GLORIA S. DY v.

 PEOPLE OF THE PHILIPPINES, MANDY COMMODITIES

CO., INC., REPRESENTED BY ITS PRESIDENT, WILLIAM MANDY.
G.R. No. 189081
August 10, 2016

PRINCIPLE: Our law states that every person criminally liable for a felony is
also civilly liable. This civil liability ex delicto may be recovered through a civil
action which, under our Rules of Court, is deemed instituted with the criminal
action. While they are actions mandatorily fused, [1] they are, in truth, separate
actions whose existences are not dependent on each other. Thus, civil
liability ex delicto survives an acquittal in a criminal case for failure to prove
guilt beyond reasonable doubt. However, the Rules of Court limits this
mandatory fusion to a civil action for the recovery of civil liability ex delicto. It,
by no means, includes a civil liability arising from a different source of
obligation, as in the case of a contract. Where the civil liability is ex contractu,
the court hearing the criminal case has no authority to award damages.

FACTS:

Petitioner was the former General Manager of MCCL. In the course of

her employment, petitioner assisted MCCI in its business involving several
properties. One such business pertained to the construction of warehouses
over a property (Numancia Property) that MCCI leased from the Philippine
National Bank (PNB). Sometime in May 1996, in pursuit of MCCI's business,
petitioner proposed to William Mandy (Mandy), President of MCCI, the
purchase of a property owned by Pantranco. As the transaction involved a large
amount of money, Mandy agreed to obtain a loan from the International China
Bank of Commerce (ICBC). Petitioner represented that she could facilitate the
approval of the loan. True enough, ICBC granted a loan to MCCI in the amount
of P20,000,000.00, evidenced by a promissory note. As security, MCCI also
executed a chattel mortgage over the warehouses in the Numancia Property.
Mandy entrusted petitioner with the obligation to manage the payment of the
loan.

ISSUE:

The central issue is the propriety of making a finding of civil liability in

a criminal case for estafa when the accused is acquitted for failure of the
prosecution to prove all the elements of the crime charged.
HELD:

The Civil Code states that when an accused in a criminal prosecution

is acquitted on the ground that his guilt has not been proven beyond
reasonable doubt, a civil action for damages for the same act or omission may
be filed. In the latter case, only preponderance of evidence is required.  This is
supported by the Rules of Court which provides that the extinction of the
criminal action does not result in the extinction of the corresponding civil
action.  The latter may only be extinguished when there is a "finding in a final
judgment in the criminal action that the act or omission from which the civil
liability may arise did not exist."  Consistent with this, the Rules of Court
requires that in judgments of acquittal the court must state whether "the
evidence of the prosecution absolutely failed to prove the guilt of the accused or
merely failed to prove his guilt beyond reasonable doubt. In either case, the
judgment shall determine if the act or omission from which the civil liability
might arise did not exist.

PHILIPPINE TRUST COMPANY vs. FLORO ROXAS AND EUFEMIA ROXAS

G.R. No. 171897

PRINCIPLE: LEGAL COMPENSATION, ARTICLE 1279 NCC

FACTS

The Spouses Roxas procured loans from Philippine Trust Company (PTC)
to finance their real estate business, which were secured by real estate
mortgages on the Spouses Roxas' real properties. Subsequently, the Spouses
Roxas, PTC, and Roben Construction entered into "a contract of building
construction," under which PTC granted an additional loan to the Spouses
Roxas. Such contract was superseded by a new "contract of building
construction" wherein Rosendo P. Dominguez, Jr. (Dominguez) substituted
Roben Construction as the contractor under the same terms and conditions of
the previous contract. Spouses Roxas did not finish the housing project due to
financial difficulties resulting in non-payment of the loans.

As a result, Dominguez sued PTC and Spouses Roxas for breach of

contract. On the other hand, Spouses Roxas in turn filed a complaint against
Dominguez and the insurance company.

In the first case, Spouses Roxas filed an answer with a cross claim
against PTC. PTC also filed an answer with a counter claim against Spouses
Roxas for unpaid loan obligation and, in default of such payments, the
foreclosure of the real estate mortgages. The RTC ruled in favor of Dominguez
and denied PTC’s counterclaim for insufficiency of evidence without prejudice
to the filing of a complaint against Spouses Roxas. Both PTC and Spouses
Roxas appealed to the CA but the same is still pending (CA G.R. CV No.
30340).

PTC in the meantime filed a petition for extrajudicial foreclosure against

Spouses Roxas in Bataan RTC. The latter in turn filed an opposition and a
complaint for damages with Preliminary Injunction which was granted by the
court. The CA affirmed the RTC’s decision. The decision became final and
executory, prompting the Spouses Roxas to file a motion for execution to
enforce the judgment against PTC. PTC filed an opposition where it raised for
the first time the defense of legal compensation to offset the judgment debt due
to the Spouses Roxas. The same was denied by the RTC. PTC filed two motions
for reconsideration but both were denied again. PTC filed a Petition for
Certiorari with the CA which was dismissed. Hence,this Petition for Review on
Certiorari.

ISSUE:
Whether or not the defense of legal compensation can be raised for the first
after the decision became final and executory.

RULING:

The Bataan RTC and the Court of Appeals also correctly ruled that PTC
should have raised the argument on legal compensation at the trial stage. The
1964 Rules of Court, which was then in effect at the time the Main Case was
filed by the Spouses Roxas in 1980, provides that:

RULE 9. Effect of Pleadings

Sec. 2. Defenses and objections not pleaded deemed waived.— Defenses

and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived;  except the failure to state a cause of action
which may be alleged in a later pleading, if one is permitted, or by motion
for judgment on the pleadings, or at the trial on the merits; but in the
last instance, the motion shall be disposed of as provided in section 5 of
Rule 10 in the light of any evidence which may have been received.
Whenever it appears that the court has no jurisdiction over the subject-
matter, it shall dismiss the action.

Although legal compensation takes place by operation of law, it must be

alleged and proved as a defense by the debtor who claims its benefits. Only
after it is proved will its effects retroact to the moment when all the requisites
under Article 1279 of the Civil Code have concurred. 32
 PTC's contention that it could not have raised legal compensation as a
defense because it was not yet a debtor of the Spouses Roxas when it filed its
answer is unconvincing. Under Rule 8, Section 2 of the 1964 Rules of Court,
"[a] party may set forth two or more statements of a claim or
defense alternatively or hypothetically, either in one cause of action or defense
or in separate causes of action or defenses.” Thus, the defense of compensation
would have been proper and allowed under the rules even if PTC disclaimed
any liability at the time it filed its answer. In Marquez v. Valencia, we held that
when a defendant failed to set up such alternative defenses and chosen or
elected to rely on one only, the overruling thereof was a complete determination
of the controversy between the parties, which bars a subsequent action based
upon an unpleaded defense. Unmistakably, the rationale behind this is the
proscription against the splitting of causes of action.

In any case, even if PTC were excused from pleading compensation as a

defense in its answer, we note that PTC still failed to raise this defense in its
motion for reconsideration of the Bataan RTC decision and in its subsequent
appeal. Hence, there can be no other conclusion than that PTC is already
estopped from raising the issue of legal compensation.

It is fairly clear to us that the reason why PTC did not raise legal compensation
as a defense in the Main Case is because it was banking on a favorable ruling
on its counterclaim in the other case, Civil Case No. 130873. It was
presumably an informed choice arrived at by PTC and its counsel, with full
knowledge of the consequences of its failure to plead this specific
claim/defense in the Main Case. Unfortunately for PTC, its counterclaim in the
other case was disallowed. Having adopted the wrong legal strategy, PTC
cannot now expediently change its theory of the case or its defense at the
execution stage of the Main Case. Following the doctrine of election of
remedies, PTC's choice of setting up the Spouses Roxas' unpaid loan obligation
as a counterclaim in Civil Case No. 130873, which has gone to judgment on
the merits but is pending appeal, precludes it from raising compensation of the
same loan obligation for the purpose of opposing the writ of execution in the
Main Case. Equitable in nature, the doctrine of election of remedies is designed
to mitigate possible unfairness to both parties. It rests on the moral premise
that it is fair to hold people responsible for their choices. The purpose of the
doctrine is not to prevent any recourse to any remedy, but to prevent a double
redress for a single wrong.

Even if we assume that legal compensation was not waived and was
otherwise timely raised, we find that not all requisites of legal compensation
are present in this case. Under Article 1279, in order for legal compensation to
take place, the following requisites must concur:
 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.

Here, the fourth requisite is absent. A debt is liquidated when its

existence and amount are determined. Compensation can only take place
between certain and liquidated debts; it cannot extend to unliquidated,
disputed claims. Since the loan obligation, including its amount and
demandability, is still being disputed in CA-G.R. CV No. 30340, PTC's credit
cannot be considered liquidated as of yet. Consequently, no legal compensation
could have taken place between PTC's loan credit and the Spouses Roxas'
judgment credit.

UNION BANK OF PHILIPPINES v. DEVELOPMENT BANK OF PHILIPPINES

GR No. 191555
January 20, 2014

PRINCIPLE: LEGAL COMPENSATION, ARTICLE 1279, NCC

FACTS:

Foodmasters, Inc. (FI) had outstanding loan obligations to both Union

Bank's predecessor-in-interest, Bancom Development Corporation (Bancom),
and to DBP.

On May 21, 1979, FI and DBP, among others, entered into a Deed of
Cession of Property In Payment of Debt (dacion en pago) whereby the former
ceded in favor of the latter certain properties (including a processing plant in
Marilao, Bulacan [processing plant]) in consideration of the following: (a) the
full and complete satisfaction of FI's loan obligations to DBP; and (b) the direct
assumption by DBP of FI's obligations to Bancom in the amount of
P17,000,000.00.

DBP also entered into a separate agreement with Bancom (Assumption

Agreement) whereby the former: (a) confirmed its assumption of FI's obligations
to Bancom; and (b) undertook to remit up to 30% of any and all rentals, due
from FI to Bancom which would serve as payment of the assumed obligations,
to be paid in monthly installments.
 Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the
Lease Agreement to Foodmasters Worldwide, Inc. (FW); while on May 9, 1984,
Bancom conveyed all its receivables, including, among others, DBP's assumed
obligations, to Union Bank. Claiming that the subject rentals have not been
duly remitted despite its repeated demands, Union Bank filed, on June 20,
1984, a collection case against DBP before the RTC, docketed as Civil Case No.
7648. In opposition, DBP countered, among others, that the obligations it
assumed were payable only out of the rental payments made by FI. Thus, since
FI had yet to pay the same, DBP's obligation to Union Bank had not arisen. In
addition, DBP sought to implead FW as third party-defendant in its... capacity
as FI's assignee and, thus, should be held liable to Union Bank.

In a Consolidated Order dated October 15, 2001 (Order of Execution), the

RTC granted both motions for execution. Anent Union Bank's motion, the RTC
opined that the CA's ruling that DBP's payment to Union Bank shall be
demandable only upon payment of FW... must be viewed in light of the date
when the same was rendered. It noted that the CA decision was promulgated
only on May 27, 1994, which was before the December 29, 1998 due date
within which DBP had to fully pay its obligation to Union Bank under the
Assumption Agreement. Since the latter period had already lapsed, "[i]t would,
thus, be too strained to argue that payment by DBP of its assumed
obligation[s] shall be dependent on [FW's] ability, if not availability, to pay." In
similar regard, the RTC granted DBP's motion... for execution against FW since
its liability to Union Bank and DBP remained undisputed.

As a result, a writ of execution dated October 15, 2001 (October 15, 2001
Writ of Execution) and, thereafter, a notice of garnishment against DBP were
issued. Records, however, do not show that the same writ was implemented
against FW. The Court: (a) nullified the October 15, 2001 Writ of Execution and
all related issuances thereto; and (b) ordered Union Bank to return to DBP the
amounts it received pursuant to the said writ.

On September 13, 2005, Union Bank filed a Manifestation and Motion to

Affirm Legal Compensation, praying that the RTC apply legal compensation
between itself and DBP in order to offset the return of the funds it previously
received from DBP. Union Bank, anchored its motion on two grounds which
were allegedly not in existence prior to or during trial, namely: (a) on December
29, 1998, DBP's assumed obligations became due and demandable; and (b)
considering that FWI became non-operational and non-existent, DBP became
primarily liable to the balance of its assumed obligation, which as of Union
Bank's computation after its claimed set-off, amounted to P1,849,391.87.

ISSUE:
The sole issue for the Court's resolution is whether or not the CA correctly
upheld the denial of Union Bank's motion to affirm legal compensation.

RULING:

The petition is bereft of merit.

Compensation is defined as a mode of extinguishing obligations whereby

two persons in their capacity as principals are mutual debtors and creditors of
each other with respect to equally liquidated and demandable obligations to
which no retention or controversy has been timely commenced and
communicated by third parties. The requisites therefor are provided under
Article 1279 of the Civil Code which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

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;
5. That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.

The rule on legal compensation is stated in Article 1290 of the Civil Code
which provides that "[w]hen 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."

In this case, Union Bank filed a motion to seek affirmation that legal
compensation had taken place in order to effectively offset (a) its own obligation
to return the funds it previously received from DBP as directed under the
September 6, 2005 Writ of Execution; (b) DBP's assumed obligations under the
Assumption Agreement. However, legal compensation could not have taken
place between these debts for the apparent reason that requisites 3 and 4
under Article 1279 of the Civil Code are not present.

Since DBP's assumed obligations to Union Bank for remittance of the

lease payments are in the Court's words in its Decision dated January 13,
2004 in G.R. No. 155838 "contingent on the prior payment thereof by [FW] to
DBP," it cannot be said that both debts are due (requisite 3 of Article 1279 of
the Civil Code). Also, in the same ruling, the Court observed that any deficiency
that DBP had to make up (by December 29, 1998 as per the Assumption
Agreement) for the full satisfaction of the assumed obligations "cannot be
determined until... after the satisfaction of Foodmasters' obligation to DBP." In
this regard, it cannot be concluded that the same debt had already been
liquidated, and thereby became demandable (requisite 4 of Article 1279 of the
Civil Code).

Since, as already stated, the monthly installments for the payment of the
P17 million debt are to be funded from the lease rentals, it follows that if the
lease rentals are not paid, there is nothing for DBP to remit to [Union Bank],
and thus [DBP] should not be considered... in default.

A careful reading of the decision shows that the Court of Appeals, which
was affirmed by the Supreme Court, found that only the balance or the
deficiency of the P17 million principal obligation, if any, would be due and
demandable as of December 29, 1998. Naturally, this deficiency cannot be
determined until after the satisfaction of Foodmasters' obligation to DBP, for
remittance to Union Bank in the proportion set out in the 1994 Decision.

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not
concurred in this case, no legal compensation could have taken place between
the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the
petition must be denied, and the denial of

Union Bank's motion to affirm legal compensation sustained.