Philippine National Construction V

8/9/2019 Philippine National Construction V

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PHILIPPINE NATIONAL CONSTRUCTION v.CA

Facts: On 18 November 1985, petitioner Philippine National Construction Corporation(PNCC) executed a contract of lease ith private respondents, stipulatin! to pa" rent forthe use of land, at the month l" rate of P #$,$$$% $$ pa"ab le "earl" in advance% &he said landis to be used b" petitioner as site for a roc' crushin! plant% &he term of lease is for ve "ears,

commencin! on the date of issuance of an industrial clearance b" the inistr" of *uman +ettlements( inistr")%On -anuar" 198. PNCC obtained a &emporar" /se Permit from the inistr" forth e pro posed roc ' cru sh in ! pro 0ec t% Nine da"s later private respondents rote to PNCC, as'in!for the rst annual rental, and assurin! that the" have stopped considerin! proposals of othera!!re!ates plants in favor of PNCC% n repl", PNCC ar!ued that the contract must commence on thedate of issuance b" the inistr" of an industrial clearance in their favor% t also expressed its desire toterminate the contract it executed ith respondents, due to 2 nancial, as ell as technical di3culties%4espondents refused to accede to PNCC6s re7uest for pre termination and on 19 a"

198.,instituted an action a!ainst PNCC for +peci c Performance ith ama!es% &rial court ruled infavor of respondents and ordered PNCC to pa" rentals for t o "ears, ith le!al interests plus attorne"6sfees% &he Court of ppeals a3rmed the decision of the trial court upon appeal b" PNCC: hence, thiscase%

Issue: ;

;e ish to reiterate PNCC ana!ementDs previous stand that it is onl" obli!ated to pa" "ourclients the amount of P#$,$$$%$$ as rental pa"ments for the oneEmonth period of the lease,counted from $ -anuar" 198. hen the ndustrial Permit as issued b" the inistr" of *uman+ettlements up to $ =ebruar" 198. hen the Notice of &ermination as served on "our clients%F11G (/nderscorin! +upplied)%

&he ? ndustrial Permit? mentioned in the said letter could onl" refer to the &emporar" /se Permit issuedb" the inistr" of *uman +ettlements on -anuar" 198.% nd it can be !leaned from this letter thatpetitioner has considered the permit as industrial clearance: other ise, petitioner could have simpl"told the private respondents that its obli!ation to pa" rentals has not "et arisen because the

&emporar" /se Permit is not the industrial clearance contemplated b" them% nstead, petitionerreco!niAed its obli!ation to pa" rental counted from the date the permit as issued%

lso orth notin! is the earlier letter of petitioner: thus>

FPGlease be advised of PNCC ana!ementDs decision to cancel or discontinue ith the roc'crushin! pro0ect due to nancial as ell as technical di3culties% n vie thereof, e ould li'eto terminate our Hease Contract dated 18 November, 1985% +hould "ou a!ree to the mutualtermination of our Hease Contract, 'indl" indicate "our conformit" hereto b" a3xin! "oursi!nature on the space provided belo% a" e li'e ise re7uest essrs% ene, -ose and
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ntonio, all surnamed a"mundo and rs% +ocorro % a"mundo as ttorne"EinE=act of mador+% a"mundo to si!n on the spaces indicated belo% F1#G

t can be deduced from this letter that the suspensive condition E issuance of industrial clearance E hasalread" been ful lled and that the lease contract has become operative% Other ise, petitioner did nothave to solicit the conformit" of the private respondents to the termination of the contract for thesimple reason that no 0uridical relation as created because of the nonEful llment of the condition%

oreover, the reason of petitioner in discontinuin! ith its pro0ect and in conse7uentl" cancellin! thelease contract as 2 nancial as ell as technical di3culties,4 not the alle!ed insu3cienc" of the

&emporar" /se Permit%

+econd% nvo'in! rticle 1#.. and the principle of rebus sic stantibus , petitioner asserts that it shouldbe released from the obli!ator" force of the contract of lease because the purpose of the contract didnot materialiAe due to unforeseen events and causes be"ond its control, i.e. , due to abrupt chan!e inpolitical climate after the I + evolution and nancial di3culties%

t is a fundamental rule that contracts, once perfected, bind both contractin! parties, and obli!ationsarisin! therefrom have the force of la bet een the parties and should be complied ith in !ood faith%F1JG Kut the la reco!niAes exceptions to the principle of the obli!ator" force of contracts% Oneexception is laid do n in rticle 1#.. of the Civil Code, hich reads> ?&he debtor in obli!ations to doshall also be released hen the prestation becomes le!all" or ph"sicall" impossible ithout the fault of the obli!or%?

Petitioner cannot, ho ever, successfull" ta'e refu!e in the said article, since it is applicable onl" toobli!ations ?to do?, and not to obli!ations ?to !ive?% F1 G n obli!ation ?to do? includes all 'inds of or'or service: hile an obli!ation ?to !ive? is a prestation hich consists in the deliver" of a movable oran immovable thin! in order to create a real ri!ht, or for the use of the recipient, or for its simplepossession, or in order to return it to its o ner% F15G

&he obli!ation to pa" rentals F1.G or deliver the thin! in a contract of lease F1 G falls ithin the prestation2to !ive4: hence, it is not covered ithin the scope of rticle 1#..% t an" rate, the unforeseen eventand causes mentioned b" petitioner are not the le!al or ph"sical impossibilities contemplated in saidarticle% Kesides, petitioner failed to state speci call" the circumstances brou!ht about b" 2the abruptchan!e in the political climate in the countr"4 except the alle!ed prevailin! uncertainties in!overnment policies on infrastructure pro0ects%

&he principle of rebus sic stantibus F18G neither ts in ith the facts of the case% /nder this theor", theparties stipulate in the li!ht of certain prevailin! conditions, and once these conditions cease to existthe contract also ceases to exist% F19G &his theor" is said to be the basis of rticle 1#. of the Civil Code,hich provides>

&% 1#. % ;hen the service has become so di3cult as to be manifestl" be"ond thecontemplation of the parties, the obli!or ma" also be released therefrom, in hole or in part%

&his article, hich enunciates the doctrine of unforeseen events, is not, ho ever, an absoluteapplication of the principle of rebus sic stantibus , hich ould endan!er the securit" of contractualrelations% &he parties to the contract must be presumed to have assumed the ris's of unfavorabledevelopments% t is therefore onl" in absolutel" exceptional chan!es of circumstances that e7uit"demands assistance for the debtor% F#$G

n this case, petitioner ants this Court to believe that the abrupt chan!e in the political climate of thecountr" after the I + evolution and its poor nancial condition 2rendered the performance of thelease contract impractical and inimical to the corporate survival of the petitioner%

&his Court cannot subscribe to this ar!ument% s pointed out b" private respondents> F#1G

t is a matter of record that petitioner PNCC entered into a contract ith private respondentson November 18, 1985% Prior thereto, it is of 0udicial notice that after the assassination of +enator 7uino on u!ust #1, 198J, the countr" has experienced political upheavals, turmoils,almost dail" mass demonstrations, unprecedented, inLation, peace and order deterioration,the 7uino trial and man" other thin!s that brou!ht about the hatred of people even a!ainstcron" corporations% On November J, 1985, Pres% arcos, bein! intervie ed live on /%+%television announced that there ould be a snap election scheduled for =ebruar" , 198.%
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On November 18, 1985, not ithstandin! the above, petitioner PNCC entered into the contractof lease ith private respondents ith open e"es of the deterioratin! conditions of the countr"%

nent petitioner6s alle!ed poor nancial condition, the same ill neither release petitioner from thebindin! eBect of the contract of lease% s held in Central Kan' v% Court of ppeals, F##G cited b" theprivate respondents, mere pecuniar" inabilit" to ful ll an en!a!ement does not dischar!e a contractualobli!ation, nor does it constitute a defense to an action for speci c performance%

;ith re!ard to the nonEmaterialiAation of petitioner6s particular purpose in enterin! into the contractof lease, i.e. , to use the leased premises as a site of a roc' crushin! plant, the same ill not invalidatethe contract% &he cause or essential purpose in a contract of lease is the use or en0o"ment of a thin!%F#JG s a !eneral principle, the motive or particular purpose of a part" in enterin! into a contract doesnot aBect the validit" or existence of the contract: an exception is hen the realiAation of such motiveor particular purpose has been made a condition upon hich the contract is made to depend% F# G &heexception is not appl" here%

&hird% ccordin! to petitioner, the a ard of P 9#,$$$ representin! the rent for t o "ears is excessive,considerin! that it did not bene t from the propert"% Kesides, the temporar" permit, conformabl" iththe express provision therein, as deemed automaticall" revo'ed for failure of petitioner to use thesame ithin one "ear from the issuance thereof% *ence, the rent pa"able should onl" be for one "ear%

Petitioner cannot be heard to complain that the a ard is excessive% &he temporar" permit as validfor t o "ears but as automaticall" revo'ed because of its nonEuse ithin one "ear from its

issuance% &he nonEuse of the permit and the nonEentr" into the propert" sub0ect of the lease contractere both imputable to petitioner and cannot, therefore, be ta'en advanta!e of in order to evade orlessen petitioner6s monetar" obli!ation% &he dama!e or pre0udice to private respondents is be"onddispute% &he" un7uestionabl" suBered pecuniar" losses because of their inabilit" to use the leasedpremises% &hus, in accordance ith rticle 1.59 of the Civil Code, F#5G the" are entitled toindemni cation for dama!es: and the a ard of P 9#,$$$ is fair and 0ust under the circumstances of the case%

MAGAT, JR. v CA( tt!:""la#$stude%td&'est. l)'s!)t.c)*"+ - " /"v&ct)0&%)1*a'at1201vs1c)u0t1)31a!!eals. t*l4

Facts: M uerrero is the President and Chairman of the 2 uerrero &ransport +ervices4 ( &+), asin!le proprietorship% N 19 #, the &+ on a biddin! to operate a Leet of taxicabs in +ubic% s thehi!hest bidder, uerrero as re7uired to have four door, four heel, radio controlled, meter controlledand sedans taxi services%

M uerrero and a!at, eneral ana!er of the +pectrum Ilectronic Haboratories, executed aletterEcontract for the purchase of transceivers at ,.#$%59 =OK, o'ohoma% a!at as to deliverithin the .$E9$ da"s after receivin! from the uerrero the assi!ned fre7uenc"% a!at then contactedhis -apanese supplier (Qoide R Co%, Htd%) and placed an order for the transceivers%

M On +ept% ##, 19 #, in the event of the artial Ha , the then President arcos issued the Hetterof nstructions (HO ) no% 1 hich stated> 2+I @/ I N CON& OH O= HH P S&IH O;NINI;+P PI +, @ NI+, O N &IHIS + ON = C H & I+ N HH O&*I I O=CO /N C & ON%4, said HO as for the prevention of Propa!anda actions a!ainst the !overnment%

M On +ept% #5, 19 #% Pursuant to the HO , the adio Control O3ce issued dministrative Circularno% , hich stated> 2+/+PIN N &*I CCIP& NCI N P OCI++ N O= PPH C & ON+ =O O+&& ON CON+& /C& ON PI &+ N =O PI &+ &O O;N N


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Issue: ;es )3 t e %atu0e )3 30aud. ? /@ Gue00e0) )%estl$ 0el&ed )% t e 0e!0ese%tat&)%s )3 t e Rad&) C)%t0)lO


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)3 t e ca%cellat&)% )3 &s c)%t0act 6&t Su &c Naval 9ase. He )00)6ed e u&!*e%t as a!0ude%t a%d s6&3t alte0%at&ve. T e0e 6as %) !0))3 t at e 0es)0ted t) t &s )!t&)% 6&t adel& e0ate a%d *al&c&)us &%te%t t) d&s )%)0 &s c)%t0act 6&t &ct)0&%). A% a6a0d )3 da*a'es su0el$ ca%%)t e ased )% *e0e $!)t eses, c)%2ectu0es a%d su0*&ses. G))d3a&t &s !0esu*ed, t e u0de% )3 !0)v&%' ad 3a&t 0ests )% t e )%e alle'&%' &t.?B @ Pet&t&)%e0s d&d %)t e ect&vel$ d&sc a0'e t e u0de% &% t &s case.

Onl" the testimon" of li!ada as presented to substantiate petitionersD claim for unrealiAed pro ts%F5 G li!ada testi ed that as a result of the cancellation of the contract, Sictorino had to suspendtransactions ith his -apanese supplier for six (.) months% li!ada stated that the volume of SictorinoDsbusiness ith +ubic Naval Kase also diminished si!ni cantl"% li!ada approximated that SictorinoDsunrealiAed business opportunities amounted to P $$,$$$%$$% F58G 9e&%' a 6&t%ess 3)0 &ct)0&%) se&0s a%d sta%d&%' t) 'a&% 30)* t e c)%t0act s 3ul ll*e%t, Al&'ada s test&*)%$ &s sel31se0v&%'. It &s als) ea0sa$. e 3a&l t) see )6 t &s 7ev&de%ce7 !0)ves actual da*a'es 6&ta 70eas)%a le de'0ee )3 ce0ta&%t$.7 ?B @ I3 !0))3 &s 7 &*s$7, 6e ca%%)t a6a0d actual da*a'es.?D @

9PI v. CA

Facts: Private respondent Idvin =% e"es opened +avin!s ccount No% J 185E$1 #E5. at petitioner

Kan' of the Philippine slands (KP ) Cubao, +hoppin! Center Kranch% t is a 2)&%t KAN;"OR acc)u%t6&t &s 6&3e, S)%&a +% e"es%

Private respondent also held a 0oint KAN;"OR Sav&%'s Acc)u%t N). -/B1 -+/1/+ 6&t &s'0a%d*)t e0, E*ete0&a M. Fe0%a%de#, opened J on =ebruar" 11, 198. at the same KP branch% *ere!ularl" deposited in this account the /%+% &reasur" ;arrants pa"able to the order of Imeteria %=ernandeA as her monthl" pension%

Imeteria % =ernandeA died on ;ece* e0 +/, - / ithout the 'no led!e of the /%+% &reasur"epartment% +he as still sent /%+% &reasur" ;arrant No% #1.. J$# dated Ja%ua0$ -, - in theamount of /%+% J %$$J or P1$,55.%$$% On Ja%ua0$ , - , private respondent deposited thesaid /%+% treasur" chec' of =ernandeA in +avin!s ccount No% J 185E$1#8E8#% &he /%+% Seterans

dministration O3ce in anila conditionall" cleared the chec'% &he chec' as then sent to the /nited+tates for further clearin! %5

&o months after or on Ma0c /, - , private respondent closed +avin!s ccount No% J 185E$1#8E8#and transferred its funds amountin! to P1J,11#%91 to +avin!s ccount No% J 185E$1 #E5., the 0ointaccount ith his ife%

On -anuar" 1., 1991, /%+% &reasur" ;arrant No% #1.. J$# as dishonored as it as discovered that=ernandeA died three ( 4 da"s !0&)0 to its issuance% &he /%+% epartment of &reasur" re7uestedpetitioner ban' for a refund% . =or the rst time petitioner ban' came to 'no of the death of =ernandeA%

On =ebruar" 19, 1991, private respondent received a P& R & ur!ent tele!ram from petitioner ban're7uestin! him to contact ana!er race +% omero or ssistant ana!er Carmen Kernardo% ;hen hecalled up the ban', he as informed that the treasur" chec' as the sub0ect of a claim b" Citiban' N ,correspondent of petitioner ban'% *e assured petitioners that he ould drop b" the ban' to loo' intothe matter% *e also ve0 all$ aut )0ed t e* to debit from his other 0oint account the amountstated in the dishonored /%+% &reasur" ;arrant% On the same da", petitioner ban' debited the amountof P1$,55.%$$ from private respondent6s +avin!s ccount No% J185E$1 #E5.%
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On =ebruar" #1, 1991, private respondent ith his la "er *umphre" &umanen! visited the petitionerban' and the refund documents ere sho n to them% +urprisin!l", private respondent demandedfrom petitioner ban' restitution of the debited amount% *e claimed that because of the debit, he failedto ithdra his mone" hen he needed them% *e then led a suit for ama!es 8 a!ainst petitionersbefore the e!ional &rial Court of TueAon Cit", Kranch 9%

Petitioners contested the complaint and counterEclaimed for moral and exemplar" dama!es% K" a" of +pecial and 3rmative efense, the" averred that private respondent !ave themhis e8!0ess ve0 al aut )0at&)% to debit the 7uestioned amount% &he" claimed that privaterespondent later refused to execute a ritten authorit"% 9

Issue: 1%) ; x x x r% e"es called me up and informed him about the return of the /%+% &reasur";arrant and e are re7uested to reimburse for the amount%

T> ;hat as his response if an"U

> ;)% t $)u 6)00$ a )ut &t, t e0e &s %) !e0s)%al !0) le*.

xxx xxx xxx

Q: nd so hat as his responseU

> He sa&d t at d)% t $)u 6)00$ a )ut &t.

xxx xxx xxx

Q: ou said that "ou as'ed him the advice and he did not ans er, hat advice are "oureferrin! toU

> I% )u0 c)%ve0sat&)%, e !0)*&sed *e t at e 6&ll '&ve *e 60&tte% c)% 0*at&)%)0 aut )0at&)%. 1J

&he conversation as promptl" rela"ed to omero ho testi ed>

xxx xxx xxx
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2T> x x x ;as there an" opportunit" herein said rs% Kernardo as able to conve" to "outhe contents of their conversationU

> &his as immediatel" rela"ed to me as mana!er of the Kan' of the Philippine slands, sir%

T> ;hat, if an" as the content of her conversation, if "ou 'no U

> M0. Re$es &%st0ucted M0s. 9e0%a0d) t) de &t &s acc)u%t 6&t t e a%>. H&sacc)u%t 6as *a&%ta&%ed 2)&%tl$ 6&t &s 6&3e t e% e !0)*&sed t) d0)! $ t)'&ve us a 60&tte% c)% 0*at&)%, s&0.

xxx xxx xxx

Q: ou said that "ou authoriAed the debitin! of the account on =ebruar" 19, 1991, is thatcorrectU

> I d&d %)t aut )0e, 6e *e0el$ 3)ll)6ed t e &%st0uct&)% )3 M0. Re$es, s&0. 1

;e are not disposed to believe private respondent6s alle!ation that he did not !ive an" verbalauthoriAation% *is testimon" is u%c)00) )0ated % Nor does he inspire credence% *is past andfraudulent conduct is an evidence a!ainst him% 15 *e concealed from petitioner ban' the death of =ernandeA on ;ece* e0 +/, - / . 1. s of that date, he 'ne that =ernandeA as no lon!er entitledto receive an" pension% Nonetheless, he still received the /%+% &reasur" ;arrant of =ernandeA, andon -anuar" , 199$ deposited the same in +avin!s ccount No% J185E$1#8E8#% &o preEempt a refund,private respondent closed his 0oint account ith =ernandeA (+avin!s ccount No% J1E85E $1#8E8#)on Ma0c /, - and t0a%s3e00ed its balance to his 0oint account ith his ife (+avin!s ccount No%J 185E$1 #E5.)% ;orse, private respondent declared under the penalties of per0ur" in the ithdra alslip 1 dated arch 8, 199$ that his coEdepositor, =ernandeA, is still livin!% K" his acts, privaterespondent has stripped himself of credibilit"%

#%) ore importantl", the respondent court erred hen it failed to rule that le!al compensation isproper% C)*!e%sat&)% shall ta'e place hen t o persons, in their o n ri!ht, are creditors anddebtors of each other% 18 A0t&cle -+ of the Civil Code provides that 2 hen all the re7uisitesmentioned in A0t&cle -+ a0e !0ese%t, c)*!e%sat&)% ta>es e ect $ )!e0at&)% )3 la6, a%de8t&%'u&s es )t de ts t) t e c)%cu00e%t a*)u%t, eve% t )u' t e c0ed&t)0s a%d de t)0sa0e %)t a6a0e )3 t e c)*!e%sat&)%. He!al compensation operates even a!ainst the ill of theinterested parties and even 6&t )ut t e c)%se%t )3 t e* %19 +ince this compensation ta'esplace ipso jure, its eBects arise on the ver" da" on hich all its re7uisites concur% #$ ;hen used as adefense, it retroacts to the date hen its re7uisites are ful lled% #1

A0t&cle -+ states that in order that compensation ma" be proper, it is necessar">

2(1) &hat each one of the obli!ors be bound principall", and that he be at the same time a principalcreditor of the other:

(#) &hat both debts consist in a sum of mone", or if the thin!s due are consumable, the" be of thesame 'ind, and also of the same 7ualit" if the latter has been stated:

(J) &hat the t o debts be due:

( ) &hat the" be li7uidated and demandable:
http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn14http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn15http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn16http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn17http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn18http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn18http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn19http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn19http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn20http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn21http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn14http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn15http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn16http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn17http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn18http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn19http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn20http://sc.judiciary.gov.ph/jurisprudence/1996/mar1996/116792.htm#_edn21


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(5) &hat over neither of them there be an" retention or controvers", commenced b" third persons andcommunicated in due time to the debtor%4

T e ele*e%ts )3 le'al c)*!e%sat&)% a0e all !0ese%t &% t e case at a0. T e ) l&')0s )u%d!0&%c&!all$ a0e at t e sa*e t&*e c0ed&t)0s )3 eac )t e0. Pet&t&)%e0 a%> sta%ds as a de t)0)3 t e !0&vate 0es!)%de%t, a de!)s&t)0. At t e sa*e t&*e, sa&d a%> &s t e c0ed&t)0 )3 t e

!0&vate 0es!)%de%t 6&t 0es!ect t) t e d&s )%)0ed U.S. T0easu0$ a00a%t 6 &c t e latte0&lle'all$ t0a%s3e00ed t) &s 2)&%t acc)u%t. T e de ts &%v)lved c)%s&st )3 a su* )3 *)%e$. T e$ a0e due, l& u&dated, a%d de*a%da le. T e$ a0e %)t cla&*ed $ a t &0d!e0s)%.

t is true that the 0oint account of private respondent a%d &s 6&3e as debited in the case at bar% ;ehold that t e !0ese%ce )3 !0&vate 0es!)%de%t s 6&3e d)es %)t %e'ate t e ele*e%t )3 *utual&t$ )3 !a0t&es, &.e., t at t e$ *ust e c0ed&t)0s a%d de t)0s )3 eac )t e0 &% t e&0)6% 0&' t. T e 6&3e )3 !0&vate 0es!)%de%t &s %)t a !a0t$ &% t e case at a0. S e %eve0asse0ted a%$ 0&' t t) t e de &ted U.S. T0easu0$ a00a%t. I%deed, t e 0&' t )3 t e !et&t&)%e0a%> t) *a>e t e de &t &s clea0 a%d ca%%)t e d)u ted. T) 30ust0ate t e a!!l&cat&)% )3 le'al c)*!e%sat&)% )% t e '0)u%d t at t e !a0t&es a0e %)t all *utuall$ ) l&'ated 6)uld0esult &% u%2ust e%0&c *e%t )% t e !a0t )3 t e !0&vate 0es!)%de%t a%d &s 6&3e 6 ) e0sel3 )ut )3 )%est$ as %)t ) 2ected t) t e de &t.

T e 0ule as t) *utual&t$ &s st0&ctl$ a!!l&ed at la6. 9ut %)t &% e u&t$, 6 e0e t) all)6 t esa*e 6)uld de3eat a clea0 0&' t )0 !e0*&t &00e*ed&a le &%2ust&ce %

PN9 v. CA -

1 oes a local ban', hile actin! as local correspondent ban', have the ri!ht to interceptfunds bein! coursed throu!h it b" its forei!n counterpart for transmittal and deposit to theaccount of an individual ith another local ban', and appl" the said funds to certainobli!ations o ed to it b" the said individualU

As reiterated by the SC

TC s 0ul&%': ?D rticle 1# 9 of the Civil Code provides>

?D n order that compensation ma" prosper, it is necessar">

(1) &hat each one of the obli!ors be bound principall", and that he be at the same time a principal c reditor of the other:

(#) &hat both debts consists in a sum of mone", or if the thin!s due are consumable, the" be of the same 'ind, and alsoof the same 7ualit" if the latter has been stated:

(J) &hat the t o debts be due:

( ) &hat the" be li7uidated and demandable:

(5) &hat over neither of them there b" an" retention or controvers", commenced b" third persons and communicated indue time to the debtor%?D

?D n the case of the #,.# %11, re7uisites Nos% # throu!h 5 are apparentl" present, for both debts consist in a sum of mone", are bothdue, li7uidated and demandable, and over neither of them is there a retention or controvers" commenced b" third persons andcommunicated in due time to the debtor% &he 7uestion, ho ever, is, here both of the obli!ors bound principall", and as each oneof them a debtor and creditor of the other at the same timeU

?D nal"Ain! no the relationship bet een the parties, it appears that>


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Facts: D(a) &he defendant applied contract bet een a forei!n ban' and local ban'as'in! the latter to pa" an amount to a bene ciar" is a stipulation pour autrui. (Kan' of merica N& R + vs. C, 1 5 +C 19)%

?D stipulation pour autrui is a stipulation in favor of a third person (=lorentino vs % Incarnacion, 9 +C 19J: KonifacioKrothers vs. ora, #$ +C #.1: /" &am vs. Heonard, J$ Phils% 5)%

?D&hus bet een the defendant ban' (as the local correspondent of the National Commercial Kan' of -eddah) and the plaintiB asbene ciar", there is created an implied trust pursuant to rt% 1 5J of the Civil Code, 7uoted as follo s>

?D;hen the propert" is conve"ed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the!rantor, there is an implied trust in favor of the person hose bene t is contemplated (sic)%

?Dc) K" the principle of solutio indebiti ( rt% #15 , Civil Code), the plaintiB ho undul" received somethin! (sic) b" mista'e (i%e%, the #double credits, althou!h he had no ri!ht to demand it), became obli!ated to the defendant to return hat he undul" received% &hus,there as created bet een them a relationship of obli!or and obli!ee, or of debtor and creditor under a 7uasiEcontract%

? n vie of the fore!oin!, the Court is of the opinion that the parties are not both principall" bound ith respect to the #,.# %11from -eddah neither are the" at the same time principal creditor of the other% &herefore, as matters stand, the partiesD obli!ationsare not sub0ect to compensation or set oB under rt% 1# 9 of the Civil Code, for the reason that the defendant is not a principaldebtor nor is the plaintiB a principal creditor insofar as the amount of #,.# %11 is concerned% &he" are debtor and creditor onl"ith respect to the double pa"ments: but are trusteeEbene ciar" as to the fund transfer of #,.# %11%

?DOnl" the plaintiB is principall" bound as a debtor of the defendant to the extent of the double credits% On the other hand, thedefendant as an implied trustee, ho as obli!ed to deliver to the Citiban' for the bene t of the plaintiB the sum of #,.# %11%

?D&hus hile it ma" be concluded that the plaintiB o es the defendant the e7uivalent of the sums of 5,1 9%#J and 5,885%J8erroneousl" doubl" credited to his account, the defendantDs actuation in interceptin! the amount of #,.# %11 supposed to beremitted to another ban' is not onl" improper: it ill also erode the trust and con dence of the international ban'in! communit" inthe ban'in! s"stem of the countr", somethin! e can ill aBord at this time hen e need to attract and invite deposits of forei!ncurrencies%?D

? t ould have been diBerent has the telex advice from NCK of -eddah been for deposit of #,.# %11 to plaintiBs account No% 8J$E

# 1$ ith the defendant ban'% *o ever, the defendant alle!ed this for the rst time in its emorandum (Pls% see par% 1., p% . of defendantDs emorandum)% &here as neither an" alle!ation thereof in its pleadin!s, nor as there an" evidence to prove suchfact% On the contrar", the defendant admitted that the telex advice as for credit of the amount of #,.# %11 to plaintiBs accountith Citiban', reenhills, +an -uan, etro anila (Pls% see par% of defendantDs ns er ith Compulsor" Counterclaim, in relation toplaintiBDs Complaint)% *ence, it is submitted that the setEoB or compensation of #,.# %11 a!ainst the double pa"ments to plaintiBDsaccount is not in accordance ith la %

?DOn this point, the Court nds the plaintiBDs theor" of a!enc" to be untenable% =or one thin!, there as no express contract of a!enc"% On the other hand, ere e to infer that there as an implied a!enc", the same ould not be bet een the plaintiB anddefendant, but rather, bet een the National Commercial Kan' of -eddah as principal on the one hand, and the defendant as a!enton the other% &hus, in case of violation of the a!enc", the cause of action ould accrue to the NCK and not to the plaintiB%


10/22

?D(d) &here ere indeed t o instances in the past, one in November 198$ and the other in -anuar"1981 hen the plaintiBDs account No% 8J$E# 1$ as doubl" credited ith the e7uivalents of 5,. 9%#Jand 5,885%J8, respectivel", hich amounted to an a!!re!ate amount of P8 ,J8$% % &he defendantDsevidence on this point (Ixhs% 1 thru 11, 1 and 15: see also nnexes C and I to defendantDs ns er),ere never refuted nor impu!ned b" the plaintiB% *e claims, ho ever, that plaintiB6s claim hasprescribed%

?D(e) efendant PNK made a demand upon the plaintiB for refund of the double or duplicated creditserroneousl" made on plaintiBDs account, b" means of a letter (Ixh% 1#) dated October #J, 198. or 5"ears and 11 months from November 198$, and 5 "ears and 9 months from -anuar" 1981% +uch letter

?D&he PJ ,J $%J8 sub0ect of the supplemental complaint is 7uite another thin!% &he plaintiBDs Ixh% ?I?, hich is a receipt issued tothe plaintiB b" the defendant for the amount of PJ ,J $%$$ in ?full settlement of accounts receivables ith CK =und &ransferepartment, PNKEIscolta base on He!al epartment emo dated =ebruar" #8, 198 ? seems to uphold the defendantDs theor" thatthe said amount as voluntaril" delivered b" the plaintiB to the defendant as alle!ed in the last para!raph of defendantDsmemorandum% &he same is in accordance ith the defendantDs ans er, as follo s>

?&he retention and application of the amount of PJ ,J $%J8 as done in a manner consonant ith basic due process considerin!that plaintiB as not onl"furnished documented proof of the cause but as also !iven the opportunit" to con(tro)vert such Proof .

? oreover, plaintiB, throu!h counsel, communicated his une7uivocal and unconditional consent to the retention and application of the amount in7uestion%? (Pls% see para!raphs 8E9, defendantDs ns er ith Compulsor" Counterclaim to PlaintiBDs +upplementalComplaint)%?

2V&his conclusion is borne b" the fact that the receipt is in the hands of the plaintiB, indicatin! that such receipt as handed over tothe plaintiB hen he ?paid? or allo ed the deduction from the amount of #8,J9#%J8 from Hib"a%

?D t an" rate, the plaintiB in his emorandum, stated that the subse7uent fund transfer from Kre!a Petroleum ar'etin! Compan"of Hib"a (from here the PJ ,J $%J8 as deducted) as intended for credit and deposit in plaintiBDs account at the defendantDsKan' C No% 8J$E# 1$ (per par% 1, pa!e #, emorandum for the plaintiB)% +uch bein! the case, the Court believes that insofar asthe amount of PJ ,J $%J8 is concerned, all the re7uirements of rt% 1# 9 of the Civil Code are present, and the said amount ma"properl" be the sub0ect of compensation or setEoB% nd since all the re7uisites of rt% 1# 9 of the Civil Code are present (insofar asthe amount of PJ ,J9#%J8 is concerned), compensation ta'es place b" operation of la ( rt% 1#8., Ibid.), albeit onl" partial ithrespect to plaintiBDs indebtedness of P ,J8$% %

CA a 0ul&%':

?&he tele!raphic mone" transfer as sent b" the KN, plaintiBDs principal in -eddah, +audi rabia, thru the National Commercial Kan'of -eddah, +audi rabia (NCK, for short), for the credit


11/22

as ans ered b" the plaintiB on ecember #, 198. ( nnex C, Complaint)% &his plaintiBDs letter asli'e ise replied to b" the defendant throu!h Ixh% 1J:

?D(f) &he deduction of PJ ,J $%J8 as made b" the defendant not ithout the 'no led!e and consentof the plaintiB, ho as issued a receipt No% 85 5 . dated =ebruar" 18, 198 (Ixh% I) b" thedefendant%4V

?D&here is no 7uestion that the t o erroneous double pa"ments made to plaintiBDs accounts in 198$and 1981 created an extraEcontractual obli!ation on the part of the plaintiB in favor of the defendant,under the principle of solutio indebiti, as follo s>

?D f somethin! is received hen there is no ri!ht to demand it, and it as undul" delivered throu!h!(sic) mista'e, the obli!ation to return it arises%?D ( rticle #15 , Civil Code of the Phil%)

Issue: 1%) ;


12/22


13/22

Compensation or oBset under the Ne Civil Code ta'es place onl" hen t o persons or entities in theiro n ri!hts, are creditors and debtors of each other% ( rt% 1# 8)% xxx

distinction must be made bet een a debt and a mere claim% debt is an amount actuall"ascertained% t is a claim hich has been formall" passed upon b" the courts or 7uasiE0udicial bodies tohich it can in la be submitted and has been declared to be a debt% claim, on the other hand, is a

debt in embr"o% t is mere evidence of a debt and must pass thru the process prescribed b" la beforeit develops into hat is properl" called a debt% (Sallarta vs% C , 1.J +C 58 )% bsent, ho ever, an"such cate!orical admission b" an obli!or or nal ad0udication, no compensation or oBEset can ta'eplace% /nless admitted b" a debtor himself, the conclusion that he is in truth indebted to anothercannot be de nitel" and nall" pronounced, no matter ho convinced he ma" be from the examinationof the pertinent records of the validit" of that conclusion the indebtedness must be one that isadmitted b" the alle!ed debtor or pronounced b" nal 0ud!ment of a competent court or in this caseb" the Commission (Sillanueva vs% &antuico, 18# +C #.J)%

&here can be no doubt that /nisphere is indebted to the Corporation for its unpaid monthl" dues in theamount of P1J,1 #%. % &his is admitted% Kut hether the Corporation is indebted to /nisphere isvi!orousl" disputed b" the former%

t appears 7uite clear that t e ) sett&%' )3 de ts d)es %)t e8te%d t) u%l& u&dated, d&s!utedcla&*s a0&s&%' 30)* t)0t )0 0eac )3 c)%t0act. (Compania eneral de &obacos vs% =rench and/nson, J9 Phil% J : HorenAo and artineA vs% herrero, 1 Phil% #9)%

t must be noted that /nisphere 0ust stopped pa"in! its monthl" dues to the Corporation on +eptember#J, 198J ithout notif"in! the latter% t as onl" on =ebruar" # , 198 , or ve months after, that itinformed the corporation of its suspension of pa"ment of the condominium dues to oBset the losses itsuBered because of the robberies%

n resistin! the ndin! hich underscores their ne!li!ence, I% %S% ealt" and Cristina condominiumcorporation, ould have this Court appreciate in their favor the admission of r% lfonso @amora of /nisphere that there as no such a!reement amon! the unit o ners that an" member ho incurredlosses ill be indemni ed from the common contribution% (&+N, -ul" , 198 , p% .$)%

&he herein appellees further ar!ue that the cause of action for reimbursement of the value of the itemslost because of the robberies should be a!ainst the securit" a!enc" and not the Corporation%

On the other hand, /nisphere invo'es &% 11 $ of the Civil Code hich provides>

&% 11 $%E &hose ho in the performance of their obli!ations are !uilt" of fraud, ne!li!ence, or dela"and those ho in an" manner contravene the tenor thereof, are liable for dama!es%

&here is ei!ht in the initial factual ndin!s of the +IC *earin! O3cer ith respect to the lossessuBered b" /nisphere in the amount of P1#,#95%$$>

PlaintiB li'e ise does not dispute the fact of robber" that occurred on November #8, 1981 and -ul" #.,198# inside J$1 Cristina Condominium%

Pla&%t& ad*&ts t at &t ad secu0ed t e se0v&ces )3 J&*e%e# P0)tect&ve a%d Secu0&t$ A'e%c$t) sa3e'ua0d t e C)%d)*&%&u* !0e*&ses u%de0 &ts &%st0uct&)%s a%d su!e0v&s&)%, ut 6 &c3a&led t) detect t e 0) e0$ &%c&de%ts t at )ccu00ed t6&ce at U%&t - )3 0es!)%de%t,ca%t&%' (s&c4 a6a$ ul> &te*s.


14/22

xxx xxx xxx

=rom the undisputed facts, plaintiB as remissed (sic) ithin its obli!ation to provide safet" torespondent inside its unit% &his as demonstrated b" the fact that t o robber" incidents befellrespondents under the ne!li!ent e"e of plaintiB6s hired securit" !uards% t can be safel" pronouncedthat plaintiB has not complied ith hat as incumbent upon it to do in a proper manner%

+ince it has been determined and proven b" the evidence presented before the hearin! o3ce of respondent +IC that /nisphere indeed suBered losses because of the robber" incidents and since it(/nisphere) did not refute its liabilit" to the corporation for the unpaid monthl" dues in the amount of P1J,1 #% . , this amount should be setEoB a!ainst the aforestated losses of /nisphere% F G

e 3ull$ a'0ee 6&t t e a!!ellate c)u0t s d&sse0tat&)% )% t e %atu0e a%d c a0acte0 )3 a set1) )0 c)*!e%sat&)%. H)6eve0, 6e ca%%)t su sc0& e t) &ts c)%clus&)% t at a set1) )0c)*!e%sat&)% t))> !lace &% t &s case.

I% A0t&cle -+ / )3 t e C&v&l C)de, c)*!e%sat&)% &s sa&d t) ta>e !lace 6 e% t6) !e0s)%s, &%t e&0 )6% 0&' t, a0e c0ed&t)0s a%d de t)0s )3 eac )t e0. C)*!e%sat&)% &s Ka *)de )3

e8t&%'u&s &%' t) t e c)%cu00e%t a*)u%t, t e ) l&'at&)%s )3 t )se !e0s)%s 6 ) &% t e&0 )6%0&' t a0e 0ec&!0)call$ de t)0s a% c0ed&t)0s )3 eac )t e0 a%d Kt e ) sett&%' )3 t6)) l&'at&)%s 6 &c a0e 0ec&!0)call$ e8t&%'u&s ed &3 t e$ a0e )3 e ual value, )0 e8t&%'u&s edt) t e c)%cu00e%t a*)u%t &3 )3 d& e0e%t values. ?/@ A0t&cle -+ )3 t e sa*e C)de !0)v&des:

A0t&cle -+ . I% )0de0 t at c)*!e%sat&)% *a$ e !0)!e0, &t &s %ecessa0$:

(-4 T at eac )%e )3 t e ) l&')0s e )u%d !0&%c&!all$, a%d t at e e at t e sa*e t&*e a!0&%c&!al c0ed&t)0 )3 t e )t e05

(+4 T at )t de ts c)%s&st &% a su* )3 *)%e$, )0 &3 t e t &%'s due a0e c)%su*a le, t e$e )3 t e sa*e >&%d, a%d als) )3 t e sa*e ual&t$ &3 t e latte0 as ee% stated5

( 4 T at t e t6) de ts e due5

( 4 T at t e$ e l& u&dated a%d de*a%da le5

(B4 T at )ve0 %e&t e0 )3 t e* t e0e e a%$ 0ete%t&)% )0 c)%t0)ve0s$, c)**e%ced $ t &0d!e0s)%s a%d c)**u%&cated &% due t&*e t) t e de t)0.

A se%t a%$ s )6&%' t at all )3 t ese 0e u&s&tes e8&st, c)*!e%sat&)% *a$ %)t ta>e !lace.

&le 0es!)%de%t U%&s! e0e d)es %)t de%$ &ts l&a &l&t$ 3)0 &ts u%!a&d dues t) !et&t&)%e0s,t e latte0 d) %)t ad*&t a%$ 0es!)%s& &l&t$ 3)0 t e l)ss su e0ed $ t e 3)0*e0 )ccas&)%ed $

t e u0'la0$. At est, 6 at 0es!)%de%t U%&s! e0e as a'a&%st !et&t&)%e0s &s 2ust a cla&*,%)t a de t. Suc e&%' t e case, &t &s %)t e%3)0cea le &% c)u0t. It &s )%l$ t e de ts t at a0ee%3)0cea le &% c)u0t, t e0e e&%' %) a!!a0e%t de3e%ses &% e0e%t &% t e*. ? @ Res!)%de%tU%&s! e0e s cla&* 3)0 &ts l)ss as %)t ee% !assed u!)% $ a%$ le'al aut )0&t$ s) as t)elevate &t t) t e level )3 a de t. S) 6e eld &% Alfonso Vallarta v. Court of Appeals, et al.,?- @ t at:

C)*!e%sat&)% )0 ) set ta>es !lace $ )!e0at&)% )3 la6 6 e% t6) (+4 !e0s)%s, &% t e&0 )6%0&' t, a0e c0ed&t)0 a%d de t)0 )3 eac )t e0. F)0 c)*!e%sat&)% t) ta>e !lace, a d&st&%ct&)%
http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/120236.htm#_edn10


15/22

*ust e *ade et6ee% a de t a%d a *e0e cla&*. A de t &s a cla&* 6 &c as ee% 3)0*all$!assed u!)% $ t e &' est aut )0&t$ t) 6 &c &t ca% &% la6 e su *&tted a%d as ee%decla0ed t) e a de t. A cla&*, )% t e )t e0 a%d, &s a de t &% e* 0$). It &s *e0e ev&de%ce)3 a de t a%d *ust !ass t 0u t e !0)cess !0esc0& ed $ la6 e3)0e &t devel)!s &%t) 6 at &s!0)!e0l$ called a de t. ?--@

Tested $ t e 3)0e')&%' $a0dst&c>, &t as %)t ee% su )3 ev&de%ce t) s )6 t at !et&t&)%e0sE.G. . Realt$ a%d CCC a%d 0es!)%de%t U%&s! e0e a0e *utuall$ de t)0s a%d c0ed&t)0s t)eac )t e0.

Considerin! the fore!oin! dis7uisition, therefore, e nd that respondent Court of ppeals committedreversible error in rulin! that compensation or setEoB is proper in the instant case%

METRO9ANQ v. TON;AFacts: +pouses -oa7uin % &onda and a% Cristina /% &onda, hereinafter referred to as the &ON ,applied for and ere !ranted commercial letters of credit b" petitioner etropolitan Kan' and &rust

Compan", hereinafter referred to as I& OK NQ for a period of ei!ht (8) months be!innin! -une 1 ,199$ to =ebruar" 1, 1991 in connection ith the importation of ra textile materials to be used in themanufacturin! of !arments% &he &ON actin! both in their capacit" as o3cers of *one" &ree pparelCorporation (*& C) and in their personal capacities, executed eleven (11) trust receipts to secure therelease of the ra materials to *& C% &he imported fabrics ith a principal value of P#,8$J,$$$%$$ere ithdra n b" *& C under the 11 trust receipts executed b" the &ON % ue to their failure tosettle their obli!ations under the trust receipts upon maturit", I& OK NQ throu!h counsel, sent aletter dated u!ust 1$, 199#, ma'in! its nal demand upon the &ON to settle their past due &


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deliver the proceeds of the sale or the !oods if not sold, constitutes a criminal oBense that causespre0udice not onl" to another, but more to the public interest% F#1G

TRINI;A; v. ACAPULCOFacts: On a" ., 1991, respondent Istrella capulco led a Complaint before the &C see'in! thenulli cation of a sale she made in favor of petitioner *ermene!ildo % &rinidad% +he alle!ed> +ometime

in =ebruar" 1991, a certain Primitivo CaXete re7uested her to sell a ercedes KenA for P58$,$$$%$$%CaXete also said that if respondent herself ill bu" the car, CaXete as illin! to sell itfor P5$$,$$$%$$% Petitioner borro ed the car from respondent for t o da"s but instead of returnin! thecar as promised, petitioner told respondent to bu" the car from CaXete forP5$$,$$$%$$ and thatpetitioner ould pa" respondent after petitioner returns from avao% =ollo in! petitioner6sinstructions, respondent re7uested CaXete to execute a deed of sale coverin! the car in respondent6sfavor forP5$$,$$$%$$ for hich respondent issued three chec's in favor of CaXete% espondentthereafter executed a deed of sale in favor of petitioner even thou!h petitioner did not pa" her an"consideration for the sale% ;hen petitioner returned from avao, he refused to pa" respondent theamount of P5$$,$$$%$$ sa"in! that said amount ould 0ust be deducted from hatever outstandin!obli!ation respondent had ith petitioner% ue to petitioner6s failure to pa" respondent, the chec'sthat respondent issued in favor of CaXete bounced, thus criminal char!es ere led a!ainsther%J espondent then pra"ed that the deed of sale bet een her and petitioner be declared null andvoid: that the car be returned to her: and that petitioner be ordered to pa" dama!es%

n his ns er petitioner contended that> it is not true that he borro ed the car and that an" demandas made to return it: he also did not !ive an" instructions to respondent to bu" the car from CaXetebecause as earl" as +eptember #8, 199$, CaXete has alread" sold the car to respondentfor P5$$,$$$%$$: at the time respondent executed the deed of sale in his favor on arch , 1991,respondent as alread" in possession of the deed of sale from CaXete: the amount of P5$$,$$$%$$ asfull" paid b" a" of dation in pa"ment to partiall" extin!uish respondent6s obli!ation ith petitioner:the contract entered into as a true sale of a motor vehicle and the mode of pa"ment as that of dation in pa"ment a!reed upon at the time of the sale% 5

Petitioner also led a +upplemental otion and for the rst time averred that assumin! that

respondent did not a!ree to havin! the purchase price char!ed a!ainst the P5..,$$$%$$ she o edpetitioner, nonetheless, ith or ithout her consent and


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each other: le!al compensation ta'es place b" operation of la and ma" be ta'en up even thou!h it isnot raised in the pleadin!s or durin! trial: it is the dut" of courts to !rant the relief to hich the partiesare entitled as sho n b" the alle!ations and the facts proven at the trial: here, hile petitioner claimeddation in pa"ment, there as more than enou!h testimon" and admissions to prove elements of le!alcompensation: failure to pa" the a!reed purchase price does not ma'e the contract of sale ctitiousand null and void: the C erred in not orderin! respondent to pa" petitioner the balance of her partiall"

extin!uished indebtedness and in assessin! dama!es a!ainst him as there as no basis therefor%18

n her Comment, respondent counters that> it as onl" in the +upplemental otion for econsiderationof the decision of the trial court that petitioner chan!ed his theor" and started claimin! le!alcompensation as a defense: the C did not commit an" error in re0ectin! the belated ne defense of petitioner as it ould be oBensive to the basic rule of fair pla", 0ustice and due process: rticle 1# 9 of the Civil Code also states that for le!al compensation to be proper both debts should consist of sum of mone": in this case, one of the obli!ations does not entail pa"ment of mone" but deliver" of a car% 19

Petitioner merel" reiterated his ar!uments in his emorandum, #$ hile respondent in hers, furtheraverred that> she is not the o ner of the car, but as onl" in possession thereof in order to sell it at aprice of P58$,$$$%$$ ithP8$,$$$%$$ !oin! to her: both the trial court and the C failed to ma'e andin! as to the exact amount respondent o ed petitioners% #1

+tripped to its basics, hat petitioner is contendin! is that le!al compensation should be appreciated,thou!h not expressl" stated in his ns er to the Complaint before the trial court, as his alle!ationstherein and the facts proven at the trial sho the presence of le!al compensation% *e further ar!uesthat, in an" case, le!al compensation ta'es place b" operation of la even ithout the consent of theinterested parties%

Issue: ;

A0t&cle -+ . e% all t e 0e u&s&tes *e%t&)%ed &% a0t&cle -+ a0e !0ese%t, c)*!e%sat&)%ta>es e ect $ )!e0at&)% )3 la6, a%d e8t&%'u&s es )t de ts t) t e c)%cu00e%t a*)u%t,eve% t )u' t e c0ed&t)0s a%d de t)0s a0e %)t a6a0e )3 t e c)*!e%sat&)%.

S&%ce &t ta>es !lace ipso jure , + 6 e% used as a de3e%se, &t 0et0)acts t) t e date 6 e% all &ts0e u&s&tes a0e 3ul lled. +/

rticle 1# 9 provides that in order that compensation ma" be proper, it is necessar">

(-4 t at eac )%e )3 t e ) l&')0s e )u%d !0&%c&!all$, a%d t at e e at t e sa*et&*e a !0&%c&!al c0ed&t)0 )3 t e )t e05

(+4 t at )t de ts c)%s&st &% a su* )3 *)%e$, )0 &3 t e t &%'s due a0e c)%su*a le,t e$ e )3 t e sa*e >&%d, a%d als) )3 t e sa*e ual&t$ &3 t e latte0 as ee% stated5

( 4 t at t e t6) de ts e due5

( 4 t at t e$ e l& u&dated a%d de*a%da le5
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(B4 t at )ve0 %e&t e0 )3 t e* t e0e e a%$ 0ete%t&)% )0 c)%t0)ve0s$, c)**e%ced $t &0d !e0s)%s a%d c)**u%&cated &% due t&*e t) t e de t)0.

*ere, petitioner6s stance is that le!al compensation has ta'en place and operates even a!ainst the illof the parties because> (a) respondent and petitioner ere personall" both creditor and debtor of eachother: (b) the monetar" obli!ation of respondent as P5..,$$$%$$ and that of the petitioner

as P5$$,$$$%$$ sho in! that both indebtedness ere monetar" obli!ations the amount of hichere also both 'no n and li7uidated: (c) both monetar" obli!ations had become due and demandableYpetitioner6s obli!ation as sho n in the deed of sale and respondent6s indebtedness as sho n in thedishonored chec's: and (d) neither of the debts or obli!ations are sub0ect of a controvers" commencedb" a third person%

;hile the proceedin!s in the &C focused on ascertainin! the presence of the elements of dacion en pago , it as li'e ise proven that petitioner o ed respondent the amount of P5$$,$$$%$$ hilerespondent o ed petitionerP5..,$$$%$$: that both debts are due, li7uidated and demandable, and:that neither of the debts or obli!ations are sub0ect of a controvers" commenced b" a third person%

espondent in her crossEexamination cate!oricall" admitted that she is indebted to petitioner asfollo s>

T Kut "ou ill admit that "ou have borro ed several times from r% &rinidad some mone"U

es%

T nd in fact the total amount of mone" that "ou have borro ed from r% &rinidad reachesto P5..,$$$%$$, ri!htU

es%

T nd in fact "ou have issued chec's to cover for this accountU

es%

T &here ere several chec's "ou have issued, ri!htU

es%

T nd all of these chec's bouncedU

es %#9

x x x x

T x x x It &s %)6 ve0$ clea0, M0s. Aca!ulc), t at at t e t&*e $)u e8ecuted a deed )3 a s)lutesale )3 t e ca0 &% 3av)0 )3 He0*e%e'&ld) T0&%&dad $)u ave a% )utsta%d&%' acc)u%t 6&t &*&% t e a*)u%t )3 PBDD, .

A es.

I'%)0&%' t &s ad*&ss&)% 6)uld )%l$ 0esult &% added u0de% t) !et&t&)%e0 as 6ell as t ec)u0ts as !et&t&)%e0 6&ll e 3)0ced t) le a se!a0ate case 3)0 c)llect&)% )3 su* )3 *)%e$ 2ust
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s) e c)uld e%3)0ce &s 0&' t t) c)llect 30)* 0es!)%de%t. T &s &s !0ec&sel$ 6 atc)*!e%sat&)% see>s t) av)&d as &ts a&* &s t) !0eve%t u%%ecessa0$ su&ts a%d !a$*e%tst 0)u' t e *utual e8t&%ct&)% )3 c)%cu00&%' de ts $ )!e0at&)% )3 la6. -

&he claim of respondent that there could be no le!al compensation in this case as one of theobli!ations consists of deliver" of a car and not a sum of mone" must also fail% Res!)%de%t s)ld t e

ca0 t) !et&t&)%e0 )% Ma0c , - - 3)0PB , . 6 &le s e led e0 c)*!la&%t 3)0%ull& cat&)% )3 t e sale )%l$ )% Ma$ D, - -. As le'al c)*!e%sat&)% ta>es !lace ipso jure ,a%d 0et0)acts t) t e date 6 e% &ts 0e u&s&tes a0e 3ul lled, le'al c)*!e%sat&)% as al0ead$ta>e% !lace at t e t&*e )3 t e sale. At suc t&*e, !et&t&)%e0 )6ed 0es!)%de%t t e su*)3 PB , . 6 &c &s t e !0&ce )3 t e ve &cle.

C)%se ue%tl$, $ )!e0at&)% )3 la6, t e PB , . 6 &c !et&t&)%e0 )6ed 0es!)%de%t &s) 1set a'a&%st t ePBDD, . )6ed $ 0es!)%de%t t) !et&t&)%e0, leav&%' a ala%ce)3 PDD, . , 6 &c 0es!)%de%t s )uld !a$ 6&t -+ &%te0est !e0 a%%u* 30)* date )3

2ud&c&al )0 e8t0a2ud&c&al deed. + S&%ce t e0e 6as %) e8t0a2ud&c&al deed &% t &s case, t e&%te0est s all e 0es)lved 30)* t e date !et&t&)%e0 led &ts Su!!le*e%tal M)t&)% 3)0Rec)%s&de0at&)% &%v)>&%' 3)0 t e 0st t&*e le'al c)*!e%sat&)%, t at &s, Ma$ + , - +.

INSULAR IN ESTMENT v. CAPITAL ONE +

Facts: nsular nvestment and &rust Corporation ( &C) and Capital One I7uities Corp% (COIC) andPlanters evelopment Kan' (P K) have been re!ularl" en!a!ed in tradin!, sale and purchase of Philippine &reasur" bills% On various dates, &C had purchased from COIC% &C purchased from COICtreasur" bills orth P #.$, .8J, J9#%51 and as able to deliver onl" 1#1, $5$,$$$% On a" #, 199 ,COIC purchased from &C P 18., 9$,$$$ orth of treasur" bills% P C issued con rmation on the sale infavor of &C%

On a" 1$, 199 , COIC demanded a letter from &C the ph"sical deliver" of the securities last a" #,199 % &hen, on its a" 18, 199 letter to P K, &C re7uested, on behalf of COIC, the deliver" of &Ctreasur" bills, hich had been full" paid% On a" J$, 199 , COIC protested the tenor of &C6s letter toP K and too' exception to &C6s assertion that it merel" acted as a facilitator ith re!ard to the sale of

the treasur" bills%

&C sent COIC a letter dated -une J, 199 , demandin! that COIC deliver to it ( &C)the P1J9,8JJ,J9#%$$ orth of treasur" bills or return the full purchase price% n either case, it alsodemanded that COIC (1) pa" &C the amount of P1, #9,$.9%5$ representin! business opportunit" lostdue to the nonEdeliver" of the treasur" bills, and (#) deliver treasur" bills orth P1#1,$5$,$$$ ith thesame maturit" dates ori!inall" purchased b" &C%

COIC sent a letterErepl" dated -une 9, 199 to &C in hich it ac'no led!ed its obli!ation to deliverthe treasur" bills orth P1J9,8JJ,J9#%$$ hich it sold to &C and formall" demanded the deliver" of

# ssue> ; No, &C did not act as a conduit in the transactions bet een &Cand P K because &C acted as principal purchaser from P K and principal seller to COIC, and not simpl" as a conduit bet een P Kand COIC%

&hus, the petition as partl" !ranted, the C 6s decision as set aside and reinstate the modi ed decision of the &C rulin! in favorof COIC% lso, P K as also as found liable%
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the treasur" bills orthP18., , J9% 9 hich it purchased from &C% COIC also demanded thepa"ment of lost pro ts in the amount ofPJ,#5J,#5$%$$% Considerin! that COIC and &C both haveclaims a!ainst each other for the deliver" of treasur" bills, COIC proposed that a le!al setEoB beeBected, hich ould result in &C o in! COIC the diBerence of P .,9 1, .% 9%

n its -une 1J, 199 letter to COIC, &C re0ected the su!!estion for a le!al settin!EoB of obli!ations,

alle!in! that it merel" acted as a facilitator bet een P K and COIC% espite repeated demands,ho ever, P K failed to deliver the balance of P1J., 9$,$$$%$$ orth of treasur" bills hich &Cpurchased from P K alle!edl" for COIC% COIC as li'e ise unable to deliver the remainin! &C &EKillsamountin! to P119,.JJ,J9#%$$% Neither P K and COIC returned the purchase price for the dul" paidtreasur" bills%

&hus COIC led a complaint ith the &C hich found that COIC still has obli!ations to pa" &C&C P119,.JJ,J9#%$$ orth of treasur" bills% *o ever, since &C and COIC ere both debtors and

creditors of each other, the &C oBEset their debts, resultin! in a diBerence of P1 ,$5.,.$8%$$ in favorof COIC% s to P K6s liabilit", it ruled that P K had the obli!ation to pa" P1J., 9$,$$$%$$ to &C% &hus,the trial court ordered (a) &C to pa" COIC P1 ,$5.,.$8%$$ ith interest at the rate of .Z from -une1$, 199 until full pa"ment and (b) P K to pa" &C P1J., 9$,$$$%$$ ith interest at the rate of .Zfrom arch #1, 1995 until full pa"ment%

Issue: ;

(1) &hat each one of the obli!ors be bound principall", and that he be at the

same time a principal creditor of the other:
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(#) &hat both debts consist in a sum of mone", or if the thin!s due areconsumable, the" be of the same 'ind, and also of the same 7ualit" if thelatter has been stated:

(J) &hat the t o debts be due: ( ) &hat the" be li7uidated and demandable:

(5) &hat over neither of them there be an" retention or controvers",commenced b" third persons and communicated in due time to thedebtor%

xxx rt% 1#9$% ;hen all the re7uisites mentioned in rticle 1# 9 are present,

compensation ta'es eBect b" operation of la , and extin!uishes both debts to theconcurrent amount, even thou!h the creditors and debtors are not a are of thecompensation%

Kased on the fore!oin!, in order for compensation to be valid, the ve re7uisites mentioned inthe above7uoted rticle 1# 9 should be present, as in the case at bench% &he lo er courts havealread" determined, to hich this Court concurs, that &C acted as a principal in the purchase of treasur" bills from P K and in the subse7uent sale to COIC of the COIC &EKills% &hus, COIC and &Care principal creditors of each other in relation to the sale of the COIC &EKills and &C &EKills,respectivel"%

&C also claims that the COIC &EKills cannot be setEoB a!ainst the &C &EKills because the latterare speci c determinate thin!s hich consist of treasur" bills ith speci c maturit" dates and variousinterest rates% F5#G &C6s actions belie its o n assertion% &he fact that &C accepted the assi!nment b"COIC of Central Kan' Kills ith an a!!re!ate face value ofP#$,$$$,$$$%$$ as pa"ment of part of the&C &EKills is evidence of &C6s illin!ness to accept other forms of securit" as satisfaction of COIC6s

obli!ation% t should be noted that the second re7uisite onl" re7uires that the thin! be of the same'ind and 7ualit"% &he COIC &EKills and the &C &EKills are both !overnment securities hich, hilehavin! diBerin! interest rates and dates of maturit", have each been assi!ned a certain face value todetermine their monetar" e7uivalent% n fact, in the &ripartite !reement, the COICE &C !reement

and in the memoranda of the parties, the parties reco!niAed the monetar" value of the treasur" bills in7uestion, and, in some instances, treated them as sums of mone"% F5JG &hus, the" are of the same 'indand are capable of bein! sub0ect to compensation%

&he third, fourth and fth re7uirements are clearl" present and are not denied b" theparties% Koth debts are due and demandable because both remain unsatis ed, despite pa"ment madeb" &C for the &C &EKills and b" COIC for the COIC &EKills% oreover, COIC readil" admits that it hasan outstandin! balance in favor of &C% F5 G Conversel", &C has been found b" the lo er courts to beliable, as principal seller, for the deliver" of the COIC &EKills% F55G &he debts are also li7uidated becausetheir existence and amount are determined% F5.G =inall", there exists no retention or controvers" overthe COIC &EKills and the &C &EKills%

Kecause all the stipulations under rticle 1# 9 are present in this case, compensation can ta'eplace% COIC is allo ed to setEoB its obli!ation to deliver the &C &EKills a!ainst &C6s obli!ation todeliver the COIC &EKills%
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Philippine National Construction V