Yau Chu v.

Court of Appeals
G.R. No. L-78519/26 September
1989
Petition for Review on Certiorari
Victoria Yau Chu (assisted by her
husband, Michael) petitioners
Court of Appeals, Family Savings
Bank,
and/or
CAMS
Trading
Enterprises, Inc. respondents
Victoria bought cement from CAMS
and secured her payments with
deeds of assignment over her time
deposits in Family Savings Bank.
She assigned about P320K worth
but her obligations to CAMS came
up
to
about
P404K.
CAMS
requested the bank to encash the
time deposit certificates, which the
bank did only after calling up and
obtaining
Victorias
consent.
Victoria then sued the bank and
CAMS
for
alleged
pactum
commissorium. The Court ruled
against her, as the prohibition on
pactum
commissorium
was
enacted in order to protect debtors
from creditors who automatically
appropriate pledged or mortgaged
property, which might have a
higher value than the debt. Where
the security for the debt is also
money deposited in a bank, the
amount of which is even less than
the debt, it is not illegal for the
creditor to encash the time deposit
certificates to pay the debtors
overdue
obligation,
with
the
latters consent.
Facts:

Since 1980, Victoria Yau Chu had

been purchasing cement on credit
from CAMS. To guaranty payment
for her cement withdrawals, she
executed in favor of CAMS
deeds of assignment of her time
deposits in Family Savings Bank.
The total amount came up to
P320K.Except for serial numbers
and the dates of the time deposit
certificates,
the
deeds
of
assignment prepared by Victorias
lawyer uniformly read:
... That the assignment serves as a
collateral or guarantee for the
payment of my obligation with the
said CAMS TRADING ENTERPRISES,
INC. on account of my cement
withdrawal from said company,
per separate contract executed
between us.

In July 1980, CAMS notified the

bank that Victoria had an unpaid
account with it in the sum of about
P314K
and
requested
the
encashment of the time deposit
certificates assigned to it by
Victoria. As proof, it submitted to
the bank a letter from Victoria
admitting her outstanding account
with CAMS reaching P404.5K. The
bank verbally advised Victoria of
CAMS request and after she
verbally
agreed,
the
bank
encashed the certificates and
delivered about P283Kbecause one
time deposit lacked the proper
signatures.
Victoria then turned around and
demanded that the bank and

CAMS restore her time deposit.

When both refused, she filed a
complaint to recover the sum from
them before the RTC of Makati. The
RTC dismissed the complaint for
lack of merit. Court of Appeals
affirmed. Before the Supreme
Court
she
argued
that
the
encashment of her time deposit
certificates
was
pactum
commissorium.
Issue:
Did
the
encashment
of
Victorias
time
deposit
certificates
amount
to
pactumcommissorium? NO.
Ruling: Petition denied.
Ratio: Since the collateral in this
case was also money, there was
no need to sell the thing pledged
at public auction in order to satisfy
the pledgors obligation. All that
had to be done to convert the
pledgor's time deposit certificates
into cash was to present them to
the bank for encashment after due
notice to the debtor.
The encashment of the deposit
certificates was not a pactum
commissorium as prohibited
under Article 2088 of the
Civil
Code.
A pactum
commissorium is
a provision
for
the
automatic
appropriation of the pledged
or mortgaged property by the
creditor in payment of the loan
upon its maturity.

This prohibition is intended to

protect the obligor, pledgor, or
mortgagor
against
being
overreached by his creditor who
holds a pledge or mortgage over
property whose value is much
more than the debt.
Where, as in this case, the
security for the debt is also
money deposited in a bank,
the amount of which is even
less than the debt, it is not
illegal for the creditor to
encash
the
time
deposit
certificates to pay the debtors
overdue obligation, with the
latters consent.