G.R. No. L-69255 February 27, 1987
PHILIPPINE NATIONAL BANK, petitioner, vs. GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA, respondents.

FACTS

The case involves conflicting claims over Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Corporation (ISABELA) with the Philippine National Bank (PNB), initially containing P2 million. The respondents, the Aceros, are judgment creditors of ISABELA. They obtained a partial judgment against ISABELA on November 18, 1979, for P1,532,000.07. In execution, the sheriff garnished the said bank deposit on January 9, 1980, following a writ dated December 23, 1979. The PNB, however, asserts a superior claim. It argues that the deposit was made as collateral under a credit agreement with ISABELA. PNB claims it was authorized to apply the deposit to ISABELA’s unpaid loan obligations, which it attempted to do on February 26, 1980. PNB intervened in the execution proceedings, contending that a legal compensation or set-off occurred between its credit (the deposit) and ISABELA’s debt, thereby extinguishing the fund available for garnishment by the Aceros.

ISSUE

Whether the PNB can validly claim the deposit through set-off or compensation, thereby defeating the garnishment levied by the Aceros as judgment creditors.

RULING

The Supreme Court ruled against PNB and affirmed the decision of the Intermediate Appellate Court. The legal logic is threefold. First, the requisites for legal compensation under the Civil Code were not met. For compensation to operate, the debts must be liquidated and demandable. Here, ISABELA’s debt to PNB was not shown to be liquidated—its exact amount remained unproven and unsettled at the critical time. Second, even assuming PNB had a right to apply the deposit, its attempt to do so on February 26, 1980, was invalid because the fund was already in custodia legis. The garnishment on January 9, 1980, placed the deposit under the court’s custody, rendering any subsequent unilateral act by PNB ineffectual against the attaching creditor. Third, the arrangement PNB relied upon, whereby it could automatically assume ownership of the deposit upon ISABELA’s default, constitutes a pactum commissorium. This is expressly prohibited by Article 2088 of the Civil Code as being contrary to public policy, for it allows a creditor to appropriate the collateral without foreclosure. Consequently, PNB’s claim of set-off fails, and the garnishment by the Aceros, as prior attaching creditors, must prevail. The deposit rightfully answers for the judgment debt owed to them.