PUIG vs. SELLLNER G.R. No.

L-20013 Facts: A promissory note was executed by defendants to pay jointly and severally to plaintiff, the sum of Php 47,000.00 payable on July 12, 1921 for the loan at an interest of 10 % per annum. Defendant made as guarantee for said loan their 570 shares in Manila Improvement Co., with Php 100.00 face value each. As stipulated in their agreement that Mr. Puig shall hold such share until the defendants fulfil the obligation. It was further stipulated that failure to pay on given date, the share made as guarantee will become plaintiffs property. As defendants failed to fulfil the obligation, action was instituted by creditor. The latter was not satisfied with the RTC ruling, so the appeal. Issue: Whether the RTC erred in not holding the stipulated pledge to become creditors property? Held: No. because the stipulated pledge that which to appropriate such as if it were sold by mere lapse of the term of the contract of loan is void under Art.1884 of the Civil Code. Any stipulations contrary to law, morals or public order are not permitted by law (Art. 1255). Thus the creditor has no right to appropriate to himself the personal property and chattels pledged, nor he can make payment by himself and to himself for his own credit with the value of the said property, because he is only permitted to recover his credit from the proceeds of the sale at public auction of the chattels and personal property pledged. The RTC holding was affirmed by SC, such that compelling defendants to pay jointly and severally the sum of Php 47, 000.00 as principal, 35 pesos as remaining balance of interest, and the 10% interest rate per annum of principal from January 1, 1922; until the judgement is paid. If defendants shall fail to pay the judgement within 3 months, Sheriff shall sell the 570 shares by auction to the highest bidder so plaintiff can recover the amount of judgement.