Manila Banking vs Teodoro January 13,

1989
Plaintiff Appellee: Manila Banking
CorporationDefendants

Appellants:
Anastacio Teodoro Jr and Anna Teodoro
FACTS:
1. April 1966, Defendants Spouses
Teodoro together with Teodoro Sr jointly
and severally, executed in favor of
plaintiff a promissory note for the sum
of P10,420 in favour of Manila Banking
Corp (MBC);
2. Defendants failed to pay the said
amount inspite of repeated demands
and the obligation as of September 30,
1969 stood at P 15,137.11.

3. On May and June 1966 the defendants

executed in favor of MBC another two
PNS for P8,000 and P1,000. They
made partial payment but still left
P8,934.74 as of September 30, 1969.

4. It appears that the Son executed in

favor of plaintiff a Deed of Assignment
of Receivables from the Emergency
Employment Administration (EEA) in
the sum of P44,635.00.

5.

The Deed of Assignment provided that

it was for and in consideration of certain
credits, loans, overdrafts and other
credit accommodations extended to the
souses as security for the payment of
said sum and the interest thereon,

6. And that defendants do hereby remise,

release and quitclaim all its rights, title,
and interest in and to the accounts
receivables. Further, title to the AR
(Assignment of Receivables) is to
remain in the assignee

7. 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 fishing boats
and that the Philippine Fisheries
Commission succeeded EEA after its
abolition;

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;
6. TC favoured MBC; MFR denied;
- Spouses appealed to CA but since
issue pure question oflaw, CA
forwarded to SC;
Issue:
W/N the assignment of receivables has the
effect of payment of all the loans
contracted by 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):

- 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;

1. Assignment of receivables in 1964 did

not transfer the ownership of the
receivables to MBC and release the
spouses from their loans;

- 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;

- 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;

- 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;

- Stipulated also that it was a continuing

guaranty for future loans and correspondingly,
the assignment shall extend to all accounts
receivable;

Deed of assignment intended as collateral

security for the loans, as a continuing guaranty
for whatever sums that would be owing by
spouses;

Contention of spouses: not mere guaranty

since it was stipulated:

- 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);

- 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;

OPTIONAL:
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;

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 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.