UNION BANK OF THE PHILIPPINES, Petitioner, vs. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent. G.R. No.

191555; Janua ! "#, "#1$ PERLAS%BERNABE, J.: FA&TS' Un(on Ban)*+ Mo,(on ,o A--( . L/0a1 &o.2/n+a,(on

Union Bank filed a Manifestation and Motion to Affirm Legal Compensation praying that the RTC apply legal compensation et!een itself and "BP in order to offset the ret#rn of the f#nds it previo#sly received from "BP. Union Bank anchored its motion on t!o gro#nds !hich !ere allegedly not in e$istence prior to or d#ring trial, namely% &a' on "ecem er (), *))+, "BP,s ass#med o ligations ecame d#e and demanda le- and & ' considering that /01 ecame non2operational and non2e$istent, "BP ecame primarily lia le to the alance of its ass#med o ligation, !hich as of Union Bank,s comp#tation after its claimed set2off, amo#nted toP*,+.),3)*.+4. RTC denied. 1t filed a petition for certiorari !ith the CA
..

Pending resol#tion, Union Bank iss#ed Manager,s Check amo#nting to P5(6M in favor of "BP, in satisfaction of the 0rit of 7$ec#tion "BP averred that Union Bank still has a alance of P4586k representing a portion of the garnished f#nds of "BP, !hich means that said o ligation had not een completely e$ting#ished. CA dismissed Union Bank,s petition, finding no grave a #se of discretion on the RTC,s part. 1t affirmed the denial of its motion to affirm legal compensation considering that% &a' the RTC only implemented the Co#rt,s 9an#ary *3, (::. "ecision in ;.R. <o. *55+3+ !hich y then had already attained finality- & ' "BP is not a de tor of Union Bank- and &c' there is neither a demanda le nor li=#idated de t from "BP to Union Bank- Union Bank moved for reconsideration denied, hence, the instant petition.

ISSUE' 0hether or not the CA correctly #pheld the denial of Union Bank,s motion to affirm legal compensation. HELD' T3/ 2/,(,(on (+ 4/ /-, o- ./ (, . Compensation is defined as a mode of e$ting#ishing o ligations !here y t!o persons in their capacity as principals are m#t#al de tors and creditors of each other !ith respect to e=#ally li=#idated and demanda le o ligations to !hich no retention or controversy has een timely commenced and comm#nicated y third parties. The re=#isites therefor are provided #nder Article *(4) of the Civil Code !hich reads as follo!s% A ,. 1"59. 1n order that compensation may e proper, it is necessary% &*' That each one of the o ligors e o#nd principally, and that he e at the same time a principal creditor of the other&(' That oth de ts consist in a s#m of money, or if the things d#e are cons#ma le, they e of the same kind, and also of the same =#ality if the latter has een stated&3' That the t!o de ts e d#e&.' That they e li=#idated and demanda le&5' That over neither of them there e any retention or controversy, commenced y third persons and comm#nicated in d#e time to the de tor. &7mphases and #nderscoring s#pplied'
53
1awp++i1

T3/ u1/ on 1/0a1 6o.2/n+a,(on (+ +,a,/7 (n A ,(61/ 1"9# o- ,3/ &(8(1 &o7/ 93(63 2 o8(7/+ ,3a, :;9<3/n a11 ,3/ /=u(+(,/+ ./n,(on/7 (n A ,(61/ 1"59 a / 2 /+/n,, 6o.2/n+a,(on ,a)/+ /--/6, 4! o2/ a,(on o- 1a9, an7 />,(n0u(+3/+ 4o,3 7/4,+ ,o ,3/ 6on6u /n, a.oun,, /8/n ,3ou03 ,3/ 6 /7(,o + an7 7/4,o + a / no, a9a / o- ,3/ 6o.2/n+a,(on.: 1n this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to effectively offset &a' its o!n o ligation to ret#rn the f#nds it previo#sly received from "BP as directed #nder the >eptem er 8, (::5 0rit of 7$ec#tion !ith & ' "BP,s ass#med o ligations #nder the Ass#mption Agreement. Ho9/8/ , 1/0a1 6o.2/n+a,(on 6ou17 no, 3a8/ ,a)/n 21a6/ 4/,9//n ,3/+/ 7/4,+ -o ,3/ a22a /n, /a+on ,3a, /=u(+(,/+ ? an7 $ un7/ A ,(61/ 1"59 o- ,3/ &(8(1 &o7/ a / no, 2 /+/n,. >ince "BP,s ass#med o ligations to Union Bank for remittance of the lease payments are ? in the Co#rt,s !ords in its "ecision dated 9an#ary *3, (::. in ;.R. <o. *55+3+ ? @ 6on,(n0/n, on ,3/ 2 (o 2a!./n, ,3/ /o4! ;F@< ,o DBP,: (, 6anno, 4/ +a(7 ,3a, 4o,3 7/4,+ a / 7u/ A /=u(+(,/ ? o- A ,(61/ 1"59 o- ,3/ &(8(1 &o7/B. A1+o, (n ,3/ +a./ u1(n0, ,3/ &ou , o4+/ 8/7 ,3a, an! 7/-(6(/n6! ,3a, DBP 3a7 ,o .a)/ u2 A4! D/6/.4/ "9, 199C a+ 2/ ,3/ A++u.2,(on A0 //./n,B -o ,3/ -u11 +a,(+-a6,(on o,3/ a++u./7 o41(0a,(on+ : 6anno, 4/ 7/,/ .(n/7 un,(1 a-,/ ,3/ +a,(+-a6,(on o- Foo7.a+,/ +* o41(0a,(on ,o DBP.: In ,3(+ /0a 7, (, 6anno, 4/ 6on61u7/7 ,3a, ,3/ +a./ 7/4, 3a7 a1 /a7! 4//n 1(=u(7a,/7, an7 ,3/ /4! 4/6a./ 7/.an7a41/ A /=u(+(,/ $ o- A ,(61/ 1"59 o- ,3/ &(8(1 &o7/B. The aforementioned Co#rt decision had already a,,a(n/7 -(na1(,! on April 3:, (::. and, hence, p#rs#ant to the 7o6, (n/ o- 6on61u+(8/n/++ oDu70./n,, ,3/ -a6,+ an7 (++u/+ a6,ua11! an7 7( /6,1! /+o18/7 ,3/ /(n .a! no, 4/ a(+/7 (n an! -u,u / 6a+/ 4/,9//n ,3/ +a./ 2a ,(/+, /8/n (,3/ 1a,,/ +u(, .a! (n8o18/ a 7(--/ /n, 6au+/ o- a6,(on . 1ts pertinent portions are here#nder =#oted for ready reference% $ $ $ $ >ince, as already stated, the monthly installments for the payment of the P*4 million de t are to e f#nded from the lease rentals, it follo!s that if the lease rentals are not paid, there is nothing for "BP to remit to AUnion BankB, and th#s A"BPB sho#ld not e considered in defa#lt. 1t is note!orthy that, as stated in the appealed decision, @as regards plaintiff,s claim for damages against defendant for its alleged negligence in failing and ref#sing to enforce a lessor,s remedies against /oodmasters 0orld!ide, 1nc., the Co#rt finds no competent and relia le evidence of s#ch claim.@
55

$ $ $ $ 0C7R7/DR7, the decision appealed from is >7T A>1"7 and another one is R7<"7R7", &i' Drdering third2party defendant2appellee /oodmasters 0orld!ide, 1nc. to pay defendant and third2party plaintiff2appellant "evelopment Bank of the Philippines the s#m of P3(,..*,.:*.+5, representing the #npaid rentals from A#g#st *)+* to 9#ne 3:, *)+4, as !ell as P*:,:::.:: for attorney,s fees- and &ii' Drdering defendant and third2party plaintiff2appellant "evelopment Bank of the Philippines after having een paid y third2party defendant2appellee the s#m of P3(,..*,.:*.+5, to remit 3:E thereof to plaintiff2appellee Union Bank of the Philippines. >D DR"7R7".

1n other !ords, oth the ody and the dispositive portion of the afore=#oted decision ackno!ledged that "BP,s o ligation to Union Bank for remittance of the lease payments is contingent on the prior payment thereof y /oodmasters to "BP. A caref#l reading of the decision sho!s that the Co#rt of Appeals, !hich !as affirmed y the >#preme Co#rt, fo#nd that only the alance or the deficiency of the P*4 million principal o ligation, if any, !o#ld e d#e and demanda le as of "ecem er (), *))+. <at#rally, this deficiency cannot e determined #ntil after the satisfaction of /oodmasters o ligation to "BP, for remittance to Union Bank in the proportion set o#t in the *)). "ecision. &7mphases and #nderscoring s#pplied- citations omitted' $$$$ 1n fine, since re=#isites 3 and . of Article *(4) of the Civil Code have not conc#rred in this case, no legal compensation co#ld have taken place et!een the a ove2stated de ts p#rs#ant to Article *(): of the Civil Code. Perforce, the petition m#st e denied, and the denial of Union Bank s motion to affirm legal compensation s#stained. 0C7R7/DR7, the petition is "7<17". The "ecision dated <ovem er 3, (::) and Resol#tion dated /e r#ary (8, (:*: of the Co#rt of Appeals in CA2 ;.R. >P <o. )3+33 are here y A//1RM7". >D DR"7R7".