G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK INC., petitioner, vs. THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding Judge of the Regional Trial Court of Makati, Branch 143, NATIVIDAD M. FAJARDO, and SILVINO R. PASTRANA, as Special Sheriff, respondents.

FACTS

Natividad Fajardo secured a loan from petitioner bank’s predecessors, secured by mortgages on her properties. She also made a money market placement with the bank’s affiliate, Atrium Capital Corp. The bank later foreclosed on the mortgaged properties, with Atrium as the sole bidder, leaving a claimed deficiency balance. Upon maturity, the bank refused to release the proceeds of Fajardo’s money market placement, applying it instead to the alleged deficiency. Fajardo filed a complaint against the bank, which included a cause of action for the recovery of the money market proceeds. During trial, she filed a motion for the release of these specific funds. The bank opposed, arguing it had a right to set off the amount against Fajardo’s disputed deficiency obligation.
The Regional Trial Court granted Fajardo’s motion, ordering the bank to release the money market proceeds upon her filing of a bond. The bank’s motion for reconsideration was denied. The bank then filed a petition for certiorari with the Court of Appeals, which dismissed it. The bank elevated the case to the Supreme Court via petition for review, arguing that the trial court’s order was a grave abuse of discretion and that legal compensation (set-off) had taken place.

ISSUE

Whether the Court of Appeals erred in affirming the trial court’s order for the bank to release the money market proceeds, thereby ruling that legal compensation did not apply.

RULING

The Supreme Court affirmed the Court of Appeals’ decision. The legal logic centers on the requisites for legal compensation under Articles 1279 and 1290 of the Civil Code. For compensation to operate by law, the debts must be mutual, due, and liquidated. The Court found that while the bank’s debt to Fajardo (the money market proceeds) was liquidated and admitted, Fajardo’s alleged debt to the bank (the deficiency claim) was not liquidated. This deficiency claim arose from a foreclosure sale that was itself the subject of a separate pending annulment case. Since the validity of the foreclosure and the exact amount of the deficiency were vigorously disputed, the debt could not be considered liquidated and demandable. Therefore, the essential requisites for legal compensation were absent, and the bank could not unilaterally apply the money market proceeds to the contested claim. The trial court’s order for release, secured by a bond to answer for damages if Fajardo ultimately loses, was a proper interim measure to prevent prejudice pending the resolution of the main case on the validity of the debts. The Court also applied a liberal construction regarding the procedural form of Fajardo’s motion.