Topic Compensation the dishonour.

Moreso, it averred that it had no liability because the

Case No. 137 Central Bank was in charge of check clearing they are merely a collecting
Case Name Associated Bank v Tan agent.
Full Case ASSOCIATED BANK (now WESTMONT BANK),
Name petitioner, vs VICENTE HENRY TAN, respondent RTC ruled in favour of respondent awarding him moral damage,
Ponente PANGANIBAN, J. exemplary damages and attorney’s fees. Petitioner appealed to the CA.
Doctrine Legal compensation may be claimed if the requisites in
CA ruled that the bank should not have authorized withdrawal of the value
Article 1279 are all present
(1) That they are debtors and creditors of one another
prior to clearing. The bank failed to uphold its own policy. Had the 101k
(2) Both debts consist a sum of money, kind or quality not been debited, the respondent would have had sufficient funds for the
(3) Both debts are due checks he had issued.
(4) Both debts are liquidated and demandable
(5) That neither of them there be any retention or ISSUES
(1) Did the bank have the right to debit the amount from respondent’s
controversy, commenced by third persons and
account? No, it did not. Since the relationship of the depositor and
communicated in due time to the debtor
the bank are that of creditors and debtors of each other, Article 1278
is applicable.
RELEVANT FACTS
Respondent is a businessman and already a regular-depositor of the
RATIO DECIDENDI
petitioner. September 1990, he deposited a post-dated check in the amount
1. Did the bank have the right to debit the amount from respondent’s
of 101,000. According to the bank, the check was already cleared and account?
credited and that his account had 297,000. Respondent then withdrew
240,000 and a day after deposited 50,000 because he issued several checks No, it did not. Since the relation of the depositor and the bank are that
to his suppliers. of creditors and debtors of each other, Article 1278 is applicable.
His suppliers and business partners contacted him saying that the checks The real issue to be considered is not the actual right of set-off exercised
he issued bounced for insufficiency of funds. Respondent informed the by the bank but the manner it has been exercised. Banks are granted by
petitioner bank to take steps regarding the matter but the bank did not the law to debit the accounts of the depositors but to do so, they must
even offer an apology or even remedy the problem. Respondent then filed exercise the highest degree of care. The degree required of banks is more
a case with the RTC. than that of the diligence of a good father of a family.

Respondent, for he was already considered of good record and reputation
in the community, demanded for moral damages, lost profits and
attorney’s fees from petitioner bank.
PETITIONER alleged that the bank would not give the assurance to any
client that the check had already been cleared and that it takes a substantial
amount of time for a check to be cleared. Additionally, the bank claimed
that it had the right to debit the account of the respondent by reason of
In the petition, the bank did not treat the account of the depositor with
such standard of care and it resulted to damages. The premature
authorization of the bank to withdraw the amount was what caused the
alleged insufficiency in the account of the respondent when he issued his
checks for his suppliers and business partners.
DECISION
The petition is DENIED and the CA’s decision is AFFIRMED.
Respondent is entitled to damages.