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Banco Espanol Filipino v Peterson Facts On March 4, 1905, Banco Espanol Filipino (BEP) executed a contract of loan in favor

of Francisco Reyes for P141 702.00. Reyes was already indebted to the bank for P84 415.00. His total debt was therefore P226 117.38. To secure payment of the P141k and the P84k, Reyes executed a public instrument 1. Mortgaging several of his properties 2. Pledging part of his personal property to BEP (P90 591.75 worth of wines, liquors and canned goods), which were stored at a warehouse he rented in Manila BEP and Reyes agreed that the goods should be delivered to Ramon Garcia (depositary) for safekeeping. Reyes turned over the goods to R. Garcia by giving him the warehouse keys. On September 29, 1905, BEP and Reyes substituted Luis Sierra in place of R. Garcia as the depositary. On October 19, 1905, Juan Garcia (yes, related to Ramon) brought an action against Francisco Reyes and Ramon Agtarat. CFI Manila ruled against Reyes and Agtarat for P15 000.00. On the same day, Sheriff James Peterson entered the warehouse where the goods pledged to BEP were stored under the custody of the depositary, Sierra. Peterson levied upon P30 000 worth of the goods pledged to the bank, depriving the latter of possession of the same, as stipulated in the March 4 contract of loan. Issues Was the contract of pledge between BEP and Reyes to secure a loan valid? Was Reyes still in possession of the pledged property, thereby making the contract defective? Held The contract was valid. Reyes was no longer in possession of the pledged property. BEP had symbolic possession of the same. The contract complies with all the requisites of a valid pledge contract, as prescribed by the Civil Code: 1. The property was pledged to secure a debt

2. The date of execution, the terms of the pledge, and the property pledged appeared in a public instrument 3. The property pledged was placed in the hands of a third person (in this case, Sierra) by common consent of the debtor and creditor, under the supervision of an agent (in this case, Rodriguez) of the bank Reyes, after the pledge, parted with the possession of his personal property, which was delivered to a third person (R. Garcia, and subsequently, Sierra) who would take care of them for BEP. Sierra was the third person appointed by common consent of BEP (creditor) and Reyes (debtor), to hold possession over the goods pledged in favor of the bank under the direct supervision of Rodriguez, an agent specifically appointed by the bank. The contract in question was, therefore, a perfect contract of pledge under articles 1857 and 1863 of the Civil Code, it having been conclusively shown that the pledgee (BEP) took charge and possession of the goods pledged through a depositary (Sierra) and a special agent (Rodriguez) appointed by it, each of whom had a duplicate key to the warehouse wherein the said goods were stored, and that the pledgee (BEP), itself, received and collected the proceeds of the goods as they were sold. The legality of the pledge was not affected by the fact that the goods remained in the warehouse formerly rented by Reyes the pledgor. This is because after the pledge had been agreed upon, and after the depository appointed with common consent of the parties had taken possession of the said property, Reyes could no longer dispose of the same because BEP was the only party allowed to do so through Sierra and Rodriguez. The symbolic transfer of the goods through delivery of the keys to the warehouse where the goods were stored was sufficient evidence to show that Sierra, the depositary appointed by both BEP and Rodriguez, was legally placed in possession of the goods. Since the contract of pledge was valid, BEP had a better right to the goods compared to J. Garcia. The Court ordered either the return of the improperly levied goods, or the payment of their value, P30 000.