Other Collaterals - Deposit as Security

G.R. Nos.60705 and 60907 - Integrated Realty Corp v.PNP

Regalado, J.

Santos, President of IRC, made two time deposits with OBM for a total of 700k. IRC applied for a loan with PNB and executed a deed of
assignment of the two time deposits as security in favor of PNB. OBM failed to pay PNB upon the maturity of the time deposits. PNB filed a
complaint against IRC and Santos for the amount of the loan but IRC alleged that there obligation to PNB has been extinguished upon the
irrevocable assignment of the time deposit certificates. SC held that the liability of IRC to PNB cannot be deemed to have been paid upon the
execution of the deed of assignment with PNB.

FACTS
1. Pet. Raul L. Santos made two time deposits with defendant Overseas Bank of Manila (OBM) in the amount of P 500,000.00 and P200,000
for which he was issued certificates of Time Deposit.
2. Pet. IRC through its President Raul Santos, applied for a loan and/or credit line in the amount of P 700,000.00 with PNB. To secure the said
loan, Santos executed on August 11, 1967 a Deed of Assignment of the two time deposits in favor of PNB.
3. Defendant OBM gave its conformity to the assignment and IRC through Santos, also executed a Deed of Conformity to Loan Conditions.
4. OBM after the due dates of the time deposit certificates, did not pay PNB. PNB demanded payment from defendants IRC Santos and from
OBM. IRC and Santos replied that the obligation of IRC was deemed paid with the irrevocable assignment of the time deposit certificates.
5. PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest and attorney's fees. It impleaded OBM as a
defendant to compel it to redeem and pay to it Santos' time deposit certificates with interest, and damages.
6. In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them because their obligation to
PNB was fully paid or extinguished upon the' irrevocable' assignment of the time deposit certificates, and that they are not
answerable for the insolvency of OBM.
7. They filed a counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay
the time deposit certificates to PNB resulting in the filing of the suit against them by PNB, and therefore, OBM should pay them whatever
amount they may be ordered by the court to pay PNB with interest plus damages.
8. OBM’s filed its Answer acknowledging the certificates of time deposits but alleged that by reason of its state of insolvency, its oper ations
have been suspended by the Central Bank since August 1, 1968; that the time deposits ceased to earn interest from that date; that it may
not give preference to any depositor or creditor; and that payment of the plaintiffs claim is prohibited.
9. RTC: Ordered IRC to pay PNB P700,000 with interest from the maturity of the promissory notes, and for OBM to pay IRC and Santos
whatever the latter pays to PNB.
10. CA: Deleted the portion ordering OBM to pay IRC and Santos. Hence this petition.

ISSUE with HOLDING

1. W/N the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment made by the
former in favor of PNB - NO.
 It would not have been necessary on the part of IRC and Santos to execute promissory notes in favor of PNB if the assignment of the
time deposits of Santos was really intended as an absolute conveyance.
 For all intents and purposes, the deed of assignment in this case is actually a pledge.
o Lopez v. CA: The character of the transaction between the parties is to be determined by their intention, regardless of what language
was used or what the form of the transfer was… a transfer of property by the debtor to a creditor, even if sufficient on its
face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not
discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will
not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances
excluding an intent to pledge.
o There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. The
trial court’s bases were that:
 a. It is clear from the Deed of Assignment that it was only by way of security;
 b. The promissory notes were executed on August 16, 1967. If defendants IRC and Raul L. Santos, upon executing the Deed
of Assignment on August 11, 1967 had already paid their loan of P 700,000.00 or otherwise extinguished the same, why were
the promissory notes made on August 16, 1967 still executed by IRC and signed by Raul L. Santos as President?
 c. In the application for a credit line the time deposits were offered as collateral.
o The deed of assignment has satisfied the requirements of a contract of pledge:
(1) that it be constituted to secure the fulfillment of a principal obligation;
(2) that the pledgor be the absolute owner of the thing pledged;
(3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
o The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common
agreement was complied with by the execution of the deed of assignment in favor of PNB.
 It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding
balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders
or decisions of the court or for any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation
involved in the present case.
 The unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding
interest thereon.

DISPOSITIVE PORTION
WHEREFORE, judgment is hereby rendered, ordering:

1
1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and severally, the total amount of seven hundred
thousand pesos (P 700,000.00), with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of the two promissory
notes on January 11 and February 6, 1968, respectively, plus one and one-half percent (1-1/2%) additional interest per annum effective February
28, 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven hundred thousand pesos (P 700,000.00)
from the time of maturity of said loan up to the time the said amount of seven hundred thousand pesos (P 700,000.00) is fully paid to Philippine
National Bank

OTHER NOTES
Deed of Assignment
KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St.,
Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit accommodations granted or those that may hereafter be
granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred and conveyed and by these presents, do hereby assign,
transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time
Deposit issued by the OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex ' A', in favor of
RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS
ONLY (P 700,000.00), Philippine Currency, ....
xxx xxx xxx
It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his/their obligation if the Bank is unable to
actually receive or collect the above assigned sums , monies or properties resulting from any agreements, orders or decisions of the court or for
any other cause whatsoever.