Beruflich Dokumente
Kultur Dokumente
PHILIPPINE NATIONAL BANK, petitioner, vs. THE "The body of the decision reads:
COURT OF APPEALS and RAMON
LAPEZ,[1] doing business under the name and "'After a close scrutiny and analysis of the
style SAPPHIRE SHIPPING, respondents. pleadings as well as the evidence of both parties,
the Court makes the following conclusions:
DECISION
"'(a) The defendant applied/appropriated the
PANGANIBAN, J.: amounts of $2,627.11 and P34,340.38 from
remittances of the plaintiff's principals (sic)
Does a local bank, while acting as local abroad. These were admitted by the defendant,
correspondent bank, have the right to intercept subject to the affirmative defenses of
funds being coursed through it by its foreign compensation for what is owing to it on the
counterpart for transmittal and deposit to the principle of solution (sic) indebiti;
account of an individual with another local bank,
and apply the said funds to certain obligations "'(b) The first remittance was made by the NCB
owed to it by the said individual? of Jeddah for the benefit of the plaintiff, to be
credited to his account at Citibank, Greenhills
Assailed in this petition is the Decision of Branch; the second was from Libya, and was
respondent Court of Appeals[2] in CA-G.R. CV intended to be deposited at the plaintiff's account
No. 27926 rendered on June 16, with the defendant, No. 830-2410;
1992 affirming the decision of the Regional Trial
Court, Branch 107 of Quezon City, the (c) The plaintiff made a written demand upon
dispositive portion of which read:[3] the defendant for remittance of the equivalent of
P2,627.11 by means of a letter dated December
"WHEREFORE, judgment is hereby rendered: 4, 1986 (Exh. D). This was answered by the
defendant on December 22, 1986 (Exh. 13),
1) In the main complaint, ordering the defendant inviting the plaintiff to come for a conference;
(herein petitioner PNB) to pay the plaintiff
(private respondent herein) the sum of "'(d) There were indeed two instances in the
US$2,627.11 or its equivalent in Philippine past, one in November 1980 and the other in
currency with interest at the legal rate from January 1981 when the plaintiff's account No.
January 13, 1987, the date of judicial demand; 830-2410 was doubly credited with the
equivalents of $5,679.23 and $5,885.38,
2) The plaintiff's supplemental complaint is respectively, which amounted to an aggregate
hereby dfismissed (sic); amount of P87,380.44. The defendant's evidence
on this point (Exhs. 1 thru 11, 14 and 15; see
also Annexes C and E to defendant's Answer), limitations. The trial court's ratiocination, as
were never refuted nor impugned by the quoted by the appellate Court, follows:[5]
plaintiff. He claims, however, that plaintiffs
claim has prescribed. "'Article 1279 of the Civil Code provides:
"'(e) Defendant PNB made a demand upon the "'In order that compensation may prosper, it is
plaintiff for refund of the double or duplicated necessary:
credits erroneously made on plaintiff's account,
by means of a letter (Exh. 12) dated October 23, (1) That each one of the obligors be bound
1986 or 5 years and 11 months from November principally, and that he be at the same time a
1980, and 5 years and 9 months from January principal creditor of the other;
1981. Such letter was answered by the plaintiff
on December 2, 1986 (Annex C, (2) That both debts consists in a sum of money, or if
Complaint). This plaintiff's letter was likewise the things due are consumable, they be of the
replied to by the defendant through Exh. 13; same kind, and also of the same quality if the
latter has been stated;
"'(f) The deduction of P34,340.38 was made by
the defendant not without the knowledge and (3) That the two debts be due;
consent of the plaintiff, who was issued a receipt
No. 857576 dated February 18, 1987 (Exh. E) (4) That they be liquidated and demandable;
by the defendant.
(5) That over neither of them there by any retention
"'There is no question that the two erroneous or controversy, commenced by third persons and
double payments made to plaintiff's accounts in communicated in due time to the debtor."'
1980 and 1981 created an extra-contractual
obligation on the part of the plaintiff in favor of "'In the case of the $2,627.11, requisites Nos. 2
the defendant, under the principle of solutio through 5 are apparently present, for both debts
indebiti, as follows: consist in a sum of money, are both due,
liquidated and demandable, and over neither of
"'If something is received when there is no right them is there a retention or controversy
to demand it, and it was unduly delivered commenced by third persons and communicated
throughg (sic) mistake, the obligation to return it in due time to the debtor. The question, however,
arises."' (Article 2154, Civil Code of the Phil.) is, where both of the obligors bound principally,
and was each one of them a debtor and creditor
Two issues were raised before the trial of the other at the same time?
court, namely, first, whether the herein petitioner
was legally justified in making the compensation "'Analyzing now the relationship between the
or set-off against the two remittances coursed parties, it appears that:
through it in favor of private respondent to
recover on the double credits it erroneously "'(a) With respect to the plaintiff's being a
made in 1980 and 1981, based on the principle depositor of the defendant bank, they are
of solutio indebiti, and second, whether or not creditor and debtor respectively (Guingona, et
petitioner's claim is barred by the statute of al. vs. City Fiscal, et al., 128 SCRA 577);
"'(b) As to the relationship created by the telexed principal creditor insofar as the amount of
fund transfers from abroad: A contract between a $2,627.11 is concerned. They are debtor and
foreign bank and local bank asking the latter to creditor only with respect to the double
pay an amount to a beneficiary is a payments; but are trustee-beneficiary as to the
stipulation pour autrui.(Bank of America NT & fund transfer of $2,627.11.
SA vs. IAC, 145 SCRA 419).
"'Only the plaintiff is principally bound as a
"'A stipulation pour autrui is a stipulation in debtor of the defendant to the extent of the
favor of a third person (Florentino vs. double credits. On the other hand, the defendant
Encarnacion, 79 SCRA 193; Bonifacio was an implied trustee, who was obliged to
Brothers vs. Mora, 20 SCRA 261; Uy deliver to the Citibank for the benefit of the
Tam vs. Leonard, 30 Phils. 475). plaintiff the sum of $2,627.11.
"'Thus between the defendant bank (as the local "'Thus while it may be concluded that the
correspondent of the National Commercial Bank plaintiff owes the defendant the equivalent of the
of Jeddah) and the plaintiff as beneficiary, there sums of $5,179.23 and $5,885.38 erroneously
is created an implied trust pursuant to Art. 1453 doubly credited to his account, the defendant's
of the Civil Code, quoted as follows: actuation in intercepting the amount of
$2,627.11 supposed to be remitted to another
"'When the property is conveyed to a person in bank is not only improper; it will also erode the
reliance upon his declared intention to hold it trust and confidence of the international banking
for, or transfer it to another or the grantor, there community in the banking system of the country,
is an implied trust in favor of the person whose something we can ill afford at this time when we
benefit is contemplated (sic). need to attract and invite deposits of foreign
currencies."'
"'c) By the principle of solutio indebiti (Art.
2154, Civil Code), the plaintiff who unduly "It would have been different has the telex
received something (sic) by mistake (i.e., the 2 advice from NCB of Jeddah been for deposit of
double credits, although he had no right to $2,627.11 to plaintiffs account No. 830-2410
demand it), became obligated to the defendant to with the defendant bank. However, the
return what he unduly received. Thus, there was defendant alleged this for the first time in its
created between them a relationship of obligor Memorandum (Pls. see par. 16, p. 6 of
and obligee, or of debtor and creditor under a defendant's Memorandum). There was neither
quasi-contract. any allegation thereof in its pleadings, nor was
there any evidence to prove such fact. On the
"In view of the foregoing, the Court is of the contrary, the defendant admitted that the telex
opinion that the parties are not both principally advice was for credit of the amount of $2,627.11
bound with respect to the $2,627.11 from Jeddah to plaintiffs account with Citibank, Greenhills,
neither are they at the same time principal San Juan, MetroManila (Pls. see par. of
creditor of the other.Therefore, as matters stand, defendant's Answer with Compulsory
the parties' obligations are not subject to Counterclaim, in relation to plaintiff's
compensation or set off under Art. 1279 of the Complaint). Hence, it is submitted that the set-
Civil Code, for the reason that the defendant is off or compensation of $2,627.11 against the
not a principal debtor nor is the plaintiff a
double payments to plaintiff's account is not in This conclusion is borne by the fact that the
accordance with law. receipt is in the hands of the plaintiff, indicating
that such receipt was handed over to the plaintiff
"'On this point, the Court finds the plaintiff's when he "paid" or allowed the deduction from
theory of agency to be untenable. For one thing, the amount of $28,392.38 from Libya.
there was no express contract of agency. On the
other hand, were we to infer that there was an "'At any rate, the plaintiff in his Memorandum,
implied agency, the same would not be between stated that the subsequent fund transfer from
the plaintiff and defendant, but rather, between Brega Petroleum Marketing Company of Libya
the National Commercial Bank of Jeddah as (from where the P34,340.38 was deducted) was
principal on the one hand, and the defendant as intended for credit and deposit in plaintiff's
agent on the other. Thus, in case of violation of account at the defendant's Bank CA No. 830-
the agency, the cause of action would accrue to 2410 (per par. 1, page 2, Memorandum for the
the NCB and not to the plaintiff. plaintiff). Such being the case, the Court
believes that insofar as the amount of
"'The P34,340.38 subject of the supplemental P34,340.38 is concerned, all the requirements of
complaint is quite another thing. The plaintiff's Art. 1279 of the Civil Code are present, and the
Exh. "E", which is a receipt issued to the said amount may properly be the subject of
plaintiff by the defendant for the amount of compensation or set-off. And since all the
P34,340.00 in "full settlement of accounts requisites of Art. 1279 of the Civil Code are
receivables with RICB Fund Transfer present (insofar as the amount of P34,392.38 is
Department, PNB-Escolta base on Legal concerned), compensation takes place by
Department Memo dated February 28, 1987" operation of law (Art. 1286, Ibid.), albeit only
seems to uphold the defendant's theory that the partial with respect to plaintiff's indebtedness of
said amount was voluntarily delivered by the P7,380.44.
plaintiff to the defendant as alleged in the last
paragraph of defendant's memorandum. The "Now, on the question of prescription, the Court
same is in accordance with the defendant's believes that Art. 1149 as cited by the plaintiff is
answer, as follows: not applicable in this case. Rather, the applicable
law is Art. 1145, which fixes the prescriptive
"The retention and application of the amount of period for actions upon a quasi-contract (such
P34,340.38 was done in a manner consonant as solutio indebiti) at six years.
with basic due process considering that
plaintiff was not only furnished documented pro In the dispositive portion of its decision, the
of of the cause but wasalso given the opportunit trial court ruled that the herein petitioner was
y to con(tro)vert such Proof. obligated to pay private respondent the amount
of US$2,627.11 or its peso equivalent, with
"Moreover, plaintiff, through counsel, communi interest at the legal rate. The court dismissed all
cated his unequivocal and unconditional consent other claims and counterclaims.
to the retention and application of the amount in
question." (Pls. see paragraphs 8-9, defendant's On appeal to the respondent Court,
Answer with Compulsory Counterclaim to petitioner bank continued to insist that it validly
Plaintiff's Supplemental Complaint)." retained the US$2,627.11 in payment of the
private respondent's indebtedness by way of
compensation or set-off, as provided under Art. he remittance arrangement that it has with the N
1279 of the Civil Code. CB. With its responsibility as defined as well as
by the nature of its banking business and the
The respondent Court of Appeals rejected responsibility attached to it, and through which
such argument, saying: the industry, trade and commerce of all countries
and communities are carried on, the PNB's
"The telegraphic money transfer was sent by the liability as corresponden(t) bank continues until
IBN, plaintiff's principal in Jeddah, Saudi it has completgely (sic) performed and
Arabia, thru the National Commercial Bank of discharged it(s) obligation thereunder."
Jeddah, Saudi Arabia (NCB, for short), for the (underscoring ours)
credit/account of Plaintiff with the Citibank,
Greenhills Branch, San Juan, Metro Manila, Hence, the respondent Court affirmed the
coursed thru the PNB's head office, the NCB's trial court's holding in toto.
corresponden(t) bank in the Philippines.
Dissatisfied, petitioner bank comes before
"The credit account, or simply account means this Court seeking a review of the assailed
that the amount stated in the telegraphic money t Decision.
ransfer is to be credited in the account of plaintif
f with the Citibank, and, in that sense, presuppos The Issue
es a creditor-debtor relationship between the plai
ntiff, as creditor and the Citibank, as debtor. Wit Petitioner's arguments revolve around one
hal the telegraphic money transfer, no such credi single issue:[6]
tor-debtor relationship could have been created b
etween the plaintiff anddefendant. "WHILE THE RESPONDENT COURT
CORRECTLY FOUND PRIVATE
"The telegraphic money transfer, or simply RESPONDENT LEGALLY BOUND (UNDER
telegraphic transfer(,) was purchased by the IBN THE PRINCIPLE OF SOLUTIO INDEBITI)
from the NCB in Saudi Arabia, and since the TO RETURN TO PNB THE SUM OF
PNB is the NCB's corresponden(t) bank in the US$2,627.11, IT ERRED IN NOT RULING
Philippines, there is created between the two THAT LEGAL COMPENSATION HAS
banks a sort of communication exchange for the TAKEN PLACE WHEN PNB WAS ORDERED
corresponden(t) bank to transmit and/or remit BY THE TRIAL COURT TO RETURN TO
and/or pay the value of the telegraphic transfer PRIVATE RESPONDENT THE SAME
in accordance with the dictate of the AMOUNT. SUCH COURSE OF ACTION IS IN
correspondence exchange. Some such CONSONANCE WITH SPEEDY AND
responsibility of the corresponden(t) bank is SUBSTANTIAL JUSTICE, AND WOULD
akin to Section 7 of the Rules and Regulations PREVENT THE UNNECESSARY FILING OF
Implementing E.O. 857, as amended by E.O. A SUBSEQUENT SUIT BY PNB FOR THE
925, "x x x to take charge of the prompt COLLECTION OF THE SAME AMOUNT
payment" of the telegraphic transfer, that is, FROM PRIVATE RESPONDENT."
by transmitting the telegraphic money transfer to
the Citibank so that the amount can be promptly The Court's Ruling
credited to the account of the plaintiff with the s
aid bank. That is all that the PNB can do under t We note that in framing the issue in the
manner aforecited, the petitioner implicitly
admits the correctness of the respondent Court's that petitioner bank ends up in exactly the same
affirmance of the trial court's ruling finding position as when it first took the improper and
herein petitioner liable to private respondent for unwarranted shortcut by intercepting the said
the sum of US$2,627.11 or its peso money transfer, notwithstanding the assailed
equivalent. And it could not have done Decision saying that this could not be done!
otherwise. After a careful scrutiny of both the
decision of the trial court and that of the We see in this petition a clever ploy to use
appellate court, we find no reversible error this Court to validate or legalize an improper act
whatsoever in either ruling, and see no need to of the petitioner bank, with the not impossible
add to the extensive discussions already made intention of using this case as a precedent for
regarding the non-existence of all the requisites similar acts of interception in the future. This
for legal compensation to take place. piratical attitude of the nation's premier bank
deserves a warning that it should not abuse the
But petitioner has adopted a novel theory, justice system in its collection efforts,
contending that since respondent Court found particularly since we are aware that if the
that private respondent is "an obligor of PNB petitioner bank had been in good faith, it could
and the latter, as aforesaid, has become an have easily disposed of this controversy in ten
obligor of private respondent (resulting in legal minutes flat by means of an exchange of checks
compensation), the (h)onorable respondent court with private respondent for the same
should have ordered private respondent to pay amount. The litigation could have ended there,
PNB what the latter is bound by the trial court's but it did not. Instead, this plainly unmeritorious
decision to return the former.[7] case had to clog our docket and take up the
valuable time of this Court.
By this simplistic approach, petitioner in
effect seeks to render nugatory the decisions of WHEREFORE, the instant petition is
the trial court and the appellate Court, and have herewith DENIED for being plainly
this Court validate its original misdeed, thereby unmeritorious, and the assailed Decision is
making a mockery of the entire judicial process AFFIRMED in toto. Costs against petitioner.
of this country. What the petitioner bank is
effectively saying is that since the respondent SO ORDERED.
Court of Appeals ruled that petitioner
bank could not do a shortcut and simply [G.R. No. 111890. May 7, 1997]
intercept funds being coursed through it, for
transmittal to another bank, and eventually to be CK INDUSTRIAL AND DEVELOPMENT
deposited to the account of an individual who CORPORATION and RUBI
happens to owe some amount of money to the SAW, petitioners, vs. THE COURT OF
petitioner, and because respondent Court ordered APPEALS, (FORMER 13TH DIVISION),
petitioner bank to return the intercepted amount THE REGISTER OF DEEDS OF METRO
to said individual, who in turn was found by the MANILA - DISTRICT III (VALENZUELA),
appellate Court to be indebted to petitioner bank, CENTURY-WELL PHIL. CORPORATION,
THEREFORE, there must now be legal LOURDES CHONG, CHONG TAK KEI and
compensation of the amounts each owes the UY CHI KIM, respondents.
other, and hence, there is no need for petitioner
bank to actually return the amount, and finally, DECISION
TORRES, JR., J.: Lourdes Chong, Chong Tak Kei, Uy Chi Kim,
and the Register of Deeds of Metro Manila,
The present petition springs from a civil District III (Valenzuela)." The trial court's
action instituted by herein petitioners, to rescind decision stated pertinently:
and/or annul the sale of two parcels of land,
from petitioner CKH Industrial and "WHEREFORE, in view of the foregoing,
Development Corporation (CKH, for brevity) to judgment is hereby rendered in favor of plaintiff:
private respondent Century-Well Phil.
Corporation (Century-Well, for brevity), for 1. Ordering the rescission/annulment of the
failure to pay the stipulated price Deed of Absolute Sale of Realty.
of P800,000.00.
2. Ordering defendants Lourdes Chong, Chong
Petitioners specifically assail the Tak Kei and Century-Well to pay plaintiffs
[1]
Decision of the respondent Court of Appeals, moral damages in the sum of P200,000.00;
which denied the annulment of the sale. The
appellate court found that there was payment of 3. Ordering defendants Lourdes Chong, Chong
the consideration by way of compensation, and Tak Kei and Century Well to pay plaintiffs
ordered petitioners to pay moral damages and Attorney's fees in the amount of 15% of the
attorney's fees to private respondents. The agreed price of P800,000.00 plus appearance
dispositive portion of the questioned decision fees of P500.00 per appearance;
reads:
4. Ordering defendants Lourdes Chong, Chong
"WHEREFORE, in view of all the foregoing, Tak Kei and Century Well to pay the costs of
the appealed Decision is REVERSED. The suit;
complaint is DISMISSED with costs against the
plaintiffs. The plaintiffs jointly and severally are 5. As the writ of preliminary injunction was
required to pay each of the defendants Lourdes denied, the defendant Register of Deeds of
Chong, Chong Tak Kei, and Uy Chi Kim moral Valenzuela is hereby ordered to cancel the
damages of P20,000.00; and further requiring certificates of title issued to Century-Well by
the plaintiffs, jointly and severally, to pay to virtue of the Deed of Absolute Sale of Realty
each of the defendants Century-Well and to reissue a new title in the name of CKH.
Phil. Corporation, Lourdes Chong, Chong Tak
Kei and Uy Chi Kim attorney's fees The case is dismissed as far as defendant Uy Chi
of P20,000.00 Kim is concerned. His counterclaim is likewise
dismissed considering that by his mediation he
With costs in this instance against the plaintiffs- took it upon himself to assume the damages he
appellees. allegedly suffered.
SO ORDERED."[2] SO ORDERED."[3]
The said decision reversed the disposition The records disclose that petitioner CKH is
of the Regional Trial Court of Valenzuela, the owner of two parcels of land, consisting of
Branch 172 in Civil Case No. 2845-V-88 entitled 4,590 sq. m. and 300 sq. m. respectively, located
"CKH Industrial & Development Corporation in Karuhatan, Valenzuela, and covered by
vs. Century-Well Philippine Corporation, Transfer Certificates of Title Nos. 8710 and
8711, Register of Deeds of Caloocan City (now representative, Ms. RUBI SAW, hereinafter
Register of Deeds District III [Valenzuela]). referred to as VENDOR,
[4]
CKH is a corporation established under
Philippine law by the late Cheng Kim Heng - in favor of -
(Cheng), an immigrant of Chinese
descent. Upon Cheng's demise, control over the CENTURY-WELL PHIL. CORPORATION, a
petitioner corporation was transferred to Rubi corporation duly organized and existing under
Saw, also of Chinese descent, and Cheng's and by virtue of the laws of the Republic of the
second wife. Philippines at least sixty (60%) percent of the
subscribed capital stock of which is owned by
It also appears that before coming to the Filipino citizens, duly qualified to own and
Philippines, Cheng Kim Heng was married to acquire lands in the Philippines, with office and
Hung Yuk Wah (Wah), who lived in Hongkong business address at 66 F Bautista St.,
together with their children, Chong Tak Kei, Valenzuela, Metro Manila and represented in
(Kei), Chong Tak Choi (Choi), and Chong Tak this act by its Treasurer and authorized
Yam (Yam). After Cheng immigrated to the representative, Ms. Lourdes Chong, hereinafter
Philippines in 1976, and married Rubi Saw in referred to as VENDEE,
1977, he brought his first wife, Heng, and their
children to this country, and established himself WITNESSETH:
and his Chinese family as naturalized Filipino
citizens. Heng died in 1984. That vendor is the registered owner of two
adjacent parcels of residential land situated in
On May 8, 1988, Rubi Saw and Lourdes the Bo. of Karuhatan, Municipality of
Chong, the wife of Cheng's son, Kei, met at the Valenzuela, Metro Manila, covered by Transfer
1266 Soler St., Sta. Cruz, Manila, the residence Certificates of Titles Nos. B-8710 and B-8711 of
of Cheng's friend, Uy Chi Kim, and executed a the Registry of Deeds for Metro Manila District
Deed of Absolute Sale,[5] whereby Rubi Saw, III, and more particularly described as follows:
representing CKH, agreed to sell the subject
properties to Century-Well, a corporation owned xxx
in part by Lourdes Chong, Kei and Choi.[6]
That for and in consideration of the sum of
The pertinent portions of the Deed of Sale EIGHT HUNDRED THOUSAND
are hereby reproduced: (P800,000.00) PESOS, Philippine Currency,
paid by VENDEE to VENDOR, receipt of which
"KNOW ALL MEN BY THESE PRESENTS: is hereby acknowledged by the latter to its entire
satisfaction, said VENDOR, by these presents,
This Deed of Absolute Sale of Realty executed has SOLD, CEDED, TRANSFERRED, and
by and between: CONVEYED by way of absolute sale unto said
VENDEE, its successors and assigns, the two
CKH INDUSTRIAL & DEVELOPMENT parcels of land above described and any and all
CORPORATION, a corporation duly organized improvements therein;
and existing under and by virtue of the laws of
the Republic of the Philippines, with business That the above-described parcels of land are free
address at 553 Bermuda St., Sta. Cruz, Manila, from liens and encumbrances of whatever kind
represented in this act by its authorized and nature.
IN WITNESS WHEREOF, the parties hereto place. During the meeting, Uy Chi Kim who was
and their instrumental witnesses have hereunto there presented to Rubi Saw a Deed of Absolute
set their hand on ________ at ________." Sale in favor of defendant Century Well for her
signature. Before Rubi Saw signed the Deed of
Rubi Saw signed on behalf of CKH, while Absolute Sale she inquired about the payment
Lourdes Chong signed for Century Well. [7] The of the P800,000.00. Defendant Uy Chi Kim
document was notarized the day after the parties presented to her a personal check but she refused
signed the same, i. e., March 9, 1988.[8] the same because it was contrary to her
arrangement with Lourdes Chong that the
Claiming that the consideration for the sale payment would be in the form of Manager's
of the subject properties was not paid by the Check. Uy Chi Kim then explained to Rubi Saw
private respondent-vendee despite several that since it was a Sunday that day, they were
demands to do so, Petitioners CKH and Rubi unable to obtain the Manager's Check. He
Saw filed the instant complaint [9] on May 23, assured her that he had sufficient cash money at
1988, with the Regional Trial Court of the first floor of his residence which is a store
Valenzuela, Branch 172, against Century-Well, owned by Uy Chi Kim. Before Uy Chi Kim left
Lourdes Chong, Chong Tak Kei and Uy Chi on the pretext of getting the money, he
Kim. Petitioners prayed for the persuaded plaintiff Rubi Saw to sign the Deed of
annulment/rescission of the Deed of Absolute Absolute Sale and give the same to Lourdes
Sale, and in the meantime, for the issuance of a Chong together with the two Certificates of
writ of preliminary injunction restraining the Title. Since Uy Chi Kim is an elderly Chinese
Register of Deeds of Valenzuela from registering whom Rubi Saw had no reason to mistrust,
the Certificates of Title over the subject following Chinese custom, plaintiff Rubi Saw
properties in the name of the private respondent acceded to the request of Uy Chi Kim, trusting
Century-Well. that he had sufficient cash amounting
to P800,000.00 kept in the first floor of his
The trial court synthesized the petitioners' residence. When Uy Chi Kim returned, he told
submissions as follows: Rubi Saw that he had only P20,000 on hand. He
assured plaintiff, however, that there was no
"The complaint alleges the following: cause for her to worry (as) he was certain he
would have the entire amount ready by the next
Lourdes Chong and Rubi Saw agreed that the day when the banks would be open. Again,
full payment of P800,000.00 as purchase price trusting the elderly defendant Uy Chi Kim, Rubi
shall be in the form of a Manager's Check, to be Saw did not object and did not insist on the
delivered to Rubi Saw upon the execution of the return of the Deed of Absolute Sale that she
Deed of Sale, the preparation of which, Lourdes signed, together with the Certificate of Title
Chong undertook. On May 8, 1988, the date which she delivered to Lourdes Chong. The next
agreed upon for the execution of the Deed of day, May 9, 1988 Rubi Saw called Lourdes
Sale, plaintiff Rubi Saw, accompanied by her Chong and Uy Chi Kim over the telephone but
friend Aurora Chua Ng, went to 1266 Soler St., was told they were not around. She could not go
Sta. Cruz, Manila which is the residence and to the residence of Uy Chi Kim because she
place of business of defendant Uy Chi Kim, an could not leave her office due to business
elderly man of Chinese ancestry and the place concerns. On May 10, 1988 Rubi Saw
suggested by Lourdes Chong as their meeting repeatedly called the two but was informed they
were not around. On May 11, 1988 already and Chong Tak Kei (Exh. 6, 7, & 8) and
anxious, she personally went to the residences payment of P100,000.00 in cash.
and offices of the two defendants but they were
not around. On May 12, 1988 Rubi Saw wrote The defendant Century Well filed its Answer
defendant Century Well advising Lourdes Chong stating that during the operation of plaintiff
of the rescission and cancellation of the Deed of CKH, the latter borrowed from Chong Tak Choi
Absolute Sale because of lack of consideration. and Chong Tak Kei the total sum of P700,000.00
Lourdes Chong refused to receive the paying interest on P300,000.00 while the
letter. Thereafter, several demand letters were remaining P400,000.00 was interest free, and
sent to the defendants but they refused to pay upon the death of Cheng Kim Heng, it stopped
plaintiffs. Worried that defendants might making said payments. Defendant tried to prove
surreptitiously transfer the certificates of title to that the source of this P700,000 was Hung Yuk
their names, Rubi Saw wrote the public Wah while she was still residing in Hongkong,
defendant Register of Deeds on May 16, 1988, sent via bank draft from Hongkong to Chong
giving information about the circumstances of Tak Choi and Chong Tak Kei on a bank to bank
the sale and requesting not to allow registration transfer. Defendant likewise tried to prove that
of the Deed of Absolute Sale, together with an after the death of Cheng Kim Heng, Rubi Saw
Affidavit of Adverse Claim. On May 20, 1988, unilaterally arrogated to herself the executive
plaintiffs' representative was informed by the positions in plaintiff corporation such as
Register of Deeds that defendants have made President, Secretary, Treasurer and General
representations with defendant to Registerthe Manager; thus effectively shunting aside Hung
Deed of Absolute Sale on May 23, 1988. Yuk Wah and her children in the management of
plaintiff corporation. Family differences (arose)
Plaintiff Rubi Saw filed this Complaint alleging between Rubi Saw on one hand, and Hung Yuk
that Lourdes Chong and Uy Chi Kim Wah and her children on the other hand which
maliciously misled her to believe that they turned to worst after the death of Cheng Kim
would pay the P800,000 as consideration when Heng. This brought about the entry of Chinese
in fact they had no intention to pay plaintiffs, mediators between them, one of whom is
and prayed that they should be awarded moral defendant Uy Chi Kim, a reason why the
damages; that defendants be restrained from execution of the Deed of Absolute Sale was to
registering the Deed of Absolute Sale, and be be done at the residence and business address of
ordered to return to them the 2 titles of the Uy Chi Kim."[11]
properties together with the Deed of Absolute
Sale."[10] Uy Chi Kim, on the other hand, answered
on his behalf, that:
On the other hand, private respondents
Century-Well, Lourdes Chong, and Chong Tak "...his only participation in the transaction was
Kei alleged that: as a mediator, he being one of the closest friends
of Cheng Kim Heng; that because the heirs of
"...the consideration for the two parcels of land Cheng Kim Heng could not settle their problems
was paid by means of off-setting or legal he, together with Machao Chan and Tomas
compensation in the amount of P700,000 thru Ching tried to mediate in accordance with
alleged promissory notes executed by Cheng Chinese traditions; that after long and tedious
Kim Heng in favor of his sons Chong Tak Choi meetings the parties finally agreed to meet at his
residence at 1266 Soler St., Sta. Cruz, Manila and Chong Tak Kei. On the contrary, it provided
for the purpose of pushing thru the sale of the for payment in cash, in the amount
properties in question as part of the settlement of of P800,000.00. The evidence presented,
the estate. Defendant Uy Chi Kim corroborated however, did not disclose that payment of the
the defense of his co-defendants that the said amount had ever been made by the private
purchase price of the properties respondent. Moreover, there cannot be any valid
was P800,000.00 the payment of which consists off-setting or compensation in this case, as
in the form of P100,000.00 in cash Philippine Article 1278 of the Civil Code [14] requires, as a
Currency; and the balance of P700,000.00 will prerequisite for compensation, that the parties be
be applied as a set-off to the amount borrowed mutually bound principally as creditors and
by plaintiff CKH from Chong Tak Choi and debtors, which is not the case in this
Chong Tak Kei. He advanced the amount instance. The rescission of the contract is,
of P100,000.00 by way of his personal check to therefore, called for, ruled the court.
Rubi Saw but because Rubi Saw refused, he
gave Rubi Saw P100,000 in the form of P100 Upon appeal, the respondent Court of
bills which Rubi Saw and Jacinto Say even Appeals reversed the findings and
counted. After the P100,000.00 cash was given pronouncements of the trial court. In its
and the promissory notes, Rubi Saw signed the Decision[15] dated April 21, 1993, the appellate
document of sale. It was during the registration court expressed its own findings, that the
of the sale that a problem arose as to the execution of the Deed of Absolute Sale was in
payment of the capital gains (tax) which Rubi settlement of a dispute between Rubi Saw and
Saw refused to pay. The buyer likewise refused the first family of Cheng Kim Heng, which
to pay the same. The complaint against him is arose upon Cheng's death. The appellate court
baseless and which besmirched his described the history of their dispute as follows:
reputation. Hence his counterclaim for
damages."[12] "In 1977, Heng formed plaintiff-appellee CKH
Industrial & Development Corporation (CKH),
The trial court denied the petitioners' prayer with his first wife Wah, children Choi and Kei,
for issuance of the writ of preliminary injunction and second wife Rubi as his co-
in its Order dated August 4, 1988.[13] incorporators/stockholders, along with other
individuals (Exhs. C and D; ibid., p. 9 and pp.
After trial, the lower court rendered its 10-13, respectively). On April 15 and July 17 the
Decision on February 4, 1991, finding that the following year, Heng, on behalf of CHK [sic],
annulment of the Deed of Absolute Sale was obtained loans of P400,000.00 and P100,000.00
merited, as there was no payment of the from Choi, for which Heng executed two
stipulated consideration for the sale of the real promissory notes in Choi's favor (Exhs. 6 and
properties involved to Rubi Saw. 7; ibid., p. 40 and p. 41, respectively). On
November 24, 1981, Heng obtained from his
In the first place, said the court, the Deed of other son, Kei, another loan this time in the sum
Sale itself, which is the best evidence of the of P200,000.00 on behalf of CKH for which he
agreement between the parties, did not provide issued another promissory note (Exh. 8, ibid., p.
for payment by off-setting a portion of the 42).
purchase price with the outstanding obligation of
Cheng Kim Heng to his sons Chong Tak Choi
After its incorporation, CKH acquired two mediation efforts which resulted in the
parcels of land situated in Karuhatan, withdrawal by Rubi Saw of her letter about the
Valenzuela, Bulacan (now Metro Manila) withholding of a license to American Metals,
covered by Transfer Certificates of Title Nos. B- Inc. and much later, had culminated in the
8710 (Annex A-Complaint; Record, p. 13) and transaction now under litigation.
B-8711 (Annex B-Complaint; ibid., p. 14),
which are now the subject of litigation in instant The formula for settlement in the dispute was for
case. the Valenzuela properties of CKH to be sold to
Century Well for the amount
On October 11, 1982, Kei was married to of P800,000.00, P100,000.00 of which will be
defendant-appellant Lourdes Chong nee Lourdes paid in cash and the balance of P700,000.00 to
Gochico Hai Huat (Lourdes). During their be set-off by the three (3) promissory notes
marriage, Kei and Lourdes resided in the house executed in behalf of CKH in favor of Chong
on Tetuan St., Sta. Cruz, Manila, which CKH Tak Choi and Chong Tak Kei (Exhs. 6, 7 and 8)
was then utilizing as its office. At about this the accumulated interests thereon to be waived
time, Heng and Rubi had moved residence from as unstated consideration of the sale.
Valenzuela, Metro Manila, to Bermuda St., Sta.
Cruz, Manila. Having reached such agreement, on May 8,
1988, the parties met at the residence of Kim at
Two years later, or in late 1984, Heng died. Soler St., where the corresponding deed of
Thenceforth, there appeared to be a falling out absolute sale of realty was executed (Exhs. 11,
between Heng's first wife Wah and their three 11-A to 11-C; ibid., pp. 46-49), with mediator
children on the one hand, and his second wife Cheng and CKH stockholder and Rubi's
Rubi, on the other, which came to a head when, secretary, Jacinto Say, signing as instrumental
Rubi as president of CKH wrote a letter dated witnesses. After having received the cash
August 21, 1985 to the mayor of Valenzuela, consideration of P100,000.00 and the
Metro Manila, to prevent issuance of a business promissory notes amounting to P700,000.00
permit to American Metals managed by Chong Rubi had signed the deed, and thereafter
Tak Choi, stating that CKH has not allowed it to delivered to Lourdes the document of sale and
make use of the property, and on November 7, the owner's copies of the certificates of title for
1985, when CKH, through counsel, demanded the two lots. The deed having been executed on
that Wah, Choi and Yam vacate the residential a Sunday, the parties agreed to have the same
and factory buildings and premises owned by notarized the following day, May 9, 1988. The
CKH and located on one of the subject lots on parties again met the next day, May 9, 1988,
76 F. Bautista St., Valenzuela, which the three when they acknowledged the deed before a
and the corporation (of which two of them were notary public."[16]
stockholders), had been allegedly illegally
occupying (Exhs. 10 and 10-A; Folio, pp. 44- In sum, the appellate court found that there
45). was indeed payment of the purchase price,
partially in cash for P100,000.00 and partially
Respected mediators from the Chinese by compensation by off-setting the debt of
community in the persons of defendant- Cheng Kim Heng to his sons Choi and Kei
appellant Uy Chi Kim, Ma Chao, Tomas Cheng for P500,000.00 and P200,000.00 respectively,
and Johnny Saw, were called in to mediate. The against the remainder of the stipulated
price. Such mode of payment is recognized to the mode of payment. Private respondents
under Article 1249[17]of the Civil Code. allege that the execution of the deed of absolute
sale was the culmination of mediation of the
As observed by the appellate court: dispute of the first and second families of Cheng
Kim Heng, over the properties of the decedent;
We are of the considered view that the appellees that the price of the real property subject of the
have not established what they claim to be the contract of sale was partly in cash, and the
invalidity of the subject deed of sale. The reminder to be compensated against Cheng's
appellees are therefore neither entitled to the indebtedness to his sons Choi and Kei, reflected
rescission or annulment of the document nor to in the promissory notes submitted as Exhibits 6,
the award made in their favor in the decision 7 and 8 during the trial; that by virtue of such
under question and those other reliefs they are compensation, the sale has been consummated
seeking.[18] and the private respondent Century-Well is
entitled to the registration of the certificates of
The question the Court is now tasked to title over the subject properties in its name.
answer is whether or not there was payment of
the consideration for the sale of real property These contrasting submissions of the
subject of this case. More specifically, was there circumstances surrounding the execution of the
a valid compensation of the obligations of subject document have led to this stalemate of
Cheng Kim Heng to his sons with the purchase sorts. Still, the best test to establish the true
price of the sale? intent of the parties remains to be the Deed of
Absolute Sale, whose genuineness and due
To resolve this issue, it is first required that execution, are unchallenged.[19]
we establish the true agreement of the parties.
Section 9 of Rule 130 of the Rules of Court
Both parties take exception to the states that when the terms of an agreement have
provisions of the Deed of Absolute Sale to been reduced to writing, it is considered as
bolster their respective claims. Petitioners, while containing all the terms agreed upon and there
submitting that as worded, the Deed of Absolute can be, between the parties and their successors-
Sale does not provide for payment by in-interest, no evidence of such terms other than
compensation, thereby ruling out the intention of the contents of the written agreement.
the parties to provide for such mode of payment,
submit on the other hand, that they had not The so-called parol evidence rule forbids
received payment of the stipulated cash payment any addition to or contradiction of the terms of a
of P800,000.00. The testimony of Rubi Saw written instrument by testimony or other
during the hearings for preliminary injunction evidence purporting to show that, at or before
and during trial was submitted to advance the the execution of the parties written agreement,
submission that she was never paid the price of other or different terms were agreed upon by the
the subject lots, in cash or in promissory notes. parties, varying the purport of the written
contract. When an agreement has been reduced
On the other side of the fence, private to writing, the parties cannot be permitted to
respondents, who, ironically, were the parties adduce evidence to prove alleged practices
who drafted the subject document, claim that the which to all purposes would alter the terms of
Deed of Sale does not express the true the written agreement. Whatever is not found in
agreement of the parties, specifically with regard
the writing is understood to have been waived However, the suitability of the said
and abandoned.[20] stipulations as benchmarks for the intention of
the contracting parties, does not come clothed
The rule is not without exceptions, with the cloak of validity. It must be
however, as it is likewise provided that a party to remembered that agreements affecting the civil
an action may present evidence to modify, relationship of the contracting parties must come
explain, or add to the terms of the written under the scrutiny of the provisions of law
agreement if he puts in issue in his pleadings: (a) existing and effective at the time of the
An intrinsic ambiguity, mistake or imperfection execution of the contract.
in the written agreement; (b) The failure of the
written agreement to express the true intent and We refer particularly to the provisions of
agreement of the parties thereto; (c) The validity the law on compensation as a mode of
of the written agreement; or (d) The existence of extinguishment of obligations. Under Article
other terms agreed to by the parties or their 1231 of the Civil Code, an obligation may be
successors in interest after the execution of the extinguished: (1) by payment or performance;
written agreement.[21] (2) by the loss of the thing due, (3) by the
condonation or remission of the debt; (4) by the
We reiterate the pertinent provisions of the confusion or merger of the rights of creditor and
deed: debtor, (5) by compensation; or (6) by novation.
Other causes of extinguishment of obligations
That for and in consideration of the sum of include annulment, rescission, fulfillment of a
EIGHT HUNDRED THOUSAND resolutory condition and prescription.
(P800,000.00) PESOS, Philippine Currency,
paid by VENDEE to VENDOR, receipt of which Compensation may take place by operation
is hereby acknowledged by the latter to its entire of law (legal compensation), when two persons,
satisfaction, said VENDOR, by these presents, in their own right, are creditors and debtors of
has SOLD, CEDED, TRANSFERRED, and each other.[23] Article 1279 of the Civil Code
CONVEYED by way of absolute sale unto said provides for the requisites of legal
VENDEE, its successors and assigns, the two compensation:
parcels of land above described and any and all
improvements therein;[22] Article 1279. In order that compensation may be
proper, it is necessary:
The foregoing stipulation is clear enough in
manifesting the vendors admission of receipt of (1) That each one of the obligors be bound
the purchase price, thereby lending sufficient, principally, and that he be at the same time a
though reluctant, credence to the private principal creditor of the other;
respondents submission that payment had been
made by off-setting P700,000.00 of the purchase (2) That both debts consist in a sum of money, or
price with the obligation of Cheng Kim Heng to if the things due are consumable, they be of the
his sons Choi and Kei. By signing the Deed of same kind, and also of the same quality if the
Absolute Sale, petitioner Rubi Saw has given latter has been stated;
her imprimatur to the provisions of the deed,
and she cannot now challenge its veracity. (3) That the two debts be due;
The same was, however, modified by a 3. Ordering the PNB to recompute in accordance
Resolution of the trial court dated May 14, 1992, with RA 7202 Mirasols indebtedness to it
which added the following paragraph: crediting to the latter payments already made as
well as the auction price of their foreclosed real
This decision should however, be interpreted estate and stipulated value of their properties
without prejudice to whatever benefits that may ceded to PNB in the dacon (sic) en pago;
have accrued in favor of the plaintiffs with the
passage and approval of Republic Act 7202 4. Whatever the result of the recomputation of
otherwise known as the Sugar Restitution Law, Mirasols account, the outstanding balance or the
authorizing the restitution of losses suffered by excess payment shall be governed by the
the plaintiffs from Crop year 1974-1975 to Crop pertinent provisions of RA 7202.
year 1984-1985 occasioned by the actuations of
government-owned and controlled agencies. SO ORDERED.[6]
(Underscoring in the original).
On August 28, 1996, petitioners moved for
[5]
SO ORDERED. reconsideration, which the appellate court
denied on January 23, 1997.
The Mirasols then filed an appeal with the
respondent court, docketed as CA-G.R. CV No. Hence, the instant petition, with petitioners
38607, faulting the trial court for not nullifying submitting the following issues for our
the dacion en pago and the mortgage contracts, resolution:
as well as the foreclosure of their mortgaged
properties. Also faulted was the trial courts 1. Whether the Trial Court has jurisdiction to
failure to award them the full money claims and declare a statute unconstitutional without notice
damages sought from both PNB and PHILEX. to the Solicitor General where the parties have
agreed to submit such issue for the resolution of
On July 22, 1996, the Court of Appeals the Trial Court.
reversed the trial court as follows:
2. Whether PD 579 and subsequent
WHEREFORE, this Court renders judgment issuances[7] thereof are unconstitutional.
REVERSING the appealed Decision and
entering the following verdict: 3. Whether the Honorable Court of Appeals
committed manifest error in not applying the
1. Declaring the dacion en pago and the doctrine of piercing the corporate veil between
foreclosure of the mortgaged properties valid; respondents PNB and PHILEX.
4. Whether the Honorable Court of Appeals The pivotal issue, which we must address,
committed manifest error in upholding the is whether it was proper for the trial court to
validity of the foreclosure on petitioners have exercised judicial review.
property and in upholding the validity of
the dacion en pago in this case. Petitioners argue that the Court of Appeals
erred in finding that it was improper for the trial
5. Whether the Honorable Court of Appeals court to have declared P.D. No.
committed manifest error in not awarding 579[12] unconstitutional, since petitioners had not
damages to petitioners grounds relied upon the complied with Rule 64, Section 3, of the Rules
allowance of the petition. (Underscored in the of Court. Petitioners contend that said Rule
original)[8] specifically refers only to actions for declaratory
relief and not to an ordinary action for
On the first issue. It is settled that Regional accounting, specific performance, and damages.
Trial Courts have the authority and jurisdiction
to consider the constitutionality of a statute, Petitioners contentions are bereft of merit.
presidential decree, or executive order.[9] The Rule 64, Section 3 of the Rules of Court
Constitution vests the power of judicial review provides:
or the power to declare a law, treaty,
international or executive agreement, SEC. 3. Notice to Solicitor General. In any
presidential decree, order, instruction, ordinance, action which involves the validity of a statute, or
or regulation not only in this Court, but in all executive order or regulation, the Solicitor
Regional Trial Courts.[10] In J.M. Tuason and General shall be notified by the party attacking
Co. v. Court of Appeals, 3 SCRA 696 (1961) we the statute, executive order, or regulation, and
held: shall be entitled to be heard upon such question.
Plainly, the Constitution contemplates that the This should be read in relation to Section 1
inferior courts should have jurisdiction in cases [c] of P.D. No. 478,[13] which states in part:
involving constitutionality of any treaty or law,
for it speaks of appellate review of final SECTION 1. Functions and Organizations (1)
judgments of inferior courts in cases where such The Office of the Solicitor General shallhave the
constitutionality happens to be in issue.[11] following specific powers and functions:
To resolve the third issue, petitioners ask us 2. The account relative to the Mirasols current
to apply the doctrine of piercing the veil of account Numbers 5186 and 5177 involving the
corporate fiction with respect to PNB and amount of THREE MILLION FOUR
PHILEX. Petitioners submit that PHILEX was a HUNDRED THOUSAND Pesos
wholly-owned subsidiary of PNB prior to the (P3,400,000.00) PNB claims against the
latters privatization. Mirasols. (PNBs Brief, p. 17)
We note, however, that the appellate court In regard to the first set of accounts, besides the
made the following finding of fact: proceeds from PNBs sale of sugar (involving the
defendant PHILEX in relation to the export
1. PNB and PHILEX are separate juridical portion of the stock), the PNB foreclosed the
persons and there is no reason to pierce the veil Mirasols mortgaged properties realizing
of corporate personality. Both existed by virtue therefrom in 1982 THREE MILLION FOUR
of separate organic acts. They had separate HUNDRED THIRTEEN THOUSAND Pesos
operations and different purposes and powers.[22] (P3,413,000.00), the PNB itself having acquired
the properties as the highest bidder.
Findings of fact by the Court of Appeals are
conclusive and binding upon this Court unless As to the second set of accounts, PNB proposed,
said findings are not supported by the evidence. and the Mirasols accepted,
[23]
Our jurisdiction in a petition for review under a dacion en pago scheme by which the Mirasols
Rule 45 of the Rules of Court is limited only to conveyed to PNB pieces of property valued at
reviewing questions of law and factual issues are
ONE MILLION FOUR HUNDRED TEN (2) That both debts consist in a sum of money, or
THOUSAND FOUR HUNDRED SIXTY-SIX if the things due are consumable, they be of the
Pesos (Ps1,410,466.00) (PNBs Brief, pp. 16-17). same kind, and also of the same quality if the
[25]
latter has been stated;
Petitioners now claim that the dacion en (3) That the two debts are due;
pago and the foreclosure of their mortgaged
properties were void for want of consideration. (4) That they be liquidated and demandable;
Petitioners insist that the loans granted them by
PNB from 1975 to 1982 had been fully paid by (5) That over neither of them there be any
virtue of legal compensation. Hence, the retention or controversy, commenced by third
foreclosure was invalid and of no effect, since persons and communicated in due time to the
the mortgages were already fully discharged. It debtor.
is also averred that they agreed to
the dacion only by virtue of a martial law Arrest, In the present case, set-off or compensation
Search, and Seizure Order (ASSO). cannot take place between the parties because:
Art. 1279. In order that compensation may be Thus, as correctly found by the Court of
proper, it is necessary: Appeals, there was nothing with which PNB was
supposed to have off-set Mirasols admitted
(1) That each one of the obligors be bound indebtedness.[27]
principally, and that he be at the same time a
principal creditor of the other; Second, compensation cannot take place
where one claim, as in the instant case, is still
the subject of litigation, as the same cannot be
deemed liquidated.[28]
With respect to the duress allegedly however, is always presumed and any person
employed by PNB, which impugned petitioners who seeks to be awarded damages due to the
consent to the dacion en pago, both the trial acts of another has the burden of proving that
court and the Court of Appeals found that there the latter acted in bad faith, with malice, or with
was no evidence to support said claim. Factual ill motive. In the instant case, petitioners have
findings of the trial court, affirmed by the failed to show malice or bad faith [32]on the part
appellate court, are conclusive upon this Court. of PNB in failing to render an accounting.
[29]
Absent such showing, moral damages cannot be
awarded.
On the fifth issue, the trial court awarded
petitioners P50,000.00 in moral damages Nor can we restore the award of attorneys
and P50,000.00 in attorneys fees. Petitioners fees and costs of suit in favor of petitioners.
now theorize that it was error for the Court of Under Article 2208 (5) of the Civil Code,
Appeals to have deleted these awards, attorneys fees are allowed in the absence of
considering that the appellate court found PNB stipulation only if the defendant acted in gross
breached its duty as an agent to render an and evident bad faith in refusing to satisfy the
accounting to petitioners. plaintiffs plainly valid, just, and demandable
claim. As earlier stated, petitioners have not
An agents failure to render an accounting to proven bad faith on the part of PNB and
his principal is contrary to Article 1891 of the PHILEX.
Civil Code.[30] The erring agent is liable for
damages under Article 1170 of the Civil Code, WHEREFORE, the instant petition is
which states: DENIED and the assailed decision of the
respondent court in CA-G.R. CV 38607
Those who in the performance of their AFFIRMED. Costs against petitioners.
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene SO ORDERED.
the tenor thereof, are liable for damages.
2. REMEDIAL LAW; APPEALS; AUTHORITY 4. ID.; ID.; ID.; NOTICE OF TRANSFER, NOT
OF SUPREME COURT TO REVIEW ERRORS REQUIRED. The impersonal character of the
NOT ASSIGNED. We note that the xerox money market device overlooks the individuals
copies of Bill No. 1298 and Bill No. 1419 or entities concerned. The issuer of a
attached by MEVER to its Brief do not contain commercial paper in the money market
the "roll-over" notations. However, MEVERs necessarily knows in advance that it would be
own exhibits before respondent Appellate Court, expeditiously transacted and transferred to any
Exhibits "3" and "3-A", do show those notations investor/lender without need of notice to said
and MEVER must be held bound by them. And issuer. In practice, no notification is given to the
although this issue may not have been squarely borrower or issuer of commercial paper of the
raised below, in the interest of substantial justice sale or transfer to the investor. Accordingly, we
this Court is not prevented from considering find no applicability herein of Article 1285, 3rd
such a pivotal factual matter that had been paragraph of the Civil Code. Rather, it is the first
overlooked by the Courts below (Heirs of paragraph of the same legal provision that is
Enrique Zambales v. CA, 120 SCRA 897 applicable which states that the debtor who has
[1983]). The Supreme Court is clothed with consented to the assignment of rights made by a
ample authority to review palpable errors not creditor in favor of a third person, cannot set up
assigned as such if it finds that their against the assignor, unless the assignor was
consideration is necessary in arriving at a just notified by the debtor at the time he gave his
decision (Tumalad v. Vicencio, 41 SCRA 146 consent, that he reserved his right to the
[1971]). compensation.
Before us, petitioner has made the following "Respondent Court of Appeals erred gravely in
Assignments of Error:chanrob1es virtual 1aw holding that payment by respondent Mever of
library P79,359.75 to the Sheriff in connection with
garnishment in certain civil cases against
A. Congeneric extinguished Mevers obligation and
could be set up as another defense to the claim
"Respondent Court of Appeals erred gravely in of petitioner Corazon Perez.
applying Article 1626 of the Civil Code, which
refers to a debtor who pays his creditor before G.
knowledge of an assignment, when what is
involved principally in the case at bar is "Respondent Court of Appeals erred gravely in
reversing the decision of the Trial Court, in obligation of defendant-appellant to Congeneric
denying the motion for reconsideration of as of September 9, 1974 was reduced to
petitioner Corazon Perez, and in granting P79,359.75.
respondent Mevers motion for resolution and/or
clarification by ordering refund of P139,141.63 "On October 7, 1974, Defendant-Appellant was
with interest at 14% per annum, and ordering served notices of garnishment in connection
payment of P10,000.00 as attorneys fees." 1 with Civil Cases Nos. 20043 and 20044 of the
Court of First Instance of Rizal against
The foregoing take issue with the following Congeneric. It consists in the citation of some
observations and findings of respondent stranger to the litigation, who is debtor to one of
Appellate Court:jgc:chanrobles.com.ph the parties to the action. By this means such
debtor stranger becomes a forced intervenor, and
". . . We agree with the appellant (MEVER) that the court, having acquired jurisdiction over his
there was legal compensation under Article 1279 person by means of the citation, requires him to
of the New Civil Code which caused the pay his debt, not to his former creditor, but to the
extinguishment of the obligation under new creditor, who is the creditor in the main
Negotiable Certificate of Indebtedness No. litigation. It is merely a case of involuntary
0352. novation by the substitution of one creditor for
another (Tayabas Land Co. v. Sharuff, 41 Phil.
"The original obligation of defendant-appellant 382, 387). Consequently, Defendant-
to Congeneric is P500,000.00 (Exhibit 1) out Appellant held the amount it still owed
of which it paid P100,000.00 on the maturity Congeneric, which is P79,359.75, as any
date of the note leaving a balance of payment to the creditor by the debtor after the
P400,000.00. latter has been judicially ordered to retain the
debt shall not be valid (see Article 1243, New
"By a Deed of Assignment dated September 9, Civil Code). On November 15, 1975, the
1974 executed by Ramon C. Mojica in favor of garnished amount was delivered by the appellant
the appellant (Exhibit 2), the latter acquired the to the deputy sheriff (Exhibit 5). Consequently,
rights of the assignor to two Congeneric bills the balance of the obligation of defendant-
Nos. 1298 for P111,973.58 which matured on appellant to Congeneric in the sum of
August 6, 1974 (Exhibit 3) and No. 1419 for P79,359.75 was extinguished and therefore no
P208,666.67 which matured on August 13, 1974 longer obligated under its Negotiable Certificate
(Exhibit 4) or a total of P320,640.25. As of of Indebtedness.
September 9, 1974, therefore, said bills were
already due and demandable. ". . . the evidence on record disclosed no notice
to defendant-appellant of the purchase by
"On the other hand, appellants obligation in appellee of part of defendant-appellants
favor of Congeneric matured on August 5, 1974. obligation prior to compensation and
As a result defendant-appellant became both a consequently its non-liability to appellee.
debtor and a creditor of Congeneric. A debtor to
the extent of P400,000.00 under the Negotiable "Prior to the telephone call of Mr. Dumadag to
Certificate of Indebtedness (Exhibit 1) and a Mr. Jesus G. Sanchez on October 7, 1974
creditor for the sum of P320,640.25. By disclosing the sale to appellee by Congeneric of
operation of law, there was partial compensation part of its promissory note, appellant was
to the extent of P320,640.25 (Articles 1281 & unaware of the sale. In fact, it was the first time
1290, New Civil Code). that it came to know of the transaction (tsn. pp.
11-12 S, August 10, 1976) so much so that upon
x x x maturity of the note on August 5, 1974,
appellant made a partial payment of
P100,000.00 not to appellee but to Congeneric.
"As a consequence of compensation, the The telephone advice to the appellant which was
confirmed in writing or October 8, 1974 was too when MEVER surrendered said Bills to
late. By that time the entire obligation of CONGENERIC. As a consequence, no legal
appellant was already extinguished by payment, compensation could have taken place because,
compensation and novation. A debtor who, for it to exist, the two debts, among other
before having knowledge of the assignment, requisites, must be due and
pays his creditor is released from his obligation demandable.chanrobles.com:cralaw:red
(Article 1626, New Civil Code).
"Art. 1279. In order that compensation may be
"Appellant correctly invoked compensation as a proper, it is necessary:jgc:chanrobles.com.ph
defense, for under Article 1285, 3rd paragraph
"(1) That each one of the obligors be found
principally, and that he be at the same time a
If the assignment is made without the principal creditor of the other;
knowledge of the debtor, he may set up
compensation of all credits prior to the same and "(2) That both debts consist in a sum of money,
also later ones until he had knowledge of the or if the things due are consumable, they be of
assignment." the same kind, and also of the same quality if the
latter has been stated;
If, in fact, Bill No. 1298 and Bill No. 1419 were
due and demandable on September 9, 1974, the "(3) That the two debts be due;
date of the assignment from MOJICA to
MEVER, or on October 3, 1974, the date of "(4) That they be liquidated and demandable;
surrender of said Bills by MEVER to
CONGENERIC, it could be rightfully said that "(5) That over neither of them there be any
legal compensation had taken place. As pointed retention or controversy, commenced by third
out by CORAZON, however, said two bills persons and communicated in due time to the
contain the following debtor."cralaw virtua1aw library
notations:jgc:chanrobles.com.ph
We note that the xerox copies of Bill No. 1298
"Bill No. 1298 Paid 8/6/74 interest only, and Bill No. 1419 attached by MEVER to its
principal roll over up to 10/4/74 (Annexes A-1, Brief do not contain the "roll-over" notations.
A-2, Petitioners Reply Brief; Exh. 3, Folder of However, MEVERs own exhibits before
Exhibits). respondent Appellate Court, Exhibits "3" and "3-
A", do show those notations and MEVER must
"Bill No. 1419 Paid 8/13/74 interest only, be held bound by them. And although this issue
principal roll over up to 10/11/74 (Annexes A, may not have been squarely raised below, in the
A-3, ibid.; Exh. 3-A, Folder of Exhibits). interest of substantial justice this Court is not
prevented from considering such a pivotal
Since, on the respective dates of maturity, factual matter that had been overlooked by the
specifically, August 6, 1974 and August 13, Courts below. 2 The Supreme Court is clothed
1974, respectively, Ramon C. Mojica was still with ample authority to review palpable errors
the holder of those bills, it can be safely not assigned as such if it finds that their
assumed that it was he who had asked for the consideration is necessary in arriving at a just
roll-overs on the said dates. MEVER was bound decision. 3
by the roll-overs since the assignment to it was
made only on September 9, 1974. The inevitable There is another aspect to this case. What is
result of the roll-overs of the principals was that involved here is a money market transaction. As
Bill No. 1298 and Bill No. 1419 were not yet defined by Lawrence Smith "the money market
due and demandable as of the date of their is a market dealing in standardized short-term
assignment by MOJICA to MEVER on credit instruments (involving large amounts)
September 9, 1974, nor as of October 3, 1974 where lenders and borrowers do not deal directly
with each other but through a middle man or 678, the investing public must be given adequate
dealer in the open market." It involves and effective protection in availing of the credit
"commercial papers" which are instruments of a borrower in the commercial paper market.
"evidencing indebtedness of any person or entity
. . ., which are issued, endorsed, sold or WHEREFORE, the judgment of respondent
transferred or in any manner conveyed to Appellate Court, dated September 3, 1979 as
another person or entity, with or without well as its Resolution dated January 16, 1981 is
recourse." 4 The fundamental function of the hereby reversed, and that of the then Court of
money market device in its operation is to match First Instance of Manila, Branch XXXI, dated
and bring together in a most impersonal manner December 27, 1976, hereby reinstated.
both the "fund users" and the "fund suppliers."
The money market is an "impersonal market", SO ORDERED.
free from personal considerations." 5 The Republic of the Philippines
market mechanism is intended to provide quick SUPREME COURT
mobility of money and securities." 6 Manila
The impersonal character of the money market
THIRD DIVISION
device overlooks the individuals or entities
concerned. The issuer of a commercial paper in
the money market necessarily knows in advance G. R. No. L-74027 December 7, 1989
that it would be expeditiously transacted and
transferred to any investor/lender without need SILAHIS MARKETING
of notice to said issuer. In practice, no CORPORATION, petitioner
notification is given to the borrower or issuer of vs.
commercial paper of the sale or transfer to the
INTERMEDIATE APPELLATE COURT
investor.
and GREGORIO DE LEON, doing business
Accordingly, we find no applicability herein of under the name and style of "MARK
Article 1285, 3rd paragraph of the Civil Code. INDUSTRIAL SALES", respondents.
Rather, it is the first paragraph of the same legal
provision that is Jaime V. Villanueva for petitioner.
applicable:jgc:chanrobles.com.ph
Tinga, Fuentes, Tagle & Malate for private
"ART. 1285. The debtor who has consented to
the assignment of rights made by a creditor in respondent.
favor of a third person, cannot set up against the
assignee the compensation which would pertain
to him against the assignor, unless the assignor
was notified by the debtor at the time he gave FERNAN, C.J.
his consent, that he reserved his right to the
compensation."cralaw virtua1aw library Petitioner Silahis Marketing Corporation seeks
in this petition for review on certiorari a reversal
x x x
of the decision of the then Intermediate
Appellate Court (IAC) in AC-G.R. CV No.
There is need to individuate a money market 67162 entitled "De Leon, etc. v. Silahis
transaction, a relatively novel institution in the Marketing Corporation", disallowing petitioner's
Philippine commercial scene. It has been counterclaim for commission to partially offset
intended to facilitate the flow and acquisition of the claim against it of private respondent
capital on an impersonal basis. And as
specifically required by Presidential Decree No.
Gregorio de Leon for the purchase price of as contained in the debit memo for unrealized
certain merchandise. profit and commission. Judge Bienvenido C.
Ejercito of said court held:
A review of the record shows that on various
dates in October, November and December, There is no question that the defendant received
1975, Gregorio de Leon (De Leon for short) from the plaintiff the items contained in Exhs.
doing business under the name and style of 'A' to 'F'. The only question is whether or not the
Mark Industrial Sales sold and delivered to defendant is entitled to set off against the claim
Silahis Marketing Corporation (Silahis for short) of the plaintiff the amount contained in the debit
various items of merchandise covered by several memo of the defendant, Exh. '1', and whether or
invoices in the aggregate amount of P 22,213.75 not the defendant is entitled to return the steel
payable within thirty (30) days from date of the wire mesh which was returned to them by
covering invoices. Allegedly due to Silahis' Borden Philippines, as shown by Exhs. '6-A' and
failure to pay its account upon maturity despite '6-B'. The Court believes that the defendant is
repeated demands, de Leon filed before the then properly chargeable for the amounts of the
Court of First Instance of Manila a complaint for unpaid invoices set forth in the complaint.
the collection of the said accounts including However, the Court also believes that the
accrued interest thereon in the amount of P plaintiff is also properly chargeable for the debit
661.03 and attorney's fees of P 5,000.00 plus memo of P 22,200.00, Exh. '1'. This is because it
costs of litigation. was proven by the defendant from the
testimonies of Isaias Fernando, Jr. and Jose Joel
The answer admitted the allegations of the Tamon that contrary to the agreement between
complaint insofar as the invoices were plaintiff and defendant that the latter was to
concerned but presented as affirmative defenses; serve the account of Dole Philippines in Davao,
[al a debit memo for P 22,200.00 as unrealized the plaintiff made a direct sale of sprockets for P
profit for a supposed commission that Silahis 111,000.00 which therreby deprives the
should have received from de Leon for the sale defendant of its corresponding commission for P
of sprockets in the amount of P 111,000.00 made 22,200.00 which the defendant would have
directly to Dole Philippines, Incorporated by the otherwise made if the plaintiff had followed its
latter sometime in August 1975 without coursing previous arrangement with the defendant.
the same through the former allegedly in However, as to the counterclaim of the
violation of the usual practice concerning sale of defendant for a cancellation of the amount of P
merchandise to Dole Philippines, Inc.; and [b] 6,000.00 for defective stainless screen wire
Silahis' claim that it is entitled to return the purchased and intended for Borden
stainless steel screen covered by Exhibits '6-A' International, Davao City, the Court believes
and '6-B' which was found defective by its that it is much too late now to present said claim
client, Borden International, Davao City, and to because the purchase was made and delivered as
have the corresponding amount cancelled from early as December 22,1975 and the proposed
its account with de Leon. return to the defendant by Borden was made on
April 1, 1976 only. The Court is not ready to
In a decision dated August 25, 1978, 1 the lower award damages to any of the parties. After
court confirmed the liability of Silahis for the deducting the amount of P 22,200.00, which is
claim of de Leon but at the same time ordered the unpaid commission of the defendant from
that it be partially offset by Silahis' counterclaim the principal total amount of the unpaid invoices
of the plaintiff of P 22,213.75, the unpaid We have carefully gone over the record of this
balance in favor of the plaintiff is P 13.75. The case particularly the debit memo upon which
claim for interest and attorney's fees of the petitioner's counterclaim rests and found nothing
plaintiff may be offset against the interest and contained therein to show that private
attorney's fees of the defendant. respondent obligated himself to set-off or
compensate petitioner's outstanding accounts
WHEREFORE, judgment is hereby rendered in with the alleged unrealized commission from the
favor of the plaintiff and against the defendant assailed sale of sprockets in the amount of P
ordering the defendant to pay to the plaintiff the 111,000.00 to Dole Philippines, Inc.
amount of P 13.75, with interest at 12% per
annum from the date of the filing of the action It must be remembered that compensation takes
on July 1, 1976 until fully paid, without place when two persons, in their own right, are
pronouncement as to costs. creditors and debtors to each other. Article 1279
of the Civil Code provides that: "In order that
SO ORDERED. 2 compensation may be proper, it is necessary: [1]
that each one of the obligors be bound
De Leon appealed from the said decision insofar principally, and that he be at the same time a
as it directed partial compensation and its failure principal creditor of the other; [2] that both debts
to award interest on his principal claim as well consist in a sum of money, or if the things due
as attomey's fees in his favor. In a decision dated are consumable, they be of the same kind, and
March 1 7, 1986, 3respondent Intermediate also of the same quality if the latter has been
Appellate Court 4 set aside the decision of the stated; [3] that the two debts be due; [4] that
lower court and dismissed herein petitioner's they be liquidated and demandable; [5] that over
(therein defendant- appellee's) counterclaim for neither of them there be any retention or
lack of factual or legal basis. The appellate court controversy, commenced by third persons and
found that there was no agreement, verbal or communicated in due time to the debtor.
otherwise, nor was there any contractual
obligation between De Leon and Silahis When all the requisites mentioned in Art. 1279
prohibiting any direct sales to Dole Philippines, of the Civil Code are present, compensation
Inc. by de Leon; nor was there anything in the takes effect by operation of law, even without
debit memo obligating de Leon to pay a the consent or knowledge of the creditors and
commission to Silahis for the sale of P debtors. 5 Article 1279 requires, among others,
111,000.00 worth of sprockets to Dole that in order that legal compensation shall take
Philippines although in the past, the former did place, "the two debts be due" and "they be
supply certain items to the latter for delivery to liquidated and demandable." Compensation is
Dole Philippines, Incorporated. not proper where the claim of the person
asserting the set-off against the other is not clear
Hence, in this petition for review on certiorari, nor liquidated; compensation cannot extend to
the central issue is whether or not private unliquidated, disputed claim existing from
respondent is liable to the petitioner for the breach of contract. 6
commission or margin for the direct sale which
the former concluded and consummated with Undoubtedly, petitioner admits the validity of its
Dole Philippines, Incorporated without coursing outstanding accounts with private respondent in
the same through herein petitioner. the amount of P 22,213.75 as contained in its
answer. But whether private respondent is liable SO ORDERED.
to pay the petitioner a 20% margin or
commission on the subject sale to Dole [G.R. No. 116792. March 29, 1996]
Philippines, Inc. is vigorously disputed. This
circumstance prevents legal compensation from BANK OF THE PHILIPPINE ISLANDS and
taking place. GRACE ROMERO, petitioners, vs. COURT
OF APPEALS and EDVIN F.
The Court agrees with respondent appellate REYES, respondents.
court that there is no evidence on record from
which it can be inferred that there was any DECISION
agreement between the petitioner and private
respondent prohibiting the latter from selling PUNO, J.:
directly to Dole Philippines, Incorporated.
Definitely, it cannot be asserted that the debit Petitioners seek a review of the
1
memo was a contract binding between the Decision of respondent Court of Appeals in
parties considering that the same, as correctly CA-G.R. CV No. 41543 reversing the
found by the appellate court, was not signed by Decision2 of the Regional Trial Court of Quezon
private respondent nor was there any mention City, Branch 79, and ordering petitioners to
therein of any commitment by the latter to pay credit private respondents Savings
any commission to the former involving the sale
of sprockets to Dole Philippines, Inc. in the Account No. 3185-0172-56 with
amount of P 111,000.00. Indeed, such document P10,556.00 plus interest.
can be taken as self-serving with no probative
value absent a showing or at the very least an The facts reveal that
inference, that the party sought to be bound on September 25, 1985, private respondent
assented to its contents or showed conformity Edvin F. Reyes opened Savings Account No. 3
thereto. 185-0172-56 at petitioner Bank of the Philippine
Islands (BPI) Cubao, Shopping Center Branch.
In fact the letter written by private respondent's It is a joint AND/OR account with his wife,
lawyer dated March 5,1975 7 in reply to Sonia S. Reyes.
petitioner's letter dated February 19, 1976
transmitting its Debit Memo No. 1695 8 further Private respondent also held a
strengthens private respondent's stand that it joint AND/OR Savings Account No. 3185-
never agreed to give petitioner any commission 0128-82 with his grandmother, Emeteria M.
on the direct sale to Dole Philippines, Inc. by its Fernandez, opened3 on February 11, 1986 at the
company because said letter denied any same BPI branch. He regularly deposited in this
utilization of petitioners personnel and facilities account the U.S. Treasury Warrants payable to
at its Davao Branch in the transaction with Dole the order of Emeteria M. Fernandez as her
Philippines, Inc. which would otherwise lend a monthly pension.
basis for petitioner's monetary claim.
Emeteria M. Fernandez died on December
WHEREFORE, in view of the foregoing, the 28, 1989 without the knowledge of the U.S.
questioned decision of respondent appellate Treasury Department. She was still sent U.S.
court is hereby AFFIRMED. Treasury Warrant No. 21667302
dated January 1, 1990 in the amount of U.S.
$377.003 or P10,556.00. On January shown to them. Surprisingly, private respondent
4, 1990, private respondent deposited the demanded from petitioner bank restitution of the
said U.S. treasury check of Fernandez in debited amount. He claimed that because of the
Savings Account No. 3 185-0128-82.The U.S. debit, he failed to withdraw his money when he
Veterans Administration Office needed them. He then filed a suit for
in Manila conditionally cleared the check.4 The Damages8 against petitioners before the
check was then sent to the United States for Regional Trial Court of Quezon City, Branch 79.
further clearing.5
Petitioners contested the complaint and
Two months after or on March 8, counter-claimed for moral and exemplary
1990, private respondent closed Savings damages. By way of Special and Affirmative
Account No. 3 185-0128-82 and transferred its Defense, they averred that private respondent
funds amounting to P13,112.91 to Savings gave them his express verbal authorization to
Account No. 3 185-0172-56, the joint account debit the questioned amount. They claimed that
with his wife. private respondent later refused to execute a
written authority.9
On January 16, 1991, U.S. Treasury
Warrant No. 21667302 was dishonored as it was In a Decision dated January 20, 1993, the
discovered that Fernandez died trial court dismissed the complaint of private
three (3) days prior to its issuance. The U.S. respondent for lack of cause of action.10
Department of Treasury requested petitioner
bank for a refund.6 For the first time petitioner Private respondent appealed to the
bank came to know of the death of Fernandez. respondent Court of Appeals. On August 16,
1994, the Sixteenth Division of respondent court
On February 19, 1991, private respondent in AC-G.R. CV No. 41543 reversed the
received a PT & T urgent telegram from impugned decision, viz:
petitioner bank requesting him to contact
Manager Grace S. Romero or Assistant Manager WHEREFORE, the judgment appealed from is
Carmen Bernardo. When he called up the bank, set aside, and another one entered ordering
he was informed that the treasury check was the defendant (petitioner) to credit plaintiffs (private
subject of a claim by Citibank NA, respondents) S.A. No. 3 185-0172-56 with
correspondent of petitioner bank. He assured P10,556.00 plus interest at the applicable rates
petitioners that he would drop by the bank to for express teller savings accounts
look into the matter. He also verbally from February 19,1991, until compliance
authorized them to debit from his other joint herewith. The claim and counterclaim for
account the amount stated in the dishonored damages are dismissed for lack of merit.
U.S. Treasury Warrant.7 On the same day,
petitioner bank debited the amount of SO ORDERED.11
P10,556.00 from private respondents Savings
Account No. 3185-0172-56. Petitioners now contend that respondent
Court of Appeals erred:
On February 21, 1991, private respondent
with his lawyer Humphrey Tumaneng visited the I
petitioner bank and the refund documents were
RESPONDENT COURT OF APPEALS The first issue for resolution is whether
GRAVELY ERRED IN NOT HOLDING THAT private respondent
RESPONDENT REYES GAVE EXPRESS verbally authorized petitioner bank to debit his
AUTHORITY TO PETITIONER BANK TO joint account with his wife for the amount of the
DEBIT HIS JOINT ACCOUNT WITH HIS returned U.S. Treasury Warrant. We find that
WIFE FOR THE VALUE OF THE petitioners were able to prove this verbal
RETURNED U.S. TREASURY WARRANT. authority by preponderance of
evidence. The testimonies of Bernardo and
II Romero deserve credence. Bernardo testified:
RESPONDENT COURT OF APPEALS Q: You said that you asked him the advice and he did
GRAVELY ERRED IN NOT APPRECIATING not answer, what advice are you referring to?
THE FACT THAT THE MONEY DEBITED BY
PETITIONER BANK WAS THE SAME A: In our conversation, he promised me that he
MONEY TRANSFERRED BY RESPONDENT will give me written confirmation or
REYES FROM HIS JOINT AND/OR authorization.13
ACCOUNT WITH HIS GRANDMOTHER TO
HIS JOINT AND/OR ACCOUNT WITH HIS The conversation was promptly relayed to
WIFE.12 Romero who testified:
A: This was immediately relayed to me as manager More importantly, the respondent court
of the Bank of the Philippine Islands, sir. erred when it failed to rule that legal
compensation is proper. Compensation shall
Q: What, if any was the content of her conversation, take place when two persons, in their own right,
if you know? are creditors and debtors of each other.18 Article
1290 of the Civil Code provides that when all
A: Mr. Reyes instructed Mrs. Bernardo to debit the requisites mentioned in Article 1279 are
his account with the bank. His account was present, compensation takes effect by
maintained jointly with his wife then he operation of law, and extinguishes both debts
promised to drop by to give us a written to the concurrent amount, even though the
confirmation, sir. creditors and debtors are not aware of the
compensation. Legal compensation operates
xxx xxx xxx even against the will of the interested parties and
even without the consent of them.19 Since this
Q: You said that you authorized the debiting of the compensation takes place ipso jure, its effects
account on February 19, 1991, is that correct? arise on the very day on which all its requisites
concur.20When used as a defense, it retroacts to
A: I did not authorize, we merely followed the the date when its requisites are fulfilled. 21
instruction of Mr. Reyes, sir.14
Article 1279 states that in order that
We are not disposed to believe private compensation may be proper, it is necessary:
respondents allegation that he did not give any
verbal authorization. His testimony (1) That each one of the obligors be bound
is uncorroborated. Nor does he inspire principally, and that he be at the same time a
credence. His past and fraudulent conduct is an principal creditor of the other;
evidence against him.15 He concealed from
petitioner bank the death of Fernandez (2) That both debts consist in a sum of money, or
on December 28, 1989.16 As of that date, he if the things due are consumable, they be of the
knew that Fernandez was no longer entitled to same kind, and also of the same quality if the
receive any pension. Nonetheless, he still latter has been stated;
received the U.S. Treasury Warrant of
Fernandez, and on January 4, 1990 deposited the (3) That the two debts be due;
same in Savings Account No. 3185-0128-82. To
pre-empt a refund, private respondent closed his (4) That they be liquidated and demandable;
joint account with Fernandez (Savings Account
No. 31-85- 0128-82) on March 8, (5) That over neither of them there be any
1990 and transferred its balance to his joint retention or controversy, commenced by third
account with his wife (Savings Account No. 3 persons and communicated in due time to the
185-0172-56). Worse, private respondent debtor.
declared under the penalties of perjury in the
withdrawal slip17 dated March 8, 1990 that his
The elements of legal compensation are all to make the debit is clear and cannot be
present in the case at bar. The obligors bound doubted. To frustrate the application of legal
principally are at the same time creditors of each compensation on the ground that the parties are
other. Petitioner bank stands as a debtor of the not all mutually obligated would result in unjust
private respondent, a depositor. At the same enrichment on the part of the private respondent
time, said bank is the creditor of the private and his wife who herself out of honesty has not
respondent with respect to the dishonored U.S. objected to the debit.
Treasury Warrant which the latter illegally
transferred to his joint account. The debts The rule as to mutuality is strictly
involved consist of a sum of money. They are applied at law. But not in equity, where to
due, liquidated, and demandable. They are not allow the same would defeat a clear right or
claimed by a third person. permit irremediable injustice.22
It is true that the joint account of private IN VIEW HEREOF, the Decision
respondent and his wife was debited in the case of respondent Court of Appeals in CA-G.R. CV
at bar. We hold that the presence of private No. 41543 dated August 16,1994 is
respondents wife does not negate the element of ANNULLED and SET ASIDE and the Decision
mutuality of parties, i.e., that they must be of the trial court in Civil Case No. Q-91-8451
creditors and debtors of each other in their own dated January 20, 1993 is REINSTATED. Costs
right. The wife of private respondent is not a against private respondent.
party in the case at bar. She never asserted any
right to the debited U.S. Treasury SO ORDERED.
Warrant. Indeed, the right of the petitioner bank