INSULAR INVESTMENT AND TRUST CORPORATION vs.

CAPITAL ONE
EQUITIES CORP. & PLANTERS DEVELOPMENT BANK
G.R. No. 183308 April 25, 2012
Mendoza, J.

Facts:
Insular Investment and Trust Corporation (Insular), Capital One Equities
Corp., (Capital), and Planters Development Bank (Planters) are regularly
engaged in the trading, sale and purchase of Philippine treasury bills. Insular
purchased from Capital treasury bills which were already fully paid. Capital
also purchased treasury bills from Insular to which Planters issued
confirmations of sale in favour of Insular.
Later, Capital demanded physical delivery of the securities. Insular sent a
letter to Planters requesting the delivery thereof on behalf of Capital.
Considering that Capital and Insurance both have claims against each other for
the deliver of the treasury bills, Capital proposed that a legal set-off be effected.
Insular rejected the suggestion stating that it merely acted as a facilitator
between PDB and COEC.

Issue: Can there be a valid set off between the undelivered Capital Treasury
Bills against the balance of the Insular Treasury bills?

Held:
Yes. There can be valid set-off. The Court, in resolving the matter cited
Article 1279 which states that: In order that compensation may be proper, it is
necessary:

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

The elements are complied with in this case.

(1) Insular acted as a principal in the purchase of treasury bills from
Planters and in the subsequent sale to Capital of theCapital T-
 Bills. Thus, Capital and Insular are principal creditors of each other in
relation to the sale of the Capital and Insular T-Bills.
(2) The Capital T-Bills and the Insular T-Bills are both government securities
which, while having differing interest rates and dates of maturity, have
each been assigned a certain face value to determine their monetary
equivalent.
(3) Both debts are due and demandable.
(4) The debts are also liquidated because their existence and amount are
determined.
(5) There exists no retention or controversy over the COEC T-Bills and the
IITC T-Bills.

Because all the stipulations under Article 1279 are present in this case,
compensation can take place. Capital is allowed to set-off its obligation to
deliver the Insular T-Bills against Insulars obligation to deliver the Capital T-
Bills.