Yau Chu v.
Court of Appeals favor of CAMS deeds of assignment
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 Victoria’s 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 latter’s 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
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
Victoria’s 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 Victoria’s
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 pledgor’s
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 latter’s consent.