G.R. No. 127469; January 15, 2004
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and LEONILO MARCOS, respondents.

FACTS

Respondent Leonilo Marcos made time deposits with petitioner Philippine Banking Corporation (the BANK) in March 1982, totaling P764,897.67, earning 17% annual interest. In March 1983, instead of withdrawing these deposits, Marcos was persuaded by the BANK’s officer to open several domestic letters of credit to purchase construction materials, secured by trust receipt agreements totaling P851,250. Marcos paid a 30% marginal deposit, leaving a 70% balance of P595,875. He believed this balance would be automatically offset against his time deposits and accrued interest. Separately, the BANK claimed Marcos obtained two other loans, one evidenced by Promissory Note No. 20-979-83 for P500,000. The BANK later applied his time deposits to pay off this promissory note.
Marcos filed a complaint for sum of money, arguing his trust receipt obligation was only P595,875, which should have been set off against his time deposits, leaving the BANK indebted to him. He sought to declare the P500,000 promissory note void and to recover his deposits with interest. The BANK countered that the trust receipts and the promissory note were distinct obligations and that it properly applied the time deposits to the loan under a Deed of Assignment executed by Marcos.

ISSUE

The core issue is whether the BANK lawfully applied Marcos’s time deposits to the obligation under Promissory Note No. 20-979-83, and whether Marcos’s obligation under the trust receipt agreements should be deemed extinguished by compensation using his time deposits.

RULING

The Supreme Court ruled in favor of Marcos, affirming the Court of Appeals with modification. The legal compensation argued by Marcos could not apply because his claim for the return of his time deposits and the BANK’s claim under the trust receipts were not both liquidated and demandable at the same time. The trust receipt obligations became due only upon demand by the BANK after maturity, which had not occurred when Marcos filed his complaint. However, the Court found the BANK liable for breach of contract.
The BANK’s application of the time deposits to the P500,000 promissory note was unlawful. The Deed of Assignment referenced by the BANK was dated 1989, while the debit of deposits occurred in 1985, rendering the deed inapplicable. Furthermore, the promissory note itself was void for lack of valuable consideration, as the BANK failed to prove the actual release of loan proceeds to Marcos. Consequently, the setoff was invalid. The BANK was ordered to return the time deposit principal of P764,897.67 with stipulated 17% interest, to be computed on a straight, non-compounded basis from 1982 until full payment. The legal interest of 12% per annum was also imposed on the total monetary award from judicial demand until satisfaction. Marcos’s liability under the trust receipts was deemed extinguished through compensation, as the BANK’s obligation to return the deposits had become demandable.