G.R. No. 179105; July 26, 2010
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. LARRY MARIÑAS, Respondent.

FACTS

Respondent Larry Mariñas opened several foreign currency deposit (FCD) accounts with petitioner Metropolitan Bank and Trust Company (Metrobank). He also obtained two peso loans from Metrobank, secured by Deeds of Assignment with Power of Attorney covering specific FCD accounts. Upon inquiry, Mariñas discovered that Metrobank had made deductions from his dollar accounts. He demanded an accounting and restoration of the amounts, claiming the deductions were unauthorized. Metrobank insisted the deductions were lawful, applied to pay the interest on his loans as authorized by the assignment documents.
Mariñas filed an action for damages. The Regional Trial Court (RTC) found that while deductions from the FCD accounts specifically assigned as security for the loans (US$67,227.95 and US$17,000.00) were valid, deductions from two other accounts (US$30,000.00 and US$25,000.00) were illegal as they were not assigned as collateral. The RTC ordered Metrobank to account for and return these two sums with interest, and awarded damages. The Court of Appeals affirmed but absolved the branch manager from personal liability.

ISSUE

The core issue is whether Metrobank lawfully applied respondent’s dollar deposits to settle his loan obligations, and consequently, whether it is liable for damages for making unauthorized deductions.

RULING

The Supreme Court modified the appellate decision. It held that a bank has a right of set-off or compensation, allowing it to apply the deposits of a debtor to the payment of his matured loan obligations. This right is implicit in a creditor-debtor relationship and is expressly recognized under Article 1278 of the Civil Code. The Deeds of Assignment executed by Mariñas fortified this right by specifically authorizing Metrobank to apply the assigned deposits to his loans.
However, the Court clarified that this right is not absolute. The obligation must be fully matured and demandable. The Court found that while the loans were valid, the exact interest due on the specific maturity dates needed precise computation. Therefore, Metrobank could only deduct the exact principal and accrued interest due on the loans from the assigned deposits. Any excess amount deducted, or any deduction from deposits not validly assigned as security, would be unlawful. Consequently, the Court ordered Metrobank to account for the respondent’s deposits, deduct only the lawfully due loan amounts, and restore any excess with interest. The awards for moral and exemplary damages and attorney’s fees were sustained due to Metrobank’s failure to properly account for the deductions and its breach of the high degree of diligence required of banks.