SILAHIS MARKETING CORP V IAC FERNAN, J. December 7, 1989

FACTS: On various dates in Oct-Dec 1975, De Leon doing business under the name

and style of Mark Industrial Sales, sold and delivered to Silahis various items of merchandise covered by several invoices amounting to P22,213.75 payable within 30 days from date of the covering invoices.

Silahis failed to pay upon maturity despite repeated demands. De Leon filed before CFI Manila a complaint for the collection of the said

accounts including accrued interest in the amount of P 661.03 and attorney's fees of P 5,000 plus costs of litigation.

Silahis admitted the allegations insofar as the invoices were concerned but as defense:

o Presented a debit memo for P 22,200 as unrealized profit for a supposed commission that Silahis should have received from de Leon for the sale of sprockets amounting to P111,000 made directly to Dole Philippines, Inc by de Leon without coursing through Silahis in violation of usual practice

o Claimed that it is entitled to return the stainless steel screen found defective by its client, Borden International, Davao City, and to have the corresponding amount of P6,000 cancelled from its account with de Leon.

RTC: Confirmed the liability of Silahis for the claim of de Leon but ordered that it be partially offset by Silahis' counterclaim as contained in the debit memo for unrealized profit and commission. Ordered to pay P13.75 with 12% interest

o Proven by the testimonies that contrary to agreement between Silahis and de Leon that the latter was to serve the account of DOLE in Davao, De Leon instead sold it directly to DOLE depriving Silahis of its commission.

o As to steel wire mesh, not awarded because too late to present claim (returned only on April 1976 when bought on December 1975)

De Leon appealed the award of partial compensation and non-award of interest on his principal claim

IAC: Reversed the RTC decision and dismissed Silahis’ counterclaim for lack of factual or legal basis as there was no agreement nor contractual obligation prohibiting direct sales to Dole Philippines and nothing in the debit memo obligating de Leon to pay commission to Silahis.

ISSUE: Whether or not De Leon is liable to Silahis for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Inc without coursing the same through Silahis Marketing.

HELD: No. Court found nothing to show that respondent obligated himself to set-off or

compensate petitioner’s outstanding accounts with alleged unrealized commission from assailed sale of sprockets to Dole Philippines.

Compensation takes place when 2 persons, in their own right, are creditors and debtors of each other. Article 1279 of the Civil Code provides that: “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. When all the requisites mentioned in Art. 1279 of the Civil Code are present,

compensation takes effect by operation of law, even without the consent or knowledge of the creditors and debtors. Article 1279 requires that for legal compensation to take place, “two debts must be due” and “they must be liquidated and demandable”. Compensation is not proper where the claim of the person asserting the set-off against the other is neither clear nor liquidated. Compensation CANNOT extend to unliquidated disputed claim existing from breach of contract.

Silahis admits the validity of its outstanding accounts of P22, 213.75 with de Leon. But whether de Leon is liable to pay Silahis a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place.

There is no evidence on record from which it can be inferred that there was any agreement between Silahis and de Leon prohibiting the latter from direct sale to Dole

o The debit memo is not a binding contract since it was not signed by de Leon nor was there any mention therein of any commitment by the latter to pay any commission to the former involving the subject sale of sprockets and can be taken as self-serving with no probative value absent a showing or inference that the party sought to be bound assented to it content or showed conformity.

o Letter written by de Leon’s lawyer on March 1975 transmitting its Debit Memo further strengthened their stand that they never agreed to give petitioner any commission on direct sale to Dole Philippines because such letter denied any utilization of petitioner’s personnel and facilities.

Disposition: Decision affirmed.