G.R. No.

153267

June 23, 2005

CHINA BANKING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ARMED FORCES AND POLICE
SAVINGS & LOAN ASSOCIATION, INC. (AFPSLAI), respondents.
DECISION

the matter to this Court via a Petition for Certiorari, under Rule 65. We
dismissed the petition for being an improper remedy.
Petitioner filed another Motion to Dismiss, this time invoking prescription. The
lower court denied said motion to dismiss for lack of merit. It held that it was
not apparent in the complaint whether or not prescription had set in. Thus, the
trial judge directed petitioner to present its evidence. However, petitioner instead
filed a motion for reconsideration, which the trial court denied, ratiocinating
thus:

QUISUMBING, J.:
1

For review is the D E C I S I O N dated November 23, 2001 of the Court of

Appeals in CA-G.R. SP No. 65740, affirming the Orders2 dated August 25, 2000
and April 17, 2001, of the Regional Trial Court of Quezon City, Branch 216,
which denied petitioners motion to dismiss the civil action for a sum of money
filed by private respondent. Likewise impugned is the Resolution3 dated April
24, 2002 of the Court of Appeals denying petitioners motion for reconsideration
of said decision.
The antecedent facts, as summarized by the appellate court, are as follows:
On September 24, 1996, private respondent Armed Forces and Police Savings
and Loan Association, Inc. (AFPSLAI) filed a complaint for a sum of money
against petitioner China Banking Corporation (CBC) with the Regional Trial
Court of Quezon City, Branch 216.
In its Answer,4 the petitioner admitted being the registered owner of the Home
Notes, the subject matter of the complaint. These are instruments of
indebtedness issued in favor of a corporation named Fund Centrum Finance, Inc.
(FCFI) and were sold, transferred and assigned to private respondent. Thus, the
petitioner filed a Motion to Dismiss alleging that the real party in interest was
FCFI, which was not joined in the complaint, and that petitioner was a mere
trustee of FCFI.
The trial court denied the motion to dismiss. Petitioner filed a motion for
reconsideration, which the court a quoagain denied. Petitioner elevated the case
to the Court of Appeals through a Petition for Certiorari and Prohibition. The
appellate court denied the petition for lack of merit. The petitioner then brought

This Court finds that there are conflicting claims on the issue of whether or not
the action has already prescribed. A full blown trial is in order to determine fully
the rights of the contending parties.5
Undeterred, petitioner impugned, through a petition under Rule 65, the two
orders of the trial court claiming before the appellate court that:
RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DENYING
THE MOTION TO DISMISS AND DECLARING THAT PRESCRIPTION
HAS NOT SET IN AGAINST PRIVATE RESPONDENT.6
In its assailed Decision, the Court of Appeals dismissed the petition, ruling that:
Since the defense of prescription under the facts obtaining did not rest on solid
ground, the trial court took a more judicious move to direct the defendant
therein, herein petitioner, to present its evidence. It is self-evident that with the
evidence of both parties adduced, the trial court could proceed to decide on the
merits of the case including prescription, and thus avoid collateral proceedings
such as the one at bar that unduly prolong the final determination of the
controversy. After all, prescription subsists as a valid issue in the decision
process. The trial court wanted precisely a definite and definitive-factual
premise to determine whether or not the action has prescribed. Surely, such
exercise of judgment is not grave abuse of discretion correctible by writ of
certiorari. If ever he erred, it was error in judgment. Errors of judgment may be
reviewed only by appeal.7
Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS

IS THE DATE OF ACCRUAL OF CAUSE OF ACTION.8
Petitioner insists that upon the face of the complaint, prescription has set in. It
claims that the Home Notes annexed to the pleading bearing a uniform maturity
date of December 2, 1983 indicate the date of accrual of the cause of action.
Hence, argues petitioner, private respondents filing of the complaint for sum of
money on September 24, 1996, is way beyond the prescriptive period of ten
years under Article 11449 of the Civil Code. Citing Soriano v. Ubat,10 petitioner
maintains the prescription period starts from the time when the creditor may file
an action, not from the time he wishes to do so.
However, private respondent counters that prescription is not apparent in the
complaint because the maturity date of the Home Notes attached thereto is not
the time of accrual of petitioners action. Relying on Elido, Sr. v. Court of
Appeals,11 private respondent insists that the action accrued only on July 20,
1995, when demand to pay was made on petitioner. Private respondent also
points out that since both the trial court and the appellate court found that
prescription is not apparent on the face of the complaint, such factual finding
should therefore be binding on this Court.
We find the petition without merit. The Court of Appeals validly dismissed the
petition, there being no grave abuse of discretion committed by the trial court in
denying petitioners motion to dismiss the complaint on the ground of
prescription.
Well-settled is the rule that since a cause of action requires, as essential
elements, not only a legal right of the plaintiff and a correlative duty of the
defendant but also "an act or omission of the defendant in violation of said legal
right," the cause of action does not accrue until the party obligated refuses,
expressly or impliedly, to comply with its duty.12
Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to respect or not to violate
such right; and (3) an act or omission on the part of such defendant violative of
the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff.13

It bears stressing that it is only when the last element occurs that a cause of
action arises. Accordingly, a cause of action on a written contract accrues only
when an actual breach or violation thereof occurs.14
Applying the foregoing principle to the instant case, we rule that private
respondents cause of action accrued only on July 20, 1995, when its demand for
payment of the Home Notes was refused by petitioner. It was only at that time,
and not before that, when the written contract was breached and private
respondent could properly file an action in court.
The cause of action cannot be said to accrue on the uniform maturity date of the
Home Notes as petitioner posits because at that point, the third essential element
of a cause of action, namely, an act or omission on the part of petitioner violative
of the right of private respondent or constituting a breach of the obligation of
petitioner to private respondent, had not yet occurred.
The subject Home Notes, in fact, specifically states that payment of the principal
and interest due on the notes shall be made only upon presentation for notation
and/or surrender for cancellation of the notes, thus:
Payment of the principal amount and interest due on this Note shall be made by
the Company at the principal office of the Trustee herein referred to or at such
other office or agency that the Company may designate for the purpose, in such
coin or currency of the Republic of the Philippines as at the time of payment
shall be legal tender for payment of public and private debts, upon presentation
for notation and/or surrender for cancellation of this Note. . . .15 (Emphasis
supplied.)
Thus, the maturity date of the Home Notes is not controlling as far as accrual of
cause of action is concerned. What said date indicates is the time when the
obligation matures, when payment on the Notes would commence, subject to
presentation, notation and/or cancellation of those Notes. The date for
computing when prescription of the action for collection begins to set in is
properly a function related to the date of actual demand by the holder of the
Notes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for
collection of a sum of money was filed on September 24, 1996, within a period
of not more than ten years, such action was not yet barred by prescription.

loans extended by petitioner bank to respondents ASB Realty Corporation and

ASB Development Corporation amounted to P523.5 million and P1.073 billion,
respectively. These loans were secured by real estate mortgages.

WHEREFORE, the petition is DENIED for lack of merit. The assailed

Decision dated November 23, 2001, and the Resolution dated April 24, 2002, of
the Court of Appeals are AFFIRMED. Costs against petitioner.

On May 2, 2000, the ASB Group of Companies filed with the Securities and
Exchange Commission (SEC) a Petition For Rehabilitation With Prayer For
Suspension Of Actions And Proceedings Against Petitioners, 3 pursuant to
Presidential Decree (P.D.) No. 902-A, as amended, docketed as SEC Case No.
05-00-6609. The pertinent portions of the petition allege:

SO ORDERED.
..
G.R. No. 166197

February 27, 2007

METROPOLITAN BANK & TRUST COMPANY, Petitioner

vs.
ASB HOLDINGS, INC., ASB REALTY CORPORATION, ASB
DEVELOPMENT CORPORATION, ASB LAND, INC., ASB FINANCE,
INC., MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR
HOLDINGS CORPORATION, WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORPORATION, GERICK HOLDINGS
CORPORATION, NEIGHBORHOOD HOLDINGS, INC., and ROSARIO
S. BERNALDO, Respondents. CAMERON GRANVILLE 3 ASSET
MANAGEMENT, INC., Intervenor.

6. The total assets of petitioner ASB Group of Companies, together

with petitioner ASB Allied Companies, amount to Nineteen Billion
Four Hundred Ten Million Pesos (P19,410,000,000.00).
7. The Projects were financed with loans or borrowings from bank and
individual creditors which resulted in petitioner Group of Companies
having a total liability in the amount of Twelve Billion Seven Hundred
Million Pesos (P12,700,000,000.00).

SANDOVAL-GUTIERREZ, J.:

8. On account of the sudden non-renewal and/or the massive

withdrawal by creditors of their loans to petitioner ASB Holdings, Inc.,
coupled with the recent developments in the country, like, among
others, (i) the glut in the real estate market; (ii) the severe drop in the
sale of real properties; (iii) the depreciation of the peso vis-a-vis the
dollar; and (iv) the decreased investor confidence in the economy,
petitioner Group of Companies was unable to complete and sell some
of its projects on schedule and, hence, was unable to service its
obligations as they fell due.

For our resolution is the instant Petition for Review on Certiorari1 assailing the
Decision dated August 16, 20042of the Court of Appeals in CA-G.R. SP No.
77260 and its Resolution dated December 1, 2004.

9. Petitioner Group of Companies possesses sufficient property to cover

its obligations. However, petitioner Group of Companies foresees its
inability to pay its obligations within a period of one (1) year.

The facts borne by the records are:

10. Because of the inability of the Group of Companies to pay its

obligations as they respectively fall due, its secured and non-secured
creditors pressed for payments of due and maturing obligations and
threatened to initiate separate actions against it, which will adversely

DECISION

The Metropolitan Bank and Trust Company, petitioner, is a creditor bank of

respondent corporations, collectively known as the ASB Group of Companies,
owner and developer of condominium and real estate projects. Specifically, the

affect its operations and shatter its hope in rehabilitating itself for the
benefit of its investors and creditors and the general public.
11. There is a clear, present and imminent danger that the creditors of
petitioner Group of Companies will institute extrajudicial and judicial
foreclosure proceedings and file court actions unless restrained by this
Honorable Commission.
12. The institution of extrajudicial and judicial foreclosure proceedings
and the filing of court actions against petitioner Group of Companies
will necessarily result in the paralization of its business operation and
its assets being lost, dissipated or wasted.
13. There is, therefore, a need for the suspension of payment of all
claims against petitioner Group of Companies, in the separate and
combined capacities of its member companies, while it is working for
its rehabilitation.
14. Petitioner Group of Companies has at least seven hundred twelve
(712) creditors, three hundred seventeen (317) contractors/suppliers
and four hundred ninety-two (492) condominium unit buyers, who will
certainly be prejudiced by the disruption of the operations of petitioner
ASB Group of Companies which seeks to protect the interest of the
parties from any precipitate action of any person who may only have
his individual interest in mind.
15. The business of petitioner ASB Group of Companies is feasible and
profitable. Petitioner Group of Companies will eventually be able to
pay all its obligations given some changes in its management,
organization, policies, strategies, operations, or finances.
16. With the support of this Honorable Commission, petitioner Group
of Companies is confident that it will be able to embark on a sound and
viable rehabilitation plan, with a built-in debt repayment schedule
through the optimal use of their present facilities, assets and resources.
Although a proposed rehabilitation plan is attached to this petition, a
detailed and comprehensive rehabilitation proposal will be presented

for the approval of this Honorable Commission, with the foregoing

salient features:
a. Servicing and eventual full repayment of all debts and
liabilities, focusing on debt restructure and possible
liquidation through dacion en pago, transfer and assignment,
or outright sale of assets, in order to lighten the debt burden of
petitioner Group of Companies;
b. Forming of strategic alliances with third party investors,
including joint ventures and similar arrangements;
c. Contributing specified properties from petitioner ASB
Allied Companies;
d. Streamlining the operations of petitioner ASB Group of
Companies, and the effective management of its revenues and
funds towards the strengthening of its financial and business
positions; and
e. Stabilizing the operations of petitioner Group of
Companies, and preparing it to take advantage of future
opportunities for growth and development.
On May 4, 2000, the Hearing Panel of the SEC Securities Investigation and
Clearing Department, finding the petition for rehabilitation sufficient in form
and substance, issued a sixty-day Suspension Order (a) suspending all actions
for claims against the ASB Group of Companies pending or still to be filed with
any court, office, board, body, or tribunal; (b) enjoining the ASB Group of
Companies from disposing of their properties in any manner, except in the
ordinary course of business, and from paying their liabilities outstanding as of
the date of the filing of the petition; and (c) appointing Atty. Monico V. Jacob as
interim receiver of the ASB Group of Companies.
On May 22, 2000, the SEC Hearing Panel issued an Order appointing Mr.
Fortunato Cruz as interim receiver of the ASB Group of Companies, replacing
Atty. Monico Jacob.

On August 18, 2000, the ASB Group of Companies submitted to the SEC for its
approval a Rehabilitation Plan,4thus:
Metropolitan Bank and Trust Co.
Principal Amount Principal (amount) plus any interest due and unpaid as of
April 30, 2000, less any prepaid interest, without any penalties and charges.

Petitioner bank claimed that the above arrangement "is not acceptable" because:
(1) it does not agree with the valuation of the properties offered for dacion; (2)
the waiver of interests, penalties and charges after April 30, 2000 is not feasible
considering that the bank continues to incur costs on the funds owed by ASB
Realty Corporation and ASB Development Corporation; and (3) since the
proposed dacion is not acceptable to the bank, there is no basis to release the
properties which serve as collateral for the loans. Petitioner thus prayed that the
Rehabilitation Plan be disapproved.

Form of Agreement Dacion en Pago Agreement

Purpose To retire existing loans.
Tenor Immediate Dacion en Pago of related properties, subject to the approval
of the Securities and Exchange Commission (SEC).
Effective Date September 1, 2000, subject to the approval of the SEC.
Dacion En Pago
Arrangement ASB will dacion the banks equity in St. Francis Square and
apply the excess dacion value on its BSA Twin Tower loan. Further, Makati
Hope, Buendia cor. Malugay, 21 Annapolis (which is expected to be released by
PNB) and # 28 & 23 Eisenhower St., will be dacioned to Metrobank, the excess
of which will also be applied to Metrobanks exposure on BSA Twin Towers. In
return, State Condominium will be freed up and placed in the ASB creditors
asset pool. Further, Metrobank shall also undertake the completion of BSA Twin
Towers.
Outstanding Loan Balance
After Dacion En Pago None51awphi1.net
Petitioner bank, in its Comment/Opposition to the Rehabilitation Plan,6 objected
to the above Plan, specifically the arrangement concerning the mode of payment
by respondents ASB Realty Corporation and ASB Development Corporation of
their loan obligations.

On April 26, 2001, the SEC Hearing Panel, finding petitioner banks objections
unreasonable, issued an Order7approving the Rehabilitation Plan and appointing
Mr. Fortunato Cruz as rehabilitation receiver, thus:
PREMISES CONSIDERED, the objections to the rehabilitation plan raised by
the creditors are hereby considered unreasonable.
Accordingly, the Rehabilitation Plan submitted by petitioners is hereby
APPROVED, except those pertaining to Mr. Roxas advances, and the ASBMalayan Towers. Finally, Interim Receiver Mr. Fortunato Cruz is appointed as
Rehabilitation Receiver.
SO ORDERED.
On July 10, 2001, petitioner bank filed with the SEC En Banc a Petition for
Certiorari,8 docketed as EB-725, alleging that the SEC Hearing Panel, in
approving the Rehabilitation Plan, committed grave abuse of discretion
amounting to lack or excess of jurisdiction; and praying for the issuance of
a temporary restraining order and/or a writ of preliminary injunction to
enjoin its implementation. Subsequently, the ASB Group of Companies filed
their Opposition9 to the petition, to which petitioner bank filed its Reply.10
In a Resolution11 dated April 15, 2003, the SEC En Banc denied petitioner
banks Petition for Certiorari and affirmed the SEC Hearing Panels Order
of April 26, 2001.
Petitioner bank then filed with the Court of Appeals a Petition for
Review.12 On August 16, 2004, the appellate court rendered its
Decision13 denying due course to the petition, thus:

WHEREFORE, finding the instant petition not impressed with merit, the
same is DENIED DUE COURSE. No pronouncement as to costs.
SO ORDERED.
Petitioner banks Motion for Reconsideration was likewise denied in a
Resolution dated December 1, 2004.14
Hence, this petition for review on certiorari.
In the meantime, or on June 1, 2006, Cameron Granville 3 Asset
Management, Inc. (Cameron Granville) filed a Motion For
Intervention15 alleging that in September of 2003, petitioner bank assigned
the loans and mortgages of ASB Realty Corporation and ASB Development
Corporation to Asset Recovery Corporation (ARC). However, pursuant to
its Service Agreement with ARC, petitioner continued to pursue its action
before the Court of Appeals in CA-G.R. SP No. 77260 and before this Court
in the instant case. On March 31, 2006, ARC in turn assigned the loans and
mortgages of the said two respondent corporations to herein intervenor,
Cameron Granville. In a Resolution dated June 5, 2006,16 the Court granted
the motion for intervention. Accordingly, on August 28, 2006, the intervenor
filed its Petition For Intervention17 and manifested therein that it adopts as
its own petitioner banks petition and all its other pleadings. Thereafter,
respondent ASB Group of Companies filed their Comment.18
Now to the resolution of the instant petition.

2. In not finding that the Rehabilitation Plan compels petitioner

bank to waive the interests, penalties and other charges that
accrued after the SEC issued its Stay Order. Again, this is in
violation of the constitutional mandate on non-impairment of
contracts and due process.
3. In not finding that only respondent ASB Holdings, Inc. suffered
financial distress as stated in the Rehabilitation Plan and, as such,
the coercive reach of the SECs Stay Order under P.D. 902-A can
extend only to the enforcement of claims against this distressed
corporation. It cannot suspend the claims and actions against its
affiliate corporations.
In their Comment, respondent corporations comprising the ASB Group of
Companies prayed for the dismissal of the instant petition for being
unmeritorious.
The first two (2) assigned errors lack merit. We shall discuss them jointly as
they are closely interrelated.
We are not convinced that the approval of the Rehabilitation Plan impairs
petitioner banks lien over the mortgaged properties. Section 6 [c] of P.D.
No. 902-A provides that "upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions
for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or
body shall be suspended."

Petitioner bank contends that the Court of Appeals erred:

1. In not nullifying the SEC Resolution dated April 15, 2003
approving the Rehabilitation Plan. Such approval illegally compels
petitioner bank to accept, through a dacion en pago arrangement,
the mortgaged properties based on ASB Group of Companies
transfer values and to release part of the collateral. This forced
transfer of properties and diminution of the banks right to enforce
its lien on the mortgaged properties violate its constitutional right
against impairment of contracts and right to due process.

By that statutory provision, it is clear that the approval of the

Rehabilitation Plan and the appointment of a rehabilitation receiver merely
suspend the actions for claims against respondent corporations. Petitioner
banks preferred status over the unsecured creditors relative to the
mortgage liens is retained, but the enforcement of such preference is
suspended. The loan agreements between the parties have not been set aside
and petitioner bank may still enforce its preference when the assets of ASB
Group of Companies will be liquidated. Considering that the provisions of
the loan agreements are merely suspended, there is no impairment of
contracts, specifically its lien in the mortgaged properties.

As we stressed in Rizal Commercial Banking Corporation v. Intermediate

Appellate Court,19 such suspension "shall not prejudice or render
ineffective the status of a secured creditor as compared to a totally
unsecured creditor," for what P.D. No. 902-A merely provides is that all
actions for claims against the distressed corporation, partnership or
association shall be suspended. This arrangement provided by law is
intended to give the receiver a chance to rehabilitate the corporation if
there should still be a possibility for doing so, without being unnecessarily
disturbed by the creditors actions against the distressed corporation.
However, in the event that rehabilitation is no longer feasible and the claims
against the distressed corporation would eventually have to be settled, the
secured creditors, like petitioner bank, shall enjoy preference over the
unsecured creditors.
Likewise, there is no compulsion on the part of petitioner bank to accept a
dacion en pago arrangement of the mortgaged properties based on ASB
Group of Companies transfer values and to condone interests and
penalties. The Rehabilitation Plan itself, under item IV-A, explains the
dacion en pago proposal, thus:

In order to determine the feasibility of the above, representatives of our

financial advisors met with or had discussions with most of the secured
creditors. Preliminary discussions indicate support from the secured
creditors towards the concepts of the program associated with them. The
majority of these secured creditors appear to want to complete dacion en
pago transactions based on MUTUALLY AGREED UPON TERMS. x x x.
We continue to pursue discussions with secured creditors. Based on the
program, secured creditors claims amounting to PhP5.192 billion will be
paid in full including interest up to April 30, 2000. Secured creditors have
been asked to waive all penalties and other charges. This dacion en pago
program is essential to eventually pay all creditors and rehabilitate the ASB
Group of Companies. If the dacion en pago herein contemplated does not
materialize for failure of the secured creditors to agree thereto, this
rehabilitation plan contemplates to settle the obligations (without interest,
penalties, and other related charges accruing after the date of the initial
suspension order) to secured creditors with mortgaged properties at ASB
selling prices for the general interest on the employees, creditors, unit
buyers, government, general public and the economy.
x x x.20 (Underscoring supplied)

IV. THE REVISED REHABILITATION PLAN

A. The Total Approach
It is apparent that ASBs corporate indebtedness needs to be reduced as
quickly as possible in order to prevent rapid deterioration in equity. x x x.
In order to reduce debt quickly, we must do the following:
1. Complete or sell on-going projects;
2. Invite secured creditors to complete dacion en pago transactions,
waiving all penalties; and
3. Invite unsecured creditors to purchase real estate parcels and
other assets and set-off the amount of their outstanding claim
against the purchase price.
The assets included in the above program include all real estate assets.

Indeed, based on the above explanation in the Rehabilitation Plan, the

dacion en pago program and the intent of respondent ASB Group of
Companies to ask creditors to waive the interests, penalties and related
charges are not compulsory in nature. They are merely proposals for the
creditors to accept. In fact, as explained, there was already an initial
discussion on these proposals and the majority of the secured creditors
showed their desire to complete dacion en pago transactions, but they must
be "based on MUTUALLY AGREED UPON TERMS." The SEC En Banc
in its Resolution dated April 15, 2003, affirming the SEC Hearing Panels
Order of April 26, 2001 approving the Rehabilitation Plan, aptly declared:
x x x, petitioner asserts that the Rehabilitation Plan is not legally feasible
because respondents cannot dictate the terms of dacion.
We do not agree. A cursory reading of the Rehabilitation Plan debunks this
assertion. The Plan provides that dacion en pago transaction will be
effected only if the secured creditors, like petitioner, agree thereto and

under terms and conditions mutually agreeable to private respondents and

the secured creditor concerned. The dacion en pago program is essential to
eventually pay all creditors and rehabilitate private respondents. If the
dacion en pago does not materialize in case secured creditors refuse to agree
thereto, the Rehabilitation Plan contemplates to settle the obligations to
secured creditors with mortgaged properties at selling prices. This is for the
general interest of the employees, creditors, unit buyers, government,
general public, and the economy.21 (Underscoring supplied)
With respect to the third assigned error, we note that the same was not
raised by petitioner bank in its Comment/Opposition to the Rehabilitation
Plan filed with the SEC Hearing Panel. Such belated issue cannot be
considered, especially because it involves a question of fact, the resolution of
which is normally beyond the authority of this Court as it is not a trier of
facts.22
At any rate, the SEC En Banc found that the SEC Hearing Panel "acted
within its legal authority in resolving this case. Neither it overstepped its
lawful authority nor acted whimsically in approving the Rehabilitation
Plan. Hence, it cannot be faulted of grave abuse of discretion."23 We find no
reason to disturb such finding, it being a fundamental rule that factual
findings of quasi-judicial agencies, like the SEC, which have acquired
expertise as their jurisdiction is confined to special matters such as the
subject of this case, are generally accorded great respect and even finality,
absent any showing that they arbitrarily disregarded evidence or
misapprehended evidence to such an extent as to compel a contrary
conclusion if such evidence had been properly appreciated.24
Petitioner bank also argues that "ASB Group of Companies" is merely a
generic name used to describe collectively various companies and as such, it
is not a legal entity with juridical personality and cannot be a party to a
suit. True, "ASB Group of Companies" is merely used in this case as a
generic name, for brevity, to collectively describe the various
companies/corporations that filed a Petition For Rehabilitation with the
SEC. However, in their petition, all the respondent corporations are
individually named as petitioners, not "ASB Group of Companies."

One last word. The purpose of rehabilitation proceedings is to enable the

company to gain new lease on life and thereby allows creditors to be paid
their claims from its earnings.25 Rehabilitation contemplates a continuance
of corporate life and activities in an effort to restore and reinstate the
financially distressed corporation to its former position of successful
operation and solvency.26 This is in consonance with the States objective to
promote a wider and more meaningful equitable distribution of wealth to
protect investments and the public.27 The approval of the Rehabilitation
Plan by the SEC Hearing Panel, affirmed by both the SEC En Banc and the
Court of Appeals, is precisely in furtherance of the rationale behind P.D.
No. 902-A, as amended, which is "to effect a feasible and viable
rehabilitation"28 of ailing corporations which affect the public welfare.
WHEREFORE, we DENY the instant petition for review on certiorari. The
assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
77260 are AFFIRMED.
Costs against intervenor Cameron Granville.
SO ORDERED.

G.R. No. 116792 March 29, 1996

BANK OF THE PHILIPPINES ISLAND and GRACE
ROMERO, petitioners,
vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.

PUNO, J.:p
Petitioners seek a review of the Decision 1 of respondent Court of Appeals in
CA-G.R. CV No. 41543 reversing the Decision 2 of the Regional Trial Court of
Quezon City, Branch 79, and ordering petitioners to credit private respondent's
Savings Account No. 3185-0172-56 with P10,556,00 plus interest.

The facts reveal that on September 25, 1985, private respondent Edvin F. Reyes
opened Savings Account No. 3185-0172-56 at petitioner Bank of the Philippine
Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR" account
with his wife, Sonia S. Reyes.
Private respondent also held a joint "AND/OR" Savings Account No. 31850128-82 with his grandmother, Emeteria M. Fernandez, opened on February 11,
1986 at the same BPI branch. He regularly deposited in this account the U.S.
Treasury Warrants payable to the order of Emeteria M. Fernandez as her
monthly pension.
Emeteria M. Fernandez died on December 28, 1989 without the knowledge of
the U.S. Treasury Department. She was still sent U.S. Treasury Warrant No.
21667302 dated January 1, 1990 in the amount of U.S. $377.00 3 or P10,556.00.
On January 4, 1990, private respondent deposited the said U.S. treasury check
of Fernandez in Savings Account No. 3185-0128-82. The U.S. Veterans
Administration Office in Manila conditionally cleared the check. 4 The check
was then sent to the United States for further clearing. 5
Two months after or on March 8, 1990, private respondent closed Savings
Account No. 3185-0128-82 and transferred its funds amounting to P13,112.91 to
Savings Account No. 3185-0172-56, the joint account with his wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it
was discovered that Fernandez died three (3) days prior to its issuance. The U.S.
Department of Treasury requested petitioner bank for a refund.6 For the first
time petitioner bank came to know of the death of Fernandez.
On February 19, 1991, private-respondent received a PT&T urgent telegram
from petitioner bank requesting him to contact Manager Grace S. Romero or
Assistant Manager Carmen Bernardo. When he called up the bank, he was
informed that the treasury check was the subject of a claim by Citibank NA,
correspondent of petitioner bank. He assured petitioners that he would drop by
the bank to look into the matter. He also verbally authorized them to debit from
his other joint account the amount stated in the dishonored U.S. Treasury
Warrant. 7 On the same day, petitioner bank debited the amount of P10,556.00
from private respondent's Savings Account No. 3185-0172-56.

On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng
visited the petitioner bank and the refund documents were shown to them.
Surprisingly, private respondent demanded from petitioner bank restitution of
the debited amount. He claimed that because of the debit, he failed to withdraw
his money when he needed them. He then filed a suit for Damages 8 against
petitioners before the Regional Trial Court of Quezon City, Branch 79.
Petitioners contested the complaint and counter claimed, for moral and
exemplary damages. By way of Special and Affirmative Defense, they averred
that private respondent gave them his express verbal authorization to debit the
questioned amount. They claimed that private respondent later refused to
execute a written authority. 9
In a Decision dated January 20, 1993, the trial court dismissed the complaint of
private respondent for lack of cause of action. 10
Private respondent appealed to the respondent Court of Appeals. On August 16,
1994, the Sixteenth Division of respondent court in AC-G.R. CV No. 41543
reversed the impugned decision, viz:
WHEREFORE, the judgement appealed from is set aside, and
another one entered ordering defendant (petitioner) to credit
plaintiff's (private respondent's) S.A. No. 3185-0172-56 with
P10,556.00 plus interest at the applicable rates for express
teller savings accounts from February 19, 1991, until
compliance herewith. The claim and counterclaim for damages
are dismissed for lack of merit.
SO ORDERED. 11
Petitioners now contend that respondent Court of Appeals erred:
I
RESPONDENT COURT OF APPEALS GRAVELY ERRED
IN NOT HOLDING THAT RESPONDENT REYES GAVE
EXPRESS AUTHORITY TO PETITIONER BANK TO
DEBIT HIS JOINT ACCOUNT WITH HIS WIFE FOR THE

VALUE OF THE RETURNED U.S. TREASURY

WARRANT.

xxx xxx xxx

Q After that, what happened?

II
RESPONDENT COURT OF APPEALS GRAVELY ERRED
IN NOT HOLDING THAT PETITIONER BANK HAS
LEGAL RIGHT TO APPLY THE DEPOSIT OF
RESPONDENT REYES TO HIS OUTSTANDING
OBLIGATION TO PETITIONER BANK BROUGHT
ABOUT BY THE RETURN OF THE U.S. TREASURY
WARRANT HE EARLIER DEPOSITED UNDER THE
PRINCIPLE OF "LEGAL COMPENSATION."
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED
IN NOT APPLYING CORRECTLY THE PRINCIPLES
ENUNCIATED BY THE SUPREME COURT IN THE CASE
OF GULLAS V. PNB, 62 PHIL. 519.
IV.
RESPONDENT COURT OF APPEALS GRAVELY ERRED
IN NOT APPRECIATING THE FACT THAT THE MONEY
DEBITED BY PETITIONER BANK WAS THE SAME
MONEY TRANSFERRED BY RESPONDENT REYES
FROM HIS JOINT "AND/OR" ACCOUNT WITH HIS
GRANDMOTHER TO HIS JOINT "AND/OR" ACCOUNT
WITH HIS WIFE. 12
We find merit in the petition.
The first issue for resolution is whether private respondent verbally
authorized petitioner bank to debit his joint account with his wife for the amount
of the returned U.S. Treasury Warrant. We find that petitioners were able to
prove this verbal authority by preponderance of evidence. The testimonies of
Bernardo and Romero deserve credence. Bernardo testified:

A . . . Dr. Reyes Called me up and I

informed him about the return of the U.S.
Treasury Warrant and we are requested to
reimburse for the amount.
Q What was his response if any?
A Don't you worry about it, there is no
personal problem.
xxx xxx xxx
Q And so what was his response?
A He said that don' t you worry about.
xxx xxx xxx
Q You said that you asked him the advice
and he did not answer, what advice are you
referring to?
A In our conversation, he promised me that
he will give me written confirmation or
authorization. 13
The conversation was promptly relayed to Romero who testified:
xxx xxx xxx
Q . . . Was there any opportunity where in
said Mrs. Bernardo was able to convey to
you the contents of their conversation?

10

A This was immediately relayed to me as

manager of the Bank of the Philippine
Islands, sir.
Q What, any was the content of her
conversation, if you know?
A Mr. Reyes instructed Mrs. Bernardo to
debit his account with the bank. His account
was maintained jointly with his wife then he
promised to drop by to give us a written
confirmation, sir.
xxx xxx xxx
Q You said that you authorized the debiting
of the account on February 19, 1991, is that
correct?
A I did not authorize, we merely followed
the instruction of Mr. Reyes, sir. 14
We are not disposed to believe private respondent's allegation that he
did not give any verbal authorization. His testimony is uncorroborated.
Nor does he inspire credence. His past and fraudulent conduct is an
evidence against him. 15 He concealed from petitioner bank the death of
Fernandez on December 28, 1989. 16 As of that date, he knew that
Fernandez was no longer entitled to receive any pension. Nonetheless,
he-still received the U.S. Treasury Warrant of Fernandez, and on
January 4, 1990 deposited the same in Savings Account No. 31850128-82. To pre-empt a refund, private respondent closed his joint
account with Fernandez (Savings Account No. 31-85-0128-82)
on March 8, 1990 and transferred its balance to his joint account with
his wife (Savings Account No. 3185-0172-56). Worse, private
respondent declared under the penalties of perjury in the withdrawal
slip 17 dated March 8, 1990 that his co-depositor, Fernandez, is still
living. By his acts, private respondent has stripped himself of
credibility.

More importantly, the respondent court erred when it failed to rule that legal
compensation is proper.Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other. 18Article 1290 of the
Civil Code provides that "when all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not
aware of the compensation." Legal compensation operates even against the will
of the interested parties andeven without the consent of them. 19 Since this
compensation takes place ipso jure, its effects arise on the very day on which all
its requisites concur. 20 When used as a defense, it retroacts to the date when its
requisites are fulfilled. 21
Article 1279 states 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.
The elements of legal compensation are all present in the case at bar.
The obligors bound principally are at the same time creditors of each
other. Petitioner bank stands as a debtor of the private respondent, a
depositor. At the same time, said bank is the creditor of the private
respondent with respect to the dishonored U.S. Treasury Warrant which
the latter illegally transferred to his joint account. The debts involved
consist of a sum of money. They are due, liquidated, and demandable.
They are not claimed by a third person.

11

It is true that the joint account of private respondent and his wife was debited in
the case at bar. We hold that the presence of private respondent's wife does not
negate the element of mutuality of parties, i.e., that they must be creditors and
debtors of each other in their own right. The wife of private respondent is not a
party in the case at bar. She never asserted any right to the debited U.S. Treasury
Warrant. Indeed, the right of the petitioner bank to make the debit is clear and
cannot be doubted. To frustrate the application of legal compensation on the
ground that the parties are not all mutually obligated would result in unjust
enrichment on the part of the private respondent and his wife who herself out of
honesty has not objected to the debit. The rule as to mutuality is strictly applied

at law. But not in equity, where to allow the same would defeat a clear right or
permit irremediable injustice. 22
In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R.
CV No. 41543 dated August 16, 1994 is ANNULLED and SET ASIDE and the
Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993
is REINSTATED. Costs against private respondent.
SO ORDERED.

12