Pioneer Insurance & Surety Corporation vs. Court of Appeals
G.R. No. 76509. December 15, 1989
In 1978, Pioneer Insurance and Surety Corporation issued general warehousing bonds in favor of the Bureau of Customs for importation of raw materials on behalf of the private respondents Wearever Textile Mills, Inc. To secure the bonds, the respondents executed jointly and severally
indemnity agreements. The private respondents failed to comply with their commitment by reason whereof the Bureau of Customs demanded from the petitioner payment of the value of the said bonds which eventually reached P9,031,000.00 in 1983. Private respondents settled their obligations to Bureau of Customs through staggered monthly installment payments. Other than the initial payment of P500,000.00, however, respondents have not made any other payments thereby violating the terms of the said agreement. Bureau of Customs again demanded from the petitioner payment of its bonds. No payment has been made.
In 1979, a fire gutted the respondent’s factory destroying materials insured with the petitioner in the amount of P1,144,744.49. Petitioner refused to pay claiming that said proceeds must be applied by way of partial compensation or set-off against its liability with the Bureau of Customs arising from the warehousing bonds. The private respondents argue that since the petitioner has not made any payment yet regarding the amount demanded by the Bureau of Customs, there is nothing for which the petitioner should be reimbursed.
The trial court rendered judgment in favor of the private respondents and ordered the petitioner to pay, among others, the insurance. The Court of Appeals affirmed the trial court’s decision, holding that legal compensation cannot take place because the requisites thereof are not present.
Whether or not that legal compensation or set-off under Articles 1278 and 1279 can take place considering there was no payment has been made by the petitioner
Yes. Clearly, the petitioner can demand reimbursement from the respondents even before it has actually paid its obligation to the Bureau of Customs. It can, in principle, be held liable under the warehouse bonds even before actual payment to the Bureau of Customs. The liability has been fixed. What remains is simply its liquidation. The respondents who defaulted on the agreement to make staggered payments thereby causing the petitioner’s liability to the Bureau of Customs cannot refuse the set-off.
It is needless to emphasize that at the time the fire occurred, the private respondents together with the petitioner had already incurred liability on the warehousing bonds with the Bureau of Customs because of the respondents’ inability to comply with the provisions of their undertaking. It is, therefore, clear that as far as the amount of P9,031,000.00 is concerned, both the petitioner and respondents were already liable for said amount to the Bureau of Customs when the contingency for which compensation is sought, happened.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated September 23, 1986 is hereby ANNULLED and SET ASIDE. A copy of this decision is furnished the Commissioner of Customs for appropriate action to be taken under the warehousing bonds. Costs against the private respondents.
“Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code). 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 debtors.’ (Art. 1290, Civil Code). Art. 1279 of the Civil Code requires among others, that in order that legal compensation shall take place, ‘the two debts be due’ and ‘they be liquidated and demandable.’ Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim arising from breach of contract.