Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=82789:56636&catid=1579&Itemid=566
Timestamp: 2019-04-24 16:47:34+00:00

Document:
G.R. No. 191555, January 20, 2014 - UNION BANK OF THE PHILIPPINES, Petitioner, v. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
UNION BANK OF THE PHILIPPINES, Petitioner, v. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
Assailed in this petition for review on certiorari1 are the Decision2 dated November 3, 2009 and Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January 30, 2006 of the Regional Trial Court of Makati, Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal compensation6 filed by petitioner Union Bank of the Philippines (Union Bank) against respondent Development Bank of the Philippines (DBP).
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-interest, Bancom Development Corporation (Bancom), and to DBP.
On the same day, DBP, as the new owner of the processing plant, leased back9 for 20 years the said property to FI (Lease Agreement) which was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom.
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above obligations to Bancom which DBP has assumed shall be settled, paid and/or liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale of those properties of the Assignors conveyed to DBP pursuant to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979] and which are the subject of [the Lease Agreement] made and executed by and between DBP and [FI], the last hereafter referred to as the “Lessee” to be effective as of July 31, 1978.
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990, ordered: (a) DBP to pay Union Bank the sum of P4,019,033.59, representing the amount of the subject rentals (which, again, constitutes 30% of FI’s [now FW’s] total rental debt), including interest until fully paid; and (b) FW, as third-party defendant, to indemnify DBP, as third-party plaintiff, for its payments of the subject rentals to Union Bank. It ruled that there lies no evidence which would show that DBP’s receipt of the rental payments from FW is a condition precedent to the former’s obligation to remit the subject rentals under the Lease Agreement. Thus, when DBP failed to remit the subject rentals to Union Bank, it defaulted on its assumed obligations.18 DBP then elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the reason that the transfer of its rights, title and interests over the subject matter to the APT occurred pendente lite, and, as such, the substitution of parties is largely discretionary on the part of the court.
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for review on certiorari before the Court, respectively docketed as G.R. Nos. 115963 and 119112, which were thereafter consolidated.
On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying that DBP be directed to pay the amount of P9,732,420.555 which represents the amount of the subject rentals (i.e., 30% of the FW’s total rental debt in the amount of P32,441,401.85). DBP opposed29 Union Bank’s motion, contending that it sought to effectively vary the dispositive portion of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for execution against FW, citing the same CA decision as its basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both motions for execution. Anent Union Bank’s motion, the RTC opined that the CA’s ruling that DBP’s payment to Union Bank shall be demandable only upon payment of FW must be viewed in light of the date when the same was rendered. It noted that the CA decision was promulgated only on May 27, 1994, which was before the December 29, 1998 due date within which DBP had to fully pay its obligation to Union Bank under the Assumption Agreement. Since the latter period had already lapsed, “[i]t would, thus, be too strained to argue that payment by DBP of its assumed obligation[s] shall be dependent on [FW’s] ability, if not availability, to pay.”31 In similar regard, the RTC granted DBP’s motion for execution against FW since its liability to Union Bank and DBP remained undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution) and, thereafter, a notice of garnishment33 against DBP were issued. Records, however, do not show that the same writ was implemented against FW.
DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter issuance varied the import of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to Union Bank before FW’s payment. The motion was, however, denied on December 5, 2001.35 Thus, DBP’s deposits were eventually garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding that the RTC did not abuse its discretion when it issued the October 15, 2001 Writ of Execution. It upheld the RTC’s observation that there was “nothing wrong in the manner how [said writ] was implemented,” as well as “in the zealousness and promptitude exhibited by Union Bank” in moving for the same. DBP appealed the CA’s ruling before the Court, which was docketed as G.R. No. 155838.
On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for lack of merit, holding that Union Bank’s stated grounds were already addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With Union Bank’s motion for reconsideration therefrom having been denied, it filed a petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833.
Pending resolution, Union Bank issued Manager’s Check48 No. 099-0003192363 dated April 21, 2006 amounting to P52,427,250.00 in favor of DBP, in satisfaction of the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however, averred that Union Bank still has a balance of P756,372.39 representing a portion of the garnished funds of DBP,49 which means that said obligation had not been completely extinguished.
Undaunted, Union Bank moved for reconsideration which was, however, denied in a Resolution52 dated February 26, 2010; hence, the instant petition.
The sole issue for the Court’s resolution is whether or not the CA correctly upheld the denial of Union Bank’s motion to affirm legal compensation.
In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to effectively offset (a) its own obligation to return the funds it previously received from DBP as directed under the September 6, 2005 Writ of Execution with (b) DBP’s assumed obligations under the Assumption Agreement. However, legal compensation could not have taken place between these debts for the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed obligations to Union Bank for remittance of the lease payments are - in the Court’s words in its Decision dated January 13, 2004 in G.R. No. 155838 - “contingent on the prior payment thereof by [FW] to DBP,” it cannot be said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any deficiency that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the assumed obligations “cannot be determined until after the satisfaction of Foodmasters’ obligation to DBP.” In this regard, it cannot be concluded that the same debt had already been liquidated, and thereby became demandable (requisite 4 of Article 1279 of the Civil Code).
Ordering defendant and third-party plaintiff-appellant Development Bank of the Philippines after having been paid by third-party defendant-appellee the sum of P32,441,401.85, to remit 30% thereof to plaintiff-appellee Union Bank of the Philippines.
In other words, both the body and the dispositive portion of the aforequoted decision acknowledged that DBP’s obligation to Union Bank for remittance of the lease payments is contingent on the prior payment thereof by Foodmasters to DBP.
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this case, no legal compensation could have taken place between the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be denied, and the denial of Union Bank’s motion to affirm legal compensation sustained.
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP No. 93833 are hereby AFFIRMED.
2 Id. at 8-20. Penned by Associate Justice Romeo F. Barza, with Associate Justices Portia Aliño-Hormachuelos and Remedios A. Salazar-Fernando, concurring.
4 Id. at 278-279 and 323, respectively. Penned by Presiding Judge Eugene C. Paras.
5 Erroneously stated as Branch 148 in the Complaint (see id. at 60) and Amended Third-Party Complaint (see id. at 71).
30 Id. at 130-133. Penned by Judge Winlove M. Dumayas.
39 Id. at 257-268; DBP v. Union Bank, 464 Phil. 161 (2004).
41 See Entry of Judgment in G.R. No. 155838; Id. at 452.
44 See Agreement dated May 21, 1979; id. at 272 and 358.
49 See Comment of DBP; id. at 386. See also Reply of Union Bank which admitted to such fact; id. at 512.
53 See Mavest (U.S.A.), Inc. v. Sampaguita Garment Corporation, G.R. No. 127454, September 21, 2005, 470 SCRA 440, 449.
55 See Entry of Judgment in G.R. No. 155838; rollo, p. 452.
56Tan v. CA, 415 Phil. 675, 676 (2001).
57Rollo, pp. 264-265; DBP v. Union Bank, supra note 49, at 170-172.

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