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AGUINALDO, as Judge of RTC Makati,

NATIVIDAD FAJARDO, and SILVINO PASTRANA, as Deputy and Special Sheriff, respondents.
G.R. No. L-69560
June 30, 1988

Fajardo Atrium Capital Corp = predecessor-in-interest
Int’l Corporate Bank (ICBI) = successor-in-interest = petitioner
 1980 - Respondent (Natividad Fajardo) applied for P50M loan from petitioner ICBI’s predecessor-in-interest (Atrium Capital Corp.). To
secure loan, Fajardo mortgaged her real properties in Quiapo, and Bulacan.
 Of this loan, only the amount of P20M was approved for release by Atrium Capital (now ICBI). The same amount was applied to pay her
other obligations to Atrium Capital, bank fees, etc, and because of this Fajardo claims she did not receive anything from the loan.
 Fajardo also made a money market investment with Atrium Capital for P1,046,253.77.

 Meanwhile, Fajardo failed to pay her mortgaged indebtedness.

 Due to this, Atrium Capital refused to pay the proceeds of the money market placement, and applied the amount to the deficiency in the
proceeds of the auction sale of Fajardo’s mortgaged properties.

 Fajardo filed complaint against ICBI for annulment of sale of the mortgaged properties + release to her the balance of her loan
+ recovery of P1,062,063.83 representing the proceeds of her money market investment.
 ICBI said that after foreclosing the mortgage, there is still due from Fajardo the amount of P6.81M against which it has the right to
compensate Fajardo's money market claim of P1,062,063.83.
 Fajardo contended that the mortgage is not yet due and demandable, and accordingly the foreclosure was illegal; that she is entitled to
the proceeds of her money market placement as it has long become due and payable.

 In the same case, Fajardo filed motion to order ICBI to release in her favor sum of P1,062,063.83, representing the proceeds of the
money market placement.
 Trial Court: ruled in favour of Fajardo; ordered ICBI to deliver to Fajardo the amount of P1,062,063.83, conditioned upon the Fajardo
filing a bond amount to P1,062,063.83 to answer for all damages which ICBI may suffer in event that Court should finally decide that
Fajardo was not entitled to said amount.
 CA: ruled in favour of Fajardo; dismissed petition for certiorari filed by ICBI
(b) that circumstances of this case prevent legal compensation from taking place because the question of whether Fajardo is indebted to
ICBI in amount of P6.81M representing the deficiency after the foreclosure of mortgage is vigorously disputed by Fajardo
(d) that release of proceeds of the money market investment to Fajardo will not make the causes of action of the case pending before
trial court moot and academic nor will it cause irreparable damage to ICBI, since Fajardo filed bond of P1,062,063.83 in the event that
court finally decide that Fajardo is not entitled to said amount
 ICBI filed petition for certiorari with SC.

ISSUE: WoN there can be legal compensation. --NO

ICBI averred: Legal compensation can be applied. Fajardo cannot recover proceeds from her money market investment + balance of her
loan, since after foreclosing the mortgage, there is still due from Fajardo as deficiency the amount of P6.81 million against which it has the
right to apply or set off Fajardo's money market claim.
Court ruled (with Fajardo):
 Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code).
 "When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even
without the consent or knowledge of the debtors." Article 1279 of the Civil Code requires among others, that in order that legal
compensation shall take place, "the two debts be due" and "they be liquidated and demandable."
 Conversely, compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from breach of contract.

In this case –
 There can be no doubt that ICBI is indebted to Fajardo in the amount of P1,062,063.83 representing the proceeds of Fajardo’s money
market investment. This is admitted.
 But whether Fajardo is indebted to ISBI in the amount of P6.81M representing the deficiency balance after the foreclosure of the
mortgage executed to secure the loan extended to her is vigorously disputed. This circumstance prevents legal compensation from
taking place.
o The Civil Case for annulment of Sheriffs sale on foreclosure of Fajardo's property from which the alleged deficiency arose is still
pending at RTC Manila. Therefore, the validity of the extrajudicial foreclosure sale and ICBI's claim for deficiency are still in
question, so much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated and demandable has
not yet been met. For this reason, legal compensation cannot take place.

PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of Appeals are hereby AFFIRMED. SO ORDERED.