G.R. No. 255252 - Garcia vs. Hongkong and Shanghai Banking Corp., Ltd.

Assignment and collection suit
Guillermo Uy, doing business as G.U. Enterprises, assigned to respondent Gerardo C. Uy his receivables due from Pantranco North Express, Inc. (PNEI) amounting to ₱4,660,558.00, including stipulations on interest and attorney’s fees.
On January 23, 1995, Gerardo Uy filed a collection suit against PNEI for ₱8,397,440.00, alleging fraud and praying for a writ of preliminary attachment. On January 26, 1995, the RTC issued the writ, and on January 27, 1995, notices of garnishment were served on Philippine National Bank (PNB) and PNB MADECOR.

PNB MADECOR’s position and omnibus motions
In response to a March 1995 subpoena duces tecum, PNB MADECOR submitted a position paper alleging:

PNEI owed it ₱8,784,227.48 in unpaid rentals (October 1990–March 1994).
PNB MADECOR owed PNEI ₱7,884,000.00 (October 31, 1982 promissory note).
By operation of law on compensation, mutual obligations were extinguished up to ₱7,884,000.00, leaving PNEI indebted to PNB MADECOR for ₱900,227.48.

Controverting the claimed compensation and asserting the ₱7,884,921.10 note bore 18% annual interest from November 1984, resulting in an indebtedness of ₱75,813,508.26 as of April 1995.
Praying for a levy on all PNEI properties under the control of PNB MADECOR.

Trial and appellate orders
On July 26, 1995, the RTC rendered judgment against PNEI; August 21, 1995, the RTC ordered garnishment of PNEI’s credits in PNB MADECOR and levy on PNB MADECOR assets if necessary.
On February 19, 1997, the Court of Appeals affirmed, holding:

Legal compensation failed for lack of due and demandable debts and because a third-party controversy (respondent’s attachment) precluded operation of Article 1279.
Unpaid rentals were unliquidated, and petitioner had not proved their demandability.
Rule 39, Sec. 43 (now Sec. 43, Revised Rules of Court) did not require a separate action since PNB MADECOR was already a forced intervenor by garnishment.

Whether legal compensation under Civil Code Articles 1278, 1279, and 1290 extinguished the mutual obligations between PNEI and PNB MADECOR.
Whether PNB MADECOR, as a garnishee, became a forced intervenor and thus was not entitled to a separate action under Rule 39, Sec. 43 of the Rules of Court.
Whether PNEI made a valid demand on the October 31, 1982 promissory note, rendering PNB MADECOR’s debt due and demandable.