CIVIL

LAW
POINTERS IN CIVIL LAW
CREDIT TRANSACTIONS

G.R. No. 192371 January 15, 2014
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
EMMANUEL OATE, Respondent.
D E C I S I O N
DEL CASTILLO, J
The unilateral offsetting of funds without legal justification and the undocumented
withdrawals are tantamount to forbearance of money. In the analogous case of Estores
v. Supangan,97 we held that "[the] unwarranted withholding of the money which rightfully
pertains to [another] amounts to forbearance of money which can be considered as an
involuntary loan." Following Eastern Shipping Lines, Inc. v. Court of Appeals,98 therefore,
the applicable rate of interest in this case is 12% per annum. Besides, Land Bank is
estopped from assailing the award of 12% per annum rate of interest. In its Complaint,
Land Bank arrived at 8,222,687.89 as the outstanding indebtedness of Oate by using
the same 12% per annum rate of interest. It was only after the lower courts rendered
unfavorable decisions that Land Bank started to insist that the applicable rate of interest
is 6% per annum.

G.R. No. 174240 March 20, 2013

SPOUSES LEHNER and LUDY MARTIRES, Petitioners,

vs.
MENELIA CHUA, Respondent.

D E C I S I O N

PERALTA, J

An equitable mortgage has been defined as one which, although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless
reveals the intention of the parties to charge real property as security for a debt, there
being no impossibility nor anything contrary to law in this intent.30
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One of the circumstances provided for under Article 1602 of the Civil Code, where a
contract shall be presumed to be an equitable mortgage, is "where it may be fairly
inferred that the real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation." In the instant case, it has
been established that the intent of both petitioners and respondent is that the subject
property shall serve as security for the latter's obligation to the former. As correctly
pointed out by the CA, the circumstances surrounding the execution of the disputed Deed
of Transfer would show that the said document was executed to circumvent the terms of
the original agreement and deprive respondent of her mortgaged property without the
requisite foreclosure.

Since the original transaction between the parties was a mortgage, the subsequent
assignment of ownership of the subject lots to petitioners without the benefit of
foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided
for under Article 2088 of the Civil Code.

Pactum commissorium is a stipulation empowering the creditor to appropriate the thing

given as guaranty for the fulfillment of the obligation in the event the obligor fails to live
up to his undertakings, without further formality, such as foreclosure proceedings, and a
public sale.

G.R. No. 168616, January 28, 2015

HOME GUARANTY CORPORATION, Petitioner, v. LA SAVOIE DEVELOPMENT

CORPORATION, Respondent.

D E C I S I O N

LEONEN, J
The Supreme Court (SC) finds the transfer of the Asset Pool to Home Guaranty
Corporation, without going through foreclosure proceedings, to be in violation of the rule
against pactum commissorium.It is worth emphasizing that the present Petition or
Appeal, being a mere offshoot of La Savoies original Petition for Rehabilitation, is not the
act constitutive of forum shopping. Forum shopping was committed not through the filing
of this Appeal but through the filing of Civil Case No. 05314 before the Regional Trial
Court. In any case, apart from this procedural lapse, we find the transfer of the Asset Pool
to Home Guaranty Corporation, without going through foreclosure proceedings, to be in
violation of the rule against pactum commissorium. It is ineffectual and does not divest
La Savoie of ownership. Thus, even if valid payment was made by Home Guaranty
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Corporation on its guaranty, ownership of the properties comprising the Asset Pool was
not vested in it. Accordingly, Home Guaranty Corporation must await the disposition of
La Savoies Petition for Rehabilitation in order that a resolution may be had on how La
Savoies obligations to it shall be settled.
Albeit requiring the intervention of the trustee of the Asset Pool, Sections 13.1 and 13.2
spell out what is, for all intents and purposes, the automatic appropriation by the paying
guarantor of the properties held as security. This is thus a clear case of pactum
commissorium.In this case, Sections 13.1 and 13.2 of the Contract of Guaranty call for
the prompt assignment and conveyance to [Home Guaranty Corporation] of all the
corresponding properties in the Asset Pool that are held as security in favor of the
guarantor. Moreover, Sections 13.1 and 13.2 dispense with the need of conducting
foreclosure proceedings, judicial or otherwise. Albeit requiring the intervention of the
trustee of the Asset Pool, Sections 13.1 and 13.2 spell out what is, for all intents and
purposes, the automatic appropriation by the paying guarantor of the properties held as
security. This is thus a clear case of pactum commissorium. It is null and void. Accordingly,
whatever conveyance was made by Planters Development Bank to Home Guaranty
Corporation in view of this illicit stipulation is ineffectual. It did not vest ownership in
Home Guaranty Corporation. All that this transfer engendered is a constructive trust in
which the properties comprising the Asset Pool are held in trust by Home Guaranty
Corporation, as trustee, for the trustor, La Savoie.

G.R. No. 207747, March 11, 2015

SPOUSES CHIN KONG WONG CHOI AND ANA O. CHUA, Petitioners, v. UNITED
COCONUT PLANTERS BANK, Respondent.

D E C I S I O N

CARPIO, J

An assignment of credit has been defined as an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause such as sale, dation in payment or
exchange or donation and without need of the debtors consent, transfers that credit
and its accessory rights to another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could have enforced it against the debtor.
In every case, the obligations between assignor and assignee will depend upon the judicial
relation which is the basis of the assignment. An assignment will be construed in
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accordance with the rules of construction governing contracts generally, the primary
object being always to ascertain and carry out the intention of the parties. This intention
is to be derived from a consideration of the whole instrument, all parts of which should
be given effect, and is to be sought in the words and language employed.
In an assignment of credit, the vendor in good faith shall be responsible for the existence
and legality of the credit at the time of the sale. In Filinvest Credit Corporation v.
Philippine Acetylene Co., Inc., 111 SCRA 421 (1982), the Court ruled that the assignee did
not acquire the burden of unpaid taxes over the assigned property, since what was
transferred only were the rights, title and interest over the property.

G.R. No. 173864, November 23, 2015

BANGKO SENTRAL NG PILIPINAS, Petitioner, v. AGUSTIN LIBO-ON, Respondent.

D E C I S I O N

REYES, J.
An assignment of credit is an agreement by virtue of which the owner of a credit, known
as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor. It may be in the form of sale, but at
times it may constitute a dation in payment, such as when a debtor, in order to obtain a
release from his debt, assigns to his creditor a credit he has against a third person. As a
dation in payment, the assignment of credit operates as a mode of extinguishing the
obligation; the delivery and transmission of ownership of a thing (in this case, the credit
due from a third person) by the debtor to the creditor is accepted as the equivalent of the
performance of the obligation.
A mortgage credit is a real right, thus, the formality required by law for its transfer or
assignment, i.e., it must be in a public instrument and must be registered and should be
complied with in order to bind third person.BSP is persistent in claiming that there was
a valid assignment of credit by virtue of the promissory note with trust receipt issued by
the Rural Bank of Hinigaran in its favor. However, other than BSPs allegation of
assignment of credit, there was no document denominated as deed of assignment of
credit/mortgage ever presented to show that the Rural Bank of Hinigaran has indeed
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transferred its rights to BSP. Even if we follow BSPs argument that the promissory note
with trust receipt was actually an assignment of credit, the same will still not hold as BSP
failed to comply with the formalities required by law for a valid assignment of credit
involving real property. Indeed, a mortgage credit is a real right, thus, the formality
required by law for its transfer or assignment, i.e., it must be in a public instrument and
must be registered and should be complied with in order to bind third person.
It must be stressed that for a contract of pledge to be valid, it is necessary that: (1) the
pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor be
the absolute owner of the thing pledged; and (3) the person constituting the pledge has
the free disposal of his property, and in the absence thereof, that he be legally authorized
for the purpose.
It is true that the character of the transactions between the parties is not only determined
by the language used in the document but by their intention. It must be stressed,
however, that the intent of the parties to the transaction is to be determined in the first
instance, by the very language which they used. A deed of assignment usually contains
language which suggests that the parties intended to effect a complete alienation of title
to and rights over the receivables which are the subject of the assignment. This language
is comprised of works like remise, release and quitclaim and clauses like the title and
right of possession to said accounts receivable is to remain in said assignee who shall
have the right to collect directly from the debtor. The same intent is also suggested by
the use of the words agent and representative of the assignee in referring to the
assignor. This concept of complete alienation of title and rights in an assignment of credit
is lacking. Thus, in the absence of such absolute conveyance of title to quality as an
assignment of credit, the subject promissory note with trust receipt agreement should be
interpreted as it is denominated. The contract being that of a mere loan, and because
there was no valid assignment of credit, BSPs authority to foreclose the subject property
has no leg to stand on.

G.R. No. 192986, January 15, 2013

ADVOCATES FOR TRUTH IN LENDING, INC. AND EDUARDO B.

OLAGUER, Petitioners, v. BANGKO SENTRAL MONETARY BOARD, REPRESENTED BY ITS
CHAIRMAN, GOVERNOR ARMANDO M. TETANGCO, JR., AND ITS INCUMBENT
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MEMBERS: JUANITA D. AMATONG, ALFREDO C. ANTONIO, PETER FAVILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE AND CESAR V. PURISIMA, Respondents.

D E C I S I O N

REYES, J.:

Stipulations authorizing iniquitous or unconscionable interests have been invariably

struck down for being contrary to morals, if not against the law. In a usurious loan with
mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by
the creditor upon failure by the debtor to pay the debt due. The debt due is considered
as without the stipulated excessive interest, and the legal interest of 12% per annum will
be added in place of the excessive interest formerly imposed. It is settled that nothing in
CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets.
As held in Castro v. Tan, 605 SCRA 231 (2009): The imposition of an unconscionable rate
of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and
unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained within the sphere of public
or private morals. Stipulations authorizing iniquitous or unconscionable interests have
been invariably struck down for being contrary to morals, if not against the law. Indeed,
under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab
initio, and therefore cannot be ratified, nor may the right to set up their illegality as a
defense be waived. Nonetheless, the nullity of the stipulation of usurious interest does
not affect the lenders right to recover the principal of a loan, nor affect the other terms
thereof. Thus, in a usurious loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon failure by the debtor to pay
the debt due. The debt due is considered as without the stipulated excessive interest, and
a legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed.

G.R. No. 194664, June 15, 2016

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FLORITA LIAM, Petitioner, v. UNITED COCONUT PLANTERS BANK, Respondent.

D E C I S I O N

REYES, J.:

An assignment of credit is an agreement by virtue of which the owner of a credit, known

as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor. It may be in the form of sale, but at
times it may constitute a dation in payment, such as when a debtor, in order to obtain a
release from his debt, assigns to his creditor a credit he has against a third person.
Simply, an assignment of credit is the process of transferring the right of the assignor to
the assignee who would then have the right to proceed against the debtor. The
assignment may be done either gratuitously or onerously, in which case, the assignment
has an effect similar to that of a sale.
Subrogation is a process by which the third party pays the obligation of the debtor to the
creditor with the latters consent. As a consequence, the paying third party steps into the
shoes of the original creditor as subrogee of the latter. It results in a subjective novation
of the contract in that a third person is subrogated to the rights of the creditor. The crucial
distinction between assignment and subrogation actually deals with the necessity of the
consent of the debtor in the original transaction. In an assignment of credit, the consent
of the debtor is not necessary in order that the assignment may fully produce legal effects.
What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him as the assignment takes effect only from the time he has knowledge
thereof. A creditor may, therefore, validly assign his credit and its accessories without the
debtors consent. Meanwhile, subrogation requires an agreement among the three
parties concerned the original creditor, the debtor, and the new creditor. It is a new
contractual relation based on the mutual agreement among all the necessary parties.

G.R. No. 181163, July 24, 2013

ASIAN TERMINALS, INC., Petitioner, v. PHILAM INSURANCE CO., INC. (NOW CHARTIS
PHILIPPINES INSURANCE, INC.), Respondent.

R E S O L U T I O N
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[G.R. NO. 181262]

R E S O L U T I O N

PHILAM INSURANCE CO., INC. (NOW CHARTIS PHILIPPINES INSURANCE,

INC.), Petitioner, v. WESTWIND SHIPPING CORPORATION AND ASIAN TERMINALS,
INC., Respondents.

R E S O L U T I O N

[G.R. NO. 181319]

R E S O L U T I O N

WESTWIND SHIPPING CORPORATION, Petitioner, v. PHILAM INSURANCE CO., INC.

(NOW CHARTIS PHILIPPINES INSURANCE, INC.) AND ASIAN TERMINALS,
INC., Respondents.

D E C I S I O N

VILLARAMA, JR., J.:

A letter of credit is a financial device developed by merchants as a convenient and

relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable
interests of a seller, who refuses to part with his goods before he is paid, and a buyer,
who wants to have control of his goods before paying. However, letters of credit are
employed by the parties desiring to enter into commercial transactions, not for the
benefit of the issuing bank but mainly for the benefit of the parties to the original
transaction, in these cases, Nichimen Corporation as the seller and Universal Motors as
the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as
the person entitled to delivery of the goods. Accordingly, for purposes of reckoning when
notice of loss or damage should be given to the carrier or its agent, the date of delivery
to Universal Motors is controlling.