 15th day of each succeeding month.
The loan is secured by a 2001 Mitsubishi Adventure Super Sport; and an interest of 6% per
month shall be imposed for failure to pay each installment. On the same day, Citimotors, Inc.
assigned all its rights, title and interests in the Promissory Note with Chattel Mortgage to ABN
AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31, 2002, likewise assigned the same
to respondent BPI Family Savings Bank, Inc.
August 29, 2002, respondent sent to petitioners a demand letter for failure to pay 4 successive
instalments from May 15, 2002 to August 15, 2002, declaring the entire obligation as due and
demandable and requiring to pay Php576,664.04, or surrender the mortgaged vehicle
immediately.
October 4, 2002, as the demand was left unheeded, respondent an filed an action for Replevin and
Damages before the Manila Regional Trial Court (RTC).
August 11, 2005, the RTC ruled for the respondent and ordered petitioners to jointly and severally
pay the amount of Php576,664.04 plus interest at the rate of 72% per annum from August 20,
2002 until fully paid, and the costs of suit.
CA affirmed the lower court's decision and, subsequently, denied the motion for reconsideration.
ISSUE:
Whether or not petitioners cannot be considered to have defaulted in payment for lack of
competent proof that they received the demand letter.
HELD:
Records bear that both verbal and written demands were in fact made by respondent prior to the
institution of the case. Even assuming that no demand letter was sent by respondent, there is
really no need for it because petitioners legally waived the necessity of notice or demand in the
Promissory Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of
respondent's predecessor-in-interest.
Jurisprudence abounds that, one who pleads payment has the burden of proving it; the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. When
the creditor is in possession of the document of credit, proof of non-payment is not needed for it is
presumed
b) Cinco vs. Court of Appeals (G)
FACTS:
December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of
P700,000.00 from respondent Maasin Traders Lending Corporation (MTLC). The loan was
evidenced by a promissory note dated December 11, 1987, and secured by a real estate mortgage
over the spouses Go Cinco's land and 4-storey building in Maasin, Southern Leyte. Under the
terms of the promissory note, the P700,000.00 loan was subject to a monthly interest rate of 3%
or 36% per annum and payable within a term of 6 months, renewable for another 180 days.
July 16, 1989, Manuel's outstanding obligation with MTLC amounted to P1,071,256.66, which
amount included the principal, interest, and penalties. To be able to pay the loan in favor of
MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank, Maasin
Branch, and offered as collateral the same properties they previously mortgaged to MTLC. The
PNB approved the loan application for P1.3 Million through a letter dated July 8, 1989; the
release of the amount, however, was conditioned on the cancellation of the mortgage in favor of
MTLC.
July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLC's
President, to inform her that there was money with the PNB for the payment of his loan with

MTLC. Ester then proceeded to the PNB to verify the information, but she claimed that the
bank's officers informed her that Manuel had no pending loan application with them. When she
told Manuel of the bank's response, Manuel assured her there was money with the PNB and
promised to execute a document that would allow her to collect the proceeds of the PNB loan.
July 20, 1989, Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect
the proceeds of his PNB loan. This time, the bank's officers confirmed the existence of the P1.3
Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage
before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco
used the same properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to
sign the deed and did not collect the P1.3 Million loan proceeds.
July 24, 1989, as the MTLC loan was already due, Ester instituted foreclosure proceedings
against the spouses Go Cinco.
The spouses Go Cinco alleged that foreclosure of the mortgage was no longer proper as there had
already been settlement of Manuel's obligation in favor of MTLC. They claimed that the
assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Ester's
refusal to sign the deed of release/cancellation of mortgage is completely unjustified and entitled
them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously informed of the
spouses Go Cinco's plan to obtain a loan from the PNB and to use the loan proceeds to settle
Manuel's loan with MTLC. She claimed that she had no explicit agreement with Manuel
authorizing her to apply the proceeds of the PNB loan to Manuel's loan with MTLC; the SPA
merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for
the spouses Go Cinco to require the release of the mortgage to MTLC when no actual payment
of the loan had been made.
The RTC ruled in favor of the spouses Go Cinco. The trial court found that the evidence
sufficiently established the existence of the PNB loan whose proceeds were available to satisfy
Manuel's obligation with MTLC, and that Ester unjustifiably refused to collect the amount.
Creditors cannot unreasonably prevent payment or performance of obligation to the damage and
prejudice of debtors who may stand liable for payment of higher interest rates.
The CA found it significant that there was no explicit agreement between Ester and the spouses
Go Cinco for the cancellation of the MTLC mortgage in favor of PNB to facilitate the release of
the proceeds of the PNB loan. The CA read the SPA as merely authorizing Ester to withdraw the
proceeds of the loan. As Manuel's loan obligation with MTLC remained unpaid, the CA ruled
that no valid objection could be made to the institution of the foreclosure proceedings.

ISSUE:
Whether or not there was an impute error on the part of the CA for its failure to consider their acts
as equivalent to payment that extinguished the MTLC loan.
HELD:
There is nothing legally objectionable in a mortgagor's act of taking a second or subsequent
mortgage on a property already mortgaged; a subsequent mortgage is recognized as valid by law
and by commercial practice, subject to the prior rights of previous mortgages. If the mortgagorowner is allowed to convey the entirety of his interests in the mortgaged property, reason dictates
that the lesser right to encumber his property with other liens must also be recognized. Ester,
therefore, could not validly require the spouses Go Cinco to first obtain her consent to the PNB
loan and mortgage. Besides, with the payment of the MTLC loan using the proceeds of the PNB
loan, the mortgage in favor of the MTLC would have naturally been cancelled.
While Ester's refusal was unjustified and unreasonable, we cannot agree with Manuel's position
that this refusal had the effect of payment that extinguished his obligation to MTLC. ARTICLE
1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due. In short, a refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation.
Tender of payment is the definitive act of offering the creditor what is due him or her. When a
creditor refuses the debtor's tender of payment, the law allows the consignation of the thing or the

sum due. Tender and consignation have the effect of payment, as by consignation, the thing due
is deposited and placed at the disposal of the judicial authorities for the creditor to collect.
II. APPLICATION OFPAYMENT
a) Premiere Development Bank vs. Central Surety and Insurance Co. Inc. (G)
FACTS:
August 20, 1999, respondent obtained an industrial loan of PhP 6M from petitioner with a
maturity date of August 14, 2000. This loan, evidenced by Promissory Note (PN), stipulates
payment of 17% interest per annum payable monthly in arrears and the principal payable on due
date. In addition, provides for a penalty charge of 24% interest per annum based on the unpaid
amortization/installment or the entire unpaid balance of the loan. In all, should Central Surety
fail to pay, it would be liable to Premiere Bank.
To secure payment of the loan, Central Surety executed in favor of Premiere Bank a Deed of
Assignment with Pledge covering Central Surety's Membership Fee Certificate representing its
proprietary share in Wack Wack Golf and Country Club Incorporated (Wack Wack
Membership). In both PN and Deed of Assignment, Constancio T. Castaeda, Jr. and
Engracio T. Castaeda, represented Central Surety and solidarily bound themselves to the
payment of the obligation.
Central Surety had another commercial loan with Premiere Bank in the amount of PhP
40,898,000.00 maturing on October 10, 2001. This loan was, likewise, evidenced by a PN and
secured by a real estate mortgage over Condominium Certificate. PN was availed of through a
renewal of Central Surety's prior loan. As with the PhP 6M loan and the constituted pledge over
the Wack Wack Membership, the PhP 40,898,000.00 loan with real estate mortgage was
transacted by Constancio and Engracio Castaeda on behalf of Central Surety.
August 22, 2000, Premiere Bank sent a letter to Central Surety demanding payment of the PhP
6M loan.
September 20, 2000, Central Surety issued Bank of Commerce (BC) Check in the amount of
PhP 6M and payable to Premiere Bank. The check was received with the notation "full payment
of loan-Wack Wack", as reflected in Central Surety's Disbursement Voucher. However, for
undisclosed reasons, Premiere Bank returned BC Check to Central Surety, and in its letter,
demanded from the latter, not just payment of the PhP 6M loan, but also the PhP 40,898,000.00
loan.
September 29, 2000, Central Surety, through its counsel, wrote Premiere Bank and re-tendered
payment of the check. A separate letter with another BC Check in the amount of PhP 2.6M was
also tendered to Premiere Bank as payment for the Spouses Castaeda's personal loan.
October 13, 2000, Premiere Bank responded and signified acceptance of Central Surety's
checks. The PhP 8.6M check payments were not applied in full to Central Surety's PhP 6M loan
and the Spouses Castaeda's personal loan of PhP 2.6M. Premiere Bank also applied proceeds
thereof to a commercial loan taken out by Casent Realty and Development Corporation
(Casent Realty), and to Central Surety's loan, maturing on October 20, 2001.
Strongly objecting to Premiere Bank's application of payments, Central Surety's demand for
the application of the check payments to the loans covered by PN Nos. 714-X and 714-Y.
Additionally, Central Surety asked that the Wack Wack Membership pledge, should be released.
Premiere Bank responded and refused to accede to Central Surety's demand. Premiere Bank
insisted that the PN covering the PhP 6M loan granted Premiere Bank sole discretion.
Central Surety filed a complaint for damages and release of security collateral, specifically
praying that the court render judgment declaring Central Surety's PhP 6M loan as fully paid; and
ordering Premiere Bank to release to Central Surety its membership certificate of shares in
Wack Wack;
July 12, 2005, The RTC ruled that the stipulation in the PN granting Premiere Bank sole
discretion in the application of payments, although it partook of a contract of adhesion, was valid.
On appeal, the CA held that with Premiere Bank's letter dated August 22, 2000 specifically
demanding payment of Central Surety's PhP 6M loan, it was deemed to have waived the
stipulation in granting it the right to solely determine application of payments, and was,
consequently, estopped from enforcing the same.

ISSUE:
Whether Premiere Bank waived its right of application of payments on the loans of Central
Surety.
Whether the PhP 6M loan of Central Surety was extinguished by the encashment of BC Check.
HELD:
Art. 1252 gives the right to the debtor to choose to which of several obligations to apply a
particular payment that he tenders to the creditor. But likewise granted in the same provision is
the right of the creditor to apply such payment in case the debtor fails to direct its
application. The records show that Premiere Bank and Central Surety entered into several
contracts of loan, securities by way of pledges, and suretyship agreements. In at least 2
Promissory Notes between the parties, Central Surety expressly agreed to grant Premiere Bank
the authority to apply any and all of Central Surety's payments, it is in the exercise of this
express authority under the Promissory Notes, and following Bangko Sentral ng Pilipinas
Regulations, that Premiere Bank applied payments made by Central Surety, as it deemed fit, to
the several debts of the latter.
When Central Surety directed the application of its payment to a specific debt, it knew it had
another debt with Premiere Bank, in the amount of PhP 40.898M. Central Surety is aware that
Promissory Note contains the same which grants the Premiere Bank authority to apply payments
made by Central Surety. Being in receipt of amounts tendered by Central Surety, which were
insufficient to cover its more onerous obligations, Premiere Bank cannot be faulted for
exercising the authority granted to it under the Promissory Notes, and applying payment to the
obligations as it deemed fit. The Court will not disturb the finding of the lower court that
Premiere Bank rightly applied the payments that Central Surety had tendered. Corollary
thereto, and upon the second issue, the tender of the amount of PhP 6M by Central Surety, and
the encashment of BC Check did not totally extinguish the debt covered by PN No. 714-Y.
III. COMPENSATION
a) Traders Royal Bank vs. Castanares, (G)
FACTS:
Respondent-spouses Norberto and Milagros Castaares are engaged in the business of
exporting shell crafts and other handicrafts. Between 1977 and 1978, respondents obtained from
petitioner Traders Royal Bank various loans and credit accommodations. Respondents executed
two real estate mortgages (REMs) dated April 18, 1977 and January 25, 1978 covering their
properties. As evidenced by Promissory Note dated May 10, 1977, petitioner released only the
amount of P35,000.00 although the mortgage deeds indicated the principal amounts as
P86,000.00 and P60,000.00.
By the 2nd quarter of 1978, the loans began to mature and the letters of credit against which the
packing advances were granted started to expire.
December 7, 1979, petitioner, without notifying the respondents, applied to the payment of
respondents' outstanding obligations the sum of P30,930.49 which was remitted to the
respondents thru telegraphic transfer from AMROBANK, Amsterdam by one Richard Wagner.
The aforesaid entries in the passbook of respondents and the telegraphic transfer were the subject
of respondents' letter-complaint dated September 20, 1982 addressed to the Manager of the
Regional Office of the Central Bank of the Philippines.
For failure of the respondents to pay their outstanding loans with petitioner, the latter proceeded
with the extrajudicial foreclosure of the real estate mortgages. Thereafter, a Certificate of Sale
covering all the mortgaged properties was issued by Deputy Sheriff Wilfredo P. Borces in favor
of petitioner as the lone bidder for P117,000.00 during the auction sale conducted on November
24, 1981. Said certificate of sale was registered with the Office of the Register of Deeds on
February 4, 1982.
November 24, 1982, petitioner instituted Civil Case for deficiency judgment, claiming that after
applying the proceeds of foreclosure sale to the total unpaid obligations of respondents,
respondents were still indebted to petitioner for the sum of P83,397.68.

 February 10, 1983, respondents filed Civil Case for the recovery of the sums of P2,584.27
debited from their savings account passbook and the equivalent amount of $4,220.00 telegraphic
transfer, and in addition, $55,258.85 representing the damage suffered by the respondents from
letters of credit left un-negotiated because of petitioner's refusal to pay the $4,220.00 demanded
by the respondents.
The trial court found that despite respondents' insistence that the REM covered only a separate
loan for P86,000.00 which they believed petitioner committed to lend them, the evidence clearly
shows that said REM was constituted as security for all the promissory notes. No separate
demand was made for the amount of P86,000.00 stated in the REM, as the demand was limited to
the amounts of the promissory notes. The trial court further noted that respondents never
questioned the judgment for extrajudicial foreclosure, the certificate of sale and the deficiency in
that case.
The CA declared that where there was failure of the mortgage bank to deliver the consideration
for which the mortgage was executed, the contract of loan was invalid and consequently the
accessory contract of mortgage is likewise null and void. In this case, only P35,000.00 out of the
P86,000.00 stated in the REM dated April 18, 1977 was released to respondents, and hence the
REM was valid only to that extent. For the same reason, the second REM was null and void
since no actual loan proceeds were released to the respondents-mortgagors.
ISSUE:
Whether or not the real estate mortgage is valid only to the extent of the amount proved to have
been actually released to respondents.
Whether or not petitioner had basis in withholding and subsequently applying in payment of
respondents overdue account in the telegraphic transfer in the amount of $4,220.00.
HELD:
The subjects REMs contain a "dragnet clause" or "blanket mortgage clause" which in American
jurisprudence would subsume all debts of past and future origins. It has been held as a valid and
legal undertaking, the amounts specified as consideration in the contracts do not limit the amount
for which the pledge or mortgage stands as security, if from the four corners of the instrument, the
intent to secure future and other indebtedness can be gathered. A pledge or mortgage given to
secure future advancements is a continuing security and is not discharged by the repayment of the
amount named in the mortgage until the full amount of all advancements shall have been paid.
The provisions of the REMs show that its terms are broad enough to cover packing credits and
export advances granted by the petitioner to respondents. That the respondents subsequently
availed of letters of credit and export advances in various amounts as reflected in the promissory
notes, buttressed the claim of petitioner that the amounts of P86,000.00 and P60,000.00 stated in
the REMs merely represent the maximum total loans which will be secured by the mortgage. This
must be so as respondents confirmed that the mortgage was constituted for the purpose of
obtaining additional capital as dictated by the needs of their export business.
Agreements for compensation of debts or any obligations when the parties are mutually creditors
and debtors are allowed under Art. 1282 of the Civil Code even though not all the legal requisites
for legal compensation are present. Voluntary or conventional compensation is not limited to
obligations which are not yet due. The only requirements for conventional compensation are (1)
that each of the parties can fully dispose of the credit he seeks to compensate, and (2) that they
agree to the extinguishment of their mutual credits. Consequently, no error was committed by the
trial court in holding that petitioner validly applied, by way of compensation, the $4,220.00
telegraphic transfer remitted by respondents foreign client through the petitioner.
b) Insular Investment and Trust Corp. vs. Capital One Equities Corp (PG)
FACTS:
Insular Investment and Trust Corporation (IITC) and Capital One Equities Corp. (COEC)
and Planters Development Bank (PDB) have been regularly engaged in trading, sale
and purchase of Philippine Treasury bills.

On various dates, IITC had purchased from COEC. IITC purchased from COEC treasury bills
worth P260,683,392.51 and COEC was able to deliver only P121,050,000.
May 2, 1994, COEC purchased from IITC P186,790,000 worth of treasury bills. PDC issued
confirmation on the sale in favor of IITC.
May 10, 1994, COEC demanded a letter from IITC the physical delivery of the securities last
May 2, 1994. Then, on its May 18, 1994 letter to PDB, IITC requested, on behalf of COEC, the
delivery of IITC treasury bills, which had been fully paid.
May 30, 1994, COEC protested the tenor of IITCs letter to PDB and took exception to IITCs
assertion that it merely acted as a facilitator with regard to the sale of the treasury bills. IITC sent
COEC a letter dated June 3, 1994, demanding that COEC deliver to it (IITC) the
P139,833,392.00 worth of treasury bills or return the full purchase price. In either case, it also
demanded that COEC (1) pay IITC the amount of P1,729,069.50 representing business
opportunity lost due to the non-delivery of the treasury bills, and (2) deliver treasury bills worth
P121,050,000 with the same maturity dates originally purchased by IITC.
COEC sent a letter-reply dated June 9, 1994 to IITC in which it acknowledged its obligation to
deliver the treasury bills worth P139,833,392.00 which it sold to IITC and formally demanded
the delivery of the treasury bills worth P186,774,739.49 which it purchased from IITC. COEC
also demanded the payment of lost profits in the amount of P3,253,250.00. Considering that
COEC and IITC both have claims against each other for the delivery of treasury bills,
COEC proposed that a legal set-off be effected, which would result in IITC owing COEC the
difference of P46,941,446.49.
In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off
of obligations, alleging that it merely acted as a facilitator between PDB and COEC. Despite
repeated demands, PDB failed to deliver the balance of P136,790,000.00 worth of treasury bills
which IITC purchased from PDB allegedly for COEC. COEC was likewise unable to deliver the
remaining IITC Treasury Bills amounting to P119,633,392.00.
Neither PDB nor COEC returned the purchase price for the duly paid treasury bills. Thus COEC
filed a complaint with the RTC which found that COEC still has obligations to pay IITC
P119,633,392.00 worth of treasury bills. However, since IITC and COEC were
both debtors and creditors of each other, the RTC off-set their debts, resulting in a difference
of
P17,056,608.00 in favor of COEC. As to PDBs liability, it ruled that PDB had the obligation to
pay P136,790,000.00 to IITC.
The aggrieved parties appealed with the CA and affirmed the decision of the RTC and absolved
PDB from any liability because PDB was not involved with any of the transactions.
ISSUES:
Whether or not COEC can set-off its obligation to IITC as against the latters obligation to it.
HELD:
Yes, the Supreme Court ruled that the set-off compensation is allowed. As against the contention
of IITC, COEC had proven that IITC is a principal on its sale of the treasury bills thus holding
them liable for paying such. Therefore, both IITC and COEC are principal creditors of the other
over debts which consist of consumable things or a sum of money.
The court ruled the applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil
Code of the Philippines. In Article 1278 states that compensation shall take place
when two persons, in their own right, are creditors and debtors of each other. Also, in Article
1290, states that when all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation. The requisites of a valid
compensation are present in the cases of the debts between IITC and COEC. As stated in Article
1279 of the Civil Code of the Philippines, such requisites are (1)That each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other; (2) That both
debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;(3) That the two debts be due; (4) That
they be liquidated and demandable; and (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor. Therefore,
both shall be allowed to set-off their obligations with each other.

c) Lao vs. Special Plans, Inc., (D)

FACTS:
Petitioners Selwyn F. Lao (Lao) and Edgar Manansala (Manansala), together with Benjamin
Jim (Jim), entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the
period January 16, 1993 to January 15, 1995 over SPI's building at No. 354 Quezon Avenue,
Quezon City. Petitioners intended to use the premises for their karaoke and restaurant business
known as "Saporro Restaurant". Upon expiration of the lease contract, it was renewed for a
period of 8 months at a rental rate of P23,000.00 per month.
June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full payment of rentals in
arrears.
July 23, 1996, receiving no payment, SPI filed a Complaint for sum of money with the
Metropolitan Trial Court (MeTC) of Quezon City, claiming that Jim and petitioners have
accumulated unpaid rentals of P118,000.00 covering the period March 16, 1996 to August 16,
1996.
Petitioners filed their Verified Answer faulting SPI for making them believe that it owns the
leased property. They likewise asserted that SPI did not deliver the leased premises in a condition
fit for petitioners' intended use. Thus, petitioners claimed that they were constrained to incur
expenses for necessary repairs as well as expenses for the repair of structural defects, which SPI
failed and refused to reimburse. Petitioners prayed that the complaint be dismissed and judgment
on their counterclaims be rendered ordering SPI to pay them the sum of P422,920.40 as actual
damages, as well as moral damages, attorney's fees and exemplary damages.
December 15, 1999, the MeTC rendered its Decision finding that the unpaid rentals stood at only
P95,000.00. It also found that SPI is solely responsible for repairing the structural defects of the
leased premises, for which the petitioners spent P125,000.00. It held that even assuming that
petitioners did not notify SPI about the structural defects and the urgency to repair the same,
Article 1663 of the Civil Code allows the lessee to make urgent repairs in order to avoid an
imminent danger at the lessor's cost. Hence, the MeTC dismissed the complaint for lack of cause
of action.
March 12, 2001, the RTC rendered a Decision affirming with modification the MeTC Decision
by ordering petitioners to pay SPI the amount of P95,000.00 for unpaid rentals.The RTC
disagreed with the MeTC on the aspect of off-setting the amount allegedly spent by petitioners
for the repairs of the structural defects of subject property with their unpaid rentals.
June 30, 2003, the CA rendered a Decision affirming in toto the RTC Decision. Petitioners
moved for reconsideration, but it was denied in a Resolution dated August 9, 2004.
ISSUE
Whether or not the amount of P545,000.00 they spent for repairs, P125,000.00 of which was
spent on structural repairs, should be judicially compensated against the said unpaid rentals
amounting to P95,000.00.
HELD
The Civil Code, Art. 1278 provides that compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. Furthermore, Civil Code, Art. 1279 states that,
In order for compensation to be proper, it is necessary that the debts are liquidated and
demandable;
Petitioners failed to properly discharge their burden to show that the debts are liquidated and
demandable. Consequently, legal compensation is inapplicable.
A claim is liquidated when the amount and time of payment is fixed. If acknowledged by the
debtor, although not in writing, the claim must be treated as liquidated. When the defendant, who
has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered
liquidating such claim, it can be compensated against the plaintiff's claim from the moment it is
liquidated by judgment.

IV. NOVATION
a) Philippine National Bank vs. Soriano
b) Heirs of Servando Franco vs. Gonzales
c) Sime Dearby Pilipinas, Inc. vs. Goodyear Philippines, Inc.