041. Yau Chu v.

Court of Appeals
G.R. No. L-78519/26 September 1989/First Division/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
Decision by J. Grino-Aquino, Digest by Pip
Short Version: 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 P283K because 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
pactum commissorium? 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.
Voting: Narvasa, Cruz and Medialdea, JJ., concur.
Gancayco, J., no part.