Case Digest (G.R. No. 78519)
Facts:
Petitioner Victoria Yau Chu, assisted by her husband, purchased cement on credit from CAMS Trading Enterprises, Inc., and to guarantee payment executed deeds of assignment in favor of CAMS Trading over her time deposits in the Family Savings Bank totaling P320,000. On July 24, 1980, CAMS Trading notified the Bank of her unpaid account and requested that it be allowed to encash the assigned certificates, submitting a letter dated July 18, 1980 from Mrs. Chu admitting an outstanding obligation of P404,500; after verbal advice and her verbal conformity, the Bank encashed the certificates for P283,737.75 (less one certificate lacking proper signatures).
Mrs. Chu demanded restoration of the deposits, and upon noncompliance she filed a complaint in the Regional Trial Court of Makati for recovery. The trial court dismissed the complaint for lack of merit, and the Court of Appeals affirmed in CA-G.R. CV No. 03269, prompting this petition for review.
Issues:
- Whether the encashment of the time deposit certificates was an illegal pacto commissorio under the Civil Code.
- Whether the secured obligation had already been paid, thus making the encashment improper.
Ruling:
The Court denied the petition for review, holding that the encashment was not a prohibited pacto commissorio and was instead a permissible conversion of the pledged money into cash with the debtor’s consent.
The Court further ruled that whether the debt had been paid was a factual matter not proven, and given Mrs. Chu’s July 18, 1980 letter admitting indebtedness and lack of evidence of subsequent payment, the application of the assigned time deposits was proper.
Ratio:
The Court agreed with the Court of Appeals that the deeds of assignment functioned as a contract of pledge, but where the collateral was money (time deposits), “peso for peso,” the rationale for the pacto commissorio prohibition did not apply in the same way. The creditor did not automatically appropriate the pledged property upon maturity; rather, the Bank encashed the certificates after due notice and with Mrs. Chu’s verbal conformity, and the security’s value was not more than the debt.
On the second issue, the Court treated the alleged payment as a question of fact. It noted that the evidence sought to be introduced on appeal consisted of receipts for payments made prior to July 18, 1980, and that Mrs. Chu’s admission of indebtedness on July 18, 1980 at P404,500 stood without proof of later payments reducing or extinguishing the obligation.
Doctrine:
- Pacto commissorio is the automatic appropriation of pledged or mortgaged property by the creditor in payment of the loan upon maturity, and its prohibition under Art. 2088 is meant to protect the obligor against overreaching.
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