He executed a certificate assuming responsibility over ALL the
properties issued to the outgoing Chief Aircraft Maintenance Officer. Sometimes after that, Valenzuela retired. The petitioner bank refused to release his retirement pay for failure to settle his property accountabilities. There were P 1M worth of spare parts missing. COA then rendered a decision allowing the release of the retirement benefits. Retirement gratuities cant be withheld, deducted, or applied to the indebtedness of an employee without his/her consent. IN THIS CASE: Article 1278 cant be applied here. For compensation to take place (other than the fact that both parties are indebted to each other), there must be categorical admission by the obligor (Valenzuela) of his indebtedness and consents to such retention OR the court directs such compensation. There was no clear and categorical admission. Yes, there was a certificate showing that he assumed responsibility. However, the court ruled that a signature alone doesnt satisfy the requisite of an open and direct recognition of an obligation. On the basis of facts, it was never proven that 1. He consented to the retention of his benefits by the bank 2. The missing parts were not shown in the later list of inventory signed by Valenzuela. Even if the Feb 1995 list of unaccounted items bearing respondents signature is construed as an admission of indebtedness, still, the said purported admission cant extend to the 1,314 spare parts/furniture/tools with acquisition cost of 1M for which respondent is also being held responsible latter items werent shown to be included in the Feb 1995 inventory from initial 47M acquisition cost of 10K + items, it was trimmed down to 1,314 spare parts with P1M acquisition cost -> how they arrived at this, we dont know amount is constestable and inconclusive, hence it cant qualify as a debt to trigger compensation or set-off under Art 1279 at best, its just a claim that wouldnt make one a creditor of the other o EGV Realty Devt Corp vs CA
Debt claim which has been formally passed upon
by the highest authority to which it can in law be submitted and has been declared to be a debt Claim debt in embryo; mere evidence of a debt, must pass thru the process prescribed by law before it develops into what is properly called a debt