BPI vs CA and Reyes GR 116792

PUNO, J / kmedl
SUBJECT MATTER: Extinguishment of Obligations>Compensation
CASE SUMMARY: Evin Reyes opened 2 Savings Account with BPI. Both are joint AND/OR accounts.
The second acct was with his grandmother, Emeteria Fernandez. Fernandez was then receiving monthly
pension from the US, by receiving US Treasury Warrants. Despite Fernandez death, their joint account still
received pension. 2 months after or on March 8, 1990 Reyes closed SA No. 2 and transferred funds to SA
No. 1 amounting to P13,112.91. The US Treasury Warrant was dishonored and it was discovered that
Fernandez died 3 days prior to issuance. The US Dept of Treasury requested BPI for a refund. Reyes
requested to just have it debited from his other savings account. After it was debited, Reyes returned to BPI
asking for its restitution. RTC dismissed Reyes suit. CA reversed. SC reinstated RTC.
DOCTRINES: Art 1290 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.
FACTS:
This is a petition to review CA decision reversing RTC decision ordering petitioners to credit Reyes
savings account with P10,556 plus interest
Edvin Reyes opened a savings account with the Bank of the Philippine Islands (BPI) Cubao Shopping
Center Branch. It is a joint AND/OR account with his wife, Sonia Reyes (lets call this SA No. 1).
Another joint account AND/OR account was also opened with his grandmother Emeteria Fernandez
at the same branch (SA No. 2). Reyes regularly deposited in this account the US Treasury Warrants
payable to the order of Fernandez as her monthly pension.
Fernandez died on Dec 28, 1989 without the knowledge of the US Treasury Dept. she was still sent US
Treasury Warrant on Jan 1, 1990 in the amount of US $377 or P10,556. On Jan 4, Reyes deposited said US
Treasury check of Fernandez in SA No. 2. The US Veterans Admin Office in Manila conditionally cleared
the check. The check was sent to the US for further clearing.
2 months after or on March 8, 1990 Reyes closed SA No. 2 and transferred funds to SA No. 1 amounting
to P13,112.91.
Jan 16, 1991, the US Treasury Warrant was dishonored and it was discovered that Fernandez died 3 days
prior to issuance. The US Dept of Treasury requested BPI for a refund. This is also the first time BPI
learned about Fernandez death.
Reyes received a PT & T urgent telegram from BPI requesting to contact Manager Grace S. Romero or
Asst. Manager Carmen Bernardo. He was informed that the treasury was the subject of a claim by
Citibank NA, correspondent of BPI. He assured them the he would drop by the bank. He verbally
authorized them to debit from his SA No. 1 the amount stated in the dishonored US Treasury Warrant.
BPI debited the amount from SA No. 1.
Reyes with lawyer Humphrey Tumaneng visited BPI and checked the refund documents. Reyes then
demanded the restitution of the debited amount and said that because of it, he failed to withdraw his
money when he needed them. He filed suit for damages with RTC
BPI contested and counterclaimed for moral and exemplary damages by way of Special and Affirmative
Defense, arguing that Reyes gave them his express verbal authorization to debit the questioned amount.
They claimed that Reyes later refused to execute a written authority.
RTC dismissed complain of Reyes for lack of cause of action. Reyes appealed to CA. CA reversed RTC.
ISSUE/S:
1. WON CA gravely erred in not holding that respondent gave express authority to petitioner bank
to debit his joint account with his wife for the value of the returned US treasury warrant
2. WON CA gravely erred in not holding that petitioner bank has legal right to apply the deposit of
respondent to his outstanding obligation to petitioner bank brought about by the return of the US
treasury warrant he earlier deposited under the principle of legal compensation
3. WON CA gravely erred in not applying correctly the principles enunciated by the SC in the case
of Gullas v PNB
4. WON CA gravely erred in not appreciating the fact that the money debited by petitioner bank was
the same money transferred by respondent from his joint and/or account with his wife
HOLDING:
 1. YES. BPI was able to prove that they had verbal authority to debit his joint account with his wife
for the amount of the returned US Treasury through preponderance of evidence. Testimonies of
Manager Bernardo and Asst. Manager Romero deserve credence. (See page 577 for transcript) In
Bernardos testimony, she said that Reyes promised he will give written confirmation or
authorization. In Romeros testimony, she said that Reyes instructed Bernardo to debit his account
with the bank, which was maintained jointly with his wife then he promised to drop by to give a
written confirmation. Reyes testimony was uncorroborated.
2. YES. All requisites are present, so legal compensation is proper. Compensation shall take place
when 2 persons in their own right are creditors and debtors of each other. Art 1290 provided that
when all the requisites in Art 12791 are present, compensation takes effect by operation of law, and
extinguishes booth debts to the concurrent amount, even though the creditors and debits are not
aware of the compensation. Legal compensation is ipso jure so its effects arise on the very day on
which all the requisites concur. In this case, BPI stands as a debtor of Reyes, the depositor. At the
same time, BPI is the creditor of Reyes with respect to the dishonored US Treasury Warrant which
Reyes illegally transferred to his joint account. The debts involved of a sum of money. They are
due, liquidated, and demandable. They are not claimed by a third person.
3. Not discussed
4. YES. The rule as to mutuality is strictly applied at law. But not in equity, where to allow that same
would defeat a clear right or permit irremediable injustice. Despite the account being joint, the wife
never asserted any right to the debited US Treasury Warrant. The right of BPI 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 mutually obliged would result in unjust enrichment on the part of the private
respondent and his wife.

Assailed judgment annulled and set aside, that of the trial court reinstated.

1 Art 1279 requisites of compensation:

(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 2 debts are due
(4) That they be liquidated and demandable
(5) That over neither of them there be any retention or controversy, commenced by 3 rd persons and communicated in due
time to the debtor