Yau Chu v CA

GR No. 78519, 26 Sept 1989

FACTS:
1. Petitioner Victoria Yau Chu had been purchasing cement on credit from CAMS Trading
Enterprises. To guaranty payment, she executed deeds of assignment of her time
deposits (P320,000) in the Family Savings Bank in favor of CAMS Trading. The deeds of
assignment were prepared by petitioner’s lawyer stating that:
“x x x. That this 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.”
2. On the other hand, CAMS Trading notified the Bank that Mrs Chu had an unpaid account
(P314,639.75) and asked it to be allowed to encash the time deposit certificates
assigned to it. In doing so, it submitted a letter of Mrs.Chu admitting her outstanding
account.
3. The Bank agreed to encash the certificates after verablly advising Mrs.Chu of CAMS
Trading’s request and deliviered P283,737.75 only (since one of the time deposit
certificates lacked proper signatures).
4. Upon knowing of the encashment, Mrs. Chu demanded the Bank and CAMS Trading to
restore her time deposit but no one complied. Thus, she filed a complaint to recover teh
encashed amount.
5. RTC dismissed the complaint for lack of merit and CA affirmed it.

ISSUE: WON the encashment of the subject time deposit certificates should be annulled for
being pactum commisorium. NO.

RULING:
The encashment of the deposit certificates was not a pacto commissorio which is prohibited
under Art. 2088 of the Civil Code. A pacto commissorio is a provision for the automatic
appropriation of the pledged or mortgaged property by the creditor in payment of the loan
upon its maturity. The prohibition against a pacto commissorio 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 was not illegal for the creditor to encash the time deposit certificates to pay
the debtors’ overdue obligation, with the latter’s consent.

NOTES:
CA found that the deeds of assignment were contracts of pledge, but, as the collateral was
also money or an exchange of “peso for peso,” the provision in Article 2112 of the CC for the
sale of the thing pledged at public auction to convert it into money to satisfy the pledgor’s
obligation, did not have to be followed. 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.

On Mrs. Chu’s contention that she already paid her obligations:

CA found that such was not proven since the receipts for payments submitted by Mrs Chu to
the court was made prior to Jul 18, 1980. The letter she signed admitting her indebtedness
was signed by her on Jul 18, 1980. There is no proof of payment made by her after to reduce
or extinguish her debt.