Relate to Practice

X, who has a savings deposit with Y Bank in the sum of P1,000,000.00, incurs a
loan obligation with the said Bank in the sum of P800,000.00 which has become
due. When X tries to withdraw his deposit, Y Bank allows onlyP200,000.00 to be
withdrawn, less service charges, claiming that compensation has extinguished its
obligation under the savings account to the concurrent amount of X's debt. X
contends that compensation is improper when one of the debts, as here, arises
from a contract of deposit. Assuming that the promissory note signed by X to
evidence the loan does not provide for compensation between said loan and his
savings deposit, who is correct?
Answer:
Y bank is correct. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in
commodatum does not apply. In the case of Gullas vs. PNB (62 Phil. 519),the
Supreme Court held: “The Civil Code contains provisions regarding compensation
(set off) and deposit. These portions of Philippine law provide that compensation
shall take place when two persons are reciprocally creditor and debtor of each
other. In this connection, it has been held that the relation existing between a
depositor and a bank is that of creditor and debtor, x x x As a general rule, a
bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor.” Hence, compensation took place
between the mutual obligations of X and Y bank.