Manila Banking Corporation v. Teodoro JR., G.R. No. 53955, January 13, 1989 DIGEST

19. Manila Banking Corporation v. Teodoro Jr., G.R. No.
53955, January 13, 1989

SUMMARY: Anastacio Teodoro, Sr. and defendants, jointly and severally, executed in favor of plaintiff 3
Promissory Notes forthe sum of P10,420.00, P8,000.00 and P1,000.00 at 12% interest per annum.
Defendants partially paid the 2nd one but failed to pay the amounts on the others in spite of repeated
demands. Prior to the execution of the Promissory notes, 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. The Deed of Assignment provided that it was for and in consideration of certain credits,
loans, overdrafts and other credit accommodations extended to defendants as security for the payment
of said sum and the interest thereon. Due to the failure of the defendants to pay and the plaintiff’s
failure to collect from the EEA’s successor, Philippine Fisheries Commission, the instituted the action for
the collection of money. The defendants claim that by the deed of assignment, the loan had already
been paid.
DOCTRINE: The characters of the transaction between the parties is to be determined by their intention,
regardless of whatlanguage was used or what the form of the transfer was. If it was intended to secure
the payment of money, it must be construedas a pledge. However, even though a transfer, if regarded
by itself, appellate to have been absolute, its object and character mightstill be qualified and explained
by a contemporaneous writing declaring it to have been a deposit of the property as collateralsecurity.
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.
Facts: 1. On April 25, 1966, Anastacio Teodoro, Sr. and defendants, jointly and severally, executed in
favor of plaintiff a Promissory Note for the sum of P10,420.00 at 12% interest per annum. Defendants
failed to pay the said amount inspite ofrepeated demands and the obligation as of September 30,
1969stood at P15,137.11 including accrued interest and service charge.
2. On May 3, 1966 and June 20, 1966, defendants executed in favor of plaintiff two Promissory Notes for
P8,000.00 and P1,000.00 respectively, payable in 120 days at 12% interest per annum. Father and Son
made a partial payment on the May 3 promissory Note but none on the June 20 Promissory Note,
leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued interest and
service charge.
3. The three Promissory Notes stipulated that any interest due if not paid at the end of every month
shall be added to the totalamount then due, the whole amount to bear interest at the rate of 12% per
annum until fully paid.
4. On January 24, 1964, 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. The Deed of Assignment
provided that it was for and in consideration of certain credits, loans, overdrafts and other credit
accommodations extended to defendants as security for the payment of said sum and the interest
thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and interest in
and to the accounts receivables.
5. It is admitted by the parties that plaintiff extended loans to defendants on the basis and by reason of
certain contracts entered into by the defunct EEA with defendants. The Philippine Fisheries Commission
(PFC) succeeded the EEA after its abolition. The parties also admitted that non-payment of the notes
was due to the failure of PFC to pay defendants after the latter had complied with their contractual
obligations;and that the President of plaintiff Bank took steps to collect from the PFC, but no collection
was effected.
6. For failure of defendants to pay the sums due on the Promissory Note, this action was instituted on
November 13, 1969, originally against the Father, Son, and the latter's wife. Because the Father died,
however, during the pendency of the suit, the case as against him was dismissed. On April 17, 1972,the
trial court rendered its judgment against the defendants.
Issue: W0N the Assignment of Receivables had the effectof payment of all the loans contracted by
defendants. – NO
Ruling: The appeal is Dismissed for lack of merit and theappealed decision of the trial court is affirmed in
toto.
Ratio: The position of appellants is that the deed of assignment is a quitclaim in consideration of their
indebtedness to appellee bank (dation in payment), 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.
... 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.
1. However, it is evident that the assignment of receivables executed by appellants on January 24, 1964
did not transfer the ownership of the receivables to appellee bank and release appellants from their
loans with the bank incurred under the promissory notes.
The Deed of Assignment provided that it was for and in consideration of certain credits, loans,
overdrafts, and their credit accommodations in the sum of P10,000.00 extended to appellants by
appellee bank, and as security for the payment ofsaid 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.
2. The character of the transactions between the parties is not, however, determined by the language
used in the document but by their intention.
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. If it was intended to secure the
payment of money, it must be construed as a pledge.
It has been held that a transfer of property by the debtor to a creditor, even if sufficient on its form to
make an absolute conveyance, should be treated as a pledge if the debt continuesin existence and is not
discharged by the transfer, and that accordingly, the use of the terms ordinarily exporting 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 ambiguous language or other circumstances excluding an intent to pledge.
3. 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. At the time the deed of
assignment was executed, said loans were non-existent yet.
At most, it was a dation in payment for P10,000.00, the amount of credit from appellee bank indicated
in the deed of assignment. At the time the assignment was executed, there was no obligation to be
extinguished except the amount of P10,000.00.
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.

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19. Manila Banking Corporation v. Teodoro Jr., G.R. No.

53955, January 13, 1989

In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in

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