Philippine Commercial and International Bank vs. Custodio

Legal compensation validly takes place when a bank credits a remittance to the designated beneficiary's account and applies it to his outstanding obligation, provided the request to amend the beneficiary is received after the set-off is effected.

Dennis Custodio and Wilfredo Gliane operated a door-to-door dollar remittance business, availing of PCIB's "Express Padala" service. To secure favorable foreign exchange rates, they coursed remittances through the joint account of Rolando Francisco, a premium client of PCIB. Francisco maintained a Foreign Bills Purchase Line Agreement (FBPLA) with PCIB-Greenhills. After four dollar checks totaling US$651,000 deposited by Francisco were dishonored, PCIB sought to recover the outstanding balance. When Gliane remitted US$42,300 to Francisco's account, PCIB set off this amount against Francisco's debt before processing a subsequent request to change the beneficiary.

• Remittance Arrangement: Custodio and Gliane coursed dollar remittances through the joint account of Francisco and Erlinda Chua with PCIB-Greenhills to avail of special foreign exchange rates.
• Francisco's Obligation: Francisco entered into a P70 Million FBPLA with PCIB-Greenhills, authorizing the bank to set off any dishonored checks against his accounts. He deposited four checks totaling US$651,000, which were dishonored for insufficient funds. PCIB debited US$85,000 from his account as partial payment.
• The Disputed Remittance: On May 17, 1998, Gliane remitted US$42,300 to Francisco's account. Custodio subsequently instructed Gliane to request the beneficiary be amended to Belarmino Cortez and/or Rhodora Cruz.
• Set-off: PCIB-Greenhills received the amendment request on May 19, 1998, local time. By that time, the bank had already set off the US$42,300 against Francisco's remaining obligation of US$566,000.
• Procedural Posturing: Francisco did not participate in pre-trial or trial, was deemed to have waived his right to present evidence, but later filed a Motion for Reconsideration before the RTC, arguing he was not negligent and did not benefit from a void payment.

• Amended Decision: The CA erred in issuing an Amended Decision without a motion for reconsideration prompting it.
• New Matters on Appeal: The CA erred in considering Francisco's new theory of separate corporate personality raised for the first time on appeal.
• Negligence: PCIB was not negligent; it credited the funds promptly as required by the nature of its Express Padala service.
• Legal Compensation: Legal compensation validly took place between PCIB and Francisco.
• Deceitful Scheme: The root cause was a deceitful scheme by Gliane, Custodio, and Francisco against PCIB.

• Debtor-Creditor Relationship: Custodio and Gliane argued that the relationship arose from the amendment request and the Express Padala scheme.
• Ownership of Funds: Custodio and Gliane maintained that they remained the owners of the funds in light of the amendment request.
• Holding Period: Custodio and Gliane argued that standard banking policy imposes a three-day holding period for money transfers, which PCIB violated.
• Separate Corporate Personality: Francisco countered that the FBPLA was entered into by ROL-ED Traders Group Corporation, not him personally; thus, his personal funds could not be applied to the corporate debt.

• Legal Compensation: Whether legal compensation validly occurred between PCIB and Francisco.
• Bank Negligence: Whether PCIB was negligent in applying the remitted funds against Francisco's debt instead of heeding the amendment request.
• Belated Defense: Whether Francisco could invoke the separate personality of ROL-ED for the first time on appeal to evade liability.

• Legal Compensation: Legal compensation validly occurred. PCIB credited the US$42,300 to Francisco's account before receiving the amendment request. The set-off against his outstanding debt was proper pursuant to the FBPLA authorization and the Civil Code rules on compensation.
• Bank Negligence: PCIB was not negligent. Respondents failed to prove the amendment request was communicated within a reasonable time or that PCIB had a three-day holding period. Speed of transfer was the essence of the Express Padala service, which respondents themselves acknowledged by marking their transfers as "PRIORITY."
• Belated Defense: Francisco's invocation of ROL-ED's separate personality was raised too late, as points of law not brought before the trial court cannot be raised for the first time on appeal without offending due process. Furthermore, Francisco judicially admitted in his RTC pleadings that the loan was his own, barring him from taking a contrary position. Piercing the corporate veil was also justified because Francisco deposited the dishonored checks into his personal joint account, not ROL-ED's, and he invoked the corporate veil merely to evade liability.

• Judicial Admissions — A party cannot subsequently take a position contrary to or inconsistent with their pleadings. Unless a party alleges palpable mistake or denies such admission, judicial admissions cannot be controverted. Francisco admitted in his Answer and Motion for Reconsideration before the RTC that the loan was his, barring him from claiming it belonged to ROL-ED.
• Piercing the Corporate Veil — While a corporation possesses a separate personality, the veil may be lifted when used as a shield to confuse legitimate issues or evade liability, or to achieve equity and protect creditors. Francisco belatedly invoked ROL-ED's separate identity to evade his obligation, and he deposited the dishonored corporate checks into his personal account.
• Issues Raised for the First Time on Appeal — Points of law, theories, issues, and arguments not adequately brought to the trial court's attention ordinarily will not be considered by a reviewing court, as raising them for the first time on appeal offends basic rules of fair play, justice, and due process.

• "As the object of pleadings is to draw the lines of battle, so to speak, between the litigants and to indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a position contrary to, or inconsistent, with his pleadings."
• "Points of law, theories, issues and arguments not adequately brought to the attention of the trial court ordinarily will not be considered by a reviewing court as they cannot be raised for the first time on appeal because this would be offensive to the basic rules of fair play, justice, and due process."

• Philippine Ports Authority v. City of Iloilo, 453 Phil. 927 (2003) — Followed in holding that issues cannot be raised for the first time on appeal and that judicial admissions cannot be controverted.
• Martinez v. Court of Appeals, G.R. No. 131673 (2004) — Followed in recognizing that the corporate veil may be pierced when used to confuse legitimate issues or evade liability.
• Philippine Airlines Inc. v. National Labor Relations Commission, 328 Phil. 814 (1996) — Followed in reiterating that new theories cannot be raised for the first time on appeal.

• Rules of Court, Rule 129, Section 4 — Judicial admissions cannot be controverted unless alleged to be made through palpable mistake or denied. Applied to bar Francisco from contradicting his prior admissions that the loan was his.

Leonardo A. Quisumbing (Chairperson), Antonio T. Carpio, Dante O. Tinga, Presbitero J. Velasco, Jr.