Manila Banking Corp.

v Anastacio
Teodoro, Jr. and Grace Teodoro

fishing
boats
and
that
the
Philippine Fisheries Commission
succeeded EEA after itsabolition;

Bidin, J. | 1989
1. April
1966,
Spouses
Teodoro
together with Teodoro Sr executed
a PN in favour of Manila Banking
Corp (MBC);
-

Payable within 120 days (until

Aug),
with
12%
interest
perannum;
They failed to pay and left
balance of 15k as of September
1969;

2. May and June 1966, executed two

PNs;
-

8k and 1k respectively payable

within 120 days and 12% per
annum;
They made partial payment but still
left 8.9k balance as of September
1969;

3. It appears than in 1964, Teodoro Jr

executed a Deed of Assignment of
Receivables in favour of MBC from
Emergency
Employment
Administration;
-

Amounted to 44k;
The deed provided it was for
consideration of certain credits,
loans, overdrafts and other credit
accommodations extended to the
spouses and Teodoro Sr as security
for the payment of said sum and
interest thereon; and that they
release and quitclaim all its rights,
title and interest in the receivables;

4. In the stipulations of fact, it was

admitted by the parties:
-

That MBC extended loans to the

spouses and Teodoro Jr because of
certain contracts entered into by
latter with EEA for fabrication of

That non-payment of the PNs was

due to failure of the Commission to
pay spouses;- That the Bank took
steps
to
collect
from
the
Commission but no collection was
effected;

5. For failure of the spouses and

Teodor Sr to pay, MBC instituted
against them;
-

Teodoro Sr subsequently died so

suit only against the spouses;

6. TC favoured MBC; MFR denied;

- Spouses appealed to CA but since
issue pure question oflaw, CA
forwarded to SC;
Issues:
W/N the assignment of receivables
has the effect of payment of all the
loans contracted by the spouses; No.
W/N MBC must exhaust all legal
remedies against PFC before it can
proceed against the spouses. No
Ratio:
Assignment of credit:
- An agreement by virtue of which the
owner of a credit(assignor) by a legal
cause (e.g. sale, dation in payment,
exchange or donation) and without
the need of the consent of the debtor,
transfers his credit and its accessory
rights to another(assignee) who
acquires the power to enforce it to the
same extent as the assignor could
have enforced it against the debtor;
- May be in form of:

Sale

Dation in payment - when a debtor,

in order to obtain a release from his

debt, assigns to his creditor a

credit he has against a third
person;

Donation when it is by gratuitous

title;

Guaranty creditor gives as a

collateral, to secure his own debt in
favour of the assignee, without
transmitting ownership;

Obligations between the parties

will depend upon the juridical
relation which is the basis of the
assignment;

What is the legal effect of the

Assignment (since its validity is not in
question):
1. Assignment of receivables in 1964
did not transfer the ownership of
the receivables to MBC and release
the spouses from their loans;
- Consideration was for certain credits,
loans,
overdrafts
and
credit
accommodations worth 10k extended by
MBC to spouses and as security for the
payment of said sum and interest
thereon; also quitclaim of rights to MBC
of their interest in the receivables;
- Stipulated also that it was a continuing
guaranty
for
future
loans
and
correspondingly, the assignment shall
extend to all accounts receivable;
Contention of spouses: not mere
guaranty since it was stipulated:
- That the assignor release and
quitclaim to assignee all its rights, title
and
interest
in
the
accounts
receivable;
- That title and right of possession to
account receivable is to remain in
assignee and it shall have right to
collect directly from the debtor; that
whatever the assignor does in
connection with collection of such, it

does so as agent and representative

and in trust of assignee;
- SC: character of transaction is not
determined by the language in
document but by intention of the
parties;
- If it was intended to secure the
payment of money, it must be
construed as a pledge.
- A transfer of property by the debtor
to a creditor, even if sufficient on its
farm
to
make
an
absolute
conveyance, should be treated as a
pledge if the debt continues in
existence and is not discharged by the
transfer;
Assignment of receivables did not
result from sale or by virtue of a
dation in payment;
- At time the deed was executed, the
loans were non-existent yet;
- At most, it was a dation for 10k, the
amount of credit with MBC indicated in
the deed; at the time of execution,
there was no obligation to be
extinguished except for the 10k;
- 1292: in order that an obligation may
be extinguished by another which
substitutes the same, it is imperative
that it be so declared in unequivocal
terms, or that the old and the new
obligations
be
on
every
point
incompatible with each other;
Deed
of
assignment
intended as
collateral security for the loans, as a
continuing guaranty for whatever sums
that would be owing by spouses;
- In case of doubt as to whether a
transaction is a pledge or a dation in
payment, the presumption is in favor of
pledge, the latter being the lesser
transmission of rights and interests
(Lopez v CA);

2. MBC need not exhaust all legal

remedies against PFC:
- Spouses, not being released by the
assignment, remain as the principal
debtors of MBC,rather than mere
guarantors;
- The deed
obligations;

Title moves from assignor to assignee

but that title is defeasible being designed
to collateralize the principal obligation:
-

merely guarantees said

- 2058 (creditor must have exhausted

property of debtor and resorted to all
legal remedies before it can proceed to
guarantor) does not apply to them;
- Appellants are both the principal
debtors and the pledgors or mortgagors;
- MBC did try to collect but at OP, it was
disapproved; so the loan was basically
unsecured;
DISMISSED.
Feliciano, J. concurring:
Justice Bidins, "the character of the
transactions between the parties is not,
however, determined by the language
used in the document but by their
intention not without exception;

Operationally: means assignee is

burdened
to
collateralize
the
principal obligation; taking the
proceeds
of
the
receivables
assigned
and
applying
such
proceeds to the satisfaction of the
principal obligation and returning
any balance remaining thereafter
to the assignor;

The parties gave the deed of assignment

the form of an absolute conveyance of
title over the receivables assigned,
essentially for the convenience of the
assignee:
- Without such nature of absolute
conveyance, the assignee would have to
foreclose the properties; he would have
to comply with documentation and
registration requirements of a pledge or
chattel mortgage);
-

A deed of assignment by way of

security avoids the necessity of a
public sale impose by the rule on
pactum commisorium, by in effect
placing the sale of the collateral up
front;

The foregoing is applicable where

the
deed
of
assignment
of
receivables combines elements of
both a complete alienation of the
credits and a security arrangement
to assure payment of a principal
obligation;

- Words agent also convey the ideas;

- But such must be taken in conjunction

with and qualified by other language
showing intent of the parties that title to
the receivables shall pass to the assignee
for the limited purpose of securing
another, principal obligation owed by the
assignor to the assignee;

Where the 2nd element is absent,

the assignment would constitute
essentially a mode of payment or
dacion en pago;

In order that a deed of assignment

of receivables which is in form an
absolute conveyance of title to the
credits being assigned, may be
qualified and treated as a security

- Deed here contains language which

suggest that the parties intended
complete alienation of title to and rights
over the receivables;- Words remise,
release and quitclaim and clauses
title 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;

arrangement, language to such

effect must be found in the
document itself and that language,
precisely,is embodied in the deed
of assignment in the instant case.