Case Summary (G.R. No. 212024)
Antecedents
Kho, on behalf of CSTC, solicited P300,000 from Ypil under an investment scheme in August 2002. Ypil later demanded a refund by letter (Feb. 11, 2003) and through counsel (May 19, 2003). Unanswered, he sued CSTC and Kho for specific performance with attachment, damages, and attorney’s fees. The RTC granted ex parte attachment (Oct. 15, 2003) and issued a writ of preliminary attachment (Oct. 29, 2003).
Garnishment Proceedings
On Feb. 4, 2004, the RTC’s sheriff served a notice of garnishment on BDO, directing garnishment of P300,000 from CSTC’s and Kho’s accounts. BDO’s branch head, Cyrus M. Polloso, replied on Feb. 10, 2004 that no garnishable funds existed. At trial, subpoenas compelled Polloso’s attendance; the court discovered BDO had already debited CSTC’s accounts to offset a defaulted loan.
Legal Compensation Contention
BDO, as forced intervenor, invoked legal compensation under Civil Code Art. 1279–1290, asserting mutual creditor-debtor status with CSTC and immediate enforceability of its loan upon default. Respondents countered that garnished funds were under custodia legis and immune from unilateral compensation; any set-off required court intervention.
Regional Trial Court Ruling
The RTC (Aug. 11, 2008) absolved Polloso of contempt but held that, despite BDO’s right to compensation, it could not unilaterally debit funds subject to garnishment. The court ordered BDO to make P300,000 available. A May 20, 2011 denial of reconsideration led BDO to petition the Court of Appeals via certiorari with injunctive relief.
Compromise Agreement and Enforcement
On Nov. 23, 2012, the RTC approved a compromise: CSTC/Kho to pay Ypil P300,000 in full settlement. BDO moved to suspend execution, citing its pending certiorari petition; both the RTC (Mar. 12, 2013) and the CA (May 6, 2013) denied injunctive relief.
Court of Appeals Ruling
The CA (Jan. 15, 2014) dismissed BDO’s petition, ruling:
- Service of the garnishment notice (Feb. 4, 2004) placed CSTC’s deposits in custodia legis.
- Legal compensation requires (a) reciprocal principal debts, (b) money debts, (c) both due, (d) liquidated and demandable, and (e) no third-party controversy.
- BDO failed to prove when CSTC’s debt became due, liquidated, and demandable.
- The garnishment controversy barred compensation.
BDO’s motion for reconsideration was denied (Mar. 26, 2014).
Issues on Review
A. Whether legal compensation extinguished CSTC’s deposit before service of garnishment, preventing custodia legis.
B. Whether respondents acted in bad faith by including the deposit in the compromise agreement.
Supreme Court’s Analysis
– Findings of fact by the RTC and CA are binding in a Rule 45 review.
– Compensation under Art. 1279 requir
Case Syllabus (G.R. No. 212024)
Facts and Antecedents
- In August 2002, Leopoldo Kho, acting for Cebu Sureway Trading Corporation (CSTC), offered Edgardo C. Ypil, Sr. an investment in the “Prudentialife Plan – Millionaires in Business” scheme.
- Ypil invested a total of ₱300,000.00 but later sought a refund by letter dated February 11, 2003; neither CSTC nor Kho responded.
- Multiple oral demands and a formal demand letter dated May 19, 2003 went unanswered.
- Ypil filed a complaint for specific performance with attachment, damages, and attorney’s fees against CSTC and Kho before the Regional Trial Court (RTC) of Cebu City (Civil Case No. CEB-29462), praying for the return of ₱300,000.00 plus contractual interest, collection fee, damages, and legal costs.
Procedural History
- October 15, 2003: RTC grants ex parte issuance of an attachment order.
- October 29, 2003: Writ of Preliminary Attachment issued.
- February 4, 2004: Notice of Garnishment for ₱300,000.00 served on the Bank’s North Mandaue Branch; the Bank received it same day.
- February 10, 2004: Branch Head Cyrus M. Polloso replies that CSTC/Kho have no garnishable funds.
- October 24, 2007: Pre-trial deferred; Polloso repeatedly subpoenaed and ordered to show cause for contempt; finally testifies February 1, 2008.
- May 9, 2008: RTC orders the Bank to show cause for indirect contempt after discovering it had debited CSTC’s accounts to offset a loan.
- June 16, 2008: Bank files compliance/explanation as forced intervenor, invoking legal compensation under its loan agreement and promissory note.
- August 11, 2008: RTC absolves Polloso of contempt but orders the Bank to hold the garnished deposit of ₱300,000.00 in custodia legis.
- May 20, 2011: RTC denies Bank’s motion for reconsideration.
- November 23, 2012: RTC approves a compromise agreement whereby Kho, for CSTC, agrees to pay Ypil ₱300,000.00 as full settlement; Bank ordered to tender the amount.
- January–March 2013: Bank seeks suspen