G.R. No. 131673 ; September 10, 2004
RUBEN MARTINEZ, substituted by his heirs, MENA CONSTANTINO MARTINEZ, WILFRIDO C. MARTINEZ, EMMA M. NAVA, and EDNA M. SAKHRANI, petitioners, vs. COURT OF APPEALS and BPI INTERNATIONAL FINANCE, respondents.

FACTS

Respondent BPI International Finance (BPIIF), a Hong Kong-based finance company, extended a back-to-back letter of credit facility to Cintas Largas, Ltd. (CLL), a Hong Kong corporation owned by, among others, Wilfrido Martinez. The facility financed CLL’s molasses imports from the Philippines. As security, Wilfrido Martinez, Miguel Lacson, Ricardo Lopa, and Ramon Siy executed a joint and several continuing suretyship agreement. CLL maintained US dollar deposit and money market placement (MMP) accounts with BPIIF. Petitioners, Ruben Martinez and his heirs, claimed ownership of the funds in MMP Accounts Nos. 063 and 084, alleging they were personal investments, and sought to recover these from BPIIF after CLL defaulted on its obligations.
BPIIF applied the balances in the MMP accounts as compensation for CLL’s unpaid obligations under the credit facility. The Regional Trial Court ruled in favor of the Martinez heirs, declaring them owners of the funds and ordering BPIIF to pay the value with interest. The Court of Appeals reversed this decision, holding that the funds belonged to CLL and that BPIIF validly exercised compensation.

ISSUE

Whether the Court of Appeals erred in ruling that the funds in the money market placement accounts belonged to CLL, and not to petitioner Ruben Martinez, thereby upholding BPIIF’s right to apply them via compensation to settle CLL’s debt.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The legal logic rests on the principle of compensation under Article 1278 of the Civil Code, which requires that the parties be mutually creditors and debtors in their own right. The Court found that the MMP accounts were owned by CLL, not Ruben Martinez. The signature cards, while bearing his name, identified the accounts as belonging to CLL. All transactions, including the initial funding and subsequent transfers, originated from CLL’s corporate accounts. Ruben Martinez’s act of signing the cards did not transform the accounts into his personal property; at most, it made him an authorized signatory for the corporate entity.
Since the debtor-creditor relationship existed solely between BPIIF and CLL, the requisites for legal compensation were met: both parties were principal debtors and creditors of each other; their obligations were liquidated and demandable; and they were due and of the same kind. BPIIF’s claim against CLL for the unpaid credit facility was offset by CLL’s deposit obligation represented by the MMP account balances. Consequently, BPIIF’s application of the funds was a valid exercise of compensation, extinguishing both obligations to the concurrent amount. The claim of personal ownership by Ruben Martinez, unsupported by evidence that he personally funded the accounts, could not prevail over the documented corporate nature of the deposits and the valid suretyship agreement securing the loan.