CKH industrial and Development Corporation vs.

Court of Appeals
Facts:
Petitioner CKH is the owner of two parcels of land consisting of 4,590 square
meter and 300 square meter located in Karuhatan, Valenzuela. CKH is a corporation
built by Cheng Kim Heng. Upon Cheng’s death, the corporation was transferred to his
second wife Rubi Saw.
Before coming to the Philippines, Cheng was married to Hung Yuk Wah, who
lived in Hongkong together with their children, Chong Tak Kei, Chong Tak Choi, and
Chong Tak Yam. In 1976 Cheng migrated to the Philippines and, in 1977 Cheng
married Rubi Saw. He brought his first wife and their children to the Philippines
becomes a naturalized Citizens. Cheng died in 1984.
On May 8, 1988, Rubi Saw and Lourdes Chong, Kei’s wife, met at the 1266 Soler
St., Sta. Cruz, Manila, where Cheng’s friend Uy Chi Kim resides. They executed a Deed
of Absolute Sale, where Saw in behalf of CHK Corp. agreed to sell the subject
properties to Century-Well, a corporation owned in part by Lourdes Chong, Kei and
Choi.
On May 23, 1988, petitioner filed a petition to rescind and/or annul the sale of two
parcels of land to privae respondent (century well) for failure to pay the stipulated price
of 800,000. The decision was in favor of the petitioner. Respondents filed an appeal,
and on April 21, 1993 the decision of the RCT reversed.
Issue: Whether or not there is a valid compensation of the obligations of Cheng Kim
Heng to his sons with the purchase price of the sale.
Ruling: No, There can be no valid compensation of the purchase price with the
obligations of Cheng Kim Heng stated in the promissory notes, because CKH and
Century-Well the principal contracting parties, are not mutually bound as creditors and
debtors in their own name. The promissory notes did not indicate that Cheng
acknowledged any indebtedness to Century-Well. The promissory notes reveal CKHs
indebtedness to Chong Tak Choi and Chong Tak Kei.
It does not indicate the indebtedness contracted by Cheng from Choi and Kei as
stockholders of Century-Well. Choi and Kei does not take part to the Deed of Absolute
Sale but stockholders of Century-Well, and, are not bound principally in the contract of
sale. Their interest in the promissory notes cannot off-set against the obligations
between CKH and Century-Well arising out of the deed of absolute sale. Choi and Kei's
interest in Century-Well were considered a declaration of unity of their civil personalities.
Century-Well, separated and distinct personalities from their stockholders, except only
when the law sees it fit to hold them liable for the corporation’s debt.
 Mirasol vs. Court of Appeals
Facts:
Spouses Mirasol are sugarland owners and planters. Philippine National Bank (PNB)
financed the Mirasols' sugar production venture from 1973 to 1974 and under a crop
loan financing scheme from 1974 to 1975. The Mirasols signed Credit Agreements, a
Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The
Chattel Mortgage empowered PNB to negotiate and to sell the latter's sugar in both
domestic and export markets and to apply the proceeds to the payment of their
obligations to it.
President Ferdinand Marcos issued Presidential Decree ordered No. 5792 in
November 1974. It authorized PHILEX to purchase sugar allocated for export to the
United States and to other foreign markets. It further authorized PNB to finance
PHILEX's purchases. It states that whatever profit PHILEX might get from sales of sugar
abroad was to be remitted by the government. PNB continued to finance the sugar
production of the Mirasols for 1975-1976 and 1976-1977. These crop loans and similar
obligations were secured by real estate mortgages over several properties of the
Mirasols and chattel mortgages over standing crops. The believe that the proceeds of
their sales to PNB were more than enough to pay their obligations, petitioners asked
PNB for an accounting of the proceeds of their export sugar but was ignored. Petitioners
continued to avail loans from PNB and make unfunded withdrawals from their current
accounts. PNB then asked petitioners to settle their due and demandable accounts.
Petitioners conveyed to PNB real properties by way of dacion en pago but did not
suffice, leaving a balance of P1,513,347.78. Mirasols failed to settle said the balance.
PNB then proceeded to extrajudicially close the mortgaged properties. After applying
the proceeds of the auction sale of the mortgaged realties, PNB still had a deficiency
claim of P12,551,252.93.
Petitioners continued to ask PNB to account for the proceeds of the sale in
export sugar for 1973-1974 and 1974-1975, insisting that said proceeds could offset
their outstanding obligations if it was properly liquidated. Thus, PNB refuses to because
PD 579 states that all earnings from the export sales of sugar pertained to the National
Government and subject to disposition of the President for public purposes.
On August 9, 1979, the Mirasols filed a suit for accounting, specific performance,
and damages against PNB, Judgement renders in favor of the plaintiffs.

Issue: Whether or not the Court of Appeals committed an error in upholding the validity
of the foreclosure on petitioners property and in upholding the validity of the dacion en
pago.
Ruling: No, Mirasols admitted that they were indebted to PNB in the sum stated in the
latter's counterclaim. Petitioners insist that the debt can be offset by the unliquidated
amounts PNB owed them for crop years 1973- 1974 and 1974-1975. For legal
compensation to take place, the requirements set forth in Articles 1278 and 1279 of the
Civil Code must be present.

In this case, compensation cannot take place between the parties because: First,
neither of the parties are mutually creditors and debtors of each other. Under P.D. No.
579, neither PNB nor PHILEX could retain any difference claimed by the Mirasols in the
price of sugar sold by the two firms. P.D. No. 579 prescribed where the profits from the
sales will remit by the government.

Thus, Court of Appeals is correct that, there was nothing with which PNB was supposed
off-set because the government will get the proceeds. Compensation cannot take place
where one claim, as in the instant case, is still the subject of litigation, as the same
cannot be deemed liquidated. With respect to the duress allegedly employed by PNB,
which impugned petitioners' consent to the dacion en pago.
 Associated bank vs. Vicente Tan
Facts:
Vicente Tan is a businessman and a regular depositor-creditor of the Associated
Bank. On September 1990, he deposited a UCBP postdated check amounting to
P101,000.00 issued by a certain Willy Cheng from Tarlac. The check was credited in his
bank record which makes his balance a total of P297,000.00, as of October 1, 1990,
from his original deposit of P196,000.00. Upon the advice and instruction of the bank
that the P101,000.00 check was already cleared and backed up by sufficient funds, Tan
withdrew P240,000.00, leaving a balance of P57,793.45. A day after, Tan deposited
P50,000.00 which makes his existing balance in a total amount of P107,793.45,
because of the several checks he has issued to his business partners. However, his
suppliers and business partners went back to him alleging that the checks he issued
bounced for insufficiency of funds. Tan informed the bank regarding with the incident
because he knew that his account has sufficient funds to pay the amount of the checks,
but the bank did not do anything about it.
Tan filed a complaint for damages on December 19, 1990. He alleged that he
was advised that he had sufficient funds to pay the checks and because of the incident,
his suppliers decreased for lack of trust. He further averred that he continuously lost
profits in the amount of P250,000.00. Tan therefore prayed for exemplary damages and
ordered the petitioner to pay him the sum of P1,000,000.00 for moral damages,
P250,000.00 for lost profits, P50,000.00 for attorney’s fees plus 25% of the amount
claimed including P1,000.00 per court appearance.
On February 7, 1991, Petitioner (Bank) filed a motion to dismiss but was denied for lack
of merit. On March 20, 1991 petitioner filed its Answer denying the allegations of
respondent and alleged that no banking institution would give an assurance to any of its
client/depositor that the check he deposited had already been cleared and backed up by
sufficient funds however, it could be presumed that it has been honored by the drawee
bank the number of days that ordinarily takes for a check to be cleared. Petitioner
alleged that on October 2, 1990, it gave notice to the respondent to return of his UCPB
check deposit. On the same date respondent deposited the amount of P50,000.00 to
cover the returned check.
Petitioner argued that respondent had no cause of action against it and it has all the
right to debit the account of the respondent due to the dishonor of the check deposited
by the respondent which he withdrew prior to its clearing. It further claimed that it has no
liability with the clearing of deposited checks as the clearing is being handled by the
Central Bank and in accepting check deposit, it merely obligates itself as depositor’s
collecting agent subject to actual payment by the drawee bank. The court is in favor of
respondent – Tan
Issue: Whether or not the right to debit of the said bank is properly exercised

Ruling: No, the bank generally has a right of setoff over the deposits for the payment of
any withdrawals on the part of a depositor. The right of a collecting bank to debit a
client’s account for the value of a dishonored check that has previously been credited
has fairly been established.
Petitioner allowed the respondent to withdraw the value of the deposited check
prior to its clearing. That act certainly disregarded the clearance requirement of the
banking system. Such a practice is unusual, because a check is not legal tender or
money; and its value can properly be transferred to a depositor’s account only after the
check has been cleared by the drawee bank. Petitioner should not have authorized the
withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over
and above his outstanding cleared balance of P196,793.45.24
A bank is liable for the wrongful or tortuous acts and declarations of its officers or
agents within the course and scope of their employment. Due to the very nature of their
business, banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees. Respondent would have sufficient funds
for the checks if P101,000.00 not been debited to his account, the subject checks would
not have been dishonored.

What is right to setoff

 right of the of the creditor to take any amount from a debtor's deposit when they
failed to pay their loan.