The International Corporate Bank v. The Intermediate Appellate Court

Summary

International Corporate Bank sought to set off a borrower's money market investment proceeds (P1,062,063.83) against an alleged loan deficiency (P6.81 million) arising from foreclosed mortgage properties. The Supreme Court affirmed lower courts' rejection of the set-off, ruling that legal compensation under the Civil Code requires both debts to be liquidated and demandable. Since the bank's deficiency claim remained disputed due to a pending case challenging the foreclosure sale's validity, compensation could not occur by operation of law. The Court emphasized that compensation cannot extend to unliquidated, disputed claims arising from breach of contract, and applied liberal construction of procedural rules to achieve substantial justice.