Banks’ legal compensation option on credit card dues

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Persida Acosta

Persida Acosta

Dear PAO,
I entered into a compromise agreement with a bank where I promised to pay my outstanding credit card purchases on installment. Since then, I have been paying the monthly amortization religiously but last month, I asked the bank to give me some leeway because I incurred quite a sum for medical expenses. The bank refused as I expected, but what surprised me was the bank manager’s threat to use my existing deposit with them to pay off the amortization due for that month. Can they really do that?
JD

Dear JD,
It appears that your bank is planning to carry out what is legally referred to as compensation. Compensation is a mode of extinguishing an obligation whereby two persons in their capacity as principals are mutual debtors and creditors of each other with respect to equally liquidated and demandable obligations to which no retention or controversy has been timely commenced and communicated by third parties (Union Bank of the Philippines vs. Development Bank of the Philippines,G.R. No. 191555, January 20, 2014). Simply put, compensation involves offsetting the obligations of the parties to each other.

Now, there are two (2) types of compensation, to wit: legal and conventional. Legal compensation takes place by operation of law, without need for the parties to do any other act. In fact, legal compensation operates even against the will of the parties and without their consent. It takes place ipso jure (by operation of law) from the very day that all requisites concur (Sps. Nisce vs. Equitable PCI Bank,G.R. No. 167434 February 19, 2007). On this score, legal compensation takes place when the following concur: a) the parties be principal debtors and creditors of each; b) both debts consist in a sum of money, or consumables of the same kind and quality if stated; c) the two debts are due; d) both are liquidated and demandable; and e) there is no retention or controversy, commenced by third persons and communicated in due time to the debtor (Art. 1279, Civil Code).

In your case, it appears that legal compensation may indeed set in. At this point, it must be pointed out that it is well settled that the relationship of a depositor and a bank or similar institution is that of creditor-debtor where the bank is the debtor that agrees to pay the deposit on demand, and the depositor is the creditor. In fact, Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans (Areza vs. Express Savings Bank,G.R. No. 176697, September 10, 2014). Following this rule, the bank is indebted to you for your deposit. In turn, you are indebted to the bank for your credit card purchases. Hence, you and the bank are mutual creditor and debtor of each other, satisfying the first requisite of legal compensation.


As to the other requisites, both debts consist of payment of money and both are due, and demandable. Finally, there appears to be no retention or controversy commenced by third persons. Considering that all the requisites for legal compensation appear to be present in your case, the bank may indeed invoke it. The bank is entitled to offset the monthly amortization due on your loan/compromise agreement with the deposit you have on the bank.

We hope you find the foregoing useful. Please bear in mind that this opinion is based on the facts you narrated and our appreciation of the same. Our opinion may vary if facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net

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