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[ G.R. No.
212024, October 12, 2020 ]
BANCO DE ORO UNIBANK, INC. (NOW BDO UNIBANK, INC.), PETITIONER, VS. EDGARDO C.
YPIL, SR., CEBU SUREWAY TRADING CORPORATION, AND LEOPOLDO KHO,
RESPONDENTS.
HERNANDO, J.:
DOCTRINE
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 (ARTICLE 1279, Civil
Code)
FACTS
Kho, representing CSTC, offered a proposal to respondent Ypil to invest in the Prudentialife Plan -
Millionaires in Business scheme. Kho was able to solicit the total amount of P300,000.00 from Ypil.
Later Ypil opted to get a refund, Ypil sent a letter and made several oral demands but to no avail.
Subsequently, Ypil 's lawyer sent a demand letter but it was never answered.
Ypil thus filed a Complaint for Specific Performance with Attachment, Damages and Attorney's fees
against CSTC and Kho before the RTC. The RTC granted Ypil's prayer for the ex-parte issuance of
an attachment order. Afterwards, the trial court issued a Writ of Preliminary Attachment.
Sheriff Guaren issued a Notice of Garnishment of the amount of P300,000.00 plus lawful expenses
from the accounts of CSTC and/or Kho addressed to the BDO Unibank, Inc. North Mandaue Branch.
BDO received the said notice on the same day. Yet, BDO, through its North Mandaue Branch Head
Polloso, replied that CSTC and/or Kho have no available garnishable funds.
The RTC discovered that BDO already debited from CSTC's savings and current accounts some
amounts to offset its (CSTC's) outstanding obligation with BDO under a loan agreement. In view of
this, the trial court issued an order directing BDO to show cause why it should not be held guilty of
indirect contempt for debiting the money from the accounts of CSTC and Kho which was
under custodia legis.
BDO averred that since CSTC defaulted in its obligations to BDO as embodied in a Credit
Agreement and Promissory Note, its entire obligation immediately became due and demandable
without need of demand or notice. It asserted that since BDO and CSTC were creditors and debtors
of each other, legal compensation already took effect.
CSTC and Kho then filed their Comment stating that the provisions of the Promissory Note should
not affect third parties and court processes such as garnishment. They alleged that BDO resorted to
legal compensation to frustrate the order of garnishment. Moreover, they averred that legal
compensation cannot take effect because CSTC's loan was not yet due and
demandable. Subsequently, Ypil filed his Memorandum insisting that the trial court acquired
jurisdiction over BDO which in turn became a forced intervenor upon receipt of the Notice of
Garnishment. Withal, he posited that the subject deposit was brought into custodia legis which BDO
cannot debit in its favor.
The RTC directed the petitioner, BDO Unibank, Inc. to guarantee the availability of the garnished
amount of P300,000.00 from the account of respondent Cebu Sureway Trading Corporation (CSTC),
represented by respondent Leopoldo Kho (Kho). The Court of Appeals affirmed this order.
Issue:
Whether or not legal compensation took place ipso jure as between BDO and CSTC when CSTC
defaulted in its obligations to BDO.
Our Ruling
CSTC's debt cannot be considered as due and liquidated, thereby legal compensation did not take
place by operation of law
It is settled that "[c]ompensation is a mode of extinguishing to the concurrent amount the debts of
persons who in their own right are creditors and debtors of each other. The object of compensation
is the prevention of unnecessary suits and payments thru the mutual extinction by operation of law of
concurring debts." The said mode of payment is encapsulated in Article 1279 of the Civil Code.
In relation to this, Article 1290 of the Civil Code states that "[w]hen 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." Relevantly, this is BDO's main contention.
The flaw in BDO's argument is its failure to specify the date when CSTC actually defaulted in its
obligation or particularly pinpoint which installment it failed to pay. BDO merely revealed that CSTC
owed it the amount of P3,823,000.00 without presenting a detailed computation or proof thereof
except for the Promissory Note. Although CSTC and Kho did not question the computation made by
BDO, the fact remains that the actual date of default was not disclosed and verified with
corroborating preponderant proof.
Thus, CSTC's indebtedness cannot be considered as due and liquidated. It should be emphasized
that "[a] claim is liquidated when the amount and time of payment is fixed. If acknowledged by the
debtor, although not in writing, the claim must be treated as liquidated." In this case, the time of
default and the amount due were not specific and particular. Without this information, a simple
arithmetic computation cannot possibly be done without risking errors especially with regard to the
application of interest and penalties. Similarly, despite CSTC's failure to contest BDO's computation,
its debt still cannot be considered as liquidated. Further confirmation is necessary in order to treat
CSTC's debt as due, demandable and liquidated, which BDO unfortunately did not bother to
elaborate on.
As regards respondents' claim that there exists a controversy commenced by a third person thereby
negating legal compensation from taking place, BDO insists that this did not bar the legal
compensation from taking place by operation of law since CSTC's default happened even before it
was served the Notice of Garnishment. Again, CSTC and Kho did not challenge this allegation.
Nonetheless, given our finding that CSTC's debt cannot be considered as due and liquidated,
thereby legal compensation did not take place by operation of law, it follows that the Notice of
Garnishment served as proof of an existing controversy commenced by a third person, particularly
Ypil, which likewise negated the application of legal compensation.

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[ G.R. No.

212024, October 12, 2020 ]

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