Montemayor vs. Millora

A final judgment that fixes the amount of a counterclaim by reference to a principal award that is itself easily computed by arithmetic operation sufficiently liquidates both obligations for purposes of legal compensation. Once a judgment attains finality, it becomes immutable and unalterable, and must be executed strictly according to its clear and unequivocal tenor, even if the losing party perceives error in its conclusions of fact or law.

Jesus M. Montemayor, a physician, lent Atty. Vicente D. Millora ₱400,000.00, of which ₱100,000.00 was repaid. The parties agreed on escalating monthly interest rates. Millora made partial payments but eventually ceased paying. Montemayor demanded payment, and upon refusal, filed a complaint for sum of money. Millora answered with a counterclaim for attorney’s fees of not less than ₱500,000.00, asserting that he had rendered extensive legal services to Montemayor and had been summarily dismissed when the collection suit was filed.

• The Loan Obligation: On July 24, 1990, respondent Vicente D. Millora obtained a loan of ₱400,000.00 from petitioner Dr. Jesus M. Montemayor, evidenced by a promissory note. A loan contract dated August 10, 1990 specified a 2% monthly interest and acknowledged payment of ₱100,000.00 in principal and ₱8,000.00 in interest. With Millora’s consent, the interest was later increased to 3.5% per month. From March to July 1991, Millora paid only ₱24,000.00 of the ₱42,000.00 interest due and made no further payments. Montemayor made several demands, but Millora failed to settle his obligation.

• The Counterclaim for Attorney’s Fees: Millora, a prominent lawyer, claimed he had represented Montemayor in various cases, including a Laguna property case, falsification and libel cases, and a disbarment matter. In the Laguna case, Montemayor allegedly agreed to a 25% contingent fee and a ₱200,000.00 acceptance fee but paid nothing. Millora asserted that his services were terminated when Montemayor filed the collection suit. He counterclaimed for attorney’s fees of at least ₱500,000.00 on a quantum meruit basis.

• The RTC Decision of October 27, 1999: The trial court ordered Millora to pay Montemayor ₱300,000.00 with 12% interest per annum from the filing of the complaint until fully paid. Simultaneously, it found merit in the counterclaim and awarded Millora attorney’s fees based on quantum meruit, stating: “whatever amount recoverable from defendant shall be set off by an equivalent amount awarded by the court on the counterclaim representing attorney’s fees of defendant.” Neither party was awarded costs.

• Post-Judgment Events: Millora’s motion for reconsideration was denied, but his motion for execution of the attorney’s fees portion was granted. Montemayor’s subsequent motions to clarify and for his own writ of execution were denied on procedural grounds (defective notices of hearing and lack of proof of service) and on the merits. The RTC, in its Order of September 6, 2002, explained that the dispositive portion was “free from any ambiguity” and that “[i]t unequivocably ordered that any amount due in favor of plaintiff and against defendant is set off by an equivalent amount awarded to defendant in the form of counterclaims representing attorney’s fees.”

• Lack of Liquidated Amount: Montemayor argued that the RTC decision did not fix a specific pecuniary amount for attorney’s fees, rendering the award unliquidated and incapable of set-off or execution. He maintained that for compensation to apply, both obligations must be liquidated, and a sheriff lacks authority to perform judicial computation of indeterminate amounts.

• Ambiguity of the Fallo: Montemayor contended that the dispositive portion left the determination of attorney’s fees uncertain and that execution could not proceed without a definite figure. He insisted that the absence of a specific amount violated the requirement that a judgment be clear and enforceable.

• Finality of Judgment: Millora countered that the October 27, 1999 Decision had already attained finality and could no longer be reviewed, either by appeal or by certiorari. He pointed out that Montemayor did not file a motion for reconsideration of the original decision or appeal it, while Millora’s own appeal was denied as untimely, finality having set in on July 1, 2000.

• Clear and Unambiguous Dispositive Portion: Millora asserted that the RTC’s decision clearly ordered that whatever amount was recoverable from him would be set off by an equivalent amount as attorney’s fees, leaving no ambiguity and nothing due from either party after compensation.

• Finality of Judgment: Whether the October 27, 1999 RTC Decision had become final and executory, thereby precluding any modification or review of its dispositive portion.

• Liquidation and Compensation: Whether the award of attorney’s fees in the RTC Decision was sufficiently liquidated to permit legal compensation by operation of law, despite the absence of a specific numerical figure in the dispositive portion.

• Finality of Judgment: The RTC Decision was already final and executory, and thus immutable. The doctrine of finality of judgment was applied: once a judgment attains finality, it can no longer be modified in any respect, even to correct perceived errors of fact or law. Montemayor did not appeal or move for reconsideration of the original decision, and therefore lost the right to challenge its correctness. The Court, citing Gallardo-Corro v. Gallardo and Bongcac v. Sandiganbayan, reiterated that a final judgment is “no longer subject to change, revision, amendment or reversal” and that only clerical errors or void judgments may be corrected after finality.

• Liquidation and Compensation: The dispositive portion of the RTC Decision was clear and unequivocal. It contained two parts: (1) the amount due Montemayor, computed by multiplying ₱300,000.00 by 12% interest for the number of years from filing to execution—a simple arithmetic operation; and (2) attorney’s fees to Millora “equivalent to whatever amount recoverable” from him. The judgment thereby liquidated both obligations. Under Articles 1278 and 1279 of the Civil Code, all requisites for compensation were present: the parties were mutually creditors and debtors; both obligations consisted in a sum of money; both were due, liquidated, and demandable; and there was no third-party controversy. A debt is considered liquidated not only when expressed in definite figures, but also when its exact amount depends solely on a simple arithmetical operation. The RTC’s fallo, by tying the attorney’s fees to the recoverable amount, made the obligation ascertainable without further judicial determination. Because the two amounts were equal by force of the judgment, compensation operated and extinguished both debts, leaving nothing to execute for either party.

• Doctrine of Immutability of Final Judgments — A final and executory judgment is immutable and unalterable. It may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact or law, and regardless of whether the modification is attempted by the court that rendered it or by the highest court of the land. The only exceptions are correction of clerical errors, nunc pro tunc entries that cause no prejudice, and void judgments. This doctrine rests on fundamental considerations of public policy: litigation must end at a definite point; otherwise, the winning party is deprived of the correlative right to enjoy the final resolution of the case, and courts cannot effectively settle justiciable controversies. Here, the RTC decision having attained finality, its dispositive portion could no longer be re-examined or modified.

• Legal Compensation under Articles 1278–1279 of the Civil Code — Compensation takes place when two persons are, in their own right, creditors and debtors of each other. The requisites are: (1) each obligor is bound principally and is at the same time a principal creditor of the other; (2) both debts consist in a sum of money, or if consumable things, they are of the same kind and quality; (3) both debts are due; (4) both debts are liquidated and demandable; and (5) neither debt is subject to retention or controversy initiated by third persons. A debt is liquidated when its existence and amount are determined—it is sufficient that the exact amount is known or ascertainable through a simple arithmetical operation. Once a counterclaim is liquidated by judgment, it may be compensated against the plaintiff’s claim from the moment of liquidation. In this case, the RTC judgment simultaneously liquidated both the principal claim and the counterclaim, and the fallo expressly mandated set-off, resulting in automatic compensation.

• “Nothing is more settled in law than that once a judgment attains finality it thereby becomes immutable and unalterable. It may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land. Just as the losing party has the right to file an appeal within the prescribed period, the winning party also has the correlative right to enjoy the finality of the resolution of his case.” — Quoting Gallardo-Corro v. Gallardo, this passage encapsulates the doctrine of immutability and served as the foundation for denying any further review of the RTC decision.

• “A debt is liquidated when its existence and amount are determined. It is not necessary that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as liquidated; it is enough that its exact amount is known. And a debt is considered liquidated, not only when it is expressed already in definite figures which do not require verification, but also when the determination of the exact amount depends only on a simple arithmetical operation.” — This definition of a liquidated debt, drawn from Tolentino’s commentaries, was used to conclude that the attorney’s fees awarded were ascertainable and thus capable of compensation.

• Gallardo-Corro v. Gallardo, 403 Phil. 498 (2001) — Controlling precedent. The Supreme Court quoted its explanation of the doctrine of finality of judgment in full to affirm that the RTC decision was beyond modification.

• Bongcac v. Sandiganbayan, G.R. Nos. 156687-88, May 21, 2009, 588 SCRA 64 — Followed. This case was cited to reinforce that upon finality, the court loses jurisdiction to amend, modify, or alter the judgment, except for clerical errors, nunc pro tunc entries, or void judgments.

• Lao v. Special Plans, Inc., G.R. No. 164791, June 29, 2010, 622 SCRA 27 — Followed. The Court relied on this ruling for the principle that when a defendant sets up an unliquidated claim by way of counterclaim and judgment liquidates it, compensation may take place from the moment of liquidation by judgment.

• Solinap v. Hon. Del Rosario, 208 Phil. 561 (1983) — Followed. Cited jointly with Lao to restate the rule that compensation takes effect only when both obligations are liquidated, and that liquidation by judgment satisfies this requirement.

• Articles 1278 and 1279, Civil Code of the Philippines — These provisions define legal compensation and enumerate its requisites. The Supreme Court applied them to conclude that all requisites were satisfied because the RTC decision itself liquidated both obligations, made them due and demandable, and ordered set-off.

• Section 5, Rule 15, Rules of Court (notice of hearing) and Section 6, Rule 15, Rules of Court (proof of service) — These procedural rules were invoked by the RTC as additional grounds to deny Montemayor’s motions for defective compliance. The Supreme Court noted the RTC’s reliance on these provisions but resolved the case on substantive grounds.

Associate Justice Teresita J. Leonardo-De Castro (Acting Chairperson), Associate Justice Arturo D. Brion, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr. concurred. Chief Justice Renato C. Corona certified that the conclusions were reached in consultation.