SPOUSES RAMON M. NISCE AND A. NATIVIDAD PARAS- NISCE, PETITIONERS, VS. EQUITABLE PCI BANK, INC., RESPONDENT.

Nisce versus Equitable PCI Bank

The Case

This is a petition for review on certiorari brought by the spouses Ramon Nisce and Natividad Paras-Nisce against Equitable PCI Bank. The spouses sought to stop the extrajudicial foreclosure of two parcels of land mortgaged to the Bank, claiming that their loan obligations had already been extinguished by legal compensation against Natividad's United States dollar deposit, and that the Bank had failed to credit partial payments. The case matters because it teaches the requisites of legal compensation, the separate personality of a subsidiary corporation, and the narrow scope of a preliminary injunction — three doctrines that recur in civil and commercial law examinations.

Procedural History

The spouses filed a complaint for nullity of the suretyship agreement, damages, and legal compensation with a prayer for injunctive relief before the Regional Trial Court of Makati City. The trial court issued an order granting a writ of preliminary injunction upon a bond of 10,000,000 pesos, ruling that a writ was needed to preserve the status quo and that the issues of setoff and the uncredited payments still required trial.

The Bank did not move for reconsideration. Instead, it went up to the Court of Appeals by petition for certiorari under Rule 65, arguing grave abuse of discretion. The Court of Appeals granted the petition and nullified the trial court's order, holding that no motion for reconsideration was needed because the issue was purely one of law, and that the trial court gravely abused its discretion because the spouses admitted they had not settled the secured obligations. The spouses moved for reconsideration, which was denied. They then filed the present petition for review before the Supreme Court.

Facts

Natividad Nisce opened a dollar facility with the Bank's Paseo de Roxas branch, depositing 20,500 United States dollars in July 1984. Upon her request, the Bank transferred 20,000 dollars to PCI Capital Asia Limited in Hong Kong by cable order, and PCI Capital issued a certificate of deposit earning interest at 11.875 percent per annum. In 1994, Equitable Banking Corporation and PCI Bank merged as Equitable PCI Bank.

The spouses later obtained two loans from the Bank, secured by a real estate mortgage over two parcels of land in Makati City covered by transfer certificates of title. They claimed partial payments, including 4,600,000 pesos which the Bank allegedly failed to credit. When Natividad tried to access her dollar deposit in 1991, she was told no such account existed. In December 2000, she offered to settle the loans by offsetting the peso equivalent of her dollar account with PCI Capital. The Bank allegedly did not act on the offer.

In November 2002, the Bank filed a petition for extrajudicial foreclosure, later amended to drop the suretyship claim. The spouses then sued to stop the auction, and the trial court enjoined the sale. The Court of Appeals reversed, and the spouses elevated the case to the Supreme Court.

Issues

• Whether or not the Court of Appeals erred in taking cognizance of the petition for certiorari despite the Bank's failure to file a motion for reconsideration before the trial court.
• Whether or not the Court of Appeals prematurely ruled on the merits of the main case.
• Whether or not the trial court committed grave abuse of discretion in issuing the writ of preliminary injunction.

Applicable Provisions

Article 1278 of the Civil Code provides:

Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

This provision governs the spouses' claim that their loan obligations were extinguished by offsetting Natividad's dollar deposit.

Article 1279 of the Civil Code provides:

In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been agreed upon; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

These requisites determine whether the dollar deposit with PCI Capital may be set off against the Bank's loan claims.

Ruling

On the first issue, the Court held that the general rule requires a motion for reconsideration before filing a petition for certiorari, but recognized exceptions. The Court of Appeals correctly applied the exception where the questions raised had already been passed upon by the lower court, and where the issue was purely one of law. The petition was therefore not premature.

On the second issue, the Court found that the Court of Appeals did not prematurely rule on the merits. The appellate court merely determined whether the trial court gravely abused its discretion in issuing the injunction, which necessarily required examining the evidence behind the issuance. The main case on the loan's extinguishment remained unresolved with finality.

On the third issue, the Court held that the trial court committed grave abuse of discretion. The spouses admitted they had not settled the secured obligations, giving the Bank a clear right to foreclose. On the claim of legal compensation, the Court ruled that the requisites under Articles 1278 and 1279 were absent because the parties were not mutually creditors and debtors. The dollar deposit was maintained with PCI Capital, a corporation with a personality separate and distinct from the Bank. Even if PCI Capital was a subsidiary, compensation could not validly take place. The alleged 4,600,000 peso payment was not pleaded in the complaint, and the Bank had already amended its foreclosure petition to delete the suretyship claim. The injunction therefore lacked factual and legal basis.

Doctrine

Legal compensation requires that the parties be mutually creditors and debtors of each other in their own right, and that all the requisites under Articles 1278 and 1279 of the Civil Code concur. A corporation has a personality separate and distinct from its stockholders and from other corporations to which it may be connected; thus, a deposit with a subsidiary cannot be set off against a debt owed to the parent bank. A petition for certiorari under Rule 65 may be filed without a prior motion for reconsideration when the issue is purely one of law or when the question has already been passed upon below. A preliminary injunction cannot issue where the applicant admits non-payment of the secured obligation and fails to establish a clear legal right.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, which had nullified the trial court's order granting the writ of preliminary injunction.

Remember This

Memorize this line: a subsidiary's separate corporate personality bars legal compensation between a depositor and the parent bank. Examiners use this case to test the requisites of compensation under Articles 1278 and 1279, and the exceptions to the motion for reconsideration requirement in a Rule 65 petition.