Pointers In Civil Law Credit Transactions

CIVIL LAW



POINTERS IN CIVIL LAW CREDIT TRANSACTIONS G.R. No. 192371 January 15, 2014 LAND BANK OF THE PHILIPPINES, Petitioner, vs. EMMANUEL OÑATE, 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 Oñate 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

CIVIL LAW



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 Savoie’s 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

CIVIL LAW



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 Savoie’s Petition for Rehabilitation in order that a resolution may be had on how La Savoie’s 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 debtor’s 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

CIVIL LAW



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 BSP’s 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

CIVIL LAW



transferred its rights to BSP. Even if we follow BSP’s 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, BSP’s 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

CIVIL LAW



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 lender’s 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

CIVIL LAW



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 latter’s 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 debtor’s 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

CIVIL LAW



[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.