Republic of the Philippines the same time demanded the rents in arrears at
SUPREME COURT the old rate in the aggregate amount of
Manila
EN BANC
G.R. No. L-22490 May 21, 1969
GAN TION, petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE
AGUSTIN P. MONTESA, as Judge of the
Court of First Instance of Manila, ONG WAN
SIENG and THE SHERIFF OF
MANILA, respondents.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates for
respondents.
MAKALINTAL, J.:
The sole issue here is whether or not there has
been legal compensation between petitioner Gan
Tion and respondent Ong Wan Sieng.
Ong Wan Sieng was a tenant in certain premises
owned by Gan Tion. In 1961 the latter filed an
ejectment case against the former, alleging non-
payment of rents for August and September of
that year, at P180 a month, or P360 altogether.
The defendant denied the allegation and said that
the agreed monthly rental was only P160, which
he had offered to but was refused by the
plaintiff. The plaintiff obtained a favorable
judgment in the municipal court (of Manila), but
upon appeal the Court of First Instance, on July
2, 1962, reversed the judgment and dismissed
the complaint, and ordered the plaintiff to pay
the defendant the sum of P500 as attorney's fees.
That judgment became final.
On October 10, 1963 Gan Tion served notice on
Ong Wan Sieng that he was increasing the rent
to P180 a month, effective November 1st, and at
P4,320.00, corresponding to a period from
August 1961 to October 1963.lwphi1.et
In the meantime, over Gan Tion's opposition,
Ong Wan Sieng was able to obtain a writ of
execution of the judgment for attorney's fees in
his favor. Gan Tion went on certiorari to the
Court of Appeals, where he pleaded legal
compensation, claiming that Ong Wan Sieng
was indebted to him in the sum of P4,320 for
unpaid rents. The appellate court accepted the
petition but eventually decided for the
respondent, holding that although "respondent
Ong is indebted to the petitioner for unpaid
rentals in an amount of more than P4,000.00,"
the sum of P500 could not be the subject of legal
compensation, it being a "trust fund for the
benefit of the lawyer, which would have to be
turned over by the client to his counsel." In the
opinion of said court, the requisites of legal
compensation, namely, that the parties must be
creditors and debtors of each other in their own
right (Art. 1278, Civil Code) and that each one
of them must be bound principally and at the
same time be a principal creditor of the other
(Art. 1279), are not present in the instant case,
since the real creditor with respect to the sum of
P500 was the defendant's counsel.
This is not an accurate statement of the nature of
an award for attorney's fee's. The award is made
in favor of the litigant, not of his counsel, and is
justified by way of indemnity for damages
recoverable by the former in the cases
enumerated in Article 2208 of the Civil Code.1 It
is the litigant, not his counsel, who is the
judgment creditor and who may enforce the
judgment by execution. Such credit, therefore,
may properly be the subject of legal
compensation. Quite obviously it would be
unjust to compel petitioner to pay his debt for
 P500 when admittedly his creditor is indebted to
him for more than P4,000.
WHEREFORE, the judgment of the Court of
Appeals is reversed, and the writ of execution
issued by the Court of First Instance of Manila
in its Civil Case No. 49535 is set aside. Costs
against respondent.
[G.R. No. 116792. March 29, 1996]
BANK OF THE PHILIPPINE ISLANDS and
GRACE ROMERO, petitioners, vs. COURT
OF APPEALS and EDVIN F.
REYES, respondents.
DECISION
PUNO, J.:
Petitioners seek a review of the
Decision1 of respondent Court of Appeals in
CA-G.R. CV No. 41543 reversing the
Decision2 of the Regional Trial Court of Quezon
City, Branch 79, and ordering petitioners to
credit private respondents Savings
Account No. 3185-0172-56 with
P10,556.00 plus interest.
The facts reveal that
on September 25, 1985, private respondent
Edvin F. Reyes opened Savings Account No. 3
185-0172-56 at petitioner Bank of the Philippine
Islands (BPI) Cubao, Shopping Center Branch.
It is a joint AND/OR account with his wife,
Sonia S. Reyes.
Private respondent also held a subject of a claim by Citibank NA,
joint AND/OR Savings Account No. 3185-
0128-82 with his grandmother, Emeteria M.
Fernandez, opened3 on February 11, 1986 at the
same BPI branch. He regularly deposited in this
account the U.S. Treasury Warrants payable to
the order of Emeteria M. Fernandez as her
monthly pension.
Emeteria M. Fernandez died on December
28, 1989 without the knowledge of the U.S.
Treasury Department. She was still sent U.S.
Treasury Warrant No. 21667302
dated January 1, 1990 in the amount of U.S.
$377.003 or P10,556.00. On January
4, 1990, private respondent deposited the
said U.S. treasury check of Fernandez in
Savings Account No. 3 185-0128-82.The U.S.
Veterans Administration Office
in Manila conditionally cleared the check.4 The
check was then sent to the United States for
further clearing.5
Two months after or on March 8,
1990, private respondent closed Savings
Account No. 3 185-0128-82 and transferred its
funds amounting to P13,112.91 to Savings
Account No. 3 185-0172-56, the joint account
with his wife.
On January 16, 1991, U.S. Treasury
Warrant No. 21667302 was dishonored as it was
discovered that Fernandez died
three (3) days prior to its issuance. The U.S.
Department of Treasury requested petitioner
bank for a refund.6 For the first time petitioner
bank came to know of the death of Fernandez.
On February 19, 1991, private respondent
received a PT & T urgent telegram from
petitioner bank requesting him to contact
Manager Grace S. Romero or Assistant Manager
Carmen Bernardo. When he called up the bank,
he was informed that the treasury check was the
correspondent of petitioner bank. He assured
petitioners that he would drop by the bank to
look into the matter. He also verbally
authorized them to debit from his other joint
account the amount stated in the dishonored
U.S. Treasury Warrant.7 On the same day,
petitioner bank debited the amount of
P10,556.00 from private respondents Savings
Account No. 3185-0172-56.
On February 21, 1991, private respondent
with his lawyer Humphrey Tumaneng visited the
petitioner bank and the refund documents were
shown to them. Surprisingly, private respondent
demanded from petitioner bank restitution of the
debited amount. He claimed that because of the
debit, he failed to withdraw his money when he
needed them. He then filed a suit for
Damages8 against petitioners before the
Regional Trial Court of Quezon City, Branch 79.
Petitioners contested the complaint and
counter-claimed for moral and exemplary
damages. By way of Special and Affirmative
Defense, they averred that private respondent
gave them his express verbal authorization to
debit the questioned amount. They claimed that
private respondent later refused to execute a
written authority.9
In a Decision dated January 20, 1993, the
trial court dismissed the complaint of private
respondent for lack of cause of action.10
Private respondent appealed to the
respondent Court of Appeals. On August 16,
1994, the Sixteenth Division of respondent court
in AC-G.R. CV No. 41543 reversed the
impugned decision, viz:
WHEREFORE, the judgment appealed from is
set aside, and another one entered ordering
defendant (petitioner) to credit plaintiffs (private
respondents) S.A. No. 3 185-0172-56 with
P10,556.00 plus interest at the applicable rates
for express teller savings accounts
from February 19,1991, until compliance
herewith. The claim and counterclaim for
damages are dismissed for lack of merit.
SO ORDERED.11
Petitioners now contend that respondent
Court of Appeals erred:
I
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
RESPONDENT REYES GAVE EXPRESS
AUTHORITY TO PETITIONER BANK TO
DEBIT HIS JOINT ACCOUNT WITH HIS
WIFE FOR THE VALUE OF THE
RETURNED U.S. TREASURY WARRANT.
II
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
PETITIONER BANK HAS LEGAL RIGHT TO
APPLY THE DEPOSIT OF RESPONDENT
REYES TO HIS OUTSTANDING
OBLIGATION TO PETITIONER BANK
BROUGHT ABOUT BY THE RETURN OF
THE U.S. TREASURY WARRANT HE
EARLIER DEPOSITED UNDER THE
PRINCIPLE OF LEGAL COMPENSATION.
III
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT APPLYING
CORRECTLY THE PRINCIPLES
ENUNCIATED BY THE SUPREME COURT
IN THE CASE OF GULLAS V. PNB, 62 PHIL.
519.
IV
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT APPRECIATING
THE FACT THAT THE MONEY DEBITED BY
PETITIONER BANK WAS THE SAME
MONEY TRANSFERRED BY RESPONDENT
REYES FROM HIS JOINT AND/OR
 ACCOUNT WITH HIS GRANDMOTHER TO
HIS JOINT AND/OR ACCOUNT WITH HIS
WIFE.12
We find merit in the petition.
The first issue for resolution is whether
private respondent
verbally authorized petitioner bank to debit his
joint account with his wife for the amount of the
returned U.S. Treasury Warrant. We find that
petitioners were able to prove this verbal
authority by preponderance of
evidence. The testimonies of Bernardo and
Romero deserve credence. Bernardo testified:
xxx xxx xxx
Q: After that, what happened?
A: x x x Dr. Reyes called me up and I informed him
about the return of the U.S. Treasury Warrant
and we are requested to reimburse for the
amount.
Q: What was his response if any?
A: Dont you worry about it, there is no personal
problem.
xxx xxx xxx
Q: And so what was his response?
A: He said that dont you worry about it.
xxx xxx xxx
Q: You said that you asked him the advice and he did
not answer, what advice are you referring to?
A: In our conversation, he promised me that he
will give me written confirmation or
authorization.13
The conversation was promptly relayed to
Romero who testified:
xxx xxx xxx
Q: x x x Was there any opportunity wherein said Mrs.
Bernardo was able to convey to you the contents
of their conversation?
A: This was immediately relayed to me as manager
of the Bank of the Philippine Islands, sir.
Q: What, if any was the content of her conversation,
if you know?
A: Mr. Reyes instructed Mrs. Bernardo to debit
his account with the bank. His account was
maintained jointly with his wife then he
promised to drop by to give us a written
confirmation, sir.
xxx xxx xxx
Q: You said that you authorized the debiting of the
account on February 19, 1991, is that correct?
A: I did not authorize, we merely followed the
instruction of Mr. Reyes, sir.14
We are not disposed to believe private
respondents allegation that he did not give any
verbal authorization. His testimony
is uncorroborated. Nor does he inspire
credence. His past and fraudulent conduct is an
evidence against him.15 He concealed from
petitioner bank the death of Fernandez
on December 28, 1989.16 As of that date, he
knew that Fernandez was no longer entitled to
receive any pension. Nonetheless, he still
received the U.S. Treasury Warrant of
Fernandez, and on January 4, 1990 deposited the
same in Savings Account No. 3185-0128-82. To
pre-empt a refund, private respondent closed his
joint account with Fernandez (Savings Account
No. 31-85- 0128-82) on March 8,
1990 and transferred its balance to his joint
account with his wife (Savings Account No. 3
185-0172-56). Worse, private respondent
declared under the penalties of perjury in the
withdrawal slip17 dated March 8, 1990 that his
co-depositor, Fernandez, is still living. By his
acts, private respondent has stripped himself of
credibility.
More importantly, the respondent court
erred when it failed to rule that legal
compensation is proper. Compensation shall
take place when two persons, in their own right,
are creditors and debtors of each other.18 Article
1290 of the Civil Code provides that when all
the requisites mentioned in Article 1279 are
present, compensation takes effect by
operation of law, and extinguishes both debts
to the concurrent amount, even though the
creditors and debtors are not aware of the
compensation. Legal compensation operates
even against the will of the interested parties and
even without the consent of them.19 Since this
compensation takes place ipso jure, its effects
arise on the very day on which all its requisites
concur.20When used as a defense, it retroacts to
the date when its requisites are fulfilled. 21
Article 1279 states that in order that
compensation may be proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
The elements of legal compensation are all
present in the case at bar. The obligors bound
principally are at the same time creditors of each
other. Petitioner bank stands as a debtor of the
private respondent, a depositor. At the same
time, said bank is the creditor of the private
respondent with respect to the dishonored U.S.
Treasury Warrant which the latter illegally
transferred to his joint account. The debts
involved consist of a sum of money. They are
due, liquidated, and demandable. They are not
claimed by a third person.
It is true that the joint account of private
respondent and his wife was debited in the case
at bar. We hold that the presence of private
respondents wife does not negate the element of
mutuality of parties, i.e., that they must be
creditors and debtors of each other in their own
right. The wife of private respondent is not a
party in the case at bar. She never asserted any
right to the debited U.S. Treasury
Warrant. Indeed, the right of the petitioner bank
to make the debit is clear and cannot be
doubted. To frustrate the application of legal
compensation on the ground that the parties are
not all mutually obligated would result in unjust
enrichment on the part of the private respondent
and his wife who herself out of honesty has not
objected to the debit.
The rule as to mutuality is strictly
applied at law. But not in equity, where to
allow the same would defeat a clear right or
permit irremediable injustice.22
IN VIEW HEREOF, the Decision
of respondent Court of Appeals in CA-G.R. CV
No. 41543 dated August 16,1994 is
 ANNULLED and SET ASIDE and the Decision
of the trial court in Civil Case No. Q-91-8451
dated January 20, 1993 is REINSTATED. Costs
against private respondent.
SO ORDERED.
[G.R. No. 108052. July 24, 1996]
PHILIPPINE NATIONAL BANK, petitioner, vs. THE
COURT OF APPEALS and RAMON
LAPEZ,[1] doing business under the name and
style SAPPHIRE SHIPPING, respondents.
DECISION
PANGANIBAN, J.:
Does a local bank, while acting as local
correspondent bank, have the right to intercept
funds being coursed through it by its foreign
counterpart for transmittal and deposit to the
account of an individual with another local bank,
and apply the said funds to certain obligations
owed to it by the said individual?
Assailed in this petition is the Decision of
respondent Court of Appeals[2] in CA-G.R. CV
No. 27926 rendered on June 16,
1992 affirming the decision of the Regional Trial
Court, Branch 107 of Quezon City, the
dispositive portion of which read:[3]
"WHEREFORE, judgment is hereby rendered:
1) In the main complaint, ordering the defendant
(herein petitioner PNB) to pay the plaintiff
(private respondent herein) the sum of
US$2,627.11 or its equivalent in Philippine
currency with interest at the legal rate from
January 13, 1987, the date of judicial demand;
2) The plaintiff's supplemental complaint is
hereby dfismissed (sic);
3) The defendant's counterclaims are likewise
dismissed.
The Facts
The factual antecedents as quoted by the
respondent Court are reproduced hereinbelow,
the same being undisputed by the parties:[4]
"The body of the decision reads:
"'After a close scrutiny and analysis of the
pleadings as well as the evidence of both parties,
the Court makes the following conclusions:
"'(a) The defendant applied/appropriated the
amounts of $2,627.11 and P34,340.38 from
remittances of the plaintiff's principals (sic)
abroad. These were admitted by the defendant,
subject to the affirmative defenses of
compensation for what is owing to it on the
principle of solution (sic) indebiti;
"'(b) The first remittance was made by the NCB
of Jeddah for the benefit of the plaintiff, to be
credited to his account at Citibank, Greenhills
Branch; the second was from Libya, and was
intended to be deposited at the plaintiff's account
with the defendant, No. 830-2410;
(c) The plaintiff made a written demand upon
the defendant for remittance of the equivalent of
P2,627.11 by means of a letter dated December
4, 1986 (Exh. D). This was answered by the
defendant on December 22, 1986 (Exh. 13),
inviting the plaintiff to come for a conference;
"'(d) There were indeed two instances in the
past, one in November 1980 and the other in
January 1981 when the plaintiff's account No.
830-2410 was doubly credited with the
equivalents of $5,679.23 and $5,885.38,
respectively, which amounted to an aggregate
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),
were never refuted nor impugned by the
plaintiff. He claims, however, that plaintiffs
claim has prescribed.
"'(e) Defendant PNB made a demand upon the
plaintiff for refund of the double or duplicated
credits erroneously made on plaintiff's account,
by means of a letter (Exh. 12) dated October 23,
1986 or 5 years and 11 months from November
1980, and 5 years and 9 months from January
1981. Such letter was answered by the plaintiff
on December 2, 1986 (Annex C,
Complaint). This plaintiff's letter was likewise
replied to by the defendant through Exh. 13;
"'(f) The deduction of P34,340.38 was made by
the defendant not without the knowledge and
consent of the plaintiff, who was issued a receipt
No. 857576 dated February 18, 1987 (Exh. E)
by the defendant.
"'There is no question that the two erroneous
double payments made to plaintiff's accounts in
1980 and 1981 created an extra-contractual
obligation on the part of the plaintiff in favor of
the defendant, under the principle of solutio
indebiti, as follows:
"'If something is received when there is no right
to demand it, and it was unduly delivered
throughg (sic) mistake, the obligation to return it
arises."' (Article 2154, Civil Code of the Phil.)
Two issues were raised before the trial
court, namely, first, whether the herein petitioner
was legally justified in making the compensation
or set-off against the two remittances coursed
through it in favor of private respondent to
recover on the double credits it erroneously
made in 1980 and 1981, based on the principle
of solutio indebiti, and second, whether or not
petitioner's claim is barred by the statute of
limitations. The trial court's ratiocination, as
quoted by the appellate Court, follows:[5]
"'Article 1279 of the Civil Code provides:
"'In order that compensation may prosper, it is
necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consists in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there by any retention
or controversy, commenced by third persons and
communicated in due time to the debtor."'
"'In the case of the $2,627.11, requisites Nos. 2
through 5 are apparently present, for both debts
consist in a sum of money, are both due,
liquidated and demandable, and over neither of
them is there a retention or controversy
commenced by third persons and communicated
in due time to the debtor. The question, however,
is, where both of the obligors bound principally,
and was each one of them a debtor and creditor
of the other at the same time?
"'Analyzing now the relationship between the
parties, it appears that:
"'(a) With respect to the plaintiff's being a
depositor of the defendant bank, they are
creditor and debtor respectively (Guingona, et
al. vs. City Fiscal, et al., 128 SCRA 577);
"'(b) As to the relationship created by the telexed
fund transfers from abroad: A contract between a
foreign bank and local bank asking the latter to
pay an amount to a beneficiary is a
stipulation pour autrui.(Bank of America NT &
SA vs. IAC, 145 SCRA 419).
"'A stipulation pour autrui is a stipulation in
favor of a third person (Florentino vs.
Encarnacion, 79 SCRA 193; Bonifacio
Brothers vs. Mora, 20 SCRA 261; Uy
Tam vs. Leonard, 30 Phils. 475).
"'Thus between the defendant bank (as the local
correspondent of the National Commercial Bank
of Jeddah) and the plaintiff as beneficiary, there
is created an implied trust pursuant to Art. 1453
of the Civil Code, quoted as follows:
"'When the property is conveyed to a person in
reliance upon his declared intention to hold it
for, or transfer it to another or the grantor, there
is an implied trust in favor of the person whose
benefit is contemplated (sic).
"'c) By the principle of solutio indebiti (Art.
2154, Civil Code), the plaintiff who unduly
received something (sic) by mistake (i.e., the 2
double credits, although he had no right to
demand it), became obligated to the defendant to
return what he unduly received. Thus, there was
created between them a relationship of obligor
and obligee, or of debtor and creditor under a
quasi-contract.
"In view of the foregoing, the Court is of the
opinion that the parties are not both principally
bound with respect to the $2,627.11 from Jeddah
neither are they at the same time principal
creditor of the other.Therefore, as matters stand,
the parties' obligations are not subject to
compensation or set off under Art. 1279 of the
Civil Code, for the reason that the defendant is
not a principal debtor nor is the plaintiff a
principal creditor insofar as the amount of
$2,627.11 is concerned. They are debtor and
creditor only with respect to the double
payments; but are trustee-beneficiary as to the
fund transfer of $2,627.11.
"'Only the plaintiff is principally bound as a
debtor of the defendant to the extent of the
double credits. On the other hand, the defendant
was an implied trustee, who was obliged to
deliver to the Citibank for the benefit of the
plaintiff the sum of $2,627.11.
"'Thus while it may be concluded that the
plaintiff owes the defendant the equivalent of the
sums of $5,179.23 and $5,885.38 erroneously
doubly credited to his account, the defendant's
actuation in intercepting the amount of
$2,627.11 supposed to be remitted to another
bank is not only improper; it will also erode the
trust and confidence of the international banking
community in the banking system of the country,
something we can ill afford at this time when we
need to attract and invite deposits of foreign
currencies."'
"It would have been different has the telex
advice from NCB of Jeddah been for deposit of
$2,627.11 to plaintiffs account No. 830-2410
with the defendant bank. However, the
defendant alleged this for the first time in its
Memorandum (Pls. see par. 16, p. 6 of
defendant's Memorandum). There was neither
any allegation thereof in its pleadings, nor was
there any evidence to prove such fact. On the
contrary, the defendant admitted that the telex
advice was for credit of the amount of $2,627.11
to plaintiffs account with Citibank, Greenhills,
San Juan, MetroManila (Pls. see par. of
defendant's Answer with Compulsory
Counterclaim, in relation to plaintiff's
Complaint). Hence, it is submitted that the set-
off or compensation of $2,627.11 against the
double payments to plaintiff's account is not in
accordance with law.
"'On this point, the Court finds the plaintiff's
theory of agency to be untenable. For one thing,
there was no express contract of agency. On the
other hand, were we to infer that there was an
implied agency, the same would not be between
the plaintiff and defendant, but rather, between
the National Commercial Bank of Jeddah as
principal on the one hand, and the defendant as
agent on the other. Thus, in case of violation of
the agency, the cause of action would accrue to
the NCB and not to the plaintiff.
"'The P34,340.38 subject of the supplemental
complaint is quite another thing. The plaintiff's
Exh. "E", which is a receipt issued to the
plaintiff by the defendant for the amount of
P34,340.00 in "full settlement of accounts
receivables with RICB Fund Transfer
Department, PNB-Escolta base on Legal
Department Memo dated February 28, 1987"
seems to uphold the defendant's theory that the
said amount was voluntarily delivered by the
plaintiff to the defendant as alleged in the last
paragraph of defendant's memorandum. The
same is in accordance with the defendant's
answer, as follows:
"The retention and application of the amount of
P34,340.38 was done in a manner consonant
with basic due process considering that
plaintiff was not only furnished documented pro
of of the cause but wasalso given the opportunit
y to con(tro)vert such Proof.
"Moreover, plaintiff, through counsel, communi
cated his unequivocal and unconditional consent
to the retention and application of the amount in
question." (Pls. see paragraphs 8-9, defendant's
Answer with Compulsory Counterclaim to
Plaintiff's Supplemental Complaint)."
This conclusion is borne by the fact that the
receipt is in the hands of the plaintiff, indicating
that such receipt was handed over to the plaintiff
when he "paid" or allowed the deduction from
the amount of $28,392.38 from Libya.
"'At any rate, the plaintiff in his Memorandum,
stated that the subsequent fund transfer from
Brega Petroleum Marketing Company of Libya
(from where the P34,340.38 was deducted) was
intended for credit and deposit in plaintiff's
account at the defendant's Bank CA No. 830-
2410 (per par. 1, page 2, Memorandum for the
plaintiff). Such being the case, the Court
believes that insofar as the amount of
P34,340.38 is concerned, all the requirements of
Art. 1279 of the Civil Code are present, and the
said amount may properly be the subject of
compensation or set-off. And since all the
requisites of Art. 1279 of the Civil Code are
present (insofar as the amount of P34,392.38 is
concerned), compensation takes place by
operation of law (Art. 1286, Ibid.), albeit only
partial with respect to plaintiff's indebtedness of
P7,380.44.
"Now, on the question of prescription, the Court
believes that Art. 1149 as cited by the plaintiff is
not applicable in this case. Rather, the applicable
law is Art. 1145, which fixes the prescriptive
period for actions upon a quasi-contract (such
as solutio indebiti) at six years.
In the dispositive portion of its decision, the
trial court ruled that the herein petitioner was
obligated to pay private respondent the amount
of US$2,627.11 or its peso equivalent, with
interest at the legal rate. The court dismissed all
other claims and counterclaims.
On appeal to the respondent Court,
petitioner bank continued to insist that it validly
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.
1279 of the Civil Code.
The respondent Court of Appeals rejected
such argument, saying:
"The telegraphic money transfer was sent by the
IBN, plaintiff's principal in Jeddah, Saudi
Arabia, thru the National Commercial Bank of
Jeddah, Saudi Arabia (NCB, for short), for the
credit/account of Plaintiff with the Citibank,
Greenhills Branch, San Juan, Metro Manila,
coursed thru the PNB's head office, the NCB's
corresponden(t) bank in the Philippines.
"The credit account, or simply account means
that the amount stated in the telegraphic money t
ransfer is to be credited in the account of plaintif
f with the Citibank, and, in that sense, presuppos
es a creditor-debtor relationship between the plai
ntiff, as creditor and the Citibank, as debtor. Wit
hal the telegraphic money transfer, no such credi
tor-debtor relationship could have been created b
etween the plaintiff anddefendant.
"The telegraphic money transfer, or simply
telegraphic transfer(,) was purchased by the IBN
from the NCB in Saudi Arabia, and since the
PNB is the NCB's corresponden(t) bank in the
Philippines, there is created between the two
banks a sort of communication exchange for the
corresponden(t) bank to transmit and/or remit
and/or pay the value of the telegraphic transfer
in accordance with the dictate of the
correspondence exchange. Some such
responsibility of the corresponden(t) bank is
akin to Section 7 of the Rules and Regulations
Implementing E.O. 857, as amended by E.O.
925, "x x x to take charge of the prompt
payment" of the telegraphic transfer, that is,
by transmitting the telegraphic money transfer to
the Citibank so that the amount can be promptly
credited to the account of the plaintiff with the s
aid bank. That is all that the PNB can do under t
he remittance arrangement that it has with the N
CB. With its responsibility as defined as well as
by the nature of its banking business and the
responsibility attached to it, and through which
the industry, trade and commerce of all countries
and communities are carried on, the PNB's
liability as corresponden(t) bank continues until
it has completgely (sic) performed and
discharged it(s) obligation thereunder."
(underscoring ours)
Hence, the respondent Court affirmed the
trial court's holding in toto.
Dissatisfied, petitioner bank comes before
this Court seeking a review of the assailed
Decision.
The Issue
Petitioner's arguments revolve around one
single issue:[6]
"WHILE THE RESPONDENT COURT
CORRECTLY FOUND PRIVATE
RESPONDENT LEGALLY BOUND (UNDER
THE PRINCIPLE OF SOLUTIO INDEBITI)
TO RETURN TO PNB THE SUM OF
US$2,627.11, IT ERRED IN NOT RULING
THAT LEGAL COMPENSATION HAS
TAKEN PLACE WHEN PNB WAS ORDERED
BY THE TRIAL COURT TO RETURN TO
PRIVATE RESPONDENT THE SAME
AMOUNT. SUCH COURSE OF ACTION IS IN
CONSONANCE WITH SPEEDY AND
SUBSTANTIAL JUSTICE, AND WOULD
PREVENT THE UNNECESSARY FILING OF
A SUBSEQUENT SUIT BY PNB FOR THE
COLLECTION OF THE SAME AMOUNT
FROM PRIVATE RESPONDENT."
The Court's Ruling
We note that in framing the issue in the
manner aforecited, the petitioner implicitly
admits the correctness of the respondent Court's
affirmance of the trial court's ruling finding
herein petitioner liable to private respondent for
the sum of US$2,627.11 or its peso
equivalent. And it could not have done
otherwise. After a careful scrutiny of both the
decision of the trial court and that of the
appellate court, we find no reversible error
whatsoever in either ruling, and see no need to
add to the extensive discussions already made
regarding the non-existence of all the requisites
for legal compensation to take place.
But petitioner has adopted a novel theory,
contending that since respondent Court found
that private respondent is "an obligor of PNB
and the latter, as aforesaid, has become an
obligor of private respondent (resulting in legal
compensation), the (h)onorable respondent court
should have ordered private respondent to pay
PNB what the latter is bound by the trial court's
decision to return the former.[7]
By this simplistic approach, petitioner in
effect seeks to render nugatory the decisions of
the trial court and the appellate Court, and have
this Court validate its original misdeed, thereby
making a mockery of the entire judicial process
of this country. What the petitioner bank is
effectively saying is that since the respondent
Court of Appeals ruled that petitioner
bank could not do a shortcut and simply
intercept funds being coursed through it, for
transmittal to another bank, and eventually to be CK
deposited to the account of an individual who
happens to owe some amount of money to the
petitioner, and because respondent Court ordered
petitioner bank to return the intercepted amount
to said individual, who in turn was found by the
appellate Court to be indebted to petitioner bank,
THEREFORE, there must now be legal
compensation of the amounts each owes the
other, and hence, there is no need for petitioner
bank to actually return the amount, and finally,
that petitioner bank ends up in exactly the same
position as when it first took the improper and
unwarranted shortcut by intercepting the said
money transfer, notwithstanding the assailed
Decision saying that this could not be done!
We see in this petition a clever ploy to use
this Court to validate or legalize an improper act
of the petitioner bank, with the not impossible
intention of using this case as a precedent for
similar acts of interception in the future. This
piratical attitude of the nation's premier bank
deserves a warning that it should not abuse the
justice system in its collection efforts,
particularly since we are aware that if the
petitioner bank had been in good faith, it could
have easily disposed of this controversy in ten
minutes flat by means of an exchange of checks
with private respondent for the same
amount. The litigation could have ended there,
but it did not. Instead, this plainly unmeritorious
case had to clog our docket and take up the
valuable time of this Court.
WHEREFORE, the instant petition is
herewith DENIED for being plainly
unmeritorious, and the assailed Decision is
AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
[G.R. No. 111890. May 7, 1997]
INDUSTRIAL AND DEVELOPMENT
CORPORATION and RUBI
SAW, petitioners, vs. THE COURT OF
APPEALS, (FORMER 13TH DIVISION),
THE REGISTER OF DEEDS OF METRO
MANILA - DISTRICT III (VALENZUELA),
CENTURY-WELL PHIL. CORPORATION,
LOURDES CHONG, CHONG TAK KEI and
UY CHI KIM, respondents.
DECISION
TORRES, JR., J.:
The present petition springs from a civil
action instituted by herein petitioners, to rescind
and/or annul the sale of two parcels of land,
from petitioner CKH Industrial and
Development Corporation (CKH, for brevity) to
private respondent Century-Well Phil.
Corporation (Century-Well, for brevity), for
failure to pay the stipulated price
of P800,000.00.
Petitioners specifically assail the
[1]
Decision of the respondent Court of Appeals,
which denied the annulment of the sale. The
appellate court found that there was payment of
the consideration by way of compensation, and
ordered petitioners to pay moral damages and
attorney's fees to private respondents. The
dispositive portion of the questioned decision
reads:
"WHEREFORE, in view of all the foregoing,
the appealed Decision is REVERSED. The
complaint is DISMISSED with costs against the
plaintiffs. The plaintiffs jointly and severally are
required to pay each of the defendants Lourdes
Chong, Chong Tak Kei, and Uy Chi Kim moral
damages of P20,000.00; and further requiring
the plaintiffs, jointly and severally, to pay to
each of the defendants Century-Well
Phil. Corporation, Lourdes Chong, Chong Tak
Kei and Uy Chi Kim attorney's fees
of P20,000.00
With costs in this instance against the plaintiffs-
appellees.
SO ORDERED."[2]
The said decision reversed the disposition
of the Regional Trial Court of Valenzuela,
Branch 172 in Civil Case No. 2845-V-88 entitled
"CKH Industrial & Development Corporation
vs. Century-Well Philippine Corporation,
Lourdes Chong, Chong Tak Kei, Uy Chi Kim,
and the Register of Deeds of Metro Manila,
District III (Valenzuela)." The trial court's
decision stated pertinently:
"WHEREFORE, in view of the foregoing,
judgment is hereby rendered in favor of plaintiff:
1. Ordering the rescission/annulment of the
Deed of Absolute Sale of Realty.
2. Ordering defendants Lourdes Chong, Chong
Tak Kei and Century-Well to pay plaintiffs
moral damages in the sum of P200,000.00;
3. Ordering defendants Lourdes Chong, Chong
Tak Kei and Century Well to pay plaintiffs
Attorney's fees in the amount of 15% of the
agreed price of P800,000.00 plus appearance
fees of P500.00 per appearance;
4. Ordering defendants Lourdes Chong, Chong
Tak Kei and Century Well to pay the costs of
suit;
5. As the writ of preliminary injunction was
denied, the defendant Register of Deeds of
Valenzuela is hereby ordered to cancel the
certificates of title issued to Century-Well by
virtue of the Deed of Absolute Sale of Realty
and to reissue a new title in the name of CKH.
The case is dismissed as far as defendant Uy Chi
Kim is concerned. His counterclaim is likewise
dismissed considering that by his mediation he
took it upon himself to assume the damages he
allegedly suffered.
SO ORDERED."[3]
The records disclose that petitioner CKH is
the owner of two parcels of land, consisting of
4,590 sq. m. and 300 sq. m. respectively, located
in Karuhatan, Valenzuela, and covered by
Transfer Certificates of Title Nos. 8710 and
8711, Register of Deeds of Caloocan City (now
Register of Deeds District III [Valenzuela]).
[4]
CKH is a corporation established under
Philippine law by the late Cheng Kim Heng
(Cheng), an immigrant of Chinese
descent. Upon Cheng's demise, control over the
petitioner corporation was transferred to Rubi
Saw, also of Chinese descent, and Cheng's
second wife.
It also appears that before coming to the
Philippines, Cheng Kim Heng was married to
Hung Yuk Wah (Wah), who lived in Hongkong
together with their children, Chong Tak Kei,
(Kei), Chong Tak Choi (Choi), and Chong Tak
Yam (Yam). After Cheng immigrated to the
Philippines in 1976, and married Rubi Saw in
1977, he brought his first wife, Heng, and their
children to this country, and established himself
and his Chinese family as naturalized Filipino
citizens. Heng died in 1984.
On May 8, 1988, Rubi Saw and Lourdes
Chong, the wife of Cheng's son, Kei, met at the
1266 Soler St., Sta. Cruz, Manila, the residence
of Cheng's friend, Uy Chi Kim, and executed a
Deed of Absolute Sale,[5] whereby Rubi Saw,
representing CKH, agreed to sell the subject
properties to Century-Well, a corporation owned
in part by Lourdes Chong, Kei and Choi.[6]
The pertinent portions of the Deed of Sale
are hereby reproduced:
"KNOW ALL MEN BY THESE PRESENTS:
This Deed of Absolute Sale of Realty executed
by and between:
CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a corporation duly organized
and existing under and by virtue of the laws of
the Republic of the Philippines, with business
address at 553 Bermuda St., Sta. Cruz, Manila,
represented in this act by its authorized
representative, Ms. RUBI SAW, hereinafter
referred to as VENDOR,
- in favor of -
CENTURY-WELL PHIL. CORPORATION, a
corporation duly organized and existing under
and by virtue of the laws of the Republic of the
Philippines at least sixty (60%) percent of the
subscribed capital stock of which is owned by
Filipino citizens, duly qualified to own and
acquire lands in the Philippines, with office and
business address at 66 F Bautista St.,
Valenzuela, Metro Manila and represented in
this act by its Treasurer and authorized
representative, Ms. Lourdes Chong, hereinafter
referred to as VENDEE,
WITNESSETH:
That vendor is the registered owner of two
adjacent parcels of residential land situated in
the Bo. of Karuhatan, Municipality of
Valenzuela, Metro Manila, covered by Transfer
Certificates of Titles Nos. B-8710 and B-8711 of
the Registry of Deeds for Metro Manila District
III, and more particularly described as follows:
xxx
That for and in consideration of the sum of
EIGHT HUNDRED THOUSAND
(P800,000.00) PESOS, Philippine Currency,
paid by VENDEE to VENDOR, receipt of which
is hereby acknowledged by the latter to its entire
satisfaction, said VENDOR, by these presents,
has SOLD, CEDED, TRANSFERRED, and
CONVEYED by way of absolute sale unto said
VENDEE, its successors and assigns, the two
parcels of land above described and any and all
improvements therein;
That the above-described parcels of land are free
from liens and encumbrances of whatever kind
and nature.
IN WITNESS WHEREOF, the parties hereto
and their instrumental witnesses have hereunto
set their hand on ________ at ________."
Rubi Saw signed on behalf of CKH, while
Lourdes Chong signed for Century Well. [7] The
document was notarized the day after the parties
signed the same, i. e., March 9, 1988.[8]
Claiming that the consideration for the sale
of the subject properties was not paid by the
private respondent-vendee despite several
demands to do so, Petitioners CKH and Rubi
Saw filed the instant complaint [9] on May 23,
1988, with the Regional Trial Court of
Valenzuela, Branch 172, against Century-Well,
Lourdes Chong, Chong Tak Kei and Uy Chi
Kim. Petitioners prayed for the
annulment/rescission of the Deed of Absolute
Sale, and in the meantime, for the issuance of a
writ of preliminary injunction restraining the
Register of Deeds of Valenzuela from registering
the Certificates of Title over the subject
properties in the name of the private respondent
Century-Well.
The trial court synthesized the petitioners'
submissions as follows:
"The complaint alleges the following:
Lourdes Chong and Rubi Saw agreed that the
full payment of P800,000.00 as purchase price
shall be in the form of a Manager's Check, to be
delivered to Rubi Saw upon the execution of the
Deed of Sale, the preparation of which, Lourdes
Chong undertook. On May 8, 1988, the date
agreed upon for the execution of the Deed of
Sale, plaintiff Rubi Saw, accompanied by her
friend Aurora Chua Ng, went to 1266 Soler St.,
Sta. Cruz, Manila which is the residence and
place of business of defendant Uy Chi Kim, an
elderly man of Chinese ancestry and the place
suggested by Lourdes Chong as their meeting
place. During the meeting, Uy Chi Kim who was
there presented to Rubi Saw a Deed of Absolute
Sale in favor of defendant Century Well for her
signature. Before Rubi Saw signed the Deed of
Absolute Sale she inquired about the payment
of the P800,000.00. Defendant Uy Chi Kim
presented to her a personal check but she refused
the same because it was contrary to her
arrangement with Lourdes Chong that the
payment would be in the form of Manager's
Check. Uy Chi Kim then explained to Rubi Saw
that since it was a Sunday that day, they were
unable to obtain the Manager's Check. He
assured her that he had sufficient cash money at
the first floor of his residence which is a store
owned by Uy Chi Kim. Before Uy Chi Kim left
on the pretext of getting the money, he
persuaded plaintiff Rubi Saw to sign the Deed of
Absolute Sale and give the same to Lourdes
Chong together with the two Certificates of
Title. Since Uy Chi Kim is an elderly Chinese
whom Rubi Saw had no reason to mistrust,
following Chinese custom, plaintiff Rubi Saw
acceded to the request of Uy Chi Kim, trusting
that he had sufficient cash amounting
to P800,000.00 kept in the first floor of his
residence. When Uy Chi Kim returned, he told
Rubi Saw that he had only P20,000 on hand. He
assured plaintiff, however, that there was no
cause for her to worry (as) he was certain he
would have the entire amount ready by the next
day when the banks would be open. Again,
trusting the elderly defendant Uy Chi Kim, Rubi
Saw did not object and did not insist on the
return of the Deed of Absolute Sale that she
signed, together with the Certificate of Title
which she delivered to Lourdes Chong. The next
day, May 9, 1988 Rubi Saw called Lourdes
Chong and Uy Chi Kim over the telephone but
was told they were not around. She could not go
to the residence of Uy Chi Kim because she
could not leave her office due to business
concerns. On May 10, 1988 Rubi Saw
repeatedly called the two but was informed they
were not around. On May 11, 1988 already
anxious, she personally went to the residences
and offices of the two defendants but they were
not around. On May 12, 1988 Rubi Saw wrote
defendant Century Well advising Lourdes Chong
of the rescission and cancellation of the Deed of
Absolute Sale because of lack of consideration.
Lourdes Chong refused to receive the
letter. Thereafter, several demand letters were
sent to the defendants but they refused to pay
plaintiffs. Worried that defendants might
surreptitiously transfer the certificates of title to
their names, Rubi Saw wrote the public
defendant Register of Deeds on May 16, 1988,
giving information about the circumstances of
the sale and requesting not to allow registration
of the Deed of Absolute Sale, together with an
Affidavit of Adverse Claim. On May 20, 1988,
plaintiffs' representative was informed by the
Register of Deeds that defendants have made
representations with defendant to Registerthe
Deed of Absolute Sale on May 23, 1988.
Plaintiff Rubi Saw filed this Complaint alleging
that Lourdes Chong and Uy Chi Kim
maliciously misled her to believe that they
would pay the P800,000 as consideration when
in fact they had no intention to pay plaintiffs,
and prayed that they should be awarded moral
damages; that defendants be restrained from
registering the Deed of Absolute Sale, and be
ordered to return to them the 2 titles of the
properties together with the Deed of Absolute
Sale."[10]
On the other hand, private respondents
Century-Well, Lourdes Chong, and Chong Tak
Kei alleged that:
"...the consideration for the two parcels of land
was paid by means of off-setting or legal
compensation in the amount of P700,000 thru
alleged promissory notes executed by Cheng
Kim Heng in favor of his sons Chong Tak Choi
and Chong Tak Kei (Exh. 6, 7, & 8) and
payment of P100,000.00 in cash.
The defendant Century Well filed its Answer
stating that during the operation of plaintiff
CKH, the latter borrowed from Chong Tak Choi
and Chong Tak Kei the total sum of P700,000.00
paying interest on P300,000.00 while the
remaining P400,000.00 was interest free, and
upon the death of Cheng Kim Heng, it stopped
making said payments. Defendant tried to prove
that the source of this P700,000 was Hung Yuk
Wah while she was still residing in Hongkong,
sent via bank draft from Hongkong to Chong
Tak Choi and Chong Tak Kei on a bank to bank
transfer. Defendant likewise tried to prove that
after the death of Cheng Kim Heng, Rubi Saw
unilaterally arrogated to herself the executive
positions in plaintiff corporation such as
President, Secretary, Treasurer and General
Manager; thus effectively shunting aside Hung
Yuk Wah and her children in the management of
plaintiff corporation. Family differences (arose)
between Rubi Saw on one hand, and Hung Yuk
Wah and her children on the other hand which
turned to worst after the death of Cheng Kim
Heng. This brought about the entry of Chinese
mediators between them, one of whom is
defendant Uy Chi Kim, a reason why the
execution of the Deed of Absolute Sale was to
be done at the residence and business address of
Uy Chi Kim."[11]
Uy Chi Kim, on the other hand, answered
on his behalf, that:
"...his only participation in the transaction was
as a mediator, he being one of the closest friends
of Cheng Kim Heng; that because the heirs of
Cheng Kim Heng could not settle their problems
he, together with Machao Chan and Tomas
Ching tried to mediate in accordance with
Chinese traditions; that after long and tedious
meetings the parties finally agreed to meet at his
residence at 1266 Soler St., Sta. Cruz, Manila
for the purpose of pushing thru the sale of the
properties in question as part of the settlement of
the estate. Defendant Uy Chi Kim corroborated
the defense of his co-defendants that the
purchase price of the properties
was P800,000.00 the payment of which consists
in the form of P100,000.00 in cash Philippine
Currency; and the balance of P700,000.00 will
be applied as a set-off to the amount borrowed
by plaintiff CKH from Chong Tak Choi and
Chong Tak Kei. He advanced the amount
of P100,000.00 by way of his personal check to
Rubi Saw but because Rubi Saw refused, he
gave Rubi Saw P100,000 in the form of P100
bills which Rubi Saw and Jacinto Say even
counted. After the P100,000.00 cash was given
and the promissory notes, Rubi Saw signed the
document of sale. It was during the registration
of the sale that a problem arose as to the
payment of the capital gains (tax) which Rubi
Saw refused to pay. The buyer likewise refused
to pay the same. The complaint against him is
baseless and which besmirched his
reputation. Hence his counterclaim for
damages."[12]
The trial court denied the petitioners' prayer
for issuance of the writ of preliminary injunction
in its Order dated August 4, 1988.[13]
After trial, the lower court rendered its
Decision on February 4, 1991, finding that the
annulment of the Deed of Absolute Sale was
merited, as there was no payment of the
stipulated consideration for the sale of the real
properties involved to Rubi Saw.
In the first place, said the court, the Deed of
Sale itself, which is the best evidence of the
agreement between the parties, did not provide
for payment by off-setting a portion of the
purchase price with the outstanding obligation of
Cheng Kim Heng to his sons Chong Tak Choi
and Chong Tak Kei. On the contrary, it provided
for payment in cash, in the amount
of P800,000.00. The evidence presented,
however, did not disclose that payment of the
said amount had ever been made by the private
respondent. Moreover, there cannot be any valid
off-setting or compensation in this case, as
Article 1278 of the Civil Code [14] requires, as a
prerequisite for compensation, that the parties be
mutually bound principally as creditors and
debtors, which is not the case in this
instance. The rescission of the contract is,
therefore, called for, ruled the court.
Upon appeal, the respondent Court of
Appeals reversed the findings and
pronouncements of the trial court. In its
Decision[15] dated April 21, 1993, the appellate
court expressed its own findings, that the
execution of the Deed of Absolute Sale was in
settlement of a dispute between Rubi Saw and
the first family of Cheng Kim Heng, which
arose upon Cheng's death. The appellate court
described the history of their dispute as follows:
"In 1977, Heng formed plaintiff-appellee CKH
Industrial & Development Corporation (CKH),
with his first wife Wah, children Choi and Kei,
and second wife Rubi as his co-
incorporators/stockholders, along with other
individuals (Exhs. C and D; ibid., p. 9 and pp.
10-13, respectively). On April 15 and July 17 the
following year, Heng, on behalf of CHK [sic],
obtained loans of P400,000.00 and P100,000.00
from Choi, for which Heng executed two
promissory notes in Choi's favor (Exhs. 6 and
7; ibid., p. 40 and p. 41, respectively). On
November 24, 1981, Heng obtained from his
other son, Kei, another loan this time in the sum
of P200,000.00 on behalf of CKH for which he
issued another promissory note (Exh. 8, ibid., p.
42).
After its incorporation, CKH acquired two
parcels of land situated in Karuhatan,
Valenzuela, Bulacan (now Metro Manila)
covered by Transfer Certificates of Title Nos. B-
8710 (Annex A-Complaint; Record, p. 13) and
B-8711 (Annex B-Complaint; ibid., p. 14),
which are now the subject of litigation in instant
case.
On October 11, 1982, Kei was married to
defendant-appellant Lourdes Chong nee Lourdes
Gochico Hai Huat (Lourdes). During their
marriage, Kei and Lourdes resided in the house
on Tetuan St., Sta. Cruz, Manila, which CKH
was then utilizing as its office. At about this
time, Heng and Rubi had moved residence from
Valenzuela, Metro Manila, to Bermuda St., Sta.
Cruz, Manila.
Two years later, or in late 1984, Heng died.
Thenceforth, there appeared to be a falling out
between Heng's first wife Wah and their three
children on the one hand, and his second wife
Rubi, on the other, which came to a head when,
Rubi as president of CKH wrote a letter dated
August 21, 1985 to the mayor of Valenzuela,
Metro Manila, to prevent issuance of a business
permit to American Metals managed by Chong
Tak Choi, stating that CKH has not allowed it to
make use of the property, and on November 7,
1985, when CKH, through counsel, demanded
that Wah, Choi and Yam vacate the residential
and factory buildings and premises owned by
CKH and located on one of the subject lots on
76 F. Bautista St., Valenzuela, which the three
and the corporation (of which two of them were
stockholders), had been allegedly illegally
occupying (Exhs. 10 and 10-A; Folio, pp. 44-
45).
Respected mediators from the Chinese
community in the persons of defendant-
appellant Uy Chi Kim, Ma Chao, Tomas Cheng
and Johnny Saw, were called in to mediate. The
mediation efforts which resulted in the
withdrawal by Rubi Saw of her letter about the
withholding of a license to American Metals,
Inc. and much later, had culminated in the
transaction now under litigation.
The formula for settlement in the dispute was for
the Valenzuela properties of CKH to be sold to
Century Well for the amount
of P800,000.00, P100,000.00 of which will be
paid in cash and the balance of P700,000.00 to
be set-off by the three (3) promissory notes
executed in behalf of CKH in favor of Chong
Tak Choi and Chong Tak Kei (Exhs. 6, 7 and 8)
the accumulated interests thereon to be waived
as unstated consideration of the sale.
Having reached such agreement, on May 8,
1988, the parties met at the residence of Kim at
Soler St., where the corresponding deed of
absolute sale of realty was executed (Exhs. 11,
11-A to 11-C; ibid., pp. 46-49), with mediator
Cheng and CKH stockholder and Rubi's
secretary, Jacinto Say, signing as instrumental
witnesses. After having received the cash
consideration of P100,000.00 and the
promissory notes amounting to P700,000.00
Rubi had signed the deed, and thereafter
delivered to Lourdes the document of sale and
the owner's copies of the certificates of title for
the two lots. The deed having been executed on
a Sunday, the parties agreed to have the same
notarized the following day, May 9, 1988. The
parties again met the next day, May 9, 1988,
when they acknowledged the deed before a
notary public."[16]
In sum, the appellate court found that there
was indeed payment of the purchase price,
partially in cash for P100,000.00 and partially
by compensation by off-setting the debt of
Cheng Kim Heng to his sons Choi and Kei
for P500,000.00 and P200,000.00 respectively,
against the remainder of the stipulated
price. Such mode of payment is recognized
under Article 1249[17]of the Civil Code.
As observed by the appellate court:
We are of the considered view that the appellees
have not established what they claim to be the
invalidity of the subject deed of sale. The
appellees are therefore neither entitled to the
rescission or annulment of the document nor to
the award made in their favor in the decision
under question and those other reliefs they are
seeking.[18]
The question the Court is now tasked to
answer is whether or not there was payment of
the consideration for the sale of real property
subject of this case. More specifically, was there
a valid compensation of the obligations of
Cheng Kim Heng to his sons with the purchase
price of the sale?
To resolve this issue, it is first required that
we establish the true agreement of the parties.
Both parties take exception to the
provisions of the Deed of Absolute Sale to
bolster their respective claims. Petitioners, while
submitting that as worded, the Deed of Absolute
Sale does not provide for payment by
compensation, thereby ruling out the intention of
the parties to provide for such mode of payment,
submit on the other hand, that they had not
received payment of the stipulated cash payment
of P800,000.00. The testimony of Rubi Saw
during the hearings for preliminary injunction
and during trial was submitted to advance the
submission that she was never paid the price of
the subject lots, in cash or in promissory notes.
On the other side of the fence, private
respondents, who, ironically, were the parties
who drafted the subject document, claim that the
Deed of Sale does not express the true
agreement of the parties, specifically with regard
to the mode of payment. Private respondents
allege that the execution of the deed of absolute
sale was the culmination of mediation of the
dispute of the first and second families of Cheng
Kim Heng, over the properties of the decedent;
that the price of the real property subject of the
contract of sale was partly in cash, and the
reminder to be compensated against Cheng's
indebtedness to his sons Choi and Kei, reflected
in the promissory notes submitted as Exhibits 6,
7 and 8 during the trial; that by virtue of such
compensation, the sale has been consummated
and the private respondent Century-Well is
entitled to the registration of the certificates of
title over the subject properties in its name.
These contrasting submissions of the
circumstances surrounding the execution of the
subject document have led to this stalemate of
sorts. Still, the best test to establish the true
intent of the parties remains to be the Deed of
Absolute Sale, whose genuineness and due
execution, are unchallenged.[19]
Section 9 of Rule 130 of the Rules of Court
states that when the terms of an agreement have
been reduced to writing, it is considered as
containing all the terms agreed upon and there
can be, between the parties and their successors-
in-interest, no evidence of such terms other than
the contents of the written agreement.
The so-called parol evidence rule forbids
any addition to or contradiction of the terms of a
written instrument by testimony or other
evidence purporting to show that, at or before
the execution of the parties written agreement,
other or different terms were agreed upon by the
parties, varying the purport of the written
contract. When an agreement has been reduced
to writing, the parties cannot be permitted to
adduce evidence to prove alleged practices
which to all purposes would alter the terms of
the written agreement. Whatever is not found in
the writing is understood to have been waived
and abandoned.[20]
The rule is not without exceptions,
however, as it is likewise provided that a party to
an action may present evidence to modify,
explain, or add to the terms of the written
agreement if he puts in issue in his pleadings: (a)
An intrinsic ambiguity, mistake or imperfection
in the written agreement; (b) The failure of the
written agreement to express the true intent and
agreement of the parties thereto; (c) The validity
of the written agreement; or (d) The existence of
other terms agreed to by the parties or their
successors in interest after the execution of the
written agreement.[21]
We reiterate the pertinent provisions of the
deed:
That for and in consideration of the sum of
EIGHT HUNDRED THOUSAND
(P800,000.00) PESOS, Philippine Currency,
paid by VENDEE to VENDOR, receipt of which
is hereby acknowledged by the latter to its entire
satisfaction, said VENDOR, by these presents,
has SOLD, CEDED, TRANSFERRED, and
CONVEYED by way of absolute sale unto said
VENDEE, its successors and assigns, the two
parcels of land above described and any and all
improvements therein;[22]
The foregoing stipulation is clear enough in
manifesting the vendors admission of receipt of
the purchase price, thereby lending sufficient,
though reluctant, credence to the private
respondents submission that payment had been
made by off-setting P700,000.00 of the purchase
price with the obligation of Cheng Kim Heng to
his sons Choi and Kei. By signing the Deed of
Absolute Sale, petitioner Rubi Saw has given
her imprimatur to the provisions of the deed,
and she cannot now challenge its veracity.
However, the suitability of the said
stipulations as benchmarks for the intention of
the contracting parties, does not come clothed
with the cloak of validity. It must be
remembered that agreements affecting the civil
relationship of the contracting parties must come
under the scrutiny of the provisions of law
existing and effective at the time of the
execution of the contract.
We refer particularly to the provisions of
the law on compensation as a mode of
extinguishment of obligations. Under Article
1231 of the Civil Code, an obligation may be
extinguished: (1) by payment or performance;
(2) by the loss of the thing due, (3) by the
condonation or remission of the debt; (4) by the
confusion or merger of the rights of creditor and
debtor, (5) by compensation; or (6) by novation.
Other causes of extinguishment of obligations
include annulment, rescission, fulfillment of a
resolutory condition and prescription.
Compensation may take place by operation
of law (legal compensation), when two persons,
in their own right, are creditors and debtors of
each other.[23] Article 1279 of the Civil Code
provides for the requisites of legal
compensation:
Article 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
Compensation may also be voluntary or
conventional, that is, when the parties, who are
mutually creditors and debtors agree to
compensate their respective obligations, even
though not all the requisites for legal
compensation are present. Without the
confluence of the characters of mutual debtors
and creditors, contracting parties cannot
stipulate to the compensation of their
obligations, for then the legal tie that binds
contracting parties to their obligations wouldCKH
be INDUSTRIAL & DEVELOPMENT CORPORATION
absent. At least one party would be binding
himself under an authority he does not
possess. As observed by a noted author, the
requirements of conventional compensation are
(1) that each of the parties can dispose of the
credit he seeks to compensate, and (2) that they
agree to the mutual extinguishment of their
credits.[24]
In the instant case, there can be no valid
compensation of the purchase price with the
obligations of Cheng Kim Heng reflected in the
promissory notes, for the reason that CKH and
Century-Well the principal contracting parties,
are not mutually bound as creditors and debtors
in their own name. A close scrutiny of the
promissory notes does not indicate the late
Cheng, as then president of CKH,
acknowledging any indebtedness to Century-
Well. As worded, the promissory notes reveal
CKHs indebtedness to Chong Tak Choi and
Chong Tak Kei.
Exhibit 6
Metro Manila, Philippines
April 15, 1978
For Value Received, We, CKH INDUSTRIAL &
DEVELOPMENT CORPORATION, a duly
registered corporation with postal address at
Rm. 330, MTM Bldg. 1002 C. M. Recto
Avenue, Manila, promises [sic] to pay on
demand to Mr. CHONG TAK CHOI, the sum of
FOUR HUNDRED THOUSAND PESOS,
Philippine currency (P400,000.00)
To certify the correctness of the indebtedness to
the party, I, CHENG KIM HENG, President of
CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, do hereby signed [sic] in
behalf of the Corporation.
signed:
CHENG KIM HENG"
Exhibit 7
Manila,
July 17, 1978
For Value received, we, CKH INDUSTRIAL &
DEVELOPMENT CORPORATION, a duly
registered domestic corporation in the City of
Manila, represented by its president, CHENG
KIM HENG with residence certificate no.
118824650 issued at Manila, on 2-28-78 do
promise to pay on demand the sum of ONE
HUNDRED THOUSAND PESOS ONLY
(P100,000.00), Philippine currency with interest
from the date hereof at the rate of ten per cent
(10%) per annum to Mr. CHONG TAK CHOI.
In witness hereof on the consents [sic] of the
parties to this promissory note, I, CHENG KIM
HENG, president of CKH INDUSTRIAL &
DEVELOPMENT CORPORATION do hereby
affixed [sic] my signature below.
 signed:
CHENG KIM HENG
Exhibit 8
Manila, Philippines,
November 24, 1981
I, CHENG KIM HENG, President of CKH
INDUSTRIAL & DEVELOPMENT
CORPORATION, 831 Tetuan St. (2nd floor)
Sta. Cruz, Manila, promises to pay to CHONG
TAK KEI, with postal address at 76 F. Bautista
St., Valenzuela, Metro Manila, the sum of
PESOS: TWO HUNDRED THOUSAND
ONLY (P200,000.00) Philippine Currency, with
interest at the rate of Ten per cent (10%) per
annum from date stated above to a period of one
year and I hereby consent to any renewal, or
extension of same amount to a same period
which may be requested by any one of us for the
payment of this note.
I also acknowledge the receipt of the above sum
of money today from MR. CHONG TAK KEI.
CKH IND. & DEV. CORP.
signed:
CHENG KIM HENG
President
In fact, there is no indication at all, that
such indebtedness was contracted by Cheng
from Choi and Kei as stockholders of Century-
Well. Choi and Kei, in turn, are not parties to the
Deed of Absolute Sale. They are merely
stockholders of Century-Well,[25] and as such, areSPOUSES ALEJANDRO MIRASOL and LILIA E.
not bound principally, not even in a
representative capacity, in the contract of
sale. Thus, their interest in the promissory notes
cannot be off-set against the obligations between
CKH and Century-Well arising out of the deed
of absolute sale, absent any allegation, much
less, even a scintilla of substantiation, that Choi
and Keis interest in Century-Well are so
considerable as to merit a declaration of unity of
their civil personalities. Under present law,
corporations, such as Century-Well, have
personalities separate and distinct from their
stockholders,[26] except only when the law sees it
fit to pierce the veil of corporate identity,
particularly when the corporate fiction is shown
to be used to defeat public convenience, justify
wrong, protect fraud or defend crime, or where a
corporation the mere alter ego or business
conduit of a person.[27]The Court cannot, in this
instance make such a ruling absent a
demonstration of the merit of such a disposition.
Considering the foregoing premises, the
Court finds it proper to grant the prayer for
rescission of the subject deed of sale, for failure
of consideration.[28]
IN VIEW WHEREOF, the Court hereby
RESOLVED to GRANT the present
petition. The decision of the Court of Appeals
dated April 21, 1993, is hereby REVERSED and
SET ASIDE.The decision of the Regional Trial
Court of Valenzuela, Branch 173 dated February
4, 1991, is hereby REINSTATED, with the
MODIFICATION that the award of moral
damages and attorney's fees to Rubi Saw, and
the order for payment of costs are DELETED.
The parties shall bear their respective costs.
SO ORDERED.
[G.R. No. 128448. February 1, 2001]
MIRASOL, petitioners, vs. THE COURT OF
APPEALS, PHILIPPINE NATIONAL
BANK, and PHILIPPINE EXCHANGE CO.,
INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of
the decision of the Court of Appeals dated July
22, 1996, in CA-G.R. CV No. 38607, as well as
of its resolution of January 23, 1997, denying
petitioners motion for reconsideration. The
challenged decision reversed the judgment of the
Regional Trial Court of Bacolod City, Branch 42
in Civil Case No. 14725.
The factual background of this case, as
gleaned from the records, is as follows:
The Mirasols are sugarland owners and
planters. In 1973-1974, they produced 70,501.08
piculs[1] of sugar, 25,662.36 of which were
assigned for export. The following crop year,
their acreage planted to the same crop was
lower, yielding 65,100 piculs of sugar, with
23,696.40 piculs marked for export.
Private respondent Philippine National
Bank (PNB) financed the Mirasols sugar
production venture for crop years, 1973-1974
and 1974-1975 under a crop loan financing
scheme. Under said scheme, the Mirasols signed
Credit Agreements, a Chattel Mortgage on
Standing Crops, and a Real Estate Mortgage in
favor of PNB. The Chattel Mortgage
empowered PNB as the petitioners attorney-in-
fact to negotiate and to sell the latters sugar in
both domestic and export markets and to apply
the proceeds to the payment of their obligations
to it.
Exercising his law-making powers under
Martial Law, then President Ferdinand Marcos
issued Presidential Decree (P.D.) No. 579 [2] in
November, 1974. The decree authorized private
respondent Philippine Exchange Co., Inc.
(PHILEX) to purchase sugar allocated for export
to the United States and to other foreign
markets. The price and quantity was determined
by the Sugar Quota Administration, PNB, the
Department of Trade and Industry, and finally,
by the Office of the President. The decree
further authorized PNB to finance PHILEXs
purchases. Finally, the decree directed that
whatever profit PHILEX might realize from
sales of sugar abroad was to be remitted to a
special fund of the national government, after
commissions, overhead expenses and liabilities
had been deducted. The government offices and
entities tasked by existing laws and
administrative regulations to oversee the sugar
export pegged the purchase price of export sugar
in crop years 1973-1974 and 1974-1975
at P180.00 per picul.
PNB continued to finance the sugar
production of the Mirasols for crop years 1975-
1976 and 1976-1977. These crop loans and
similar obligations were secured by real estate
mortgages over several properties of the
Mirasols and chattel mortgages over standing
crops. Believing that the proceeds of their sugar
sales to PNB, if properly accounted for, were
more than enough to pay their obligations,
petitioners asked PNB for an accounting of the
proceeds of the sale of their export sugar. PNB
ignored the request. Meanwhile, petitioners
continued to avail of other loans from PNB and
to make unfunded withdrawals from their
current accounts with said bank. PNB then asked
petitioners to settle their due and demandable
accounts. As a result of these demands for
payment, petitioners on August 4, 1977,
conveyed to PNB real properties valued
at P1,410,466.00 by way of dacion en
pago, leaving an unpaid overdrawn account
of P1,513,347.78.
 On August 10, 1982, the balance of
outstanding sugar crop and other loans owed by
petitioners to PNB stood at P15,964,252.93.
Despite demands, the Mirasols failed to settle
said due and demandable accounts. PNB then
proceeded to extrajudicially foreclose the
mortgaged properties. After applying the
proceeds of the auction sale of the mortgaged
realties, PNB still had a deficiency claim
of P12,551,252.93.
Petitioners continued to ask PNB to account
for the proceeds of the sale of their export sugar
for crop years 1973-1974 and 1974-1975,
insisting that said proceeds, if properly
liquidated, could offset their outstanding
obligations with the bank. PNB remained
adamant in its stance that under P.D. No. 579,
there was nothing to account since under said
law, all earnings from the export sales of sugar
pertained to the National Government and were
subject to the disposition of the President of the
Philippines for public purposes.
On August 9, 1979, the Mirasols filed a suit
for accounting, specific performance, and
damages against PNB with the Regional Trial
Court of Bacolod City, docketed as Civil Case
No. 14725.
On June 16, 1987, the complaint was
amended to implead PHILEX as party-
defendant.
The parties agreed at pre-trial to limit the
issues to the following:
1. The constitutionality and/or legality of
Presidential Decrees numbered 338, 579, and
1192;
2. The determination of the total amount
allegedly due the plaintiffs from the defendants
corresponding to the allege(d) unliquidated cost
price of export sugar during crop years 1973-
1974 and 1974-1975.[3]
After trial on the merits, the trial court
decided as follows:
WHEREFORE, the foregoing premises
considered, judgment is hereby rendered in
favor of the plaintiffs and against the defendants
Philippine National Bank (PNB) and Philippine
Exchange Co., Inc. (PHILEX):
(1)Declaring Presidential Decree 579 enacted on
November 12, 1974 and all circulars, as well
as policies, orders and other issuances issued in
furtherance thereof, unconstitutional and
therefore, NULL and VOID being in gross
violation of the Bill of Rights;
(2) Ordering defendants PNB and PHILEX to pay,
jointly and severally, plaintiffs the whole amount
corresponding to the residue of the unliquidated
actual cost price of 25,662 piculs in export sugar
for crop year 1973-1974 at an average price of
P300.00 per picul, deducting therefrom however,
the amount of P180.00 already paid in advance
plus the allowable deductions in service fees and
other charges;
(3) And also, for the same defendants to pay, jointly
and severally, same plaintiffs the whole amount
corresponding to the unpaid actual price of
14,596 piculs of export sugar for crop year
1974-1975 at an average rate of P214.14 per
picul minus however, the sum of P180.00 per
picul already paid by the defendants in advance
and the allowable deducting (sic) in service fees
and other charges.
The unliquidated amount of money due the
plaintiffs but withheld by the defendants, shall
earn the legal rate of interest at 12% per annum
computed from the date this action was
instituted until fully paid; and, finally
(4) Directing the defendants PNB and PHILEX to
pay, jointly and severally, plaintiffs the sum of
P50,000.00 in moral damages and the amount of
P50,000.00 as attorneys fees, plus the costs of
this litigation.
SO ORDERED.[4]
The same was, however, modified by a
Resolution of the trial court dated May 14, 1992,
which added the following paragraph:
This decision should however, be interpreted
without prejudice to whatever benefits that may
have accrued in favor of the plaintiffs with the
passage and approval of Republic Act 7202
otherwise known as the Sugar Restitution Law,
authorizing the restitution of losses suffered by
the plaintiffs from Crop year 1974-1975 to Crop
year 1984-1985 occasioned by the actuations of
government-owned and controlled agencies.
(Underscoring in the original).
[5]
SO ORDERED.
The Mirasols then filed an appeal with the
respondent court, docketed as CA-G.R. CV No.
38607, faulting the trial court for not nullifying
the dacion en pago and the mortgage contracts,
as well as the foreclosure of their mortgaged
properties. Also faulted was the trial courts
failure to award them the full money claims and
damages sought from both PNB and PHILEX.
On July 22, 1996, the Court of Appeals
reversed the trial court as follows:
WHEREFORE, this Court renders judgment
REVERSING the appealed Decision and
entering the following verdict:
1. Declaring the dacion en pago and the
foreclosure of the mortgaged properties valid;
2. Ordering the PNB to render an accounting of
the sugar account of the Mirasol[s] specifically
stating the indebtedness of the latter to the
former and the proceeds of Mirasols 1973-1974
and 1974-1975 sugar production sold pursuant
to and in accordance with P.D. 579 and the
issuances therefrom;
3. Ordering the PNB to recompute in accordance
with RA 7202 Mirasols indebtedness to it
crediting to the latter payments already made as
well as the auction price of their foreclosed real
estate and stipulated value of their properties
ceded to PNB in the dacon (sic) en pago;
4. Whatever the result of the recomputation of
Mirasols account, the outstanding balance or the
excess payment shall be governed by the
pertinent provisions of RA 7202.
SO ORDERED.[6]
On August 28, 1996, petitioners moved for
reconsideration, which the appellate court
denied on January 23, 1997.
Hence, the instant petition, with petitioners
submitting the following issues for our
resolution:
1. Whether the Trial Court has jurisdiction to
declare a statute unconstitutional without notice
to the Solicitor General where the parties have
agreed to submit such issue for the resolution of
the Trial Court.
2. Whether PD 579 and subsequent
issuances[7] thereof are unconstitutional.
3. Whether the Honorable Court of Appeals
committed manifest error in not applying the
doctrine of piercing the corporate veil between
respondents PNB and PHILEX.
4. Whether the Honorable Court of Appeals
committed manifest error in upholding the
validity of the foreclosure on petitioners
property and in upholding the validity of
the dacion en pago in this case.
5. Whether the Honorable Court of Appeals
committed manifest error in not awarding
damages to petitioners grounds relied upon the
allowance of the petition. (Underscored in the
original)[8]
On the first issue. It is settled that Regional
Trial Courts have the authority and jurisdiction
to consider the constitutionality of a statute,
presidential decree, or executive order.[9] The
Constitution vests the power of judicial review
or the power to declare a law, treaty,
international or executive agreement,
presidential decree, order, instruction, ordinance,
or regulation not only in this Court, but in all
Regional Trial Courts.[10] In J.M. Tuason and
Co. v. Court of Appeals, 3 SCRA 696 (1961) we
held:
Plainly, the Constitution contemplates that the
inferior courts should have jurisdiction in cases
involving constitutionality of any treaty or law,
for it speaks of appellate review of final
judgments of inferior courts in cases where such
constitutionality happens to be in issue.[11]
Furthermore, B.P. Blg. 129 grants Regional
Trial Courts the authority to rule on the
conformity of laws or treaties with the
Constitution, thus:
SECTION 19. Jurisdiction in civil
cases. Regional Trial Courts shall exercise
exclusive original jurisdiction:
(1) In all civil actions in which the subject of the
litigations is incapable of pecuniary estimation;
The pivotal issue, which we must address,
is whether it was proper for the trial court to
have exercised judicial review.
Petitioners argue that the Court of Appeals
erred in finding that it was improper for the trial
court to have declared P.D. No.
579[12] unconstitutional, since petitioners had not
complied with Rule 64, Section 3, of the Rules
of Court. Petitioners contend that said Rule
specifically refers only to actions for declaratory
relief and not to an ordinary action for
accounting, specific performance, and damages.
Petitioners contentions are bereft of merit.
Rule 64, Section 3 of the Rules of Court
provides:
SEC. 3. Notice to Solicitor General. In any
action which involves the validity of a statute, or
executive order or regulation, the Solicitor
General shall be notified by the party attacking
the statute, executive order, or regulation, and
shall be entitled to be heard upon such question.
This should be read in relation to Section 1
[c] of P.D. No. 478,[13] which states in part:
SECTION 1. Functions and Organizations (1)
The Office of the Solicitor General shallhave the
following specific powers and functions:
xxx
[c] Appear in any court in any action involving
the validity of any treaty, law, executive order or
proclamation, rule or regulation when in his
judgment his intervention is necessary or when
requested by the court.
It is basic legal construction that where
words of command such as shall, must, or ought
are employed, they are generally and ordinarily
regarded as mandatory.[14] Thus, where, as in
Rule 64, Section 3 of the Rules of Court, the
word shall is used, a mandatory duty is imposed,
which the courts ought to enforce.
The purpose of the mandatory notice in
Rule 64, Section 3 is to enable the Solicitor
General to decide whether or not his intervention
in the action assailing the validity of a law or
treaty is necessary. To deny the Solicitor General
such notice would be tantamount to depriving
him of his day in court. We must stress that,
contrary to petitioners stand, the mandatory
notice requirement is not limited to actions
involving declaratory relief and similar
remedies. The rule itself provides that such
notice is required in any action and not just
actions involving declaratory relief. Where there
is no ambiguity in the words used in the rule,
there is no room for construction. [15] In all
actions assailing the validity of a statute, treaty,
presidential decree, order, or proclamation,
notice to the Solicitor General is mandatory.
In this case, the Solicitor General was never
notified about Civil Case No. 14725. Nor did the
trial court ever require him to appear in person
or by a representative or to file any pleading or
memorandum on the constitutionality of the
assailed decree. Hence, the Court of Appeals did
not err in holding that lack of the required notice
made it improper for the trial court to pass upon
the constitutional validity of the questioned
presidential decrees.
As regards the second issue, petitioners
contend that P.D. No. 579 and its implementing
issuances are void for violating the due process
clause and the prohibition against the taking of
private property without just compensation.
Petitioners now ask this Court to exercise its
power of judicial review.
Jurisprudence has laid down the following
requisites for the exercise of this power: First,
there must be before the Court an actual case
calling for the exercise of judicial
review. Second, the question before the Court
must be ripe for adjudication. Third, the person
challenging the validity of the act must have
standing to challenge. Fourth, the question of
constitutionality must have been raised at the
earliest opportunity, and lastly, the issue of
constitutionality must be the very lis mota of the
case. [16]
As a rule, the courts will not resolve the
constitutionality of a law, if the controversy can
be settled on other grounds.[17] The policy of the
courts is to avoid ruling on constitutional
questions and to presume that the acts of the
political departments are valid, absent a clear
and unmistakable showing to the contrary. To
doubt is to sustain. This presumption is based on
the doctrine of separation of powers. This means
that the measure had first been carefully studied
by the legislative and executive departments and
found to be in accord with the Constitution
before it was finally enacted and approved.[18]
The present case was instituted primarily
for accounting and specific performance. The
Court of Appeals correctly ruled that PNBs
obligation to render an accounting is an issue,
which can be determined, without having to rule
on the constitutionality of P.D. No. 579. In fact
there is nothing in P.D. No. 579, which is
applicable to PNBs intransigence in refusing to
give an accounting. The governing law should
be the law on agency, it being undisputed that
PNB acted as petitioners agent. In other words,
the requisite that the constitutionality of the law
in question be the very lis mota of the case is
absent. Thus we cannot rule on the
constitutionality of P.D. No. 579.
Petitioners further contend that the passage
of R.A. No. 7202[19] rendered P.D. No. 579
unconstitutional, since R.A. No. 7202 affirms
that under P.D. 579, the due process clause of
the Constitution and the right of the sugar
planters not to be deprived of their property
without just compensation were violated.
A perusal of the text of R.A. No. 7202
shows that the repealing clause of said law
merely reads:
SEC. 10. All laws, acts, executive orders and
circulars in conflict herewith are hereby repealed
or modified accordingly.
The settled rule of statutory construction is
that repeals by implication are not favored.
[20]
R.A. No. 7202 cannot be deemed to have
repealed P.D. No. 579. In addition, the power to
declare a law unconstitutional does not lie with
the legislature, but with the courts.
[21]
Assuming arguendo that R.A. No. 7202 did
indeed repeal P.D. No. 579, said repeal is not a
legislative declaration finding the earlier law
unconstitutional.
To resolve the third issue, petitioners ask us
to apply the doctrine of piercing the veil of
corporate fiction with respect to PNB and
PHILEX. Petitioners submit that PHILEX was a
wholly-owned subsidiary of PNB prior to the
latters privatization.
We note, however, that the appellate court
made the following finding of fact:
1. PNB and PHILEX are separate juridical
persons and there is no reason to pierce the veil
of corporate personality. Both existed by virtue
of separate organic acts. They had separate
operations and different purposes and powers.[22]
Findings of fact by the Court of Appeals are
conclusive and binding upon this Court unless
said findings are not supported by the evidence.
[23]
Our jurisdiction in a petition for review under
Rule 45 of the Rules of Court is limited only to
reviewing questions of law and factual issues are
not within its province.[24] In view of the
aforequoted finding of fact, no manifest error is
chargeable to the respondent court for refusing
to pierce the veil of corporate fiction.
On the fourth issue, the appellate court
found that there were two sets of accounts
between petitioners and PNB, namely:
1. The accounts relative to the loan financing
scheme entered into by the Mirasols with PNB
(PNBs Brief, p. 16) On the question of how
much the PNB lent the Mirasols for crop years
1973-1974 and 1974-1975, the evidence recited
by the lower court in its decision was deficient.
We are offered (sic) PNB the amount of
FIFTEEN MILLION NINE HUNDRED SIXTY
FOUR THOUSAND TWO HUNDRED FIFTY
TWO PESOS and NINETY THREE Centavos
(Ps15,964,252.93) but this is the alleged balance
the Mirasols owe PNB covering the years 1975
to 1982.
2. The account relative to the Mirasols current
account Numbers 5186 and 5177 involving the
amount of THREE MILLION FOUR
HUNDRED THOUSAND Pesos
(P3,400,000.00) PNB claims against the
Mirasols. (PNBs Brief, p. 17)
In regard to the first set of accounts, besides the
proceeds from PNBs sale of sugar (involving the
defendant PHILEX in relation to the export
portion of the stock), the PNB foreclosed the
Mirasols mortgaged properties realizing
therefrom in 1982 THREE MILLION FOUR
HUNDRED THIRTEEN THOUSAND Pesos
(P3,413,000.00), the PNB itself having acquired
the properties as the highest bidder.
As to the second set of accounts, PNB proposed,
and the Mirasols accepted,
a dacion en pago scheme by which the Mirasols
conveyed to PNB pieces of property valued at
ONE MILLION FOUR HUNDRED TEN
THOUSAND FOUR HUNDRED SIXTY-SIX
Pesos (Ps1,410,466.00) (PNBs Brief, pp. 16-17).
[25]
Petitioners now claim that the dacion en
pago and the foreclosure of their mortgaged
properties were void for want of consideration.
Petitioners insist that the loans granted them by
PNB from 1975 to 1982 had been fully paid by
virtue of legal compensation. Hence, the
foreclosure was invalid and of no effect, since
the mortgages were already fully discharged. It
is also averred that they agreed to
the dacion only by virtue of a martial law Arrest,
Search, and Seizure Order (ASSO).
We find petitioners arguments
unpersuasive. Both the lower court and the
appellate court found that the Mirasols admitted
that they were indebted to PNB in the sum stated
in the latters counterclaim.[26]Petitioners
nonetheless insist that the same can be offset by
the unliquidated amounts owed them by PNB
for crop years 1973-74 and 1974-75. Petitioners
argument has no basis in law. For legal
compensation to take place, the requirements set
forth in Articles 1278 and 1279 of the Civil
Code must be present. Said articles read as
follows:
Art. 1278. Compensation shall take place when
two persons, in their own right, are creditors and
debtors of each other.
Art. 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
In the present case, set-off or compensation
cannot take place between the parties because:
First, neither of the parties are mutually
creditors and debtors of each other. Under P.D.
No. 579, neither PNB nor PHILEX could retain
any difference claimed by the Mirasols in the
price of sugar sold by the two firms. P.D. No.
579 prescribed where the profits from the sales
are to be paid, to wit:
SECTION 7. x x x After deducting its
commission of two and one-half (2-1/2%)
percent of gross sales, the balance of the
proceeds of sugar trading operations for every
crop year shall be set aside by the Philippine
Exchange Company, Inc,. as profits which shall
be paid to a special fund of the National
Government subject to the disposition of the
President for public purposes.
Thus, as correctly found by the Court of
Appeals, there was nothing with which PNB was
supposed to have off-set Mirasols admitted
indebtedness.[27]
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
employed by PNB, which impugned petitioners
consent to the dacion en pago, both the trial
court and the Court of Appeals found that there
was no evidence to support said claim. Factual
findings of the trial court, affirmed by the
appellate court, are conclusive upon this Court.
[29]
On the fifth issue, the trial court awarded
petitioners P50,000.00 in moral damages
and P50,000.00 in attorneys fees. Petitioners
now theorize that it was error for the Court of
Appeals to have deleted these awards,
considering that the appellate court found PNB
breached its duty as an agent to render an
accounting to petitioners.
An agents failure to render an accounting to
his principal is contrary to Article 1891 of the
Civil Code.[30] The erring agent is liable for
damages under Article 1170 of the Civil Code,
which states:
Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
Article 1170 of the Civil Code, however,
must be construed in relation to Article 2217 of
said Code which reads:
Moral damages include physical suffering, ASSOCIATED
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury.
Though incapable of pecuniary computation,
moral damages may be recovered if they are the
proximate result of the defendants wrongful act
or omission.
Moral damages are explicitly authorized in
breaches of contract where the defendant acted
fraudulently or in bad faith.[31] Good faith,
however, is always presumed and any person
who seeks to be awarded damages due to the
acts of another has the burden of proving that
the latter acted in bad faith, with malice, or with
ill motive. In the instant case, petitioners have
failed to show malice or bad faith [32]on the part
of PNB in failing to render an accounting.
Absent such showing, moral damages cannot be
awarded.
Nor can we restore the award of attorneys
fees and costs of suit in favor of petitioners.
Under Article 2208 (5) of the Civil Code,
attorneys fees are allowed in the absence of
stipulation only if the defendant acted in gross
and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just, and demandable
claim. As earlier stated, petitioners have not
proven bad faith on the part of PNB and
PHILEX.
WHEREFORE, the instant petition is
DENIED and the assailed decision of the
respondent court in CA-G.R. CV 38607
AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. 156940. December 14, 2004]
BANK (Now WESTMONT
BANK), petitioner, vs. VICENTE HENRY
TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to
debit the value of a dishonored check from a
depositors account, they must do so with the
highest degree of care, so as not to prejudice the
depositor unduly.
 The Case
Before us is a Petition for Review [1] under
Rule 45 of the Rules of Court, assailing the
January 27, 2003 Decision[2] of the Court of
Appeals (CA) in CA-GR CV No. 56292. The
CA disposed as follows:
WHEREFORE, premises considered, the
Decision dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City,
Third Judicial Region, Branch 26, in Civil Case
No. 892-AF is hereby AFFIRMED. Costs
against the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a
businessman and a regular depositor-creditor of
the Associated Bank (hereinafter referred to as
the BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said
BANK in the amount of P101,000.00 issued to
him by a certain Willy Cheng from Tarlac. The
check was duly entered in his bank record
thereby making his balance in the amount
of P297,000.00, as of October 1, 1990, from his
original deposit of P196,000.00. Allegedly, upon
advice and instruction of the BANK that
the P101,000.00 check was already cleared and
backed up by sufficient funds, TAN, on the same
date, withdrew the sum of P240,000.00, leaving
a balance of P57,793.45. A day after, TAN
deposited the amount of P50,000.00 making his
existing balance in the amount of P107,793.45,
because he has issued several checks to his
business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners
went back to him alleging that the checks he
issued bounced for insufficiency of
funds. Thereafter, TAN, thru his lawyer,
informed the BANK to take positive steps
regarding the matter for he has adequate and
sufficient funds to pay the amount of the subject
checks. Nonetheless, the BANK did not bother
nor offer any apology regarding the
incident. Consequently, TAN, as plaintiff, filed a
Complaint for Damages on December 19, 1990,
with the Regional Trial Court of Cabanatuan
City, Third Judicial Region, docketed as Civil
Case No. 892-AF, against the BANK, as
defendant.
In his [C]omplaint, [respondent] maintained that
he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased
in number for lack of trust. As he has been in the
business community for quite a time and has
established a good record of reputation and
probity, plaintiff claimed that he suffered
embarrassment, humiliation, besmirched
reputation, mental anxieties and sleepless nights
because of the said unfortunate
incident. [Respondent] further averred that he
continuously lost profits in the amount
of P250,000.00. [Respondent] therefore prayed
for exemplary damages and that [petitioner] be
ordered to pay him the sum of P1,000,000.00 by
way of moral damages, P250,000.00 as lost
profits, P50,000.00 as attorneys fees plus 25% of
the amount claimed including P1,000.00 per
court appearance.
Meanwhile, [petitioner] filed a Motion to
Dismiss on February 7, 1991, but the same was
denied for lack of merit in an Order dated March
7, 1991. Thereafter, [petitioner] BANK on
March 20, 1991 filed its Answer denying,
among others, the allegations of [respondent]
and alleged that no banking institution would
give an assurance to any of its client/depositor
that the check deposited by him had already
been cleared and backed up by sufficient funds
but it could only presume that the same has been
honored by the drawee bank in view of the lapse
of time that ordinarily takes for a check to be
cleared. For its part, [petitioner] alleged that
on October 2, 1990, it gave notice to the
[respondent] as to the return of his UCPB check
deposit in the amount of P101,000.00, hence, on
even date, [respondent] deposited the amount
of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner]
averred that [respondent] had no cause of action
against it and argued that it has all the right to
debit the account of the [respondent] by reason
of the dishonor of the check deposited by the
[respondent] which was withdrawn by him prior
to its clearing. [Petitioner] further averred that it
has no liability with respect to the clearing of
deposited checks as the clearing is being
undertaken by the Central Bank and in accepting
[the] check deposit, it merely obligates itself as
depositors collecting agent subject to actual
payment by the drawee bank. [Petitioner]
therefore prayed that [respondent] be ordered to
pay it the amount of P1,000,000.00 by way of
loss of goodwill, P7,000.00 as acceptance fee
plus P500.00 per appearance and by way of
attorneys fees.
Considering that Westmont Bank has taken over
the management of the affairs/properties of the
BANK, [respondent] on October 10, 1996, filed
an Amended Complaint reiterating substantially
his allegations in the original complaint, except
that the name of the previous defendant
ASSOCIATED BANK is now WESTMONT
BANK.
Trial ensured and thereafter, the court rendered
its Decision dated December 3, 1996 in favor of
the [respondent] and against the [petitioner],
ordering the latter to pay the [respondent] the
sum of P100,000.00 by way of moral
damages, P75,000.00 as exemplary
damages, P25,000.00 as attorneys fees, plus the
costs of this suit. In making said ruling, it was
shown that [respondent] was not officially
informed about the debiting of the P101,000.00
[from] his existing balance and that the BANK
merely allowed the [respondent] to use the fund
prior to clearing merely for accommodation
because the BANK considered him as one of its
valued clients. The trial court ruled that the bank
manager was negligent in handling the particular
checking account of the [respondent] stating that
such lapses caused all the inconveniences to the
[respondent]. The trial court also took into
consideration that [respondents] mother was
originally maintaining with the x x x BANK [a]
current account as well as [a] time deposit, but
[o]n one occasion, although his mother made a
deposit, the same was not credited in her favor
but in the name of another.[4]
Petitioner appealed to the CA on the issues
of whether it was within its rights, as collecting
bank, to debit the account of its client for a
dishonored check; and whether it had informed
respondent about the dishonor prior to debiting
his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that
the bank should not have authorized the
withdrawal of the value of the deposited check
prior to its clearing. Having done so, contrary to
its obligation to treat respondents account with
meticulous care, the bank violated its own
policy. It thereby took upon itself the obligation
to officially inform respondent of the status of
his account before unilaterally debiting the
amount of P101,000. Without such notice, it is
estopped from blaming him for failing to fund
his account.
The CA opined that, had the P101,000 not
been debited, respondent would have had
sufficient funds for the postdated checks he had
issued. Thus, the supposed accommodation
accorded by petitioner to him is the proximate
cause of his business woes and shame, for which
it is liable for damages.
Because of the banks negligence, the CA
awarded respondent moral damages
of P100,000. It also granted him exemplary
damages of P75,000 and attorneys fees
of P25,000.
 Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the
sole issue of whether or not the petitioner, which
is acting as a collecting bank, has the right to
debit the account of its client for a check deposit
which was dishonored by the drawee bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and
obligations under the present set of facts were
misappreciated by the CA. It insists that its right
to debit the amount of the dishonored check
from the account of respondent is clear and
unmistakable. Even assuming that it did not give
him notice that the check had been dishonored,
such right remains immediately enforceable.
In particular, petitioner argues that the
check deposit slip accomplished by respondent
on September 17, 1990, expressly stipulated that
the bank was obligating itself merely as the
depositors collecting agent and -- until such time
as actual payment would be made to it -- it was
reserving the right to charge against the
depositors account any amount previously
credited. Respondent was allowed to withdraw
the amount of the check prior to clearing, merely
as an act of accommodation, it added.
At the outset, we stress that the trial courts
factual findings that were affirmed by the CA
are not subject to review by this Court. [7] As
petitioner itself takes no issue with those
findings, we need only to determine the legal
consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over
the deposits therein for the payment of any
withdrawals on the part of a depositor.[8] The
right of a collecting bank to debit a clients
account for the value of a dishonored check that
has previously been credited has fairly been
established by jurisprudence. To begin with,
Article 1980 of the Civil Code provides that
[f]ixed, savings, and current deposits of money
in banks and similar institutions shall be
governed by the provisions concerning simple
loan.
Hence, the relationship between banks and
depositors has been held to be that of creditor
and debtor.[9] Thus, legal compensation under
Article 1278[10] of the Civil Code may take place
when all the requisites mentioned in Article
1279 are present,[11] as follows:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.[12]
Nonetheless, the real issue here is not so
much the right of petitioner to debit respondents
account but, rather, the manner in which it
exercised such right. The Court has held that
even while the right of setoff is conceded,
separate is the question of whether that remedy
has properly been exercised.[13]
The liability of petitioner in this case
ultimately revolves around the issue of whether
it properly exercised its right of setoff. The
determination thereof hinges, in turn, on the
banks role and obligations, first, as respondents
depositary bank; and second, as collecting agent
for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has
emphasized that the banking business is
impressed with public interest. Consequently,
the highest degree of diligence is expected, and
high standards of integrity and performance are
even required of it. By the nature of its
functions, a bank is under obligation to treat the
accounts of its depositors with meticulous care.
[15]
Also affirming this long standing
doctrine, Philippine Bank of Commerce v. Court
of Appeals[16] has held that the degree of
diligence required of banks is more than that of
a good father of a family where the fiduciary
nature of their relationship with their depositors
is concerned.[17] Indeed, the banking business is
vested with the trust and confidence of the
public; hence the appropriate standard of
diligence must be very high, if not the highest,
degree of diligence.[18] The standard applies,
regardless of whether the account consists of
only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously
imposed by case law,[20] is now enshrined in
Republic Act No. 8791 or the General Banking
Law of 2000. Section 2 of the law specifically
says that the State recognizes the fiduciary
nature of banking that requires high standards of
integrity and performance.
Did petitioner treat respondents account
with the highest degree of care? From all
indications, it did not.
It is undisputed -- nay, even admitted -- that
purportedly as an act of accommodation to a
valued client, petitioner allowed the withdrawal
of the face value of the deposited check prior to
its clearing. That act certainly disregarded the
clearance requirement of the banking
system. Such a practice is unusual, because a
check is not legal tender or money; [21] and its
value can properly be transferred to a depositors
account only after the check has been cleared by
the drawee bank.[22]
Under ordinary banking practice, after
receiving a check deposit, a
bank either immediately credit the amount to a
depositors account; or infuse value to that
account only after the drawee bank shall have
paid such amount.[23] Before the check shall have
been cleared for deposit, the collecting bank can
only assume at its own risk -- as herein
petitioner did -- that the check would be cleared
and paid out.
Reasonable business practice and prudence,
moreover, dictated that petitioner should not
have authorized the withdrawal by respondent
of P240,000 on October 1, 1990, as this amount
was over and above his outstanding cleared
balance of P196,793.45.[24] Hence, the lower
courts correctly appreciated the evidence in his
favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this
reservation:
In receiving items on deposit, this Bank
obligates itself only as the Depositors Collecting
agent, assuming no responsibility beyond
carefulness in selecting correspondents, and
until such time as actual payments shall have
come to its possession, this Bank reserves the
right to charge back to the Depositors account
any amounts previously credited whether or not
the deposited item is returned. x x x."[25]
However, this reservation is not enough to
insulate the bank from any liability. In the past,
we have expressed doubt about the binding force
of such conditions unilaterally imposed by a
bank without the consent of the depositor.[26] It is
indeed arguable that in signing the deposit slip,
the depositor does so only to identify himself
and not to agree to the conditions set forth at the
back of the deposit slip.[27]
Further, by the express terms of the
stipulation, petitioner took upon itself certain
obligations as respondents agent, consonant with
the well-settled rule that the relationship
between the payee or holder of a commercial
paper and the collecting bank is that of principal
and agent.[28] Under Article 1909[29] of the Civil
Code, such bank could be held liable not only
for fraud, but also for negligence.
As a general rule, a bank is liable for the
wrongful or tortuous acts and declarations of its
officers or agents within the course and scope of
their employment.[30] Due to the very nature of
their business, banks are expected to exercise the
highest degree of diligence in the selection and
supervision of their employees.[31] Jurisprudence
has established that the lack of diligence of a
servant is imputed to the negligence of the
employer, when the negligent or wrongful act of
the former proximately results in an injury to a
third person;[32] in this case, the depositor.
The manager of the
banks Cabanatuan branch, Consorcia Santiago,
categorically admitted that she and the
employees under her control had breached bank
policies. They admittedly breached those
policies when, without clearance from the
drawee bank in Baguio, they allowed respondent
to withdraw on October 1, 1990, the amount of
the check deposited. Santiagotestified that
respondent was not officially informed about the
debiting of the P101,000 from his existing
balance of P170,000 on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly
acted within the scope of her authority in
authorizing the withdrawal and the subsequent
debiting without notice. Accordingly, what
remains to be determined is whether her actions
proximately caused respondents
injury. Proximate cause is that which -- in a
natural and continuous sequence, unbroken by
any efficient intervening cause --produces the
injury, and without which the result would not
have occurred.[34]
Let us go back to the facts as they
unfolded. It is undeniable that the banks
premature authorization of the withdrawal by
respondent on October 1, 1990, triggered -- in
rapid succession and in a natural sequence -- the
debiting of his account, the fall of his account
balance to insufficient levels, and the subsequent
dishonor of his own checks for lack of
funds. The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money
upon the advice by [petitioner] that his money
was already cleared. Without such advice,
[respondent] would not have withdrawn the sum
of P240,000.00.Therefore, it cannot be denied
that it was [petitioners] fault which allowed
[respondent] to withdraw a huge sum which he
believed was already his.
To emphasize, it is beyond cavil that
[respondent] had sufficient funds for the
check. Had the P101,000.00 not [been] debited,
the subject checks would not have been
dishonored. Hence, we can say that
[respondents] injury arose from the dishonor of
his well-funded checks. x x x.[35]
Aggravating matters, petitioner failed to
show that it had immediately and duly informed
respondent of the debiting of his
account. Nonetheless, it argues that the giving of
notice was discernible from his act of
depositing P50,000 on October 2, 1990, to
augment his account and allow the
debiting. This argument deserves short shrift.
First, notice was proper and ought to be
expected. By the bank managers account,
respondent was considered a valued client
whose checks had always been sufficiently
funded from 1987 to 1990,[36] until the October
imbroglio. Thus, he deserved nothing less than
an official notice of the precarious condition of
his account.
Second, under the provisions of the
Negotiable Instruments Law regarding the
liability of a general indorser[37] and the
procedure for a notice of dishonor,[38] it was
incumbent on the bank to give proper notice to
respondent. In Gullas v. National Bank,[39] the
Court emphasized:
x x x [A] general indorser of a negotiable
instrument engages that if the instrument the
check in this case is dishonored and the
necessary proceedings for its dishonor are duly
taken, he will pay the amount thereof to the
holder (Sec. 66) It has been held by a long line
of authorities that notice of dishonor is
necessary to charge an indorser and that the right
of action against him does not accrue until the
notice is given.
x x x. The fact we believe is undeniable that
prior to the mailing of notice of dishonor, and
without waiting for any action by Gullas, the
bank made use of the money standing in his
account to make good for the treasury
warrant. At this point recall that Gullas was
merely an indorser and had issued checks in
good faith. As to a depositor who has funds
sufficient to meet payment of a check drawn by
him in favor of a third party, it has been held
that he has a right of action against the bank for
its refusal to pay such a check in the absence of
notice to him that the bank has applied the funds
so deposited in extinguishment of past due
claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) However
this may be, as to an indorser the situation is
different, and notice should actually have been
given him in order that he might protect his
interests.[40]
Third, regarding the deposit of P50,000
made by respondent on October 2, 1990, we
fully subscribe to the CAs observations that it
was not unusual for a well-reputed businessman
like him, who ordinarily takes note of the
amount of money he takes and releases, to
immediately deposit money in his current
account to answer for the postdated checks he
had issued.[41]
Damages
Inasmuch as petitioner does not contest the
basis for the award of damages and attorneys
fees, we will no longer address these matters.
WHEREFORE, the Petition
is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53585 February 15, 1990
ROMULO VILLANUEVA, petitioner,
vs.
HON. FRANCISCO TANTUICO, JR., and
EMILIANA CRUZ, respondents.
Mariano C. Cortezano for petitioner.
NARVASA, J.:
This case treats of the liability of a Government
officer of the Bureau of Records Management
who was designated Administrative Officer and
Training Coordinator of two (2) regional
seminars of the Bureau, and who, as such, and
having custody of seminar fees collected from
the participants, authorized disbursements to
certain of the latter for transportation expenses,
food, etc. although, as subsequently disclosed,
they had already collected and received amounts
corresponding to said items from their respective
offices.
The officer involved is Romulo Villanueva,
petitioner herein. The seminars of his Bureau
were organized and conducted pursuant to a
directive of the Secretary of General Services
with a view to updating records management
techniques. 1 The seminar fees were charged
against the appropriations of the participants'
respective offices in accordance with Memo
Circular 830 issued by the Office of the
President, authorizing the attendance of records
officers from the different government agencies
at the seminars. All the fees collected,
P43,000.00 in the aggregate, were placed under
Villanueva's control and supervision, and were
made disbursable only upon his authorization
and for the purposes of the seminars specified in
Seminar Operation Plans Numbered 001 and
002.
For both seminars, Villanueva authorized
disbursements of P41,148.20 in payment of
food, snacks, transportation expenses, seminar
kits and hand-outs of the participants; hauling
services; additional allowance for training staff
(including snacks for personnel who worked
overtime in preparation for the seminars); hotel
bills and honoraria of resource speakers. The
balance of P1,851.80 was deposited with the
Cashier of the Bureau of Records Management
after the conclusion of the seminars, this being
evidenced by Official Receipt No. 0926496
dated October 8, 1975.
It was subsequently discovered that employees
and officers designated to take part in the
seminars had earlier collected from the offices or
corporations to which they pertained, their
transportation expenses, per diems, and other
allowances. For this reason, the Auditor of the
Bureau of Records Management, herein
respondent Emiliana Cruz, disallowed the
disbursement of seminar funds in the total
amount of P31,949.15 which Villanueva had
authorized for the transportation expenses, food
and other expenses of said employees and
officers. In Auditor Cruz's view, this amount
should also have been deposited with the
Cashier of the Bureau of Records Management.
Auditor Cruz accordingly wrote to Villanueva
demanding restitution of this sum of P31,949.15.
Villanueva demurred, claiming that the seminar
funds were private funds, and they had been
disbursed in pursuance to the objectives of the
seminars.
What Cruz did was to cause the issuance to
Villanueva of a certificate of permanent
disallowance in virtue of which all money
collectible by him from the Government would
be applied in satisfaction of the amount of
P31,949.15 which she had disallowed in audit.
She did this in reliance on Section 624 of the
Revised Administrative Code, viz.:
SEC. 624. When any person is indebted to the
Government of the Philippine Islands, the
Insular Auditor may direct the proper officer to
withhold the payment of any money due him or
his estate, the same to be applied in satisfaction
of such indebtedness.
Auditor Cruz characterized as an "indebtedness"
within the meaning of Section 624, the
disbursement of P31,949.15 authorized by
Villanueva to certain seminar participants
(which she had disallowed as aforestated). The
result was that Villanueva was prevented from
receiving (1) his salaries in the total amount of
P13,313.30, (2) his transportation and
representation expenses as Administrative
Officer and Training Coordinator of the
seminars amount in to P2,205.00, and (3) the
money value of his terminal leave, P14,796.29.
On top of this, Villanueva was charged by the
Commission on Audit with malversation of
public funds before the Tanodbayan. 2 The
Tanodbayan however dismissed the case upon
the Special Prosecutor's finding that the seminar
fees were not public funds, and they had been
disbursed by Villanueva in good faith. The
Commission's motion for reconsideration was
denied for lack of merit.
Villanueva then addressed a letter to the
President of the Philippines, appealing for
reversal of Auditor Cruz's action in preventing
the payment of his salaries and other money
benefits due him. The matter was referred to the
Commission on Audit which however found no
cogent reason to recommend favorable action on
Villanueva's appeal. 3
To obtain relief from these adverse dispositions,
Villanueva has instituted the special civil action
of certiorari at bar, faulting the respondents with
having acted with lack or excess of jurisdiction
or grave abuse of discretion. He argues that:
1) the seminar fees entrusted to him were
private, not public funds;
2) any conclusion that he "is indebted to the
Government" so that, according to Section 624
of the Revised Administrative Code, "any
money due him or his estate" may be withheld
and "applied in satisfaction of such
indebtedness," must proceed from judgment of a
competent court, not a mere opinion and
pronouncement of an auditor or even by the
COA; and
3) in any event, he is not in truth "indebted to the
Government," no disbursement authorized by
him being in violation of the President's Memo
Circular 830, or Seminar Regulations Nos. 001
and 002 of the Bureau of Records Management,
or any existing auditing rule or regulation.
1. The petitioner's first submission is quickly
disposed of. The record shows that the seminar
fees collected from seminar participants and
entrusted to Villanueva were chargeable against
the appropriations of the participants' respective
offices or agencies in accordance with the
President's Memorandum Circular No. 830.
Those fees must therefore be deemed public, not
private, funds. The audit of the disbursements of
said funds conducted by a government auditor
was therefore entirely in order.
2. The ratiocinations and conclusions of the
auditor, sustained by the Commission on Audit,
are something else. Auditor Cruz made the
finding, on the basis of her examination of the
relevant records, that Villanueva was indebted to
the Government in the sum of P31,949.15
representing supposedly unauthorized
disbursements, which she had consequently
disallowed and in reliance on Section 624 of
the Revised Administrative Code, supra, the
indebtedness may properly. be offset against
Villanueva's salary and other monetary benefits
payable to him by the Government. The
proposition is untenable.
While Section 624 of the Revised
Administrative Code does indeed authorize the
set-off of a person's indebtedness to the
Government against "any money due him or his
estate to be applied in satisfaction of such
indebtedness," that indebtedness must be one
that is admitted by the alleged debtor or
pronounced by final judgment of a competent
court. In such a case, the person and the
Government are in their own right both debtors
and creditors of each other, and compensation
takes place by operation of law in accordance
with Article 1278 of the Civil Code. 4 Absent,
however, any such categorical admission by an
obligor or final adjudication, no legal
compensation can take place, as this Court has
already had occasion to rule in an early
case. 5 Unless admitted by a debtor himself, the
conclusion that he is in truth indebted to the
Government cannot be definitely and finally
pronounced by a Government auditor, no matter
how convinced he may be from his examination
of the pertinent records of the validity of that
conclusion. Such a declaration, that a
government employee or officer is indeed
indebted to the Government, if it is to have
binding authority, may only be made by a court.
That determination is after all, plainly a judicial,
not an administrative function. No executive
officer or administrative body possesses such a
power.
3. In any case, the record does not show
Villanueva to have made illegitimate
disbursements of the public funds in his custody
for reimbursement of which to the Government
he had become obliged. The Court is satisfied
that his disbursements were within the letter and
contemplation of the Seminar Operation Plans in
question, Numbered 001 and 002. The
disbursements were for items explicitly
specified as authorized expenditures, i.e., food,
snacks, transportation, hauling services,
additional allowances for the training staff,
acquisition costs of seminar kits and hand-outs,
and grocery items for the snacks of the training
staff who had worked overtime without pay, or
for items which were allowable as reasonably
necessary expenses for the seminars upon
approval (actually given) of the Director of the
Bureau of Records Management, such as hotel
bills and honoraria for resource speakers. There
is moreover no showing whatever, contrary to
Auditor Cruz's claim, that Villanueva had
knowledge at the time of making the disputed
disbursements, that some of the seminar
participants had already collected from their
home offices or agencies certain amounts to
cover some of their expenses for attendance at
the seminar. Hence, assuming that some of the
participants, after having received certain
amounts from their home offices in connection
with their participation in the seminars, had
again received other amounts for the same
purpose from petitioner Villanueva, the liability
for that duplication in disbursements should be
exacted from the participants concerned, not
from Villanueva.
It is difficult, in fine, to discern any irregularity
in Villanueva's conduct as officer in charge of
the seminars such as would make him a debtor
of the Government, it appearing on the contrary
that he has done naught but fulfill his duties in
good faith and in accordance with the applicable
rules and guidelines. He did not deserve the
harsh treatment accorded to him in the premises.
In meting it out to him, there was grave abuse of
discretion.
WHEREFORE, the writ of certiorari prayed for
is granted, annulling and declaring void ab
initio the certificate of permanent disallowance
issued by Auditor Cruz against petitioner
Villanueva and the resolution or order of the
Commission on Audit sustaining the same, and
ordering the Commission on Audit to cause the
immediate payment to the petitioner of the sums
rightfully due but improperly withheld from
him, i.e., his salaries in the total amount of
P13,313.30, the transportation and
representation expenses due him as
Administrative Officer and Training Coordinator
of the seminars in the sum of P2,205.00, and the
money value of his terminal leave: P14,796.29.
SO ORDERED.
FIRST DIVISION
[G.R. No. L-56101. February 20, 1984.]
CORAZON PEREZ, Petitioner, v. HON.
COURT OF APPEALS and MEVER FILMS,
INCORPORATED, Respondents.
Francisco A. Lava, Jr. for Petitioner.
Alberto O. Villaraza for Private Respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND
CONTRACTS; COMPENSATION; NOT
PROPER WHERE ONE DEBT IS NOT YET
DUE AND DEMANDABLE; CASE AT BAR.
Since, on the respective dates of maturity,
specifically, August 6, 1974 and August 13,
1974, respectively, Ramon C. Mojica was still
the holder of those bills, it can be safely
assumed that it was he who had asked for the
roll-overs on the said dates. MEVER was bound
by the roll-overs since the assignment to it was
made only on September 9, 1974. The inevitable
result of the roll-overs of the principals was that
Bill No. 1298 and Bill No. 1419 were not yet
due and demandable as of the date of their
assignment by MOJICA to MEVER on
September 9, 1974, nor as of October 3, 1974
when MEVER surrendered said Bills to
CONGENERIC. As a consequence, no legal
compensation could have taken place because,
for it to exist, the two debts, among other
requisites, must be due and demandable (Article
1279, Civil Code).
2. REMEDIAL LAW; APPEALS; AUTHORITY
OF SUPREME COURT TO REVIEW ERRORS
NOT ASSIGNED. We note that the xerox
copies of Bill No. 1298 and Bill No. 1419
attached by MEVER to its Brief do not contain
the "roll-over" notations. However, MEVERs
own exhibits before respondent Appellate Court,
Exhibits "3" and "3-A", do show those notations
and MEVER must be held bound by them. And
although this issue may not have been squarely
raised below, in the interest of substantial justice
this Court is not prevented from considering
such a pivotal factual matter that had been
overlooked by the Courts below (Heirs of
Enrique Zambales v. CA, 120 SCRA 897
[1983]). The Supreme Court is clothed with
ample authority to review palpable errors not
assigned as such if it finds that their
consideration is necessary in arriving at a just
decision (Tumalad v. Vicencio, 41 SCRA 146
[1971]).
3. MERCANTILE LAW; CREDIT
TRANSACTIONS; MONEY MARKET
TRANSACTION DEFINED. There is
another aspect to this case. What is involved
here is a money market transaction. As defined
by Lawrence Smith "the money market is a
market dealing in standardized short-term credit
instruments (involving large amounts) where
lenders and borrowers do not deal directly with
each other but through a middle man or dealer in
the open market." It involves "commercial
papers" which are instruments "evidencing
indebtedness of any person or entity . . ., which
are issued, endorsed, sold or transferred or in
any manner conveyed to another person or
entity, with or without recourse" (The Money
Market Industry Today A Question of
Survival by Horacio T. Lava, Jr., in the PNB
Quarterly, A Supplement of the Philnabank
News, Second Quarter 1978.) The fundamental
function of the money market device in its
operation is to match and bring together in a
most impersonal manner both the "fund users"
and the "fund suppliers." The money market is
an "impersonal market", free from personal
considerations." (The Money Market mechanism
is intended to provide quick mobility of money
and securities." (Woodworth, p. 5.)
4. ID.; ID.; ID.; NOTICE OF TRANSFER, NOT
REQUIRED. The impersonal character of the
money market device overlooks the individuals
or entities concerned. The issuer of a
commercial paper in the money market
necessarily knows in advance that it would be
expeditiously transacted and transferred to any
investor/lender without need of notice to said
issuer. In practice, no notification is given to the
borrower or issuer of commercial paper of the
sale or transfer to the investor. Accordingly, we
find no applicability herein of Article 1285, 3rd
paragraph of the Civil Code. Rather, it is the first
paragraph of the same legal provision that is
applicable which states that the debtor who has
consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up
against the assignor, unless the assignor was
notified by the debtor at the time he gave his
consent, that he reserved his right to the
compensation.
DECISION
MELENCIO-HERRERA, J.:
This is a Petition for Review on Certiorari of a
Decision of the then Court of Appeals. The
relevant facts of the case may be stated as
follows:chanrob1es virtual 1aw library
1. CONGENERIC Development & Finance
Corporation is, or was, a company engaged in
"money market" operations
2. (a) On May 8, 1974, CONGENERIC issued
what was in effect a promissory note in the
amount of P111,973.58 in favor of bearer No.
049, later identified as Ramon C. MOJICA, or
an entity owned by him. That promissory note,
denominated hereinafter as Bill 1298, was to
mature on August 6, 1974.
(b) On May 15, 1974, CONGENERIC issued
another bearer promissory note for the sum of
P208,666.67, also in favor of MOJICA or an
entity owned by him. The note, denominated
hereinafter as Bill 1419, was to mature on
August 13, 1974.
3. On June 5, 1974, MEVER Films, Inc. the
private respondent herein, borrowed
P500,000.00 from CONGENERIC, the former
issuing in favor of the latter a negotiable
promissory note to mature on August 5, 1974.
That note shall hereinafter be referred to as NCI-
0352. What may be stated in connection with the
note is that it had no provision for interest,
except that, if not paid on due date, it would be
subject to interest at 14% per annum.
4. On July 3, 1974, CONGENERIC received
P200,000.00 from petitioner herein
(CORAZON, for short), and issued to her, as
BEARER 209, a confirmation of sale (CS)
numbered 0366. Under the terms of CS-0366,
CORAZON was to be paid P203,483.33 on
August 5, 1974, CONGENERIC would make
collection on behalf of CORAZON; and ALL
OF CONGENERICS INTEREST IN NCI-0352
WAS BEING TRANSFERRED TO HER. Under
this last provision, CORAZON, subject to
defenses, could have sued MEVER for payment
of the full amount of P500,000.00, specially if
CONGENERIC should not object. It may also
be noted that while NCI-0352 was not subject to
interest prior to August 5, 1974, CONGENERIC
obligated itself to pay CORAZON interest on
August 5, 1974 in the amount of P3,483.33, or
roughly an interest rate of 19% per annum.
5. (a) On August 5, 1974, MEVER paid
P100,000.00 to CONGENERIC on account of
NCI-0352.
(b) On the same date of August 5, 1974,
CONGENERIC paid CORAZON the sum of
P103,483.33, the P3,483.33 coming from its
own funds.
6. (a) On August 6, 1974, CONGENERIC paid
MOJICA the interest due on Bill 1298, the
principal being rolled-over to mature on October
4, 1974. The roll-over was annotated on the
original of Bill 1298.
(b) On August 13, 1974, CONGENERIC paid
MOJICA the interest due on Bill 1419, the
principal being rolled-over to mature on October
11, 1974. The roll-over was annotated on Bill
1419.
7. On September 9, 1974, MOJICA assigned Bill
1298 and Bill 1419 to MEVER through a
notarized deed.
8. On October 3, 1974, MEVER surrendered the
originals of Bill 1298 and Bill 1419 to
CONGENERIC, and asked the latter to compute
the balance of the account of MEVER with
CONGENERIC, taking account of the amounts
of the two Bills, which balance MEVER would
then pay.
9. (a) On October 7, 1974, MEVER was served
with garnishment by the Provincial Sheriff of
Rizal in two collection cases filed against
CONGENERIC by two of its creditors whose
credits totaled P185,693.78.
(b) On the same date of October 7, 1974,
CONGENERIC advised MEVER by telephone
that of the original amount of P500,000.00 of
NCI-0352, the sum of P200,000.00 was sold on
July 3, 1974 to a third party, but not naming
CORAZON as the third party.
10. On October 8, 1974, CONGENERIC
confirmed in writing to MEVER the previous
"sale" of P200,000.00 out of the P500,000.00
amount of NCI-0352; and advised that it could
not take account of the assignment to MEVER
of Bill 1298 and Bill 1419.
11. On November 15, 1974, MEVER turned
over to the Provincial Sheriff of Rizal (Exhibit
"5"), the sum of P79,359.75, which MEVER had
computed as the amount it was still owing
CONGENERIC and which was subject to
garnishment.
12. (a) On October 23, 1974, CONGENERIC
filed a Petition for Suspension of Payments in
Civil Case No. 20212 of the Court of First
Instance of Rizal. In that petition, MEVER was
listed as a debtor.
(b) On November 11, 1974, the Court issued an
order enjoining CONGENERIC from making
any payment to creditors.
13. In subsequent proceedings in Civil Case No.
20212, the Court promulgated an Order, dated
January 24, 1975 (Exhibit "10"), to the effect
that MEVER was not a debtor of
CONGENERIC, and said Order has become
final.
14. (a) On July 14, 1975, CORAZON filed suit
before the Court of First Instance of Rizal
against MEVER for the recovery of
P100,000.00, plus interest, damages, and
attorneys fees. She admits that CS-0366 issued
to her by CONGENERIC was a "without
recourse" instrument.
(b) The Trial Court rendered judgment in favor
of CORAZON and, upon her filing a bond, she
was able to have execution pending appeal.
MEVER had to pay her P131,166.00 under the
Trial Courts judgment.
(c) On Mevers appeal, the Court of Appeals
reversed the judgment of the Trial Court.
Before us, petitioner has made the following
Assignments of Error:chanrob1es virtual 1aw
library
A.
"Respondent Court of Appeals erred gravely in
applying Article 1626 of the Civil Code, which
refers to a debtor who pays his creditor before
knowledge of an assignment, when what is
involved principally in the case at bar is
compensation rather than payment.
B.
"Respondent Court of Appeals erred gravely in
completely disregarding the essentially
impersonal, fluid and mobile nature of money
market transactions.
C.
"Respondent Court of Appeals erred gravely in
completely disregarding the vital circumstance
that respondent Mever Films, Inc. necessarily
consented in advance to the purchase by
petitioner Corazon Perez of part of its obligation
under its Negotiable Certificate of Indebtedness
(NCI).
D.
"Respondent Court of Appeals erred gravely in
applying the third parag. of Article 1285 of the
Civil Code allowing compensation of credits if
assignment of credit is made without knowledge
of the debtor, and in not applying the first
paragraph of said Article 1285 barring the
defense of compensation where the debtor has
consented to the assignment of rights in favor of
a third person.
E.
"Respondent Court of Appeals erred gravely in
holding that compensation had set in and
reduced respondent Mevers obligation to
P79,359.75.
F.
"Respondent Court of Appeals erred gravely in
holding that payment by respondent Mever of
P79,359.75 to the Sheriff in connection with
garnishment in certain civil cases against
Congeneric extinguished Mevers obligation and
could be set up as another defense to the claim
of petitioner Corazon Perez.
G.
"Respondent Court of Appeals erred gravely in
reversing the decision of the Trial Court, in
denying the motion for reconsideration of
petitioner Corazon Perez, and in granting
respondent Mevers motion for resolution and/or
clarification by ordering refund of P139,141.63
with interest at 14% per annum, and ordering
payment of P10,000.00 as attorneys fees." 1
The foregoing take issue with the following
observations and findings of respondent
Appellate Court:jgc:chanrobles.com.ph
". . . We agree with the appellant (MEVER) that
there was legal compensation under Article 1279
of the New Civil Code which caused the
extinguishment of the obligation under
Negotiable Certificate of Indebtedness No.
0352.
"The original obligation of defendant-appellant
to Congeneric is P500,000.00 (Exhibit 1) out
of which it paid P100,000.00 on the maturity
date of the note leaving a balance of
P400,000.00.
"By a Deed of Assignment dated September 9,
1974 executed by Ramon C. Mojica in favor of
the appellant (Exhibit 2), the latter acquired the
rights of the assignor to two Congeneric bills
Nos. 1298 for P111,973.58 which matured on
August 6, 1974 (Exhibit 3) and No. 1419 for
P208,666.67 which matured on August 13, 1974
(Exhibit 4) or a total of P320,640.25. As of
September 9, 1974, therefore, said bills were
already due and demandable.
"On the other hand, appellants obligation in
favor of Congeneric matured on August 5, 1974.
As a result defendant-appellant became both a
debtor and a creditor of Congeneric. A debtor to
the extent of P400,000.00 under the Negotiable
Certificate of Indebtedness (Exhibit 1) and a
creditor for the sum of P320,640.25. By
operation of law, there was partial compensation
to the extent of P320,640.25 (Articles 1281 &
1290, New Civil Code).
x x x maturity of the note on August 5, 1974,
"As a consequence of compensation, the
obligation of defendant-appellant to Congeneric
as of September 9, 1974 was reduced to
P79,359.75.
"On October 7, 1974, Defendant-Appellant was
served notices of garnishment in connection
with Civil Cases Nos. 20043 and 20044 of the
Court of First Instance of Rizal against
Congeneric. It consists in the citation of some
stranger to the litigation, who is debtor to one of
the parties to the action. By this means such
debtor stranger becomes a forced intervenor, and
the court, having acquired jurisdiction over his
person by means of the citation, requires him to
pay his debt, not to his former creditor, but to the
new creditor, who is the creditor in the main
litigation. It is merely a case of involuntary
novation by the substitution of one creditor for
another (Tayabas Land Co. v. Sharuff, 41 Phil.
382, 387). Consequently, Defendant-
Appellant held the amount it still owed
Congeneric, which is P79,359.75, as any
payment to the creditor by the debtor after the
latter has been judicially ordered to retain the
debt shall not be valid (see Article 1243, New
Civil Code). On November 15, 1975, the
garnished amount was delivered by the appellant
to the deputy sheriff (Exhibit 5). Consequently,
the balance of the obligation of defendant-
appellant to Congeneric in the sum of
P79,359.75 was extinguished and therefore no
longer obligated under its Negotiable Certificate
of Indebtedness.
". . . the evidence on record disclosed no notice
to defendant-appellant of the purchase by
appellee of part of defendant-appellants
obligation prior to compensation and
consequently its non-liability to appellee.
"Prior to the telephone call of Mr. Dumadag to
Mr. Jesus G. Sanchez on October 7, 1974
disclosing the sale to appellee by Congeneric of
part of its promissory note, appellant was
unaware of the sale. In fact, it was the first time
that it came to know of the transaction (tsn. pp.
11-12 S, August 10, 1976) so much so that upon
appellant made a partial payment of
P100,000.00 not to appellee but to Congeneric.
The telephone advice to the appellant which was
confirmed in writing or October 8, 1974 was too
late. By that time the entire obligation of
appellant was already extinguished by payment,
compensation and novation. A debtor who,
before having knowledge of the assignment,
pays his creditor is released from his obligation
(Article 1626, New Civil Code).
"Appellant correctly invoked compensation as a
defense, for under Article 1285, 3rd paragraph
If the assignment is made without the
knowledge of the debtor, he may set up
compensation of all credits prior to the same and
also later ones until he had knowledge of the
assignment."
If, in fact, Bill No. 1298 and Bill No. 1419 were
due and demandable on September 9, 1974, the
date of the assignment from MOJICA to
MEVER, or on October 3, 1974, the date of
surrender of said Bills by MEVER to
CONGENERIC, it could be rightfully said that
legal compensation had taken place. As pointed
out by CORAZON, however, said two bills
contain the following
notations:jgc:chanrobles.com.ph
"Bill No. 1298 Paid 8/6/74 interest only,
principal roll over up to 10/4/74 (Annexes A-1,
A-2, Petitioners Reply Brief; Exh. 3, Folder of
Exhibits).
"Bill No. 1419 Paid 8/13/74 interest only,
principal roll over up to 10/11/74 (Annexes A,
A-3, ibid.; Exh. 3-A, Folder of Exhibits).
Since, on the respective dates of maturity,
specifically, August 6, 1974 and August 13,
1974, respectively, Ramon C. Mojica was still
the holder of those bills, it can be safely
assumed that it was he who had asked for the
roll-overs on the said dates. MEVER was bound
by the roll-overs since the assignment to it was
made only on September 9, 1974. The inevitable
result of the roll-overs of the principals was that
Bill No. 1298 and Bill No. 1419 were not yet
due and demandable as of the date of their
assignment by MOJICA to MEVER on
September 9, 1974, nor as of October 3, 1974
when MEVER surrendered said Bills to
CONGENERIC. As a consequence, no legal
compensation could have taken place because,
for it to exist, the two debts, among other
requisites, must be due and
demandable.chanrobles.com:cralaw:red
"Art. 1279. In order that compensation may be
proper, it is necessary:jgc:chanrobles.com.ph
"(1) That each one of the obligors be found
principally, and that he be at the same time a
principal creditor of the other;
"(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, and also of the same quality if the
latter has been stated;
"(3) That the two debts be due;
"(4) That they be liquidated and demandable;
"(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor."cralaw virtua1aw library
We note that the xerox copies of Bill No. 1298
and Bill No. 1419 attached by MEVER to its
Brief do not contain the "roll-over" notations.
However, MEVERs own exhibits before
respondent Appellate Court, Exhibits "3" and "3-
A", do show those notations and MEVER must
be held bound by them. And although this issue
may not have been squarely raised below, in the
interest of substantial justice this Court is not
prevented from considering such a pivotal
factual matter that had been overlooked by the
Courts below. 2 The Supreme Court is clothed
with ample authority to review palpable errors
not assigned as such if it finds that their
consideration is necessary in arriving at a just
decision. 3
There is another aspect to this case. What is
involved here is a money market transaction. As
defined by Lawrence Smith "the money market
is a market dealing in standardized short-term
credit instruments (involving large amounts)
where lenders and borrowers do not deal directly
with each other but through a middle man or
dealer in the open market." It involves
"commercial papers" which are instruments
"evidencing indebtedness of any person or entity
. . ., which are issued, endorsed, sold or
transferred or in any manner conveyed to
another person or entity, with or without
recourse." 4 The fundamental function of the
money market device in its operation is to match
and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers."
The money market is an "impersonal market",
free from personal considerations." 5 The
market mechanism is intended to provide quick
mobility of money and securities." 6
The impersonal character of the money market
device overlooks the individuals or entities
concerned. The issuer of a commercial paper in
the money market necessarily knows in advance
that it would be expeditiously transacted and
transferred to any investor/lender without need
of notice to said issuer. In practice, no
notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the
investor.
Accordingly, we find no applicability herein of
Article 1285, 3rd paragraph of the Civil Code.
Rather, it is the first paragraph of the same legal
provision that is
applicable:jgc:chanrobles.com.ph
"ART. 1285. The debtor who has consented to
the assignment of rights made by a creditor in
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
his consent, that he reserved his right to the
compensation."cralaw virtua1aw library
x x x
There is need to individuate a money market
transaction, a relatively novel institution in the
Philippine commercial scene. It has been
intended to facilitate the flow and acquisition of
capital on an impersonal basis. And as
specifically required by Presidential Decree No.
678, the investing public must be given adequate
and effective protection in availing of the credit
of a borrower in the commercial paper market.
WHEREFORE, the judgment of respondent
Appellate Court, dated September 3, 1979 as
well as its Resolution dated January 16, 1981 is
hereby reversed, and that of the then Court of
First Instance of Manila, Branch XXXI, dated
December 27, 1976, hereby reinstated.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G. R. No. L-74027 December 7, 1989
SILAHIS MARKETING
CORPORATION, petitioner
vs.
INTERMEDIATE APPELLATE COURT
and GREGORIO DE LEON, doing business
under the name and style of "MARK
INDUSTRIAL SALES", respondents.
Jaime V. Villanueva for petitioner.
Tinga, Fuentes, Tagle & Malate for private
respondent.
FERNAN, C.J.
Petitioner Silahis Marketing Corporation seeks
in this petition for review on certiorari a reversal
of the decision of the then Intermediate
Appellate Court (IAC) in AC-G.R. CV No.
67162 entitled "De Leon, etc. v. Silahis
Marketing Corporation", disallowing petitioner's
counterclaim for commission to partially offset
the claim against it of private respondent
Gregorio de Leon for the purchase price of
certain merchandise.
A review of the record shows that on various
dates in October, November and December,
1975, Gregorio de Leon (De Leon for short)
doing business under the name and style of
Mark Industrial Sales sold and delivered to
Silahis Marketing Corporation (Silahis for short)
various items of merchandise covered by several
invoices in the aggregate amount of P 22,213.75
payable within thirty (30) days from date of the
covering invoices. Allegedly due to Silahis'
failure to pay its account upon maturity despite
repeated demands, de Leon filed before the then
Court of First Instance of Manila a complaint for
the collection of the said accounts including
accrued interest thereon in the amount of P
661.03 and attorney's fees of P 5,000.00 plus
costs of litigation.
The answer admitted the allegations of the
complaint insofar as the invoices were
concerned but presented as affirmative defenses;
[al a debit memo for P 22,200.00 as unrealized
profit for a supposed commission that Silahis
should have received from de Leon for the sale
of sprockets in the amount of P 111,000.00 made
directly to Dole Philippines, Incorporated by the
latter sometime in August 1975 without coursing
the same through the former allegedly in
violation of the usual practice concerning sale of
merchandise to Dole Philippines, Inc.; and [b]
Silahis' claim that it is entitled to return the
stainless steel screen covered by Exhibits '6-A'
and '6-B' which was found defective by its
client, Borden International, Davao City, and to
have the corresponding amount cancelled from
its account with de Leon.
In a decision dated August 25, 1978, 1 the lower
court confirmed the liability of Silahis for the
claim of de Leon but at the same time ordered
that it be partially offset by Silahis' counterclaim
as contained in the debit memo for unrealized
profit and commission. Judge Bienvenido C.
Ejercito of said court held:
There is no question that the defendant received
from the plaintiff the items contained in Exhs.
'A' to 'F'. The only question is whether or not the
defendant is entitled to set off against the claim
of the plaintiff the amount contained in the debit
memo of the defendant, Exh. '1', and whether or
not the defendant is entitled to return the steel
wire mesh which was returned to them by
Borden Philippines, as shown by Exhs. '6-A' and
'6-B'. The Court believes that the defendant is
properly chargeable for the amounts of the
unpaid invoices set forth in the complaint.
However, the Court also believes that the
plaintiff is also properly chargeable for the debit
memo of P 22,200.00, Exh. '1'. This is because it
was proven by the defendant from the
testimonies of Isaias Fernando, Jr. and Jose Joel
Tamon that contrary to the agreement between
plaintiff and defendant that the latter was to
serve the account of Dole Philippines in Davao,
the plaintiff made a direct sale of sprockets for P
111,000.00 which therreby deprives the
defendant of its corresponding commission for P
22,200.00 which the defendant would have
otherwise made if the plaintiff had followed its
previous arrangement with the defendant.
However, as to the counterclaim of the
defendant for a cancellation of the amount of P
6,000.00 for defective stainless screen wire
purchased and intended for Borden
International, Davao City, the Court believes
that it is much too late now to present said claim
because the purchase was made and delivered as
early as December 22,1975 and the proposed
return to the defendant by Borden was made on
April 1, 1976 only. The Court is not ready to
award damages to any of the parties. After
deducting the amount of P 22,200.00, which is
the unpaid commission of the defendant from
the principal total amount of the unpaid invoices
of the plaintiff of P 22,213.75, the unpaid
balance in favor of the plaintiff is P 13.75. The
claim for interest and attorney's fees of the
plaintiff may be offset against the interest and
attorney's fees of the defendant.
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant
ordering the defendant to pay to the plaintiff the
amount of P 13.75, with interest at 12% per
annum from the date of the filing of the action
on July 1, 1976 until fully paid, without
pronouncement as to costs.
SO ORDERED. 2
De Leon appealed from the said decision insofar
as it directed partial compensation and its failure
to award interest on his principal claim as well
as attomey's fees in his favor. In a decision dated
March 1 7, 1986, 3respondent Intermediate
Appellate Court 4 set aside the decision of the
lower court and dismissed herein petitioner's
(therein defendant- appellee's) counterclaim for
lack of factual or legal basis. The appellate court
found that there was no agreement, verbal or
otherwise, nor was there any contractual
obligation between De Leon and Silahis
prohibiting any direct sales to Dole Philippines,
Inc. by de Leon; nor was there anything in the
debit memo obligating de Leon to pay a
commission to Silahis for the sale of P
111,000.00 worth of sprockets to Dole
Philippines although in the past, the former did
supply certain items to the latter for delivery to
Dole Philippines, Incorporated.
Hence, in this petition for review on certiorari,
the central issue is whether or not private
respondent is liable to the petitioner for the
commission or margin for the direct sale which
the former concluded and consummated with
Dole Philippines, Incorporated without coursing
the same through herein petitioner.
We have carefully gone over the record of this
case particularly the debit memo upon which
petitioner's counterclaim rests and found nothing
contained therein to show that private
respondent obligated himself to set-off or
compensate petitioner's outstanding accounts
with the alleged unrealized commission from the
assailed sale of sprockets in the amount of P
111,000.00 to Dole Philippines, Inc.
It must be remembered that compensation takes
place when two persons, in their own right, are
creditors and debtors to each other. Article 1279
of the Civil Code provides that: "In order that
compensation may be proper, it is necessary: [1]
that each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other; [2] that both debts
consist in a sum of money, or if the things due
are consumable, they be of the same kind, and
also of the same quality if the latter has been
stated; [3] that the two debts be due; [4] that
they be liquidated and demandable; [5] that over
neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
When all the requisites mentioned in Art. 1279
of the Civil Code are present, compensation
takes effect by operation of law, even without
the consent or knowledge of the creditors and
debtors. 5 Article 1279 requires, among others,
that in order that legal compensation shall take
place, "the two debts be due" and "they be
liquidated and demandable." Compensation is
not proper where the claim of the person
asserting the set-off against the other is not clear
nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from
breach of contract. 6
Undoubtedly, petitioner admits the validity of its
outstanding accounts with private respondent in
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
4, 1990, private respondent deposited the
said U.S. treasury check of Fernandez in
Savings Account No. 3 185-0128-82.The U.S.
Veterans Administration Office
in Manila conditionally cleared the check.4 The
check was then sent to the United States for
further clearing.5
Two months after or on March 8,
1990, private respondent closed Savings
Account No. 3 185-0128-82 and transferred its
funds amounting to P13,112.91 to Savings
Account No. 3 185-0172-56, the joint account
with his wife.
On January 16, 1991, U.S. Treasury
Warrant No. 21667302 was dishonored as it was
discovered that Fernandez died
three (3) days prior to its issuance. The U.S.
Department of Treasury requested petitioner
bank for a refund.6 For the first time petitioner
bank came to know of the death of Fernandez.
On February 19, 1991, private respondent
received a PT & T urgent telegram from
petitioner bank requesting him to contact
Manager Grace S. Romero or Assistant Manager
Carmen Bernardo. When he called up the bank,
he was informed that the treasury check was the
subject of a claim by Citibank NA,
correspondent of petitioner bank. He assured
petitioners that he would drop by the bank to
look into the matter. He also verbally
authorized them to debit from his other joint
account the amount stated in the dishonored
U.S. Treasury Warrant.7 On the same day,
petitioner bank debited the amount of
P10,556.00 from private respondents Savings
Account No. 3185-0172-56.
On February 21, 1991, private respondent
with his lawyer Humphrey Tumaneng visited the
petitioner bank and the refund documents were
shown to them. Surprisingly, private respondent
demanded from petitioner bank restitution of the
debited amount. He claimed that because of the
debit, he failed to withdraw his money when he
needed them. He then filed a suit for
Damages8 against petitioners before the
Regional Trial Court of Quezon City, Branch 79.
Petitioners contested the complaint and
counter-claimed for moral and exemplary
damages. By way of Special and Affirmative
Defense, they averred that private respondent
gave them his express verbal authorization to
debit the questioned amount. They claimed that
private respondent later refused to execute a
written authority.9
In a Decision dated January 20, 1993, the
trial court dismissed the complaint of private
respondent for lack of cause of action.10
Private respondent appealed to the
respondent Court of Appeals. On August 16,
1994, the Sixteenth Division of respondent court
in AC-G.R. CV No. 41543 reversed the
impugned decision, viz:
WHEREFORE, the judgment appealed from is
set aside, and another one entered ordering
defendant (petitioner) to credit plaintiffs (private
respondents) S.A. No. 3 185-0172-56 with
P10,556.00 plus interest at the applicable rates
for express teller savings accounts
from February 19,1991, until compliance
herewith. The claim and counterclaim for
damages are dismissed for lack of merit.
SO ORDERED.11
Petitioners now contend that respondent
Court of Appeals erred:
I
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
RESPONDENT REYES GAVE EXPRESS
AUTHORITY TO PETITIONER BANK TO
DEBIT HIS JOINT ACCOUNT WITH HIS
WIFE FOR THE VALUE OF THE
RETURNED U.S. TREASURY WARRANT.
II
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
PETITIONER BANK HAS LEGAL RIGHT TO
APPLY THE DEPOSIT OF RESPONDENT
REYES TO HIS OUTSTANDING
OBLIGATION TO PETITIONER BANK
BROUGHT ABOUT BY THE RETURN OF
THE U.S. TREASURY WARRANT HE
EARLIER DEPOSITED UNDER THE
PRINCIPLE OF LEGAL COMPENSATION.
III
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT APPLYING
CORRECTLY THE PRINCIPLES
ENUNCIATED BY THE SUPREME COURT
IN THE CASE OF GULLAS V. PNB, 62 PHIL.
519.
IV
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT APPRECIATING
THE FACT THAT THE MONEY DEBITED BY
PETITIONER BANK WAS THE SAME
MONEY TRANSFERRED BY RESPONDENT
REYES FROM HIS JOINT AND/OR
ACCOUNT WITH HIS GRANDMOTHER TO
HIS JOINT AND/OR ACCOUNT WITH HIS
WIFE.12
We find merit in the petition.
The first issue for resolution is whether
private respondent
verbally authorized petitioner bank to debit his
joint account with his wife for the amount of the
returned U.S. Treasury Warrant. We find that
petitioners were able to prove this verbal
authority by preponderance of
evidence. The testimonies of Bernardo and
Romero deserve credence. Bernardo testified:
xxx xxx xxx
Q: After that, what happened?
A: x x x Dr. Reyes called me up and I informed him
about the return of the U.S. Treasury Warrant
and we are requested to reimburse for the
amount.
Q: What was his response if any?
A: Dont you worry about it, there is no personal
problem.
xxx xxx xxx
Q: And so what was his response?
A: He said that dont you worry about it.
xxx xxx xxx
Q: You said that you asked him the advice and he did
not answer, what advice are you referring to?
A: In our conversation, he promised me that he
will give me written confirmation or
authorization.13
The conversation was promptly relayed to
Romero who testified:
xxx xxx xxx
Q: x x x Was there any opportunity wherein said Mrs.
Bernardo was able to convey to you the contents
of their conversation?
A: This was immediately relayed to me as manager
of the Bank of the Philippine Islands, sir.
Q: What, if any was the content of her conversation,
if you know?
A: Mr. Reyes instructed Mrs. Bernardo to debit
his account with the bank. His account was
maintained jointly with his wife then he
promised to drop by to give us a written
confirmation, sir.
xxx xxx xxx
Q: You said that you authorized the debiting of the
account on February 19, 1991, is that correct?
A: I did not authorize, we merely followed the
instruction of Mr. Reyes, sir.14
We are not disposed to believe private
respondents allegation that he did not give any
verbal authorization. His testimony
is uncorroborated. Nor does he inspire
credence. His past and fraudulent conduct is an
evidence against him.15 He concealed from
petitioner bank the death of Fernandez
on December 28, 1989.16 As of that date, he
knew that Fernandez was no longer entitled to
receive any pension. Nonetheless, he still
received the U.S. Treasury Warrant of
Fernandez, and on January 4, 1990 deposited the
same in Savings Account No. 3185-0128-82. To
pre-empt a refund, private respondent closed his
joint account with Fernandez (Savings Account
No. 31-85- 0128-82) on March 8,
1990 and transferred its balance to his joint
account with his wife (Savings Account No. 3
185-0172-56). Worse, private respondent
declared under the penalties of perjury in the
withdrawal slip17 dated March 8, 1990 that his
co-depositor, Fernandez, is still living. By his
acts, private respondent has stripped himself of
credibility.
More importantly, the respondent court
erred when it failed to rule that legal
compensation is proper. Compensation shall
take place when two persons, in their own right,
are creditors and debtors of each other.18 Article
1290 of the Civil Code provides that when all
the requisites mentioned in Article 1279 are
present, compensation takes effect by
operation of law, and extinguishes both debts
to the concurrent amount, even though the
creditors and debtors are not aware of the
compensation. Legal compensation operates
even against the will of the interested parties and
even without the consent of them.19 Since this
compensation takes place ipso jure, its effects
arise on the very day on which all its requisites
concur.20When used as a defense, it retroacts to
the date when its requisites are fulfilled. 21
Article 1279 states that in order that
compensation may be proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
 The elements of legal compensation are all
present in the case at bar. The obligors bound
principally are at the same time creditors of each
other. Petitioner bank stands as a debtor of the
private respondent, a depositor. At the same
time, said bank is the creditor of the private
respondent with respect to the dishonored U.S.
Treasury Warrant which the latter illegally
transferred to his joint account. The debts
involved consist of a sum of money. They are
due, liquidated, and demandable. They are not
claimed by a third person.
It is true that the joint account of private
respondent and his wife was debited in the case
at bar. We hold that the presence of private
respondents wife does not negate the element of
mutuality of parties, i.e., that they must be
creditors and debtors of each other in their own
right. The wife of private respondent is not a
party in the case at bar. She never asserted any
right to the debited U.S. Treasury
Warrant. Indeed, the right of the petitioner bank
to make the debit is clear and cannot be
doubted. To frustrate the application of legal
compensation on the ground that the parties are
not all mutually obligated would result in unjust
enrichment on the part of the private respondent
and his wife who herself out of honesty has not
objected to the debit.
The rule as to mutuality is strictly
applied at law. But not in equity, where to
allow the same would defeat a clear right or
permit irremediable injustice.22
IN VIEW HEREOF, the Decision
of respondent Court of Appeals in CA-G.R. CV
No. 41543 dated August 16,1994 is
ANNULLED and SET ASIDE and the Decision
of the trial court in Civil Case No. Q-91-8451
dated January 20, 1993 is REINSTATED. Costs
against private respondent.
SO ORDERED.