G.R. No. 108052, 24 July 1996


PNB, herein petitioner, doubly credited the private respondent’s account erroneously. Petitioner then demanded the private respondent to return the amount in excess, equal to P34,340.58. Thereafter, remittances from abroad to the private respondent were coursed through petitioner PNB. Without his knowledge and consent, the bank deducted P34,340.58 from the remittances, by virtue of compensation. Private respondent averred contending that the bank does not have a legal justification to make compensation on the remittances. The trial and the CA ruled in favor of the private respondent and ordered the amount taken by the petitioner to be returned the private respondent.


WON a local correspondent bank can make compensation against remittances coursed through it.


No. The Court affirms the decision of the lower courts. The trial court correctly ruled that the petitioner and the private respondent are not debtors and creditors of each other. Article 1279 of the Civil Code provides:

In order that compensation may prosper, it is necessary:

  • That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
  • That both debts consist in a sum of money, or if the things due are consumable, they are of the same kind, and also of the same quality if the latter has been stated;
  • That the two debts be due;
  • That they are liquidated and demandable;
  • That over neither of them there by any retention or controversy commenced by third persons and communicated in due time to the debtor.

As to the relationship created by the telexed fund transfers from abroad: A contract between a foreign bank and local bank asking the latter to pay an amount to a beneficiary is a stipulation pour autrui. the parties are not both principally bound with respect to the $2,627.11 from Jeddah; neither are they at the same time principal creditor of the other. Therefore, as matters stand, the parties’ obligations are not subject to compensation or set off under Art. 1279 of the Civil Code, for the reason that the defendant is not a principal debtor nor, is the plaintiff a principal creditor insofar as the amount of $2,627.11 is concerned. They are debtor and creditor only with respect to the double payments; but are trustee-beneficiary as to the fund transfer of $2,627.11.

* Case digest by Suzeyne Garcia, LLB-1, Andres Bonifacio Law School, SY 2017-2018