Offsetting

Legal compensation takes place when two persons in their own rights are creditors and debtors of each other. For this to take place one of the requirements is that both debts must already be liquidated and demandable. This is illustrated in this case between Andy and Ernie.

Andy was one of the clients of Ernie, a lawyer. Sometime in 1990, Ernie obtained a loan from Andy in the amount of P400,000 with a monthly interest of two percent later increased to 3.5 percent per month with Ernie’s consent. After paying the principal amount of P100,000 and interest corresponding to ten months, Ernie failed to pay any amount anymore. Andy made several demands to no avail.

So in 1993, Andy filed before the Regional Trial Court (RTC) a Complaint for Sum of Money against Ernie. In his answer Ernie interposed a counterclaim of no less than P500,000 representing his attorney’s fees for several cases he handled as lawyer of Andy before he was summarily dismissed with the filing of this suit against him.

After trial and presentation of evidence by both parties on the claim and counterclaim, the RTC found merit in the claim of Andy for the loan extended to Ernie and in the counterclaim of Ernie for the legal services he handled for Andy. So it rendered judgment ordering Ernie to pay Andy, the sum of P300,000 but with interest only at the rate of 12 p.m. per annum from the filing of the complaint. On the other hand, the RTC also ordered that whatever amount recoverable from Ernie shall be set off by an equivalent amount awarded by the court on the counterclaim representing Ernie’s attorney’s fees on the basis of quantum meruit for legal services previously rendered to Andy.

When the RTC ordered the implementation of the decision after it has become final and executory by the offsetting of the claim and counterclaim, Andy questioned such order. He said that the judgement of the RTC failed to specify the amount of attorney’s fees. He maintains that for offsetting to apply, the two debts must be liquidated or ascertainable. Here, the RTC merely awarded to Ernie, attorney’s fees based on quantum meruit without specifying the exact amount thereof, he contends. Was Andy correct?

No. A debt is considered liquidated not only when it is already expressed in definite figures but also when the determination of the exact amount depends on a simple arithmetical operation.

In this case, both obligations are liquidated. Ernie has the obligation to pay his debt due to Andy in the amount of P300,000 with interest at the rate of 12 percent per annum from the filing of the complaint until paid. Andy on the other hand, has the obligation to pay attorney’s fees which the RTC had already determined to be equivalent to whatever amount recoverable from Ernie on the basis of quantum meruit for the legal service he previously rendered to Andy.

Therefore, whatever amount due to Andy as payment of Ernie’s debt is equivalent to the amount awarded to the latter as his attorney’s fees. Legal compensation or set off then takes place between Andy and Ernie and both parties are on even terms such that there is actually nothing left to execute or satisfy in favor of either party. Any amount due in favor of Andy and against Ernie is set off by an equivalent amount in the form of Ernie’s attorney’s fees for past legal services he rendered to Andy (Montemayor vs. Millora, G.R. 168251, July 27, 2011).

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