Ong vs. Court of Appeals

The factual findings of the Court of Appeals, when more conformable to the evidence on record, will be sustained by the Supreme Court notwithstanding a conflict with those of the trial court; and no compensation arises under Article 1279 of the Civil Code where one party is not a debtor of the other and the alleged debts are not both sums of money of the same kind and quality, nor under Article 1283 where the party invoking judicial set-off fails to prove both his right to damages and the amount thereof.

Petitioner Fermin Ong and private respondent Mariano Ong are cousins who grew up together, and the controversy between them concerns a loan extended by Mariano to Fermin. Fermin is an experienced businessman, while Mariano is engaged in a business different from that of petitioner. The statutory backdrop is Book IV, Title I, Chapter III of the Civil Code on compensation, particularly Articles 1279 and 1283 governing legal compensation and judicial set-off, together with Rule 45 of the Rules of Court, which limits review by the Supreme Court to questions of law and confines relief to special and important reasons.

Petitioner Fermin Ong and private respondent Mariano Ong are cousins who had grown up together. Fermin, an experienced businessman, obtained a loan from Mariano. According to petitioner, he borrowed only P160,000 and secured its payment with three post-dated checks totaling the same amount: Check No. 870585 dated September 6, 1978 for P50,000; Check No. 908254 dated October 8, 1978 for P10,000; and Check No. 887380 dated October 15, 1978 for P100,000, all drawn against Fermin's Account No. 111281 with the Consolidated Bank and Trust Corporation. On January 23, 1979, he issued a fourth check for P40,000 in partial settlement of the loan, which was thereby reduced to P120,000; this was Check No. 0906, payable to Mariano Ong and drawn against Fermin's account with the China Banking Corporation.

Fermin also stored in Mariano's warehouse a quantity of zippers valued at P181,000, from which he occasionally made withdrawals in the presence of Mariano's son. Fermin denied that the zippers were intended to guarantee payment of his loan, claiming that they were merely deposited there because he had nowhere else to place them. When he subsequently tried to retrieve the rest of the zippers, he claimed that Mariano refused to release them on the ground of non-payment of the loan. Fermin averred that he had requested Mariano not to deposit or encash the post-dated checks upon maturity, and he admitted that he had not made good their amount when they were dishonored.

Mariano eventually sued Fermin after first sending him a demand for P160,000. In his answer, Fermin denied liability, alleging first that the debt had been reduced by his partial payment and second that the balance of P120,000 had been offset by the sum of P200,000 due from Mariano, representing the consideration for the transfer to Fermin of his rights to four stalls in the Yangco Market. Mariano replied that the P40,000 check had been issued in payment of another obligation owed to his wife, but he abandoned this defense in his subsequent pleadings and later claimed that the original loan was P200,000, reduced by the payment of the said check, leaving a balance of P160,000 — an amount equivalent to the face value of the remaining three checks, which he could not encash. Fermin was likewise inconsistent: he abandoned his original allegation that Mariano owed him P200,000 for the market stalls when the latter showed that the consideration was only P25,000, and thereafter invoked another set-off, namely his outstanding loan against the cost of the zippers which he said Mariano had unjustly retained.

The trial court and the Court of Appeals disagreed on the factual record. The trial court sustained Fermin's position that the indebtedness was only P120,000, while the Court of Appeals found that Mariano had extended Fermin a loan of P200,000 for which the latter issued four post-dated checks covering the same amount, and that with the encashment of the fourth check for P40,000 the loan was reduced by that amount, leaving the first three checks to guarantee the balance. The appellate court's finding rested on the circumstance that the post-dated checks still in Mariano's possession totaled P160,000, the very amount he claimed. On the zippers, Mariano denied ever preventing Fermin from retrieving them, although the Court regarded this claim with a grain of salt, and he expressly manifested that he had no objection to petitioner taking back the zippers, for which he was in fact charging storage fees.

• Amount of Indebtedness: Petitioner maintained that he borrowed only P160,000 from private respondent, secured by three post-dated checks totaling that amount, and that the loan was reduced to P120,000 by his issuance on January 23, 1979 of Check No. 0906 for P40,000 in partial settlement; he prayed that the decision of the Court of Appeals be reversed and that of the trial court, which sustained the P120,000 figure, be reinstated.
• Set-off of the Yangco Market Stalls: Petitioner alleged in his answer that the balance of P120,000 had been offset by the sum of P200,000 due from private respondent as consideration for the transfer to petitioner of his rights to four stalls in the Yangco Market, an allegation he later abandoned when private respondent showed that the consideration was only P25,000.
• Set-off of the Zippers: Petitioner contended that his outstanding loan had been extinguished by the value of the zippers he had stored in private respondent's warehouse, which he claimed private respondent had unjustly retained and refused to release until they became outmoded and valueless; he offered to pay his indebtedness of P120,000 if the zippers were returned to him in working, worthy and valuable state or quality.
• Judicial Set-off: Petitioner invoked Article 1283 of the Civil Code, arguing that there was a judicial set-off of his claim for damages arising from private respondent's claimed retention of the zippers.
• Nature of the Zipper Deposit: Petitioner denied that the zippers were intended to guarantee payment of his loan, claiming that they were merely deposited in the warehouse because he had nowhere else to place them.

• Amount of Indebtedness: Private respondent claimed that the original loan was P200,000, reduced by the payment of the P40,000 check, leaving a balance of P160,000, an amount equivalent to the face value of the remaining three checks which he could not encash.
• Purpose of the P40,000 Check: Private respondent stated in his reply that the P40,000 check had been issued by petitioner in payment for another obligation owed to private respondent's wife, a defense he subsequently abandoned in his later pleadings.
• Retention of the Zippers: Private respondent denied that he ever prevented petitioner from getting the zippers, and he expressly indicated that he had and has no objections to petitioner taking them back, in fact charging petitioner storage fees for the use of his warehouse.

• Amount of Indebtedness: Whether the Court of Appeals erred in finding that petitioner's outstanding indebtedness to private respondent was P160,000 rather than P120,000.
• Legal Compensation: Whether the outstanding loan was extinguished by compensation with the value of the zippers allegedly retained by private respondent under Article 1279 of the Civil Code.
• Judicial Set-off: Whether petitioner may set off his claim for damages arising from the alleged retention of the zippers under Article 1283 of the Civil Code.
• Propriety of Review under Rule 45: Whether the petition raises a reviewable question of law and presents special and important reasons warranting the exercise of the Supreme Court's discretionary appellate jurisdiction.

• Amount of Indebtedness: No. The finding of the Court of Appeals that the outstanding loan was P160,000 was sustained, being more conformable to the evidence of record, the three post-dated checks still in private respondent's possession totaling exactly that amount.
• Legal Compensation: No. Compensation under Article 1279 of the Civil Code did not arise, petitioner not being a debtor of private respondent and the alleged debts not being both sums of money of the same kind and quality.
• Judicial Set-off: No. Petitioner failed to prove both his right to damages arising from the claimed retention of the zippers and the amount thereof, as Article 1283 of the Civil Code requires.
• Propriety of Review under Rule 45: No. The petition raised a factual issue in contravention of the rule that only questions of law may be raised, and no special and important reason warranted the exercise of the Court's discretionary review.

• Amount of Indebtedness: Review under Rule 45 is not a matter of right but of sound judicial discretion, granted only where the Court of Appeals has decided a question of substance in a way probably not in accord with law or has departed from the accepted course of judicial proceedings; the basic issue presented was factual, in contravention of the strict limitation that only questions of law may be raised. While the factual findings of the Court of Appeals are not conclusive in every case, they are so regarded as a matter of practice and policy absent a showing that they fall under the accepted exceptions, which the Court enumerated as: (1) when the conclusion is grounded entirely on speculation, surmise and conjecture; (2) when the inference made is manifestly mistaken; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the Court of Appeals went beyond the issues and its findings are contrary to the admissions of both appellant and appellees; (6) when its findings of fact are contrary to those of the trial court; (7) when the findings of fact are conclusions without citation of specific evidence; (8) when the facts set forth in the petition and in the petitioner's main and reply briefs are not disputed by the respondents; and (9) when the findings of fact are premised on the absence of evidence and are contradicted by the evidence of record. Although the factual findings of the respondent court conflicted with those of the trial court, the former had to be sustained as more conformable to the evidence. The simple and incontrovertible fact was that the post-dated checks issued by petitioner and still in private respondent's possession totaled P160,000, the same amount claimed as the outstanding loan; had the sum truly been reduced by P40,000, there would have been a corresponding reduction in the amount of the post-dated checks issued to secure the total indebtedness, and none was made. Neither was any receipt for the alleged partial payment introduced in evidence, although petitioner, an experienced businessman, would have demanded one; the close relationship between cousins who had grown up together did not excuse the precaution, since petitioner knew that private respondent treated their transaction in a totally business manner, having required the issuance of post-dated checks in the first place. What obviously happened, as found by the respondent court, was that Mariano extended Fermin a loan of P200,000 for which the latter issued four post-dated checks covering the same amount, and that with the encashment of the fourth check for P40,000 the loan was reduced by that amount, leaving the remaining three checks to guarantee the balance — the reduced loan being equivalent to the total face value of the checks.
• Legal Compensation: Petitioner's claim that the balance of his debt was deemed set off by the price of the zippers in private respondent's possession rested on the flawed assumption that private respondent had an obligation to return them, which petitioner failed to prove. It had already been found that private respondent had not retained the zippers and had no need for them, being in a different business; he had not bought them or otherwise owed their value to petitioner, who was in fact the obligor, and petitioner did not deny that he had deposited the zippers in the warehouse without paying storage fees or any other consideration. Article 1279 of the Civil Code requires, among other things, that each obligor be bound principally and be at the same time a principal creditor of the other, that both debts consist in a sum of money or, if the things due are consumable, be of the same kind and quality, that the two debts be due, that they be liquidated and demandable, and that over neither of them be any retention or controversy commenced by third persons and communicated in due time to the debtor. As the respondent court correctly observed, the case did not satisfy these requisites because petitioner was not a debtor of private respondent — only the latter was indebted to the former — and the debts, even admitting that the delivery of the zippers to private respondent was a debt, did not both consist in a sum of money nor were they of the same quality and kind.
• Judicial Set-off: Petitioner's invocation of Article 1283 of the Civil Code, which permits a party to a suit over an obligation to set off a claim for damages against the other by proving his right to said damages and the amount thereof, failed because petitioner had not proved any right to damages as a result of the claimed retention of the zippers by private respondent. There was likewise no proof of the amount of such damages, petitioner being unable even to say how many of the zippers had been earlier withdrawn by him. The respondent court therefore committed no reversible error in holding that the original indebtedness was P200,000, that it was subsequently reduced to P160,000 by the partial payment of P40,000 made with the China Banking Corporation check, and that the outstanding loan had not been canceled by offset or compensation under the pertinent provisions of the Civil Code.
• Propriety of Review under Rule 45: The Court found no special and important reasons, or any similar reasons, of the kind enumerated in Rule 45 — namely, that the Court of Appeals had decided a question of substance not theretofore determined by the Supreme Court or had decided it in a way probably not in accord with law or with applicable Supreme Court decisions, or that it had so far departed from the accepted and usual course of judicial proceedings, or sanctioned such a departure by a lower court, as to call for an exercise of the power of supervision. The basic issue presented being factual, the petition contravened the strict limitation that only questions of law may be raised.

• Conclusiveness of the Court of Appeals' Factual Findings — The factual findings of the Court of Appeals are not conclusive upon the Supreme Court in every case, but they are regarded as binding as a matter of practice and policy in the absence of a showing that they fall under the accepted exceptions, which the Court enumerated as follows: (1) when the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) when the inference made is manifestly mistaken; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees; (6) when the findings of fact of the Court of Appeals are contrary to those of the trial court; (7) when said findings of fact are conclusions without citation of specific evidence on which they are based; (8) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents; and (9) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence of record. Although the sixth exception was present in this case, the Court still sustained the appellate court's findings because they were more conformable to the evidence of record.
• Requisites of Legal Compensation — Article 1279 of the Civil Code requires that: (1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) both debts consist in a sum of money, or if the things due are consumable, that they be of the same kind and also of the same quality if the latter has been stated; (3) the two debts be due; (4) 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. The Court applied the provision and found it inapplicable because petitioner was not a debtor of private respondent and the alleged debts were not both sums of money of the same kind and quality.
• Judicial Set-off in Litigation — Under Article 1283 of the Civil Code, if one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. The provision requires proof of two things — the right to damages and the amount thereof — and petitioner's failure to establish either defeated his claim of judicial set-off.
• Discretionary Review under Rule 45 — Review by the Supreme Court under Rule 45 is not a matter of right but of sound judicial discretion, and will be granted only if there are special and important reasons therefor, such as when the Court of Appeals has decided a question of substance not theretofore determined by the Supreme Court, or has decided it in a way probably not in accord with law or with the applicable decisions of the Supreme Court, or has so far departed from the accepted and usual course of judicial proceedings, or so far sanctioned such departure by a lower court, as to call for an exercise of the power of supervision. The rule further limits the petition to questions of law.
• Business Precaution in Dealings Between Relatives — The close relationship between contracting parties who are relatives does not excuse the ordinary business precautions that an experienced businessman would take, such as demanding a receipt for a partial payment or securing a corresponding reduction in the instruments evidencing the debt. The Court reasoned that petitioner knew well enough that the close relationship did not prevent private respondent from treating their transaction in a totally business manner.

• "The simple and incontrovertible fact is that the post-dated checks issued by the petitioner and still in the possession of the private respondent are in the total amount of P160,000.00, which is the same amount claimed by Mariano as Fermin's outstanding loan." — This passage supplies the evidentiary anchor for the Court's affirmance of the Court of Appeals' factual finding on the amount of the outstanding indebtedness, and is the core of the ruling on the first issue.
• "If it is true that that sum had really been reduced by P40,000.00, there would have been a corresponding reduction also in the amount of the post-dated checks issued by Fermin to secure his total indebtedness. There was none." — This states the decisive circumstantial reasoning that defeated petitioner's claim of a partial payment reducing the loan to P120,000, and illustrates the Court's reliance on the face value of the outstanding checks as the measure of the debt.
• "The flaw in this argument is the assumption that Mariano had such an obligation, which has not been proved by Fermin." — This is the ratio decidendi on the compensation issue: the claim of set-off presupposed an obligation on the part of private respondent to return the zippers, an obligation petitioner failed to establish.
• "The trouble is that Fermin has not proved the right to any damage as a result of the claimed retention of the zippers by Mariano. There was also no proof of the amount of such damages as he could not even say how many of the zippers had been earlier withdrawn by him." — This passage disposes of the judicial set-off claim under Article 1283 of the Civil Code by identifying the two evidentiary failures — absence of proof of the right to damages and of the amount thereof.

• Ibarra vs. Ibarra, 156 SCRA 616 — Cited, together with the cases immediately following, as authority for the rule that the factual findings of the Court of Appeals are conclusive upon the Supreme Court as a matter of practice and policy, subject only to the enumerated exceptions.
• Mendoza vs. CA, Ibid., 597 — Cited in the same string of authorities supporting the conclusiveness of the appellate court's factual findings and the exceptions thereto.
• Tong Brothers Co. vs. IAC, Id., 726 — Cited in the same string of authorities supporting the conclusiveness of the appellate court's factual findings and the exceptions thereto.
• Amarante Heirs vs. CA, 155 SCRA 46 — Cited in the same string of authorities supporting the conclusiveness of the appellate court's factual findings and the exceptions thereto.

• Article 1279, Civil Code — Enumerates the requisites of legal compensation: that each obligor be bound principally and be at the same time a principal creditor of the other; that both debts consist in a sum of money or, if the things due are consumable, be of the same kind and, where the latter has been stated, of the same quality; that the two debts be due; that they be liquidated and demandable; and that over neither of them there be any retention or controversy commenced by third persons and communicated in due time to the debtor. The Court held the provision inapplicable because petitioner was not a debtor of private respondent and the alleged debts were not both sums of money of the same kind and quality.
• Article 1283, Civil Code — Provides that if one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. Petitioner's reliance on this provision failed because he proved neither his right to damages arising from the claimed retention of the zippers nor the amount of such damages.
• Rule 45, Rules of Court — Governs petitions for review on certiorari, which are not a matter of right but of sound judicial discretion and will be granted only for special and important reasons, and which are limited to the raising of questions of law. The Court applied the rule to deny the petition, the basic issue presented being factual and no special and important reason having been shown.

Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.