G.R. No. L-78519 September 26, 1989
VICTORIA YAU CHU, assisted by her husband MICHAEL CHU, petitioners, vs. HON. COURT OF APPEALS, FAMILY SAVINGS BANK and/or CAMS TRADING ENTERPRISES, INC., respondents.

FACTS

Petitioner Victoria Yau Chu had been purchasing cement on credit from respondent CAMS Trading Enterprises, Inc. To guarantee payment, she executed deeds of assignment covering her time deposit certificates totaling P320,000 with respondent Family Savings Bank. The deeds, prepared by her own lawyer, explicitly stated the assignment served as collateral for her cement withdrawal obligations. On July 24, 1980, CAMS Trading notified the bank of Chu’s unpaid account of P314,639.75 and requested to encash the assigned certificates, submitting a July 18, 1980 letter from Chu admitting an outstanding debt of P404,500.
The bank verbally advised Chu of the request and obtained her verbal conformity before proceeding to encash the certificates, delivering P283,737.75 to CAMS Trading (one certificate was incomplete). Subsequently, Chu demanded the restoration of her time deposit. Upon refusal, she filed a complaint to recover the amount from the bank and CAMS Trading. The trial court dismissed her complaint, a decision affirmed by the Court of Appeals.

ISSUE

Whether the encashment of the time deposit certificates constituted a prohibited pactum commissorium and whether the secured obligations had already been paid.

RULING

The Supreme Court denied the petition, affirming the appellate court’s decision. The legal logic is twofold. First, the deeds of assignment were properly construed as contracts of pledge. However, since the pledged collateral was money itself (time deposit certificates), the usual requirement under Article 2112 of the Civil Code to sell the pledged thing at public auction was inapplicable. Converting the pledge to cash merely required presentation to the bank for encashment after notice to the debtor. This act did not constitute a pactum commissorium prohibited under Article 2088, which involves the creditor’s automatic appropriation of the property upon loan maturity. The prohibition aims to prevent overreach when the property’s value exceeds the debt. Here, the security was money of a lesser value than the debt, and the encashment was done with the debtor’s consent, rendering it lawful.
Second, the Court upheld the factual finding that the debt had not been extinguished. Chu’s allegation of payment was unsubstantiated. Her own July 18, 1980 letter admitted a substantial indebtedness, and she presented no proof of payments made after that date to reduce the obligation. Consequently, the application of her assigned time deposits to settle the debt was proper. The Court of Appeals committed no reversible error.