Introduction

In the Philippines, wage garnishment and the bank’s right of set-off are two legal mechanisms that creditors may use to collect debts. While both involve deductions from a debtor’s income or bank account, they differ in their legal nature, process, and limitations. This article comprehensively examines these two concepts, their governing laws, constitutional and labor protections, and the remedies available to individuals facing salary deductions or bank account debits due to debt obligations.

I. Wage Garnishment in the Philippines

A. Definition

Wage garnishment is a legal process by which a creditor obtains a court order directing an employer to withhold a portion of an employee’s wages to satisfy a debt or judgment. It is a form of judicial execution under Rule 39 of the Rules of Court.

Garnishment applies to “credits and other personal property not capable of manual delivery in the possession or control of third parties” — in this case, the employer (called the “garnishee”) who owes wages to the employee (the “judgment debtor”).

B. Legal Basis

Rule 39, Section 9(c) and Section 15, Rules of Court
Article III, Section 1, 1987 Constitution (due process clause)
Article 1708, Civil Code
Article 113, Labor Code

C. Limitations and Exemptions

Under Article 1708 of the Civil Code, “the laborer’s wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing, and medical attendance.”

Meanwhile, Article 113 of the Labor Code limits deductions from wages to those:

Authorized by law (e.g., withholding tax, SSS, PhilHealth, Pag-IBIG),
Authorized by the employee in writing for a lawful purpose, and
Made through a recognized agency or creditor.

Thus, wage garnishment is heavily restricted. The policy of the State is to protect wages as a means of livelihood. Courts generally prohibit garnishment of salaries unless the case involves support, maintenance, or other special exceptions.

D. Judicial Garnishment vs. Voluntary Deduction

It is important to distinguish between:

Judicial Garnishment: Requires a final court judgment and a writ of execution. Without these, any wage withholding is illegal.
Voluntary Deduction: May occur if the employee authorizes it in writing (e.g., salary loans). However, such authorization must be explicit, specific, and freely given.

II. Bank’s Right of Set-Off (Compensation)

A. Concept

The right of set-off (or compensation) allows a bank to apply the depositor’s funds to pay for his or her loan obligations with the same bank. It is governed by Articles 1278 to 1290 of the Civil Code.

This principle is based on the logic that the bank and depositor are mutual debtors and creditors — the depositor owes the bank for a loan, and the bank owes the depositor for his deposit.

B. Legal Basis

Articles 1278–1290, Civil Code
Bangko Sentral ng Pilipinas (BSP) Circular No. 808, Series of 2013
Banking jurisprudence: Philippine National Bank v. Ritratto Group, Inc., G.R. No. 142616 (2002)

C. Requirements for Valid Set-Off

For a valid set-off:

Both obligations must be due, demandable, and liquidated.
Both parties must be principal debtors and creditors of each other.
There must be no legal or contractual prohibition.

Banks may exercise set-off without court intervention, provided that the account is not exempt (e.g., trust accounts, payroll accounts, or accounts held in fiduciary capacity).

D. Limitations: Payroll Accounts and Trust Deposits

The right of set-off does not extend to funds deposited:

In trust or fiduciary capacity, or
In payroll accounts, since these are not the personal funds of the employee but merely held for the purpose of salary disbursement.

Thus, a bank cannot unilaterally debit an employee’s payroll account to pay a personal loan, as the depositor’s ownership over those funds may be limited or subject to employer control.

III. How to Stop Salary Deductions or Unauthorized Debits

A. Determine the Source of Deduction

If by Employer: Check if there is a written authorization or a valid court order. Absent these, deductions are illegal under Article 113, Labor Code.
If by Bank: Determine whether the bank invoked its right of set-off or if there was a garnishment order served upon it.

B. Remedies Against Unauthorized Wage Garnishment

File a Complaint with DOLE (Department of Labor and Employment) under Article 113 for illegal wage deductions.
File an Injunction or Motion to Quash in the executing court if there is a writ of garnishment without proper basis.
Invoke Wage Exemption under Article 1708, Civil Code.

C. Remedies Against Bank Set-Off

File a written protest with the bank demanding reversal and citing exemption (e.g., payroll funds).
Elevate the matter to the Bangko Sentral ng Pilipinas – Financial Consumer Protection Department under the Financial Products and Services Consumer Protection Act (RA 11765).
File a civil complaint for damages under Article 2176 (quasi-delict) or Article 19 (abuse of rights) of the Civil Code.

D. Preventive Actions

Maintain a separate payroll account exclusively for salaries, distinct from personal or loan accounts.
Avoid cross-collateralization clauses in bank contracts that allow automatic set-off.
Regularly review loan and deposit agreements for set-off provisions or “assignment of deposits” clauses.

IV. Case Law Highlights

Development Bank of the Philippines v. Guariña Agricultural and Realty Development Corp., G.R. No. 160758 (2010): The Supreme Court upheld the bank’s right of set-off provided that both obligations are due and demandable.
Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545 (2007): The Court ruled that a bank cannot set off deposits held in trust or for specific purposes such as payroll accounts.
Mabeza v. NLRC, G.R. No. 118506 (1997): Wages enjoy special protection under the law; any deduction or withholding must comply strictly with Article 113 of the Labor Code.

V. Conclusion

The Philippine legal framework provides strong protection for wages and salaries, recognizing their essential role in sustaining the worker’s livelihood. Wage garnishment is allowed only through a valid court order and within narrow exceptions. Meanwhile, the bank’s right of set-off, though recognized, cannot be exercised over payroll accounts or exempt funds.

Employees facing unauthorized salary deductions or bank debits have multiple remedies — administrative, judicial, and regulatory — to assert their rights. Awareness of these protections and proactive financial management are the best defenses against unlawful deprivation of one’s hard-earned income.