Estate of Litton v Mendoza and CA | 1998

CMB Products (with Mendoza as president)offered to sell textile cotton materials to the Bernal
spouses (engaged in manufacture of embroidery, garments and cotton materials);-For this
purpose, Mendoza introduced the spouses to Alfonso Tan;2.The spouses purchased on credit
from Tan cotton materials (80k);-Mendoza guaranteed the payment of the debt;3.Tan then
delivered the cotton materials to thespouses;4.In view of the arrangement, CBM Products (thru
Mendoza) asked for and received a post-dated check(Feb 20, 1964) for the payment of the
spouses’ debt; -It was understood that Mendoza will retain the check until the cotton materials
are finally manufactured into garments, after which Mendoza will sell the finished products for
thespouses;5.Meanwhile, the check matured without having been cashed so Mendoza
demanded for another check without a date;6.Feb. 28, 1964, Mendoza issued two checks in
favour of Tan (worth 80k);-
He told the spouses of the same and told them they are indebted to him and asked the spouses
to sign an instrument whereby Mendoza assigned the said amount to Insular Products,
Inc.;7.Tan had the two checks discounted but were later returned with words ‘stop payment’;
It appears it was ordered by Mendoza for failure of the spouses to deposit sufficient funds for
the check issued by the spouses in his favour;8.Tan sued Mendoza while the spouses brought
an action for interpleader for not knowing whom to pay;- Pendente lite, Tan assigned in favour
of Littion, Srhis litigatious credit (in action of spouses) against Mendoza, duly submitted to the
court, with notice to the parties;9.TC ordered Mendoza to pay Tan 76k;-CA affirmed (1977);10.
Meanwhile, in 1971, Mendoza entered into Compromise Agreement with Tan wherein the
latter recognized that his claims against Mendoza had been settled and because of that, both
waives any claim against the other; with a provision that it no way affects Tan’s right to go
against the spouses;11.1977 (after CA’s decision), Mendoza filed MFR sayingthat there was the
compromise agreement which absolved him from liability;- Tan opposed this saying the
Compromiseagreement was null and void because of the deed of assignment executed in
favour of Litton, Sr.;he says that with such, he has no more right to alienate said credit;12.
CA then approved the compromise agreement:-It said that the assignment was by way
of securing only his obligation to Litton, Sr.;- Thus, Tan retained possession and dominion over
the credit (2085);- Although considered as a litigatious credit, such may be validly alienated by
Tan; such alienation is subject to the remedies of Litton under 6 of CC whereby, the assignment
if proven prejudicial to Litton, may entitle Littion to pursue his remedies against Tan;-
The alienation of a litigatious credit is further
subject to the debtor’s right of redemption under
1634;
W/N compromise valid. No.Ratio:1.Purpose of compromise: to replace and
terminatecontroverted claims; once approved, it has the forceof res judicata (except for vices
of consent or forgery);-Petitioner seeks to set aside the compromise agreement since prior
thereto, Tan executed a deed of assignment in favour of Littion, Sr. involving the same litigated
credit;2.

Compromise Agreement set aside:-

Fact that assignment was done by way of
securing Tan’s obligation in favour of Littion, Sr.does not affect the resolution of the matter;-
Validity of pledge/guaranty in favour of Liiton hasnot been questioned;Deed of assignment
fulfils the requirements of a validpledge or mortgage;- Although Tan may validly alienate the
litigatiouscredit (1634), it does not give him (assignor/Tan)absolute right to indiscriminately
dispose of thething;- Said provision (1634) should be read inconsonance with 2097; although
thepledgee/assignee (Litton, Sr.) did not becomeipso facto become the creditor of Mendoza,
thepledge being invalid, the incorporeal rightassigned by Tan in favour of Mendoza can only
bealienated by Tan with due notice to and consentof Litton, Sr. or his duly
authorizedrepresentative;-

To allow it would render nugatory the verypurpose of a pledge or an assignment of credit;-

Also, under 1634, the debtor has thecorresponding obligation to reimburse theassignee, for
the price he paid or for the valuegiven as consideration for the deed of assignment; failing here,
the compromiseagreement does not bind the assignee;Notes:-From the very beginning,
Mendoza was, from thevery beginning, aware of the deed of assignment;as it was submitted to
the court where CBM wasone of the defendants;- Having such knowledge, Mendoza is
estoppedfrom entering into the compromise agreementnvolving the same litigate credit
without notice toand consent of the assignee;-

Mendoza acted in bad faith and in connivancewith assignor Tan to defraud Littion, Sr.
inentering in the compromise agreement;

ESTATE OF LITTON V. MENDOZA & CA, (1988)

Pledge: Ownership of Collateral, Art. 2103, Art. 2102, Art. 2101, Art. 1951, Art. 2108, Art. 2112, Art. 2097
(see full text for the facts)

The fact that the deed of assignment was done by way of securing or guaranteeing Tan's obligation in favor of George
Litton, Sr., as observed by the appellate court, will not in any way alter the resolution on the matter. The validity of the
guaranty or pledge in favor of Litton has not been questioned. Our examination of the deed of assignment shows that
it fulfills the requisites of a valid pledge or mortgage.

Rule
Although it is true that Tan may validly alienate the litigatious credit as ruled by the appellate court, citing Article 1634
of the Civil Code, said provision should not be taken to mean as a grant of an absolute right on the part of the assignor
Tan to indiscriminately dispose of the thing or the right given as security. The Court rules that the said provision should
be read in consonance with Article 2097 of the same code. Although the pledgee or the assignee, Litton, Sr. did not ipso
facto become the creditor of private respondent Mendoza, the pledge being valid, the incorporeal right assigned by Tan
in favor of the former can only be alienated by the latter with due notice to and consent of Litton, Sr. or his duly
authorized representative. To allow the assignor to dispose of or alienate the security without notice and consent of the
assignee will render nugatory the very purpose of a pledge or an assignment of credit.

Moreover, under Article 1634, the debtor has a corresponding obligation to reimburse the assignee, Litton, Sr. for
the price he paid or for the value given as consideration for the deed of assignment. Failing in this, the alienation of the
litigated credit made by Tan in favor of private respondent by way of a compromise agreement does not bind the
assignee, petitioner herein.

Note: Private respondent has, from the very beginning, been fully aware of the deed of assignment executed by Tan in
favor of Litton, Sr. Having such knowledge thereof, private respondent is estopped from entering into a compromise
agreement involving the same litigated credit without notice to and consent of the assignee petitioner herein. More so,
in the light of the fact that no reimbursement has ever been made in favor of the assignee as required under Article
1634. Private respondent acted in bad faith and in connivance with assignor Tan so as to defraud the petitioner in
entering into the compromise agreement.

MANILA BANKING CORPORATION V. TEODORO, JR. AND TEODORO, (1989). (INCLUDE

CONCURRING OPINION)
Pledge: Right to Payment, Art. 2102, Art. 2118
The assignment of receivables executed by appellants did not transfer the ownership of the receivables to appellee bank
and release appellants from their loans with the bank incurred under promissory notes.

The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts, and their
credit accommodations extended to appellants by appellee bank, and as security for the payment of said sum and the
interest thereon; that appellants as assignors, remise, release, and quitclaim to assignee bank all their rights, title and
interest in and to the accounts receivable assigned. It was further stipulated that the assignment will also stand as
a continuing guaranty for future loans of appellants to appellee bank and correspondingly the assignment shall also
extend to all the accounts receivable; appellants shall also obtain in the future, until the consideration on the loans
secured by appellants from appellee bank shall have been fully paid by them.

The position of appellants, however, is that the deed of assignment is a quitclaim in consideration of their indebtedness
to appellee bank, not mere guaranty, in view of the following provisions of the deed of assignment:
... the Assignor do hereby remise, release and quit-claim unto said assignee all its rights, title and interest in the
accounts receivable described hereunder. (Emphasis supplied by appellants, first par., Deed of Assignment).

... that the title and right of possession to said account receivable is to remain in said assignee and it shall have the right
to collect directly from the debtor, and whatever the Assignor does in connection with the collection of said accounts,
it agrees to do so as agent and representative of the Assignee and it trust for said Assignee.

The character of the transactions between the parties is not, however, determined by the language used in the document
but by their intention. Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be
said to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by
promissory note which are the subject of the suit for collection in a Civil Case. At the time the deed of assignment was
executed, said loans were non-existent yet. Obviously, the deed of assignment was intended as collateral security for
the bank loans of appellants, as a continuing guaranty for whatever sums would be owing by defendants to plaintiff, as
stated in stipulation No. 9 of the deed.

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 need of the consent of the debtor,
transfers his 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.

CHU V. COURT OF APPEALS ET AL., 1989

Pledge: Right to Payment, Art. 2102, Art. 2118

As the collateral was also money or an exchange of "peso for peso," the provision in Article 2112 of the Civil Code for
the sale of the thing pledged at public auction to convert it into money to satisfy the pledgor's obligation, did not have
to be followed. All that had to be done to convert the pledgor's time deposit certificates into cash was to present them
to the bank for encashment after due notice to the debtor.

CITIBANK, N.A. & INVESTOR FINANCE CORPORATION V. SABENIANO, (2006)

Pledge: Right to Payment, Art. 2102, Art. 2118

The liquidation of respondent’s outstanding loans were valid in so far as petitioner Citibank used respondent’s savings
account with the bank and her money market placements with petitioner FNCB Finance; but illegal and void in so
far as petitioner Citibank used respondent’s dollar accounts with Citibank-Geneva.
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondent’s
dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation
under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and
separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for
the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these
transactions were evidently not the principal creditor of each other.

Therefore, this Court declares that the remittance of respondent’s dollar accounts from Citibank-Geneva and the
application thereof to her outstanding loans with petitioner Citibank was illegal, and null and void.

CITIBANK AND INVESTORS FINANCE CORPORATION VS MODESTA SABENIANO

G.R. NO. 156132
OCTOBER 16, 2006
FACTS: Modesta Sabeniano is a client of Citibank and FNCB Finance. On February 1978,
Sabeniano obtained a loan of Php 200,000 from Citibank. This loan was followed with several
other loans – some were paid, while some were not. Those that were not paid upon maturity
were rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as of September 1979.
These loans were secured by Sabeniano’s money market placements with FNCB Finance
through a Deed of Assignment plus a Declaration of Pledge which states that all present and
future fiduciary placements held in her personal and/or joint name with Citibank
Switzerland, will secure all claims that Citibank may have or, in the future, acquire against
her.
The Deeds of Assignment were duly notarized, while the Declaration of Pledge was not
notarized and Citibank’s copy was undated, while that of Sabeniano bore the date, September
24, 1979.
Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to
request payment. Her total unpaid loan initially amounted to Php 2,123,843.20 (inclusive of
interests).
Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of
Sabeniano’s money market placement from FNCB Finance which totaled Php 1,022,916.66
and her deposits with Citibank which totaled Php 31,079.14 to set-off her loan.
This reduced the unpaid balance to Php 1,069,847.40 as previously mentioned. Since the
loan remains unpaid, Citibank proceeded to execute the Declaration of Pledge and remitted
a total of $149,632.99 from Sabeniano’s Citibank-Geneva accounts to off-set the loan.
Sabeniano then filed a complaint against Citibank for damages and specific performance (for
proper accounting and return of the remitted proceeds from her personal accounts). She also
contended that the proceeds of 2 promissory notes (PN) from her money market placements
with Citibank were rolled over or reinvested into the petitioner bank, and these should also
be returned to her.
Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank
was ordered to return the $149,632.99 to Sabeniano’s Citibank-Geneva account with a legal
interest of 12% per annum. The RTC also ordered Sabeniano to pay her outstanding loan to
Citibank without interests and penalty charges.
Both parties appealed to the CA which affirmed the RTC’s decision, but further ruled entirely
in favor of Sabeniano – holding that Citibank failed to establish her indebtedness and that all
the executed deeds should be returned to her account. The case has now reached the
Supreme Court.
ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan
was valid and legal.
HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as
this was properly documented and sufficient in evidence. Thus, the execution of deeds was
valid, especially that the agreement was duly notarized, signed and prepared in accordance
with the law.
The court also ordered Citibank to return the amount of P318,897.34 and P203,150.00 plus
14.5% per annum to Sabeniano. This is the total amount from the 2 PNs which were executed
despite being reinvested in said bank. The bank was also ordered to pay moral damages of
P300,000, exemplary damages for P250,000, attorney’s fees of P200,000.
The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity,
Citibank cannot exercise automatic remittance from Sabeniano’s Citibank Geneva account to
off-set her outstanding loan.
The court also noted that the pledge was filled out irregularly – it was not notarized and
Citibank’s copy bore no date. The original copy was not also produced in court.
Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered
her to pay the remaining balance of her loan which amounts to P1,069,847.40 as of 5
September 1979. These loans continue to earn interest based on the maturity date that were
agreed and stipulated upon by the parties.

PARAY & ESPELETA V. RODRIGUEZ, ET AL., (2006)

Right of Redemption

Issue: WON the pledged shares of stock auctioned off in a notarial sale could still be redeemed by their owners.

The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more
precisely execution sales of real property.

Does the right of redemption exist over personal property? No law or jurisprudence establishes or affirms
such right. Indeed, no such right exists.

The right to redeem property is a bare statutory privilege to be exercised only by the persons named in the statute.

The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended.
The said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which
vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could
have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that
law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point.
And Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly
utters that the right of redemption applies to real properties, not personal properties, sold on execution.

Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the
foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.

Issue #2: The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares, notwithstanding
the fact that these shares were owned by several people, on the premise the pledgors would be denied the opportunity
to know exactly how much they would need to shoulder to exercise the right to redemption.

Held: Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be
sold separately, such as in the case of lot sales for real property under Section 19. However, these instances again pertain
to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged
properties sold at auction be sold separately.

On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which
of the items should be sold if two or more things are pledged. No similar option is given to pledgors under the Civil
Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that
prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single
occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price.
The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in
the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency
or excess there may be between the purchase price and the amount of the principal obligation.

A different ruling though would obtain if at the auction, a bidder expressed the desire to bid on a determinate number
or portion of the pledged shares. In such a case, there may lie the need to ascertain with particularity which of the shares
are covered by the bid price, since not all of the shares may be sold at the auction and correspondingly not all of the
pledge contracts extinguished. The same situation also would lie if one or some of the owners of the pledged shares
participated in the auction, bidding only on their respective pledged shares.

Issue #3: Whether the consignations made by respondents extinguished their respective pledge contracts in favor of
the Parays so as to enjoin the latter from auctioning the pledged shares.

Held: There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article
2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until
the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing
pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right
of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in
due time, the creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of
the Code.

Section 18, Rule 39 provides that the judgment obligor may prevent the sale by paying the amount required by the
execution and the costs that have been incurred therein. However, the provision applies only to execution sales, and
not extra-judicial sales, as evidenced by the use of the phrases “sale of property on execution” and “judgment obligor.”

SPOUSES PARAY vs RODRIGUEZ Case Digest G.R. No. 132287, January 24, 2006 SPOUSES
BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners, vs. DRA. ABDULIA C.
RODRIGUEZ, MIGUELA R. JARIOL assisted by her husband ANTOLIN JARIOL, SR., LEONORA
NOLASCO assisted by her husband FELICIANO NOLASCO, DOLORES SOBERANO assisted by her
husband JOSE SOBERANO, JR., JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R.
SORONIO assisted by her husband ALFONSO SORONIO, Respondents.
Facts: Respondents were the owners, in their respective personal capacities, of shares of stock
in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Respondents secured by
way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray
(“Parays”) the payment of certain loan obligations. When the Parays attempted to foreclose the
pledges on account of respondents’ failure to pay their loans, respondents filed complaints
which sought the declaration of nullity of the pledge agreements. Respondents consign to RTC
which they interpreted as redemption. Notwithstanding the consignations, the public auction
took place as scheduled, with petitioner Vidal Espeleta successfully bidding the amount of
P6,200,000.00 for all of the pledged shares.
Issue: WON Petitioners were authorized to refuse as they did the tender of payment since they
were undertaking the auction sale pursuant to the final and executory decision in Civil Cases.
Held: Yes. it must be clarified that the subject sale of pledged shares was an extrajudicial sale,
specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale.
Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by
the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to
proceed before a Notary Public to the sale of the thing pledged. In this case, petitioners
attempted as early as 1980 to proceed extrajudicially with the sale of the pledged shares by
public auction. However, extrajudicial sale was stayed with the filing of Civil Cases No. R-20120
and 20131, which sought to annul the pledge contracts. The final and executory judgment in
those cases affirmed the pledge contracts and disposed. Since the pledged shares in this case
are not subject to redemption, the Court of Appeals had no business invoking and applying the
inexistent right of redemption. We cannot thus agree that the consigned payments should be
treated with liberality, or somehow construed as having been made in the exercise of the right
of redemption. We also must reject the appellate court’s declaration that the buyer of at the
public auction is not “ipso facto” rendered the owner of the auctioned shares, since the debtor
enjoys the one-year redemptive period to redeem the property. Obviously, since there is no
right to redeem personal property, the rights of ownership vested unto the purchaser at the
foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive
period. WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is
SET ASIDE and the decision of the Cebu City RTC, Branch 16, dated 18 November 1992 is
REINSTATED. Costs against respondents.