Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19227 February 17, 1968
DIOSDADO YULIONGSIU, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-
appellee.
Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-
appellant.
Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-
appellee.
BENGZON, J.P., J .:
Plaintiff-appellant Diosdado Yuliongsiu
1
was the owner of two
(2) vessels, namely: The M/S Surigao, valued at P109,925.78 and
the M/S Don Dino, valued at P63,000.00, and operated the FS-203,
valued at P210,672.24, which was purchased by him from the
Philippine Shipping Commission, by installment or on account. As of
January or February, 1943, plaintiff had paid to the Philippine
Shipping Commission only the sum of P76,500 and the balance of
the purchase price was payable at P50,000 a year, due on or before
the end of the current year.
2

On June 30, 1947, plaintiff obtained a loan of P50,000 from
the defendant Philippine National Bank, Cebu Branch. To guarantee
its payment, plaintiff pledged the M/S Surigao, M/S Don Dino and its
equity in the FS-203 to the defendant bank, as evidenced by
the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for
the Port of Cebu.
3

Subsequently, plaintiff effected partial payment of the loan in
the sum of P20,000. The remaining balance was renewed by the
execution of two (2) promissory notes in the bank's favor. The first
note, dated December 18, 1947, for P20,000, was due on April 16,
1948 while the second, dated February 26, 1948, for P10,000, was
due on June 25, 1948. These two notes were never paid at all by
plaintiff on their respective due dates.
4

On April 6, 1948, the bank filed criminal charges against
plaintiff and two other accused for estafa thru falsification of
commercial documents, because plaintiff had, as last indorsee,
deposited with defendant bank, from March 11 to March 31,
1948, seven Bank of the Philippine Islands checks
totalling P184,000. The drawer thereof one of the co-accused
had no funds in the drawee bank. However, in connivance with one
employee of defendant bank, plaintiff was able to withdraw the
amount credited to him before the discovery of the defraudation on
April 2, 1948. Plaintiff and his co-accused were convicted by the trial
court and sentenced to indemnify the defendant bank in the sum of
P184,000. On appeal, the conviction was affirmed by the Court of
Appeals on October 31, 1950. The corresponding writ of execution
issued to implement the order for indemnification was returned
unsatisfied as plaintiff was totally insolvent.
5

Meanwhile, together with the institution of the criminal action,
defendant bank took physical possession of three pledged vessels
while they were at the Port of Cebu, and on April 29, 1948, after the
first note fell due and was not paid, the Cebu Branch Manager of
defendant bank, acting as attorney-in-fact of plaintiff pursuant to the
terms of the pledge contract, executed a document of sale, Exhibit
"4", transferring the two pledged vessels and plaintiff's equity in FS-
203, to defendant bank for P30,042.72.
6

The FS-203 was subsequently surrendered by the defendant
bank to the Philippine Shipping Commission which rescinded the
sale to plaintiff on September 8, 1948, for failure to pay the
remaining installments on the purchase price thereof.
7
The other two
boats, the M/S Surigao and the M/S Don Dino were sold by
defendant bank to third parties on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of
First Instance of Cebu to recover the three vessels or their value and
damages from defendant bank. The latter filed its answer, with a
counterclaim for P202,000 plus P5,000 damages. After issues were
joined, a pretrial was held resulting in a partial stipulation of facts
dated October 2, 1958, reciting most of the facts above-narrated.
During the course of the trial, defendant amended its answer
reducing its claim from P202,000 to P8,846.01,
8
but increasing its
alleged damages to P35,000.
The lower court rendered its decision on February 13, 1960
ruling: (a) that the bank's taking of physical possession of the vessels
on April 6, 1948 was justified by the pledge contract, Exhibit "A" & "1-
Bank" and the law; (b) that the private sale of the pledged vessels by
defendant bank to itself without notice to the plaintiff-pledgor as
stipulated in the pledge contract was likewise valid; and (c) that the
defendant bank should pay to plaintiff the sums of P1,153.99 and
P8,000, as his remaining account balance, or set-off these sums
against the indemnity which plaintiff was ordered to pay to it in the
criminal cases.
When his motion for reconsideration and new trial was denied,
plaintiff brought the appeal to Us, the amount involved being more
than P200,000.00.
In support of the first assignment of error, plaintiff-appellant
would have this Court hold that Exhibit "A" & "1-Bank" is a chattel
mortgage contract so that the creditor defendant could not take
possession of the chattels object thereof until after there has been
default. The submission is without merit. The parties stipulated as a
fact that Exhibit "A" & "1-Bank" is a pledge contract
3. That a credit line of P50,000.00 was extended to
the plaintiff by the defendant Bank, and the plaintiff obtained
and received from the said Bank the sum of P50,000.00,
and in order to guarantee the payment of this loan, the
pledge contract, Exhibit "A" & Exhibit "1-Bank", was
executed and duly registered with the Office of the Collector
of Customs for the Port of Cebu on the date appearing
therein; (Emphasis supplied)1wph1.t
Necessarily, this judicial admission binds the plaintiff. Without
any showing that this was made thru palpable mistake, no amount of
rationalization can offset it.
9

The defendant bank as pledgee was therefore entitled to the
actual possession of the vessels. While it is true that plaintiff
continued operating the vessels after the pledge contract was
entered into, his possession was expressly made "subject to the
order of the pledgee."
10
The provision of Art. 2110 of the present
Civil Code
11
being new cannot apply to the pledge contract here
which was entered into on June 30, 1947. On the other hand, there
is an authority supporting the proposition that the pledgee can
temporarily entrust the physical possession of the chattels pledged to
the pledgor without invalidating the pledge. In such a case, the
pledgor is regarded as holding the pledged property merely as
trustee for the pledgee.
12

Plaintiff-appellant would also urge Us to rule that constructive
delivery is insufficient to make pledge effective. He points to Betita v.
Ganzon, 49 Phil. 87 which ruled that there has to be actual delivery
of the chattels pledged. But then there is also Banco Espaol-Filipino
v. Peterson, 7 Phil. 409 ruling that symbolic delivery would suffice.
An examination of the peculiar nature of the things pledged in the
two cases will readily dispel the apparent contradiction between the
two rulings. In Betita v. Ganzon, the objects pledged carabaos
were easily capable of actual, manual delivery unto the pledgee.
In Banco Espaol-Filipino v. Peterson, the objects pledged goods
contained in a warehouse were hardly capable of actual, manual
delivery in the sense that it was impractical as a whole for the
particular transaction and would have been an unreasonable
requirement. Thus, for purposes of showing the transfer of control to
the pledgee, delivery to him of the keys to the warehouse sufficed. In
other words, the type of delivery will depend upon the nature and the
peculiar circumstances of each case. The parties here agreed that
the vessels be delivered by the "pledgor to the pledgor who shall
hold said property subject to the order of the pledgee." Considering
the circumstances of this case and the nature of the objects pledged,
i.e., vessels used in maritime business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge
contract, in full control of the vessels thru the plaintiff, the former
could take actual possession at any time during the life of the pledge
to make more effective its security. Its taking of the vessels therefore
on April 6, 1948, was not unlawful. Nor was it unjustified considering
that plaintiff had just defrauded the defendant bank in the huge sum
of P184,000.
The stand We have taken is not without precedent. The
Supreme Court of Spain, in a similar case involving Art. 1863 of the
old Civil Code,
13
has ruled:
14

Que si bien la naturaleza del contrato de prenda
consiste en pasar las cosas a poder del acreedor o de un
tercero y no quedar en la del deudor, como ha sucedido en
el caso de autos, es lo cierto que todas las partes
interesadas, o sean acreedor, deudor y Sociedad,
convinieron que continuaran los coches en poder del deudor
para no suspender el trafico, y el derecho de no uso de la
prenda pertenence al deudor, y el de dejar la cosa bajo su
responsabilidad al acreedor, y ambos convinieron por
creerlo util para las partes contratantes, y estas no reclaman
perjuicios no se infringio, entre otros este articulo.
In the second assignment of error imputed to the lower court
plaintiff-appellant attacks the validity of the private sale of the
pledged vessels in favor of the defendant bank itself. It is
contended first, that the cases holding that the statutory
requirements as to public sales with prior notice in connection with
foreclosure proceedings are waivable, are no longer authoritative in
view of the passage of Act 3135, as amended; second, that the
charter of defendant bank does not allow it to buy the property object
of foreclosure in case of private sales; and third, that the price
obtained at the sale is unconscionable.
There is no merit in the claims. The rulings in Philippine
National Bank v. De Poli, 44 Phil. 763 and El Hogar Filipino v.
Paredes, 45 Phil. 178 are still authoritative despite the passage of
Act 3135. This law refers only, and is limited, to foreclosure of real
estate mortgages.
15
So, whatever formalities there are in Act 3135
do not apply to pledge. Regarding the bank's authority to be the
purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended
by Acts 2747 and 2938 only states that if the sale is public, the bank
could purchase the whole or part of the property sold " free from any
right of redemption on the part of the mortgagor or pledgor." This
even argues against plaintiff's case since the import thereof is this if
the sale were private and the bank became the purchaser, the
mortgagor or pledgor could redeem the property. Hence, plaintiff
could have recovered the vessels by exercising this right of
redemption. He is the only one to blame for not doing so.
Regarding the third contention, on the assumption that the
purchase price was unconscionable, plaintiff's remedy was to have
set aside the sale. He did not avail of this. Moreover, as pointed out
by the lower court, plaintiff had at the time an obligation to return the
P184,000 fraudulently taken by him from defendant bank.
The last assignment of error has to do with the damages
allegedly suffered by plaintiff-appellant by virtue of the taking of the
vessels. But in view of the results reached above, there is no more
need to discuss the same.
On the whole, We cannot say the lower court erred in
disposing of the case as it did. Plaintiff-appellant was not all-too-
innocent as he would have Us believe. He did defraud the defendant
bank first. If the latter countered with the seizure and sale of the
pledged vessels pursuant to the pledge contract, it was only to
protect its interests after plaintiff had defaulted in the payment of the
first promissory note. Plaintiff-appellant did not come to court with
clean hands.
WHEREFORE, the appealed judgment is, as it is hereby,
affirmed. Costs against plaintiff-appellant. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ.,

















Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24137 March 29, 1926
EULOGIO BETITA, plaintiff-appellee,
vs.
SIMEON GANZON, ALEJO DE LA FLOR, and CLEMENTE
PEDRENA, defendants-appellants.
Padilla, Trenas and Magalona for appellants.
Varela and Ybiernas for appellee.
OSTRAND, J .:
This action is brought to recover the possession of four carabaos
with damages in the sum of P200. Briefly stated, the facts are as
follows: On May 15, 1924, the defendant Alejo de la Flor recovered a
judgment against Tiburcia Buhayan for the sum of P140 with costs.
Under this judgment the defendant Ganzon, as sheriff levied
execution on the carabaos in question which were found in the
possession of one Simon Jacinto but registered in the name of
Tiburcia Buhayan. The plaintiff herein, Eulogio Betita, presented a
third party claim (terceria) alleging that the carabaos had been
mortgaged to him and as evidence thereof presented a document
dated May 6, 1924, but the sheriff proceeded with the sale of the
animals at public auction where they were purchased by the
defendant Clemente Perdena for the sum of P200, and this action
was thereupon brought.
The document upon which the plaintiff bases his cause of action is in
the Visayan dialect and in translation reads as follows:
I, Tiburcia Buhatan, of age, widow and resident of the sitio of
Jimamanay, municipality of Balasan, Province of Iloilo, Philippine
Islands, do hereby execute this document extrajudicially and state
that I am indebted to Mr. Eulogio Betita, resident of the municipality
of Estancia, Province of Iloilo, Philippine Islands, in the sum of P470,
Philippine currency, and was so indebted since the year 1922, and
as a security to my creditor I hereby offer four head of carabaos
belonging to me exclusively (three females and one male), the
certificates of registration of said animals being Nos. 2832851,
4670520, 4670521 and 4670522, which I delivered to said Mr.
Eulogio Betita.
I hereby promise to pay said debt in the coming month of February,
1925, in case I will not be able to pay, Mr. Eulogio Betita may
dispose of the carabaos given as security for said debt.
This document is a new one or a renewal of our former document
because the first carabaos mortgaged died and were substituted for
by the newly branded ones."
In testimony whereof and not knowing how to sign my name, I
caused my name to be written and marked same with my right
thumb.
Estancia, May 6, 1924.
(Marked). TIBURCIA BUHAYAN
Signed in the presence of:
MIGUEL MERCURIO
TIRZO ZEPEDA
The court below held that inasmuch as this document was prior in
date to the judgment under which the execution was levied, it was a
preferred credit and judgment was rendered in favor of the plaintiff
for the possession of the carabaos, without damages and without
costs. From this judgment the defendants appeal.
The judgment must be reversed unless the document above quoted
can be considered either a chattel mortgage or else a pledge. That it
is not a sufficient chattel mortgage is evident; it does not meet the
requirements of section 5 of the Chattel Mortgage Law (Act No.
1508), has not been recorded and, considered as a chattel
mortgage, is consequently of no effect as against third parties
(Williams vs. McMicking, 17 Phil., 408; Giberson vs. A. N. Jureidini
Bros., 44 Phi., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co.
and Provincial Sheriff of Occidental Negros, 46 Phil., 753).
Neither did the document constitute a sufficient pledge of the
property valid against third parties. Article 1865 of the Civil Code
provides that "no pledge shall be effective as against third parties
unless evidence of its date appears in a public instrument." The
document in question is not public, but it is suggested that its filing
with the sheriff in connection with the terceria gave in the effect of a
public instrument and served to fix the date of the pledge, and that it
therefore fulfills the requirements of article 1865. Assuming, without
conceding, that the filing of the document with the sheriff had that
effect, it seems nevertheless obvious that the pledge only became
effective as against the plaintiff in execution from the date of the filing
and did not rise superior to the execution attachment previously
levied (see Civil Code, article 1227).
Manresa, in commenting on article 1865, says:
ART. 1865. A pledge will not be valid against a third party if
the certainty of the date is not expressed in a public
instrument.
This article, the precept of which did not exist in our old law,
answers the necessity for not disturbing the relationship or
the status of the ownership of things with hidden or
simulated contracts of pledge, in the same way and for the
identical reasons that were taken into account by the
mortgage law in order to suppress the implied and legal
mortgages which produce so much instability in real
property.
Considering the effects of a contract of pledge, it is easily
understood that, without this warranty demanded by law, the
case may happen wherein a debtor in bad faith from the
moment that he sees his movable property in danger of
execution may attempt to withdraw the same from the action
of justice and the reach of his creditors by simulating,
through criminal confabulations, anterior and fraudulent
alterations in his possession by means of feigned contracts
of this nature; and, with the object of avoiding or preventing
such abuses, almost all the foreign writers advise that, for
the effectiveness of the pledge, it be demanded as a precise
condition that in every case the contract be executed in a
public writing, for, otherwise, the determination of its date will
be rendered difficult and its proof more so, even in cases in
which it is executed before witnesses, due to the difficulty to
be encountered in seeking those before whom it was
executed.
Our code has not gone so far, for it does not demand in
express terms that in all cases the pledge be constituted or
formalized in a public writing, nor even in private document,
but only that the certainty of the date be expressed in the
first of the said class of instruments in order that it may be
valid against a third party; and, in default of any express
provision of law, in the cases where no agreement requiring
the execution in a public writing exists, it should be subjected
to the general rule, and especially to that established in the
last paragraph of article 1280, according to which all
contracts not included in the foregoing cases of the said
article should be made in writing even though it be private,
whenever the amount of the presentation of one or of the
two contracting parties exceeds 1,500 pesetas. (Vol. 12, ed.,
p. 421.)
If the mere filing of a private document with the sheriff after the levy
of execution can create a lien of pledge superior to the attachment,
the purpose of the provisions of article 1865 as explained by
Manresa clearly be defeated. Such could not have been the intention
of the authors of the Code. (See also Ocejo, Perez &
Co. vs.International Banking Corporation, 37 Phil., 631 and Tec Bi &
Co. Chartered Bank of India, Australia & China, 41 Phil., 596.)
The alleged pledge is also ineffective for another reason, namely,
that the plaintiff pledgee never had actual possession of the property
within the meaning of article 1863 of the Civil Code. But it is argued
that at the time of the levy the animals in question were in the
possession of one Simon Jacinto; that Jacinto was the plaintiff's
tenant; and that the tenant's possession was the possession of his
landlord.
It appears, however, from the evidence that though not legally
married, Simon Jacinto and Tiburcia Buhayan were living together as
husband and wife and had been so living for many years. Testifying
as a witness for the plaintiff, Jacinto on cross-examination made the
following statements:
Q. But the caraballas in question had never been in
possession of Eulogio Betita? A. The three young ones
did not get into his hands.
Q. And the others? A. Sometimes they were in the hands
of Betita and at other times in the hands of Buhayan.
Q. Those are the caraballas which formerly were mortgaged
by Buhayan to Betita, isn't that so? A. Yes, sir.
Q. And the four carabaos now in question had never been in
possession of Betita, but were in your possession? A.
When I worked they were in my hands.
Q. And before you worked, these caraballas were in
possession of your mistress, Tiburcia Buhayan? A. Yes,
sir.
Q. Do you mean to say that from the possession of Tiburcia
Buhayan the animals passed immediately into your
possession? A. Yes sir.
This testimony is substantially in accord with that of the defendant
sheriff to the effect that he found the animals at the place where
Tiburcia Buhayan was living. Article 1863 of the Civil Code reads as
follows:
In addition to the requisites mentioned in article 1857, it shall
be necessary, in order to constitute the contract of pledge,
that the pledge be placed in the possession of the creditor or
of a third person appointed by common consent.
In his commentary on this article Manresa says:
This requisite is most essential and is characteristic of a
pledge without which the contract cannot be regarded as
entered into or completed, because, precisely, in this
delivery lies the security of the pledge. Therefore, in order
that the contract of pledge may be complete, it is
indispensable that the aforesaid delivery take place . . . . (P.
411, supra.)
It is, of course, evident that the delivery of possession referred to in
article 1863 implies a change in the actual possession of the
property pledged and that a mere symbolic delivery is not sufficient.
In the present case the animals in question were in the possession of
Tiburcia Buhayan and Simon Jacinto before the alleged pledge was
entered into and apparently remained with them until the execution
was levied, and there was no actual delivery of possession to the
plaintiff himself. There was therefore in reality no change in
possession.
It may further be noted that the alleged relation of landlord and
tenant between the plaintiff and Simon Jacinto is somewhat obscure
and it is, perhaps, doubtful if any tenancy, properly speaking,
existed. The land cultivated by Jacinto was not the property of the
plaintiff, but it appears that a part of the products was to be applied
towards the payment of Tiburcia Buhayan's debt to the plaintiff.
Jacinto states that he was not a tenant until after the pledge was
made.
From what has been said it follows that the judgment appealed from
must be reversed and it is ordered and adjudged that the plaintiff
take nothing by his action. Without costs. So ordered.
Avancea, C. J., Street, Villamor, Johns, Romualdez and Villa-Real,
JJ., concur.
Malcolm, J., concurs in the result.














Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-33157 June 29, 1982
BENITO H. LOPEZ, petitioner,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC., respondents.

GUERRERO, J .:
On June 2, 1959, petitioner Benito H. Lopez obtained a loan in the
amount of P20,000.00 from the Prudential Bank and Trust Company.
On the same date, he executed a promissory note for the same
amount, in favor of the said Bank, binding himself to repay the said
sum one (1) year after the said date, with interest at the rate of 10%
per annum. In addition to said promissory note, he executed Surety
Bond No. 14164 in which he, as principal, and Philippine American
General Insurance Co., Inc. (PHILAMGEN) as surety, bound
themselves jointly and severally in favor of Prudential Bank for the
payment of the sum of P20,000.00.
On the same occasion, Lopez also executed in favor of Philamgen
an indemnity agreement whereby he agreed "to indemnify the
Company and keep it indemnified and hold the same harmless from
and against any and all damages, losses, costs, stamps, taxes,
penalties, charges and expenses of whatever kind and nature which
the Company shall or may at any time sustain or incur in
consequence of having become surety upon the bond."
1
At the
same time, Lopez executed a deed of assignment of 4,000 shares of
the Baguio Military Institution entitled "Stock Assignment Separate
from Certificate", which reads:
This deed of assignment executed by BENITO H.
LOPEZ, Filipino, of legal age, married and with
residence and postal address at Baguio City,
Philippines, now and hereinafter called the
"ASSIGNOR", in favor of the PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC., a
corporation duly organized and existing under and
by virtue of the laws of the Philippines, with principal
offices at Wilson Building, Juan Luna, Manila,
Philippines, now and hereinafter called the
"ASSIGNEE-SURETY COMPANY"
WITNESSETH
That for and in consideration of the obligations
undertaken by the ASSIGNEE-SURETY COMPANY
under the terms and conditions of SURETY BOND
NO. 14164, issued on behalf of said BENITO H.
LOPEZ and in favor of the PRUDENTIAL BANK &
TRUST COMPANY, Manila, Philippines, in the
amount of TWENTY THOUSAND PESOS ONLY
(P20,000.00), Philippine Currency, and for value
received, the ASSIGNOR hereby sells, assigns, and
transfers unto THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC., Four Thousand
(4,000) shares of the Baguio military Institute, Inc.
standing in the name of said Assignor on the books
of said Baguio Military Institute, Inc. represented by
Certificate No. 44 herewith and do hereby
irrevocably constitutes and appoints THE
PHILIPPINE AMERICAN GENERAL INSURANCE
CO., INC. as attorney to transfer the said stock on
the books of the within named military institute with
full power of substitution in the premises.
2

With the execution of this deed of assignment, Lopez endorsed the
stock certificate and delivered it to Philamgen.
It appears from the evidence on record that the loan of P20,000.00
was approved conditioned upon the posting of a surety bond of a
bonding company acceptable to the bank. Thus, Lopez persuaded
Emilio Abello, Assistant Executive Vice-President of Philamgen and
member of the Bond Under writing Committee to request Atty.
Timoteo J. Sumawang, Assistant Vice- President and Manager of the
Bonding Department, to accommodate him in putting up the bond
against the security of his shares of stock with the Baguio Military
Institute, Inc. It was their understanding that if he could not pay the
loan, Vice-President Abello and Pio Pedrosa of the Prudential Bank
would buy the shares of stocks and out of the proceeds thereof, the
loan would be paid to the Prudential Bank.
On June 2, 1960, Lopez' obligation matured without it being settled.
Thus, the Prudential Bank made demands for payment both upon
Lopez and Philamgen. In turn, Philamgen sent Lopez several written
demands for the latter to pay his note (Exhibit H, H-1 & H-2), but
Lopez did not comply with said demands. Hence, the Prudential
Bank sometime in August, 1961 filed a case against them to enforce
payment on the promissory note plus interest.
Upon receipt of the copies of complaint, Atty. Sumawang confronted
Emilio Abello and Pio Pedrosa regarding their commitment to buy the
shares of stock of Lopez in the event that the latter failed to pay his
obligations to the Prudential Bank. Vice-President Abello then
instructed Atty. Sumawang to transfer the shares of stock to
Philamgen and made a commitment that thereafter he (Abello) and
Pio Pedrosa will buy the shares of stock from it so that the proceeds
could be paid to the bank, and in the meantime Philamgen will not
pay the bank because it did not want payment under the terms of the
bank.
3

Due to said commitment and instruction of Vice-President Abello,
Assistant Treasurer Marcial C. Cruz requested the transfer of Stock
Certificate No. 44 for 4,000 shares to Philamgen in a letter dated
October 31, 1961. Stock Certificate No. 44 in the name of Lopez was
accordingly cancelled and in lieu thereof Stock Certificate No. 171
was issued by the Baguio Military Institute in the name of Philamgen
on November 17, 1961.
The complaint was thereafter dismissed. But when no payment was
still made by the principal debtor or by the surety, the Prudential
Bank filed on November 8, 1963 another complaint for the recovery
of the P20,000.00. On November 18, 1963, after being informed of
said complaint, Lopez addressed the following letter to Philamgen:
Dear Mr. Sumawang:
This is with reference to yours of the 13th instant
advising me of a complaint filed against us by
Prudential Bank & Trust Co. regarding my loan of
P20,000.00. In this connection, I would like to know
what happened to my shares of stocks of Baguio
Military Academy which were pledged to your
goodselves to secure said obligation. These shares
of stock I think are more than enough to answer for
said obligation.
4

On December 9, 1963, Philamgen was forced to pay the Prudential
Bank the sum of P27,785.89 which included the principal loan and
accumulated interest and the Prudential Bank executed a
subrogation receipt on the same date.
On March 18, 1965, Philamgen brought an action in the Court of
First Instance of Manila (Civil Case No. 60272, "The Philippine
American General Insurance Co., Inc. vs. Benito H. Lopez") for
reimbursement of the said amount. After hearing, the said court
rendered judgment dismissing the complaint holding:
The contention of the plaintiff that the stock of the
defendant were merely pledged to it by the
defendant is not borne out by the evidence. On the
contrary, it appears to be contradicted by the facts of
the case. The shares of stock of the defendant were
actually transferred to the plaintiff when it became
clear after the plaintiff and the defendant had been
sued by the Prudential Bank that plaintiff would be
compelled to make the payment to the Prudential
Bank, in view of the inability of the defendant Benito
H. Lopez to pay his said obligation. The certificate
bearing No. 44 was cancelled and upon request of
the plaintiff to the Baguio Military Institute a new
certificate of stock was issued in the name of the
plaintiff bearing No. 171, by means of which plaintiff
became the registered owner of the 4,000 shares
originally belonging to the defendant.
It is noteworthy that the transfer of the stocks of the
defendant in the name of the plaintiff company was
made at the instance of Messrs. Abello and
Pedrosa, who promised to buy the same from the
plaintiff. Now that these shares of stock of the
defendant had already been transferred in the name
of the plaintiff, the defendant has already divested
himself of the said stocks, and it would seem that
the remedy of the plaintiff is to go after Messrs.
Abello and Pedrosa on their promise to pay for the
said stocks. To go after the defendant after the
plaintiff had already become the owner of his shares
of stock and compel him to pay his obligation to the
Prudential Bank would be most unfair, unjust and
illogical for it would amount to double payment on
his part. After the plaintiff had already appropriated
the said shares of stock, it has already lost its right
to recover anything from the defendant, for the
reason that the transfer of the said stocks was made
without qualification. This transfer takes the form of a
reimbursement of what plaintiff had paid to the
Prudential Bank, thereby depriving the plaintiff of its
right to go after the defendant herein.
5

Philamgen appealed to the Court of Appeals raising these
assignments of errors:
I
The lower court erred in finding that the evidence
does not bear out the contention of plaintiff that the
shares of stock belonging to defendant were
transferred by him to plaintiff by way of pledge.
II
The lower court erred in finding that plaintiff
company appropriated unto itself the shares of stock
pledged to it by defendant Benito Lopez and in
finding that, with the transfer of the stock in the
name of plaintiff company, the latter has already
been paid or reimbursed what it paid to Prudential
Bank.
III
The lower court erred in not finding that the instant
case is one where the pledge has abandoned the
security and elected instead to enforce his claim
against the pledgor by ordinary action.
6

On December 17, 1970, the Court of Appeals promulgated a
decision in favor of the Philamgen, thereby upholding the foregoing
assignments of errors. It declared that the stock assignment was a
mere pledge that the transfer of the stocks in the name of Philamgen
was not intended to make it the owner thereof; that assuming that
Philamgen had appropriated the stocks, this appropriation is null and
void as a stipulation authorizing it is a pactum commissorium; and
that pending payment, Philamgen is merely holding the stock as a
security for the payment of Lopez' obligation. The dispositive portion
of the said decision states:
WHEREFORE, the decision of the lower court is
hereby reversed, and another one is hereby entered
ordering the defendant to pay the plaintiff the sum of
P27,785.89 with interest at the rate of 12% per
annum from December 9, 1963, 10% of the
P27,785.89 as attorney's fees and the costs of the
suit.
7

The motion for reconsideration with prayer to set the same for oral
argument having been denied, Lopez brought this petition for review
on certiorari presenting for resolution these questions:
a) Where, as in this case, a party "sells, assigns and transfers" and
delivers shares of stock to another, duly endorsed in blank, in
consideration of a contingent obligation of the former to the latter,
and, the obligations having arisen, the latter causes the shares of
stock to be transferred in its name, what is the juridical nature of the
transaction-a dation in payment or a pledge?
b) Where, as in this case, the debtor assigns the shares of stock to
the creditor under an agreement between the latter and determinate
third persons that the latter would buy the shares of stock so that the
obligations could be paid out of the proceeds, was there a novation
of the obligation by substitution of debtor?
8

Philamgen failed to file its comment on the petition for review on
certiorari within the extended period which expired on March 19,
1971. This Court thereby resolved to require Lopez to file his brief.
9

Under the first assignment of error, Lopez argues in his brief:
That the Court of Appeals erred in holding that when
petitioner "sold, assigned, transferred" and delivered
shares of stock, duly endorsed in blank, to private
respondent in consideration of a contingent
obligation of the former to the latter and the
obligation having thereafter arisen, the latter caused
the shares of stock to be transferred to it, taking a
new certificate of stock in its name, the transaction
was a pledge, and in not holding instead that it was
a dation in payment.
10

Considering the explicit terms of the deed denominated "Stock
Assignment Separate from Certificate", hereinbefore
copied verbatim, Lopez sold, assigned and transferred unto
Philamgen the stocks involved "for and in consideration of the
obligations undertaken" by Philamgen "under the terms and
conditions of the surety bond executed by it in favor of the Prudential
Bank" and "for value received". On its face, it is neither pledge nor
dation in payment. The document speaks of an outright sale as there
is a complete and unconditional divestiture of the incorporeal
property consisting of stocks from Lopez to Philamgen. The transfer
appears to have been an absolute conveyance of the stocks to
Philamgen whether or not Lopez defaults in the payment of
P20,000.00 to Prudential Bank. While it is a conveyance in
consideration of a contingent obligation, it is not itself a conditional
conveyance.
It is true that if Lopez should "well and truly perform and fulfill all the
undertakings, covenants, terms, conditions, and agreements
stipulated" in his promissory note to Prudential Bank, the obligation
of Philamgen under the surety bond would become null and void.
Corollarily, the stock assignment, which is predicated on the
obligation of Philamgen under the surety bond, would necessarily
become null and void likewise, for want of cause or consideration
under Article 1352 of the New Civil Code. But this is not the case
here because aside from the obligations undertaken by Philamgen
under the surety bond, the stock assignment had other
considerations referred to therein as "value received". Hence, based
on the manifest terms thereof, it is an absolute transfer.
Notwithstanding the express terms of the "Stock Assignment
Separate from Certificate", however, We hold and rule that the
transaction should not be regarded as an absolute conveyance in
view of the circumstances obtaining at the time of the execution
thereof.
It should be remembered that on June 2, 1959, the day Lopez
obtained a loan of P20,000.00 from Prudential Bank, Lopez executed
a promissory note for ?20,000.00, plus interest at the rate of ten
(10%) per cent per annum, in favor of said Bank. He likewise posted
a surety bond to secure his full and faithful performance of his
obligation under the promissory note with Philamgen as his surety. In
return for the undertaking of Philamgen under the surety bond,
Lopez executed on the same day not only an indemnity agreement
but also a stock assignment.
The indemnity agreement and the stock assignment must be
considered together as related transactions because in order to
judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered. (Article 1371,
New Civil Code). Thus, considering that the indemnity agreement
connotes a continuing obligation of Lopez towards Philamgen while
the stock assignment indicates a complete discharge of the same
obligation, the existence of the indemnity agreement whereby Lopez
had to pay a premium of P1,000.00 for a period of one year and
agreed at all times to indemnify Philamgen of any and all kinds of
losses which the latter might sustain by reason of it becoming a
surety, is inconsistent with the theory of an absolute sale for and in
consideration of the same undertaking of Philamgen. There would
have been no necessity for the execution of the indemnity agreement
if the stock assignment was really intended as an absolute
conveyance. Hence, there are strong and cogent reasons to
conclude that the parties intended said stock assignment to
complement the indemnity agreement and thereby sufficiently
guarantee the indemnification of Philamgen should it be required to
pay Lopez' loan to Prudential Bank.
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; but if there was some other intention, it is
not a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute,
its object and character might still be qualified and
explained by a contemporaneous writing declaring it
to have been a deposit of the property as collateral
security. It has been said that 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.
11

We agree with the holding of the respondent Court of Appeals that
the stock assignment, Exhibit C, is in truth and in fact, a pledge.
Indeed, the facts and circumstances leading to the execution of the
stock assignment, Exhibit C, and the admission of Lopez prove that it
is in fact a pledge. The appellate court is correct in ruling that the
following requirements of a contract of pledge have been satisfied:
(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; and (3) that the person constituting the pledge has the free
disposal of the property, and in the absence thereof, that he be
legally authorized for the purpose. (Article 2085, New Civil Code).
Article 2087 of the New Civil Code providing that it is also the
essence of these contracts (pledge, mortgage, and antichresis) that
when the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment to the
creditor, further supports the appellate court's ruling, which We also
affirm. On this point further, the Court of Appeals correctly ruled:
In addition to the requisites prescribed in article
2085, it is necessary, in order to constitute the
contract of pledge, that the thing pledged be placed
in the possession of the creditor, or of a third person
by common agreement. (Art. 2093, N.C.C.)
Incorporeal rights, including shares of stock may
also be pledged (Art. 2095, N.C.C.) All these
requisites are found in the transaction between the
parties leading to the execution of the Stock
Assignment, Exhibit C. And that it is a pledge was
admitted by the defendant in his letter of November
18, 1963, Exhibit G, already quoted above, where he
asked what had happened to his shares of stock
"which were pledged to your goodselves to secure
the said obligation". The testimony of the defendant-
appellee that it was their agreement or
understanding that if he would be unable to pay the
loan to the Prudential Bank, plaintiff could sell the
shares of stock or appropriate the same in full
payment of its debt is a mere after-thought,
conceived after he learned of the transfer of his
stock to the plaintiff in the books of the Baguio
Military Institute.
We also do not agree with the contention of petitioner that
"petitioner's 'sale assignment and transfer' unto private respondent of
the shares of stock, coupled with their endorsement in blank and
delivery, comes exactly under the Civil Code's definition of dation in
payment, a long recognized and deeply rooted concept in Civil Law
denominated by Spanish commentators as 'adjudicacion en pago'".
According to Article 1245 of the New Civil Code, dation in payment,
whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law of sales.
Speaking of the concept of dation in payment, it is well to cite that:
Dation in payment is the delivery and transmission
of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of the
obligation. (2 Castan 525; 8 Manresa, 324) The
property given may consist, not only of a thing, but
also of a real right (such as a usufruct) or of a credit
against a third person. (Perez Gonzales & Alguer :2-
I Enneccerus, Kipp & Wolff 317). Thus, it has been
held that the assignment to the creditor of the
interest of the debtor in an inheritance in payment of
his debt, is valid and extinguishes the debt. (Ignacio
vs. Martinez, 33 Phil. 576)
The modern concept of dation in payment considers
it as a novation by change of the object, and this is
to our mind the more juridically correct view. Our
Civil Code, however, provides in this article that,
where the debt is in money, the law on sales shall
govern; in this case, the act is deemed to be a sale,
with the amount of the obligation to the extent that it
is extinguished being considered as the price. Does
this mean that there can be no dation in payment if
the debt is not in money? We do not think so. It is
precisely in obligations which are not money debts,
in which the true juridical nature of dation in payment
becomes manifest. There is a real novation with
immediate performance of the new obligation. The
fact that there must be a prior agreement of the
parties on the delivery of the thing in lieu of the
original prestation shows that there is a novation
which, extinguishes the original obligation, and the
delivery is a mere performance of the new
obligation.
The dation in payment extinguishes the obligation to
the extent of the value of the thing delivered, either
as agreed upon by the parties or as may be proved,
unless the parties by agreement, express or implied,
or by their silence, consider the thing as equivalent
to the obligation, in which case the obligation is
totally extinguished. (8 Manresa 324; 3 Valverde 174
fn
Assignment of property by the debtor to his
creditors, provided for in article 1255, is similar to
dation in payment in that both are substitute forms of
performance of an obligation. Unlike the assignment
for the benefit of creditors, however, dation in
payment does not involve plurality of creditors, nor
the whole of the property of the debtor. It does not
suppose a situation of financial difficulties, for it may
be made even by a person who is completely
solvent. It merely involves a change of the object of
the obligation by agreement of the parties and at the
same time fulfilling the same voluntarily. (8 Manresa
324).
12

Considering the above jurisprudence, We find that the debt or
obligation at bar has not matured on June 2, 1959 when Lopez
"alienated" his 4,000 shares of stock to Philamgen. Lopez' obligation
would arise only when he would default in the payment of the
principal obligation (the loan) to the bank and Philamgen had to pay
for it. Such fact being adverse to the nature and concept of dation in
payment, the same could not have been constituted when the stock
assignment was executed. Moreover, there is no express provision
in the terms of the stock assignment between Philamgen and Lopez
that the principal obligation (which is the loan) is immediately
extinguished by reason of such assignment.
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. Under American
jurisprudence,
A distinction might also be made between delivery of
property in payment of debt and delivery of such
property as collateral security for the
debt. Generally, such a transfer was presumed to be
made for collateral security, in the absence of
evidence tending to show an intention on the part of
the parties that the transfer was in satisfaction of the
debt. This presumption of a transfer for collateral
security arose particularly where the property given
was commercial paper, or some other 'specialty'
chose of action, that conferred rights upon transfer
by delivery of a different nature from the debt, whose
value was neither intrinsic nor apparent and was not
agreed upon by the parties.
13

Petitioner's argument that even assuming, arguendo that the
transaction was at its inception a pledge, it gave way to a dation in
payment when the obligation secured came into existence and
private respondent had the stocks transferred to it in the corporate
books and took a stock certificate in its name, is without merit. The
fact that the execution of the stock assignment is accompanied by
the delivery of the shares of stock, duly endorsed in blank to
Philamgen is no proof that the transaction is a dation in payment.
Likewise, the fact that Philamgen had the shares of stock transferred
to it in the books of the corporation and took a certificate in its name
in lieu of Lopez which was cancelled does not amount to conversion
of the stock to one's own use. The transfer of title to incorporeal
property is generally an essential part of the delivery of the same in
pledge. It merely constitutes evidence of the pledgee's right of
property in the thing pledged.
By the contract of pledge, the pledgor does not part
with his general right of property in the collateral.
The general property therein remains in him, and
only a special property vests in the pledgee. The
pledgee does not acquire an interest in the property,
except as a security for his debt. Thus, the pledgee
holds possession of the security subject to the rights
of the pledgor; he cannot acquire any interest
therein that is adverse to the pledgor's
title. Moreover, even where the legal title to
incorporeal property which may be pledged is
transferred to a pledgee as collateral security, he
takes only a special property therein Such transfer
merely performs the office that the delivery of
possession does in case of a pledge of corporeal
property.
xxx xxx xxx
The pledgee has been considered as having a lien
on the pledged property. The extent of such lien is
measured by the amount of the debt or the
obligation that is secured by the collateral, and the
lien continues to exist as long as the pledgee retains
actual or symbolic possession of the property, and
the debt or obligation remains unpaid. Payment of
the debt extinguishes the lien.
Though a pledgee of corporation stock does not
become personally liable as a stockholder of the
company, he may have the shares transferred to
him on the books of the corporation if he has been
authorized to do so.
The general property in the pledge remains in the
pledgor after default as well as prior thereto. The
failure of the pledgor to pay his debt at maturity in no
way affects the nature of the pledgee's rights
concerning the property pledged, except that he
then becomes entitled to proceed to make the
security available in the manner prescribed by law or
by the terms of the contract, ... .
14

In his second assignment of error, petitioner contends that the Court
of Appeals erred in not holding that since private respondent entered
into an agreement with determinate third persons whereby the latter
would buy the said shares so sold, assigned and transferred to the
former by the petitioner for the purpose of paying petitioner's
obligation out of the proceeds, there was a novation of the obligation
by substitution of debtor.
We do not agree.
Under Article 1291 of the New Civil Code, obligations may be
modified by: (1) changing their object or principal condition; (2)
substituting the person of the debtor; (3) subrogating a third person
in the rights of the creditor. And in order that an obligation may be
extinguished by another which substitute the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each other.
(Article 1292, N.C.C.) Novation which consists in substituting a new
debtor in the place of the original one, may be made even without
the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237. (Article 1293, N.C.C.)
Commenting on the second concept of novation, that is, substituting
the person of the debtor, Manresa opines, thus:
In this kind of novation it is pot enough to extend the
juridical relation to a third person; it is necessary that
the old debtor be released from the obligation, and
the third person or new debtor take his place in the
relation. Without such release, there is no novation;
the third person who has assumed the obligation of
the debtor merely becomes a co-debtor or a surety.
If there is no agreement as to solidarity, the first and
the new debtor are considered obligated jointly. (8
Manresa 435, cited in Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines,
Vol. IV, p. 360)
In the case at bar, the undertaking of Messrs. Emilio Abello and Pio
Pedrosa that they would buy the shares of stock so that Philamgen
could be reimbursed from the proceeds that it paid to Prudential
Bank does not necessarily imply the extinguishment of the liability of
petitioner Lopez. Since it was not established nor shown that Lopez
would be released from responsibility, the same does not constitute
novation and hence, Philamgen may still enforce the obligation. As
the Court of Appeals correctly held that "(t)he representation of Mr.
Abello to Atty. Sumawang that he and Mr. Pedrosa would buy the
stocks was a purely private arrangement between them, not an
agreement between (Philamgen) and (Lopez)" and which We hereby
affirm, petitioner's second assignment of error must be rejected.
In fine, We hold and rule that the transaction entered into by and
between petitioner and respondent under the Stock Assignment
Separate From Certificate in relation to the Surety Bond No. 14164
and the Indemnity Agreement, all executed and dated June 2, 1959,
constitutes a pledge of the 40,000 shares of stock by the petitioner-
pledgor in favor of the private respondent-pledgee, and not a dacion
en pago. It is also Our ruling that upon the facts established, there
was no novation of the obligation by substitution of debtor.
The promise of Abello and Pedrosa to buy the shares from private
respondent not having materialized (which promise was given to said
respondent only and not to petitioner) and no action was taken
against the two by said respondent who chose instead to sue the
petitioner on the Indemnity Agreement, it is quite clear that this
respondent has abandoned its right and interest over the pledged
properties and must, therefore, release or return the same to the
petitioner-pledgor upon the latter's satisfaction of his obligation under
the Indemnity Agreement.
It must also be made clear that there is no double payment nor
unjust enrichment in this case because We have ruled that the
shares of stock were merely pledged. As the Court of Appeals said:
The appellant (Philam) is not enriching himself at the
expense of the appellee. True, the stock certificate
of the appellee had been in the name of the
appellant but the transfer was merely nominal, and
was not intended to make the plaintiff the owner
thereof. No offer had been made for the return of the
stocks to the defendant. As the appellant had stated,
the appellee could have the stocks transferred to
him anytime as long as he reimburses the plaintiff
the amount it had paid to the Prudential Bank.
Pending payment, plaintiff is merely holding the
certificates as a pledge or security for the payment
of defendant's obligation.
The above holding of the appellate court is correct and We affirm the
same.
As to the third assignment of error which is merely the consequence
of the first two assignments of errors, the same is also devoid of
merit.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of
the Court of Appeals is hereby AFFIRMED in toto, with costs against
the petitioner.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr., Abad Santos, De
Castro and Escolin, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6342 January 26, 1954
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
LAUREANO ATENDIDO, defendants-appellant.
Nicolas Fernandez for appellee.
Gaudencio L. Atendido for appellant.
BAUTISTA, ANGELO, J .:
This is an appeal from a decision of the Court of First Instance of
Nueva Ecija which orders the defendant to pay to the plaintiff the
sum of P3,000, with interest thereon at the rate of 6% per annum
from June 26, 1940, and the costs of action.
On June 26, 1940, Laureano Atendido obtained from the Philippine
National Bank a loan of P3,000 payable in 120 days with interests at
6% per annum from the date of maturity. To guarantee the payment
of the obligation the borrower pledged to the bank 2,000 cavanes of
palay which were then deposited in the warehouse of Cheng Siong
Lam & Co. in San Miguel, Bulacan, and to that effect the borrower
endorsed in favor of the bank the corresponding warehouse receipt.
Before the maturity of the loan, the 2,000 cavanes of palay
disappeared for unknown reasons in the warehouse. When the loan
matured the borrower failed to pay either the principal or the interest
and so the present action was instituted.
Defendant set up a special defense and a counterclaim. As regards
the former, defendant claimed that the warehouse receipt covering
the palay which was given as security having been endorsed in blank
in favor of the bank, and the palay having been lost or disappeared,
he thereby became relieved of liability. And, by way of counterclaim,
defendant claimed that, as a corollary to his theory, he is entitled to
an indemnity which represents the difference between the value of
the palay lost and the amount of his obligation.
The case was submitted on an agreed statements of facts and
thereupon the court rendered judgment as stated in the early part of
this decision.
Defendant took the case on appeal to the Court of Appeals but later
it was certified to this Court on the ground that the question involved
is purely one of law.
The only issue involved in this appeal is whether the surrender of the
warehouse receipt covering the 2,000 cavanes of palay given as a
security, endorsed in blank, to appellee, has the effect of transferring
their title or ownership to said appellee, or it should be considered
merely as a guarantee to secure the payment of the obligation of
appellant.
In upholding the view of appellee, the lower court said: "The
surrendering of warehouse receipt No. S-1719 covering the 2,000
cavanes of palay by the defendant in favor of the plaintiff was not
that of a final transfer of that warehouse receipt but merely as a
guarantee to the fulfillment of the original obligation of P3,000.00. In
other word, plaintiff corporation had no right to dispose (of) the
warehouse receipt until after the maturity of the promissory note
Exhibit A. Moreover, the 2,000 cavanes of palay were not in the first
place in the actual possession of plaintiff corporation, although
symbolically speaking the delivery of the warehouse receipt was
actually done to the bank."
We hold this finding to be correct not only because it is in line with
the nature of a contract of pledge as defined by law (Articles 1857,
1858 & 1863, Old Civil Code), but is supported by the stipulations
embodied in the contract signed by appellant when he secured the
loan from the appellee. There is no question that the 2,000 cavanes
of palay covered by the warehouse receipt were given to appellee
only as a guarantee to secure the fulfillment by appellant of his
obligation. This clearly appears in the contract Exhibit A wherein it is
expressly stated that said 2,000 cavanes of palay were given as a
collateral security. The delivery of said palay being merely by way of
security, it follows that by the very nature of the transaction its
ownership remains with the pledgor subject only to foreclose in case
of non-fulfillment of the obligation. By this we mean that if the
obligation is not paid upon maturity the most that the pledgee can do
is to sell the property and apply the proceeds to the payment of the
obligation and to return the balance, if any, to the pledgor (Article
1872, Old Civil Code). This is the essence of this contract, for,
according to law, a pledgee cannot become the owner of, nor
appropriate to himself, the thing given in pledge (Article 1859, Old
Civil Code). If by the contract of pledge the pledgor continues to be
the owner of the thing pledged during the pendency of the obligation,
it stands to reason that in case of loss of the property, the loss
should be borne by the pledgor. The fact that the warehouse receipt
covering the palay was delivered, endorsed in blank, to the bank
does not alter the situation, the purpose of such endorsement being
merely to transfer the juridical possession of the property to the
pledgee and to forestall any possible disposition thereof on the part
of the pledgor. This is true notwithstanding the provisions to the
contrary of the Warehouse Receipt Law.
In case recently decided by this Court (Martinez vs. Philippine
National Bank, 93 Phil., 765) which involves a similar transaction,
this Court held:
In conclusion, we hold that where a warehouse receipt or
quedan is transferred or endorsed to a creditor only to
secure the payment of a loan or debt, the transferee or
endorsee does not automatically become the owner of the
goods covered by the warehouse receipt or quedan but he
merely retains the right to keep and with the consent of the
owner to sell them so as to satisfy the obligation from the
proceeds of the sale, this for the simple reason that the
transaction involved is not a sale but only a mortgage or
pledge, and that if the property covered by the quedans or
warehouse receipts is lost without the fault or negligence of
the mortgagee or pledgee or the transferee or endorsee of
the warehouse receipt or quedan, then said goods are to be
regarded as lost on account of the real owner, mortgagor or
pledgor.
Wherefore, the decision appealed from is affirmed, with costs against
appellant.
Bengzon, Padilla, Montemayor, Jugo, Reyes and Labrador,
JJ., concur.













Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18500 October 2, 1922
FILOMENA SARMIENTO and her husband EUSEBIO M.
VILLASEOR, plaintiffs-appellants,
vs.
GLICERIO JAVELLANA, defendant-appellant.
Montinola, Montinola and Hontiveros for plaintiffs-appellants.
J. M. Arroyo and Fisher and DeWitt for defendant-appellant.
AVANCEA, J .:
On August 28, 1991, the defendant loaned the plaintiffs the
sum of P1,500 with interest at the rate of 25 per cent per annum for
the term of one year. To guarantee this loan, the plaintiffs pledged a
large medal with a diamond in the center and surrounded with ten
diamonds, a pair of diamond earrings, a small comb with twenty-two
diamonds, and two diamond rings, which the contracting parties
appraised at P4,000. This loan is evidenced by two documents
(Exhibits A and 1) wherein the amount appears to be P1,875, which
includes the 25 per cent interest on the sum of P1,500 for the term of
one year.
The plaintiffs allege that at the maturity of this loan, August 31,
1912, the plaintiff Eusebio M. Villaseor, being unable to pay the
loan, obtained from the defendant an extension, with the condition
that the loan was to continue, drawing interest at the rate of 25 per
cent per annum, so long as the security given was sufficient to cover
the capital and the accrued interest. In the month of August, 1919,
the plaintiff Eusebio M. Villaseor, in company with Carlos M.
Dreyfus, went to the house of the defendant and offered to pay the
loan and redeem the jewels, taking with him, for this purpose, the
sum of P11,000, but the defendant then informed them that the time
for the redemption had already elapsed. The plaintiffs renewed their
offer to redeem the jewelry by paying the loan, but met with the same
reply. These facts are proven by the testimony of the plaintiffs,
corroborated by Carlos M. Dreyfus.
The plaintiffs now bring this action to compel the defendant to
return the jewels pledged, or their value, upon the payment by them
of the sum they owe the defendant, with the interest thereon.
The defendant alleges, in his defense, that upon the maturity
of the loan, August 31, 1912, he requested the plaintiff, Eusebio M.
Villaseor, to secure the money, pay the loan and redeem the
jewels, as he needed money to purchase a certain piece of land; that
one month thereafter, the plaintiff, Filomena Sarmiento, went to his
house and offered to sell him the jewels pledged for P3,000; that the
defendant then told her to come back on the next day, as he was to
see his brother, Catalino Javellana, and ask him if he wanted to take
the jewels for that sum; that on the next day the plaintiff, Filomena
Sarmiento, went back to the house of the defendant who then paid
her the sum of P1,125, which was the balance remaining of the
P3,000 after deducting the plaintiff's loan.
It appearing that the defendant possessed these jewels
originally, as a pledge to secure the payment of a loan stated in
writing, the mere testimony of the defendant to the effect that later
they were sold to him by the plaintiff, Filomena Sarmiento, against
the positive testimony of the latter that she did not make any such
sale, requires a strong corroboration to be accepted. We do not find
the testimony of Jose Sison to be of sufficient value as such
corroboration. This witness testified to having been in the house of
the defendant when Filomena went there to offer to sell the
defendant the jewels, as well as on the third day when she returned
to receive the price. According to this witness, he happened to be in
the house of the defendant, having gone there to solicit a loan, and
also accidentally remained in the house of the defendant for three
days, and that that was how he happened to witness the offer to sell,
as well as the receipt of the price on the third day. But not only do we
find that the defendant has not sufficiently established, by his
evidence, the fact of the purchase of the jewels, but also that there is
a circumstance tending to show the contrary, which is the fact that up
to the trial of this cause the defendant continued in possession of the
documents, Exhibits A and 1, evidencing the loan and the pledge. If
the defendant really bought these jewels, its seems natural that
Filomena would have demanded the surrender of the documents
evidencing the loan and the pledge, and the defendant would have
returned them to plaintiff.
Our conclusion is that the jewels pledged to defendant were
not sold to him afterwards.
Another point on which evidence was introduced by both
parties is as to the value of the jewels in the event that they were not
returned by the defendant. In view of the evidence of record, we
accept the value of P12,000 fixed by the trial court.
From the foregoing it follows that, as the jewels in question
were in the possession of the defendant to secure the payment of a
loan of P1,500, with interest thereon at the rate of 25 per cent per
annum from Augusts 31, 1911, to August 31, 1912, and the
defendant having subsequently extended the term of the loan
indefinitely, and so long as the value of the jewels pledged was
sufficient to secure the payment of the capital and the accrued
interest, the defendant is bound to return the jewels or their value
(P12,000) to plaintiffs, and the plaintiffs have the right to demand the
same upon the payment by them of the sum of P1,5000, plus the
interest thereon at the rate of 25 per cent per annum from August 28,
1911.
The judgment appealed from being in accordance with this
findings, the same is affirmed without special pronouncement as to
costs. So ordered.
Araullo, C.J., Street, Malcolm, Villamor, Ostrand and Romualdez,
JJ., concur.


R E S O L U T I O N
April 4, 1923
AVANCEA, J .:
The defendant contends that the plaintiffs' action for the
recovery of the jewels pledged has prescribed. Without deciding
whether or not the action to recover the thing pledged may prescribe
in any case, it not being necessary for the purposes of this opinion,
but supposing that it may, still the defendant's contention is
untenable. In the document evidencing the loan in question there is
stated: "I transfer by way of pledge the following jewels." That this is
a valid contract of pledge there can be no question. As a matter of
fact the defendant does not question it, but take s it for granted.
However, it is contended that the obligation of the defendant to
return the jewels pledged must be considered as not stated in
writing, for this obligation is not expressly mentioned in the
document. But if this contract of pledge is in writing, it must
necessarily be admitted that the action to enforce the right, which
constitutes the essence of this contract, is covered by a written
contract. The duty of the creditor to return the thing pledged in case
the principal obligation is fulfilled is essential in all contracts of
pledge. This constitutes, precisely, the consideration of the debtor in
this accessory contract, so that if this obligation of the creditor to
return to thing pledged, and the right of the debtor to demand the
return thereof, are eliminated, the contract would not be a contract of
pledge. It would be a donation.
If the right of the plaintiffs to recover the thing pledged is
covered by a written contract, the time for the prescription of this
action is ten years, according to section 43 of the Code of Civil
Procedure.
The defendant contends that the time of prescription of the
action of the plaintiffs to recover the thing pledged must be computed
from August 28, 1911, the date of the making of the contract of loan
secured by this pledge. The term of this loan is one year. However, it
is contended that the action of the plaintiff to recover the thing
pledged accrued on the very date of the making of the contract,
inasmuch as from that date they could have recovered the same by
paying the loan even before the expiration of the period fixed for
payment. This view is contrary to law. Whenever a term for the
performance of an obligation is fixed, it is presumed to have been
established for the benefit of the creditor as well as that of the
debtor, unless from its tenor or from other circumstances it should
appear that the term was established for the benefit of one or the
other only (art. 1128 of the Civil Code.) In this case it does not
appear, either from any circumstance, or from the tenor of the
contract, that the term of one year allowed the plaintiffs to pay the
debt was established in their favor only. Hence it must be presumed
to have been established for the benefit of the defendant also. And it
must be so, for this is a case of a loan, with interest, wherein the
term benefits the plaintiffs by the use of the money, as well as the
defendant by the interest. This being so, the plaintiffs had no right to
pay the loan before the lapse of one year, without the consent of the
defendant, because such a payment in advance would have
deprived the latter of the benefit of the stipulated interest. It follows
from this that appellant is in error when he contents that the plaintiffs
could have paid the loan and recovered the thing pledged from the
date of the execution of the contract and, therefore, his theory that
the action of the plaintiffs to recover the thing pledged accrued from
the date of the execution of the contract is not tenable. 1awph!l.net
It must, therefore, be admitted that the action of the plaintiffs
for the recovery of the thing pledged did not accrue until August 31,
1912, when the term fixed for the loan expired. Computing the time
from that date to that of the filing of the complaint in this cause,
October 9, 1920, it appears that the ten years fixed by the law for the
prescription of the action have not yet elapsed.
On the other hand, the contract of loan with pledge is in writing
and the action of the defendant for the recovery of the loan does not
prescribe until after ten years. It is unjust to hold that the action of the
plaintiffs for the recovery of the thing pledged, after the payment of
the loan, has already prescribed while the action of the defendant for
the recovery of the loan has not yet prescribed. The result of this
would be that the defendant might have collected the loan and at the
same time kept the thing pledged. The motion for reconsideration is
denied.
Araullo, C.J., Malcolm, Ostrand and Romualdez, JJ., concur.















Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21069 October 26, 1967
MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-
appellee,
vs.
RODOLFO R. VELAYO, defendant-appellant.
Villaluz Law Office for plaintiff-appellee.
Rodolfo R. Velayo for and in his own behalf as defendant-appellant.
REYES, J.B.L., J .:
Direct appeal from a judgment of the Court of First Instance of
Manila (Civil Case No. 49435) sentencing appellant Rodolfo Velayo
to pay appellee Manila Surety & Fidelity Co., Inc. the sum of
P2,565.00 with interest at 12-% per annum from July 13, 1954;
P120.93 as premiums with interest at the same rate from June 13,
1954: attorneys' fees in an amount equivalent to 15% of the total
award, and the costs.
Hub of the controversy are the applicability and extinctive effect of
Article 2115 of the Civil Code of the Philippines (1950).
The uncontested facts are that in 1953, Manila Surety & Fidelity Co.,
upon request of Rodolfo Velayo, executed a bond for P2,800.00 for
the dissolution of a writ of attachment obtained by one Jovita
Granados in a suit against Rodolfo Velayo in the Court of First
Instance of Manila. Velayo undertook to pay the surety company an
annual premium of P112.00; to indemnify the Company for any
damage and loss of whatsoever kind and nature that it shall or may
suffer, as well as reimburse the same for all money it should pay or
become liable to pay under the bond including costs and attorneys'
fees.
As "collateral security and by way of pledge" Velayo also delivered
four pieces of jewelry to the Surety Company "for the latter's further
protection", with power to sell the same in case the surety paid or
become obligated to pay any amount of money in connection with
said bond, applying the proceeds to the payment of any amounts it
paid or will be liable to pay, and turning the balance, if any, to the
persons entitled thereto, after deducting legal expenses and costs
(Rec. App. pp. 12-15).
Judgment having been rendered in favor of Jovita Granados and
against Rodolfo Velayo, and execution having been returned
unsatisfied, the surety company was forced to pay P2,800.00 that it
later sought to recoup from Velayo; and upon the latter's failure to do
so, the surety caused the pledged jewelry to be sold, realizing
therefrom a net product of P235.00 only. Thereafter and upon
Velayo's failure to pay the balance, the surety company brought suit
in the Municipal Court. Velayo countered with a claim that the sale of
the pledged jewelry extinguished any further liability on his part
under Article 2115 of the 1950 Civil Code, which recites:
Art. 2115. The sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of the sale
are equal to the amount of the principal obligation, interest
and expenses in a proper case. If the price of the sale is
more than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed. If the price of the sale
is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
The Municipal Court disallowed Velayo's claims and rendered
judgment against him. Appealed to the Court of First Instance, the
defense was once more overruled, and the case decided in the
terms set down at the start of this opinion.
Thereupon, Velayo resorted to this Court on appeal.
The core of the appealed decision is the following portion thereof
(Rec. Appeal pp. 71-72):
It is thus crystal clear that the main agreement between the
parties is the Indemnity Agreement and if the pieces of
jewelry mentioned by the defendant were delivered to the
plaintiff, it was merely as an added protection to the latter.
There was no understanding that, should the same be sold
at public auction and the value thereof should be short of the
undertaking, the defendant would have no further liability to
the plaintiff. On the contrary, the last portion of the said
agreement specifies that in case the said collateral should
diminish in value, the plaintiff may demand additional
securities. This stipulation is incompatible with the idea of
pledge as a principal agreement. In this case, the status of
the pledge is nothing more nor less than that of a mortgage
given as a collateral for the principal obligation in which the
creditor is entitled to a deficiency judgment for the balance
should the collateral not command the price equal to the
undertaking.
It appearing that the collateral given by the defendant in
favor of the plaintiff to secure this obligation has already
been sold for only the amount of P235.00, the liability of the
defendant should be limited to the difference between the
amounts of P2,800.00 and P235.00 or P2,565.00.
We agree with the appellant that the above quoted reasoning of the
appealed decision is unsound. The accessory character is of the
essence of pledge and mortgage. As stated in Article 2085 of the
1950 Civil Code, an essential requisite of these contracts is that they
be constituted to secure the fulfillment of a principal obligation, which
in the present case is Velayo's undertaking to indemnify the surety
company for any disbursements made on account of its attachment
counterbond. Hence, the fact that the pledge is not the principal
agreement is of no significance nor is it an obstacle to the application
of Article 2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of
the sale of the pledged chattels must be derived from stipulation.
This is incorrect, because Article 2115, in its last portion, clearly
establishes that the extinction of the principal obligation supervenes
by operation of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency notwithstanding any
stipulation to the contrary.
The provision is clear and unmistakable, and its effect can not be
evaded. By electing to sell the articles pledged, instead of suing on
the principal obligation, the creditor has waived any other remedy,
and must abide by the results of the sale. No deficiency is
recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It
is but an extension of the legal prescription contained in Article
1484(3) of the same Code, concerning the effect of a foreclosure of a
chattel mortgage constituted to secure the price of the personal
property sold in installments, and which originated in Act 4110
promulgated by the Philippine Legislature in 1933.
WHEREFORE, the decision under appeal is modified and the
defendant absolved from the complaint, except as to his liability for
the 1954 premium in the sum of P120.93, and interest at 12-
1/2% per annum from June 13, 1954. In this respect the decision of
the Court below is affirmed. No costs. So ordered.
Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ.,concur.



Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.
D E C I S I O N
TINGA, J .:
The assailed decision of the Court of Appeals took off on the premise
that pledged shares of stock auctioned off in a notarial sale could still
be redeemed by their owners. This notion is wrong, and we thus
reverse.
The facts, as culled from the record, follow.
Respondents were the owners, in their respective personal
capacities, of shares of stock in a corporation known as the Quirino-
Leonor-Rodriguez Realty Inc.
1
Sometime during the years 1979 to
1980, 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. The shares pledged are listed
below:
Miguel Rodriguez Jariol .1,000 shares covered by Stock Certifi-
cates No. 011, 060, 061 & 062;
Abdulia C. Rodriguez . 300 shares covered by Stock Certificates
No. 023 & 093;
Leonora R. Nolasco .. 407 shares covered by Stock Certificates
No. 091 & 092;
Genoveva Soronio. 699 shares covered by Stock Certificates
No. 025, 059 & 099;
Dolores R. Soberano. 699 shares covered by Stock Certificates
No. 021, 053, 022 & 097;
Julia Generoso .. 1,100 shares covered by Stock Certificates
No. 085, 051, 086 & 084;
Teresita Natividad.. 440 shares covered by Stock Certificates
Nos. 054 & 055
2

When the Parays attempted to foreclose the pledges on account of
respondents failure to pay their loans, respondents filed complaints
with the Regional Trial Court (RTC) of Cebu City. The actions, which
were consolidated and tried before RTC Branch 14, Cebu City,
sought the declaration of nullity of the pledge agreements, among
others. However the RTC, in its decision
3
dated 14 October 1988,
dismissed the complaint and gave "due course to the foreclosure and
sale at public auction of the various pledges subject of these two
cases."
4
This decision attained finality after it was affirmed by the
Court of Appeals and the Supreme Court. The Entry of Judgment
was issued on 14 August 1991.
Respondents then received Notices of Sale which indicated that the
pledged shares were to be sold at public auction on 4 November
1991. However, before the scheduled date of auction, all of
respondents caused the consignation with the RTC Clerk of Court of
various amounts. It was claimed that respondents had attempted to
tender these payments to the Parays, but had been rebuffed. The
deposited amounts were as follows:
Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991
Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991
Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991
38,385.44 .. 14 Oct. 1991
Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991
Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991
Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991
520,216.39 ..11 Nov. 1991
Miguela Jariol . 490,000.00.. 18 Oct. 1991
88,000.00 ..18 Oct. 1991
5

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. None of
respondents participated or appeared at the auction of 4 November
1991.
Respondents instead filed on 13 November 1991 a complaint
seeking the declaration of nullity of the concluded public auction. The
complaint, docketed as Civil Case No. CEB-10926, was assigned to
Branch 16 of the Cebu City RTC. Respondents argued that their
tender of payment and subsequent consignations served to
extinguish their loan obligations and discharged the pledge
contracts. Petitioners countered that the auction sale was conducted
pursuant to the final and executory judgment in Civil Cases Nos. R-
20120 and 20131, and that the tender of payment and consignations
were made long after their obligations had fallen due.
The Cebu City RTC dismissed the complaint, expressing agreement
with the position of the Parays.
6
It held, among others that
respondents had failed to tender or consign payments within a
reasonable period after default and that the proper remedy of
respondents was to have participated in the auction sale.
7
The Court
of Appeals Eighth Division however reversed the RTC on appeal,
ruling that the consignations extinguished the loan obligations and
the subject pledge contracts; and the auction sale of 4 November
1991 as null and void.
8
Most crucially, the appellate court chose to
uphold the sufficiency of the consignations owing to an imputed
policy of the law that favored redemption and mandated a liberal
construction to redemption laws. The attempts at payment by
respondents were characterized as made in the exercise of the right
of redemption.
The Court of Appeals likewise found fault with the auction sale,
holding that there was a need to individually sell the various shares
of stock as they had belonged to different pledgors. Thus, it was
observed that the minutes of the auction sale should have specified
in detail the bids submitted for each of the shares of the pledgors for
the purpose of knowing the price to be paid by the different pledgors
upon redemption of the auctioned sales of stock.
Petitioners now argue before this Court that they 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 Nos. R-20120 and 20131, which did not
authorize the payment of the principal obligation by respondents.
They point out that the amounts consigned could not extinguish the
principal loan obligations of respondents since they were not
sufficient to cover the interests due on the debt. They likewise argue
that the essential procedural requisites for the auction sale had been
satisfied.
We rule in favor of petitioners.
The fundamental premise from which the appellate court proceeded
was that the consignations made by respondents should be
construed in light of the rules of redemption, as if respondents were
exercising such right. In that perspective, the Court of Appeals made
three crucial conclusions favorable to respondents: that their act of
consigning the payments with the RTC should be deemed done in
the exercise of their right of redemption; that the buyer at public
auction does not ipso facto become the owner of the pledged shares
pending the lapse of the one-year redemptive period; and that the
collective sale of the shares of stock belonging to several individual
owners without specification of the apportionment in the applications
of payment deprives the individual owners of the opportunity to know
of the price they would have to pay for the purpose of exercising the
right of redemption.
The appellate courts dwelling on the right of redemption is utterly off-
tangent. The right of redemption involves payments made by debtors
after the foreclosure of their properties, and not those made or
attempted to be made, as in this case, before the foreclosure sale.
The proper focus of the Court of Appeals should have been whether
the consignations made by respondents sufficiently acquitted them of
their principal obligations. A pledge contract is an accessory
contract, and is necessarily discharged if the principal obligation is
extinguished.
Nonetheless, the Court is now confronted with this rather new
fangled theory, as propounded by the Court of Appeals, involving the
right of redemption over pledged properties. We have no hesitation
in pronouncing such theory as discreditable.
Preliminarily, 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.
9

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 them in the following fashion:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing the complaints at bar, and
(1) Declaring the various pledges covered in Civil Cases
Nos. R-20120 and R-20131 valid and effective; and
(2) Giving due course to the foreclosure and sale at public
auction of the various pledges subject of these two cases.
Costs against the plaintiffs.
SO ORDERED.
10

The phrase "giving due course to the foreclosure and sale at public
auction of the various pledges subject of these two cases" may give
rise to the impression that such sale is judicial in character. While the
decision did authorize the sale by public auction, such declaration
could not detract from the fact that the sale so authorized is actually
extrajudicial in character. Note that the final judgment in said cases
expressly did not direct the sale by public auction of the pledged
shares, but instead upheld the right of the Parays to conduct such
sale at their own volition.
Indeed, as affirmed by the Civil Code,
11
the decision to proceed with
the sale by public auction remains in the sole discretion of the
Parays, who could very well choose not to hold the sale without
violating the final judgments in the aforementioned civil cases. If the
sale were truly in compliance with a final judgment or order, the
Parays would have no choice but to stage the sale for then the order
directing the sale arises from judicial compulsion. But nothing in the
dispositive portion directed the sale at public auction as a mandatory
recourse, and properly so since the sale of pledged property in public
auction is, by virtue of the Civil Code, extrajudicial in character.
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.
The Court of Appeals expressly asserted the notion that pledged
property, necessarily personal in character, may be redeemed by the
creditor after being sold at public auction. Yet, as a fundamental
matter, 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 sold as security for the satisfaction of
an unpaid obligation does not exist preternaturally. Neither is it
predicated on proprietary right, which, after the sale of property on
execution, leaves the judgment debtor and vests in the purchaser.
Instead, it is a bare statutory privilege to be exercised only by the
persons named in the statute.
12

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.
Tellingly, this Court, as early as 1927, rejected the proposition that
personal property may be covered by the right of redemption.
In Sibal 1. v. Valdez,
13
the Court ruled that sugar cane crops are
personal property, and thus, not subject to the right of
redemption.
14
No countervailing statute has been enacted since then
that would accord the right of redemption over personal property,
hence the Court can affirm this decades-old ruling as effective to
date.
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 courts 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.
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. This concern is
obviously rendered a non-issue by the fact that there can be no right
to redemption in the first place. 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.
15
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.
16

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. However, in this case, none of the
pledgors participated in the auction, and the sole bidder cast his bid
for all of the shares. There obviously is no longer any practical
reason to apportion the bid price to the respective shares, since no
matter how slight or significant the value of the purchase price for the
individual share is, the sale is completed, with the pledgor and the
pledgee not entitled to recover the excess or the deficiency, as the
case may be. To invalidate the subject auction solely on this point
serves no cause other than to celebrate formality for formalitys sake.
Clearly, the theory adopted by the Court of Appeals is in shambles,
and cannot be resurrected. The question though yet remains
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.
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.
Respondents argue that their various consignations made prior to
the auction sale discharged them from the loan and the pledge
agreements. They are mistaken.
Petitioners point out that while the amounts consigned by
respondents could answer for their respective principal loan
obligations, they were not sufficient to cover the interests due on
these loans, which were pegged at the rate of 5% per month or 60%
per annum. Before this Court, respondents, save for Dolores
Soberano, do not contest this interest rate as alleged by petitioners.
Soberano, on the other hand, challenges this interest rate as
"usurious."
17

The particular pledge contracts did not form part of the records
elevated to this Court. However, the 5% monthly interest rate was
noted in the statement of facts in the 14 October 1988 RTC Decision
which had since become final. Moreover, the said decision
pronounced that even assuming that the interest rates of the various
loans were 5% per month, "it is doubtful whether the interests so
charged were exorbitantly or excessively usurious. This is because
for sometime now, usury has become legally inexistent."
18
The
finality of this 1988 Decision is a settled fact, and thus the time to
challenge the validity of the 5% monthly interest rate had long
passed. With that in mind, there is no reason for the Court to
disagree with petitioners that in order that the consignation could
have the effect of extinguishing the pledge contracts, such amounts
should cover not just the principal loans, but also the 5% monthly
interests thereon.
It bears noting that the Court of Appeals also ruled that respondents
had satisfied the requirements under Section 18, Rule 39, which
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.
19
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." The
reference is inapropos, and even if it were applicable, the failure of
the payment to cover the interests due renders it insufficient to stay
the sale.
The effect of the finality of the judgments in Civil Cases Nos. R-
20120 and R-20131 should also not be discounted. Petitioners right
to proceed with the auction sale was affirmed not only by law, but
also by a final court judgment. Any subsequent court ruling that
would enjoin the petitioners from exercising such right would have
the effect of superseding a final and executory judgment.
Finally, we cannot help but observe that respondents may have
saved themselves much trouble if they simply participated in the
auction sale, as they are permitted to bid themselves on their
pledged properties.
20
Moreover, they would have had a better right
had they
matched the terms of the highest bidder.
21
Under the circumstances,
with the high interest payments that accrued after several years,
respondents were even placed in a favorable position by the pledge
agreements, since the creditor would be unable to recover any
deficiency from the debtors should the sale price be insufficient to
cover the principal amounts with interests. Certainly, had
respondents participated in the auction, there would have been a
chance for them to recover the shares at a price lower than the
amount that was actually due from them to the Parays. That
respondents failed to avail of this beneficial resort wholly accorded
them by law is their loss. Now, all respondents can recover is the
amounts they had consigned.
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.
SO ORDERED.















Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 90676 June 19, 1991
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA
J. TRIA TIRONA, Presiding Judge of the Regional Trial Court of
Quezon City, Branch CII and SPS. RAFAEL and REFUGIO
AQUINO, respondents.
Padilla Law Office for petitioner.
Rodolfo T. Galing and Chaves, Hechanova & Lim Law Offices for
private respondents.

FELICIANO, J .:p
On 5 April 1982, respondent spouses Rafael and Refugio Aquino
pledged certain shares of stock to petitioner State Investment House,
Inc. ("State") in order to secure a loan of P120,000.00 designated as
Account No. IF-82-0631-AA. Prior to the execution of the pledge,
respondent-spouses, as an accommodation to and together with the
spouses Jose and Marcelina Aquino, signed an agreement (Account
No. IF-82-1379-AA) with petitioner State for the latter's purchase of
receivables amounting to P375,000.00. When Account No. IF-82-
0631-AA fell due, respondent spouses paid the same partly with their
own funds and partly from the proceeds of another loan which they
obtained also from petitioner State designated as Account No. IF-82-
0904-AA. This new loan was secured by the same pledge agreement
executed in relation to Account No. IF-820631-AA. When the new
loan matured, State demanded payment. Respondents expressed
willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the
ground that the loan which it had extended to the spouses Jose and
Marcelina Aquino (Account No. IF-82-1379- AA) had remained
unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent
spouses a Notice of Notarial Sale stating that upon request of State
and by virtue of the pledge agreement, he would sell at public
auction the shares of stock pledged to State. This prompted
respondents to file a case before the Regional Trial Court of Quezon
City alleging that the intended foreclosure sale was illegal because
from the time the obligation under Account No. IF-82-0904-AA
became due, they had been able and willing to pay the same, but
petitioner had insisted that respondents pay even the loan account of
Jose and Marcelina Aquino which had not been secured by the
pledge. It was further alleged that their failure to pay their loan
(Account No. IF-82-0904-AA) was excused because the petitioner
State itself had prevented the satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by
Judge Willelmo Fortun, initially dismissed the complaint. Respondent
spouses filed a motion for reconsideration praying for a new decision
ordering petitioner State to release the shares upon payment of
respondents' loan "without interest," as the latter had not been in
delay in the performance of their obligation. State countered that the
pledge executed by respondent spouses also covered the loan
extended to Jose and Marcelina Aquino, which too should be paid
before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his
original decision and rendered a new judgment dated 29 January
1985, ordering State to immediately release the pledge and to deliver
to respondents the share of stock "upon payment of the loan under
Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of
the trial court, holding that the loan extended to Jose and Marcelina
Aquino, having been executed prior to the pledge was not covered
by the pledge which secured only loans executed subsequently.
Thus, upon payment of the loan under Code No. IF-0904-AA, the
shares of stock should be released. The decisions of the Court of
Appeals and of Judge Fortun became final and executory.
Upon remand of the records of the case to the trial court for
execution, there developed disagreement over the amount which
respondent spouses Rafael and Refugio Aquino should pay to
secure the release of the shares of stock petitioner State
contending that respondents should also pay interest and
respondents arguing they should not. Respondent spouses then filed
a motion with the trial court to clarify the Fortun decision praying that
an order issue clarifying the phrase "upon payment of plaintiffs' loan"
to mean upon payment of plaintiff' loan in the principal amount of
P110,000.00 alone, "without interest, penalties and other charges."
On 17 February 1989, the trial court, speaking this time through
Judge Perlita Tria Tirona, rendered a decision purporting to clarify
the decision of Judge Fortun and ruling that petitioner State shall
release respondents' shares of stock upon payment by respondents
of the principal of the loan as set forth in PN No. 82-0904-AA in the
amount of P110,000.00, without interest, penalties and other
charges.
Petitioner State appealed Judge Tirona's decision to the Court of
Appeals; the appeal was dismissed. The Court of Appeals agreed
with Judge Tirona that no interest need be paid and added that the
clarificatory (Tirona) decision of the trial court merely restated what
had been provided for in the earlier (Fortun) decision; that the Tirona
decision did not go beyond what had been adjudged in the earlier
decision. The motion for reconsideration filed by petitioner was
accordingly denied.
Hence, this Petition for Review contending that no manifest
ambiguity existed in the decision penned by Judge Fortun; that the
trial court through Judge Tirona, erred in clarifying the decision of
Judge Fortun; and that the amendment sought to be introduced in
the Fortun decision by respondents may not be made as the same
was substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue
the clarificatory order in respect of the decision of Judge Fortun,
even though that judgment had become final and executory.
In Reinsurance Company of the Orient, Inc. v. Court of
Appeals,
1
this Court had occasion to deal with the applicable
doctrine to some extent:
- - - [E]ven a judgment which has become final and
executory may be clarified under certain
circumstances. The dispositive portion of the
judgment may, for instance, contain an error clearly
clerical in nature (perhaps best illustrated by an error
in arithmetical computation) or an ambiguity arising
from inadvertent omission, which error may be
rectified or ambiguity clarified and the omission
supplied by reference primarily to the body of the
decision itself Supplementary reference to the
pleadings previously filed in the case may also be
resorted to by way of corroboration of the existence
of the error or of the ambiguity in the dispositive part
of the judgment. In Locsin, et al. v. Parades, et al.,
this Court allowed a judgment which had become
final and executory to be clarified by supplying a
word which had been inadvertently omitted and
which, when supplied, in effect changed the literal
import of the original phraseology:
. . . it clearly appears from the
allegations of the complaint, the
promissory note reproduced therein
and made a part thereof, the prayer
and the conclusions of fact and of
law contained in the decision of the
respondent judge, that the obligation
contracted by the petitioners is joint
and several and that the parties as
well as the trial judge so understood
it. Under the juridical rule that the
judgment should be in accordance
with the allegations, the evidence
and the conclusions of fact and law,
the dispositive part of the judgment
under consideration should have
ordered that the debt be paid
'severally' and in omitting the word
or adverb 'severally' inadvertently,
said judgment became
ambiguous. This ambiguity may be
clarified at any time after the
decision is rendered and even after
it had become final (34 Corpus
Juris, 235, 326). This respondent
judge did not, therefore, exceed his
jurisdiction in clarifying the
dispositive part of the judgment by
supplying the omission. (Emphasis
supplied)
In Filipino Legion Corporation vs. Court of Appeals,
et al., the applicable principle was set out in the
following terms:
[W]here there is ambiguity caused by an omission or
mistake in the dispositive portion of a decision,
the court may clarify such ambiguity by an
amendment even after the judgment had become
final, and for this purpose it may resort to the
pleadings filed by the parties, the court's findings of
facts and conclusions of law as expressed in the
body of the decision. (Emphasis supplied)
In Republic Surety and Insurance Company,
Inc. v. Intermediate Appellate Court, the Court, in
applying the above doctrine, said:
. . . We clarify, in other words, what we did affirm.
That is involved here is not what is ordinarily
regarded as a clerical error in the dispositive part of
the decision of the Court of First Instance, . . . At the
same time, what is involved here is not a correction
of an erroneous judgment or dispositive portion of a
judgment. What we believe is involved here is in the
nature of an inadvertent omission on the part of the
Court of First Instance (which should have been
noticed by private respondents' counsel who had
prepared the complaint), of what might be described
as a logical follow-through of something set forth
both in the body of the decision and in the
dispositive portion thereof; the inevitable follow-
through, or translation into, operational or behavioral
terms, of the annulment of the Deed of Sale with
Assumption of Mortgage, from which petitioners' title
or claim of title embodied in TCT 133153 flows.
(Emphasis supplied)
2
(Underscoring in the original;
citations omitted)
The question we must resolve is thus whether or not there is an
ambiguity or clerical error or inadvertent omission in the dispositive
portion of the decision of Judge Fortun which may be legitimately
clarified by referring to the body of the decision and perhaps even
the pleadings filed before him. The decision of Judge Fortun
disposing of the motion for reconsideration filed by respondent
spouses Rafael and Refugio Aquino consisted basically of quoting
practically the whole motion for reconsideration. In its dispositive
portion, Judge Fortun's decision stated:
WHEREFORE, plaintiffs "Motion for
Reconsideration" dated January 3, 1985, is granted
and the decision of this Court dated December 14,
1984 is hereby revoked and set aside and another
judgment is hereby rendered in favor of plaintiffs as
follows:
(1) Ordering defendants to immediately release the
pledge on, and to deliver to plaintiffs, the shares of
stocks enumerated and described in paragraph 4 of
plaintiffs' complaint dated July 17, 1984, upon
payment of plaintiffs loan under Code No. 82-0904-
AA to defendants;
(2) Ordering defendant State Investment House, Inc.
to pay to plaintiffs P10,000.00 as moral damages,
P5,000.00 as exemplary damages, P6,000.00 as
attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of
merit and making the preliminary injunction
permanent.
SO ORDERED.
3

Judge Fortun evidently meant to act favorably on the motion for
reconsideration of the respondent Aquino spouses and in effect
accepted respondent spouses' argument that they
had not incurred mora considering that their failure to pay PN No.
IF82-0904-AA on time had been due to petitioner State's unjustified
refusal to release the shares pledged to it. It is not, however, clear to
what precise extent Judge Fortun meant to grant the motion for
reconsideration. The promissory note in Account No. IF-82-0904-AA
had three (3) components: (a) principal of the loan in the amount of
P110,000.00; (b) regular interest in the amount of seventeen percent
(17%) per annum; and (c) additional or penalty interest in case of
non-payment at maturity, at the rate of two percent (2%) per month
or twenty-four percent (24%) per annum. In the dispositive part of his
resolution, Judge Fortun did not specify which of these components
of the loan he was ordering respondent spouses to pay and which
component or components he was in effect deleting. We cannot
assume that Judge Fortun meant to grant the relief prayed for by
respondent spouses in all its parts. For one thing, respondent
spouses in their motion for reconsideration asked for "at least
P50,000.00" for moral damages and "at least P50,000.00" for
exemplary damages, as well as P20,000.00 by way of attorney's fees
and litigation expenses. Judge Fortun granted respondent spouses
only P10,000.00 as moral damages and P5,000.00 as exemplary
damages, plus P6,000.00 as attorney's fees and costs. For another,
respondent spouses asked Judge Fortun to order the release of the
shares pledged "upon payment of [respondent spouses'] loan under
Code No. 82-0904-AA without interest, as plaintiffs were not in delay
in accordance with Article 69 of the New Civil Code " (Emphasis
supplied). In other words, respondent spouses did not themselves
become very clear what they were asking Judge Fortun to grant
them; they did not apparently distinguish between regular interest or
"monetary interest" in the amount of seventeen percent (17%) per
annumand penalty charges or "compensatory interest" in the amount
of two percent (2%) per month or twenty-four percent (24%) per
annum.
It thus appears that the Fortun decision was ambiguous in the sense
that it was cryptic. We believe that in these circumstances, we must
assume that Judge Fortun meant to decide in accordance with
law, that we cannot fairly assume that Judge Fortun was grossly
ignorant of the law, or that he intended to grant the respondent
spouses relief to which they were not entitled under law. Thus, the
ultimate question which arises is: if respondent Aquino spouses
were not in delay, what should they have been held liable for in
accordance with law?
We believe and so hold that since respondent Aquino spouses were
held not to have been in delay, they were properly liable only for: (a)
the principal of the loan or P110,000.00; and (b) regular or monetary
interest in the amount of seventeen percent (17%) per annum. They
were not liable for penalty or compensatory interest, fixed by the
promissory note in Account No. IF-82-0904-AA at two percent (2%)
per month or twenty-four (24%) per annum. It must be stressed in
this connection that under Article 2209 of the Civil Code which
provides that
. . . [i]f the obligation consists in the payment of a
sum of money, and the debtor incurs in delay. the
indemnity for damages, there being no stimulation to
the contrary. shall be the payment of the interest
agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.
the appropriate measure for damages in case of delay in discharging
an obligation consisting of the payment of a sum or money, is the
payment of penalty interest at the rate agreed upon; and in the
absence of a stipulation of a particular rate of penalty interest, then
the payment of additional interest at a rate equal to the regular
monetary interest; and if no regular interest had been agreed upon,
then payment of legal interest or six percent (6%) per annum.
4

The fact that the respondent Aquino spouses were not in default
did not mean that they, as a matter of law, were relieved from the
payment not only of penalty or compensatory interest at the rate of
twenty-four percent (24%)per annum but also of regular or monetary
interest of seventeen percent (17%) per annum. The regular or
monetary interest continued to accrue under the terms of the
relevant promissory note until actual payment is effected. The
payment of regular interest constitutes the price or cost of the use of
money and thus, until the principal sum due is returned to the
creditor, regular interest continues to accrue since the debtor
continues to use such principal amount. The relevant rule is set out
in Article 1256 of the Civil Code which provides as follows:
Art. 1256. If the creditor to whom tender of payment
has been made refuses without just cause to accept
it, the debtor shall be released from responsibility by
the consignation of the thing or sum due.
Consignation alone shall produce the same effect in
the following cases:
(1) When the creditor is absent or unknown, or does
not appear at the place of payment;
(2) When he is incapacitated to receive the payment
at the time it is due;
(3) When, without just cause, he refuses to give a
receipt;
(4) When two or more persons claim the same right
to collect;
(5) When the title of the obligation has been lost.
(Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the
debtor desirous of being released from his obligation must
comply with two (2) conditions: (a) tender of payment; and
(b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the
effects of payment may be produced. Thus, in Llamas
v. Abaya,
5
the Supreme Court stressed that a written tender
of payment alone, without consignation in court of the sum
due, does not suspend the accruing of regular or monetary
interest.
In the instant case, respondent spouses Aquino, while they are
properly regarded as having made a written tender of payment to
petitioner State, failed to consign in court the amount due at the time
of the maturity of Account No. IF-820904-AA. It follows that their
obligation to pay principal-cum-regular or monetary interest under
the terms and conditions of Account No. IF-82-0904-AA
was not extinguished by such tender of payment alone.
For the respondent spouses to continue in possession of the
principal of the loan amounting to P110,000.00 and to continue to
use the same after maturity of the loan without payment of regular or
monetary interest, would constitute unjust enrichment on the part of
the respondent spouses at the expense of petitioner State even
though the spouses had not been guilty of mora. It is precisely this
unjust enrichment which Article 1256 of the Civil Code prevents by
requiring, in addition to tender of payment, the consignation of the
amount due in court which amount would thereafter be deposited by
the Clerk of Court in a bank and earn interest to which the creditor
would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE
COURSE. The Decision of the Court of Appeals dated 30 August
1989 in C.A.-G.R. No. 17954 and the Decision of the Regional Trial
Court dated 17 February 1989 in Civil Case No. Q-42188 are hereby
REVERSED and SET ASIDE. The dispositive portion of the decision
of Judge Fortun is hereby clarified so as to read as follows:
(1) Ordering defendants to immediately release the pledge and to
deliver to the plaintiff spouses Rafael and Refugio Aquino the shares
of stock enumerated and described in paragraph 4 of said spouses'
complaint dated 17 July 1984, upon full payment of the amount of
P110,000.00 plus seventeen percent (17%) per annum regular
interest computed from the time of maturity of the plaintiffs' loan
(Account No. IF-82-0904-AA) and until full payment of such principal
and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to the
plaintiff spouses Rafael and Refugio Aquino P10,000.00 as moral
damages, P5,000.00 as exemplary damages, P6,000.00 as
attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making
the preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.





SERRANO V. CA
196 SCRA 107

FACTS:
Serrano bought some jewelry from Ribaya. Due to need of finances,
she decided to have the jewelry pawned. She instructed her
secretary to do so for her, which the secretary did but
absconded after receiving the proceeds. It is to be noted that
the pawnshop ticket indicated that the jewelry was redeemable
by presentation by the bearer. Afterwards, there was a lead on
where the jewelry was pawned. An investigation was done to verify
the suspicion. The jewelry was to be sold in a public auction then.
The petitioner and police authorities informed the pawnshop owner
not to sell the jewelry as she was the rightful owner thereof.
Despite of this however, the jewelry was redeemed by a
Tomasa de Leon who presented the pawnshop ticket.

HELD:
Having been informed by the petitioner and the police that jewelry
pawned to it was either stolen or involved in an embezzlement of the
proceeds of the pledge, pawnbroker became duty bound to hold the
things pledged and to give notice to the petitioner and
authorities of any effort to redeem them. Such a duty was
imposed by Article 21 of the CC. The circumstance that the pawn
ticket stated that the pawn was redeemable by the bearer, didnt
dissolve this duty. The pawn ticket wasnt a negotiable instrument
under the NIL, nor was it a negotiable document of title under Article
1507of the CC.