PLEDGE (Case Digests)

B. Article 2093:

YULIONGSIU v PNB (Kate Derrama)

FACTS: Yulongsiu owned 2 vessels and equity in FS-203, which were purchased by him from the Philippine Shipping
Commission, by installment. Plaintiff obtained a loan from defendant and to guarantee payment, plaintiff pledged the 2 vessels
and the equity on FS-203, as evidenced by a pledge contract. Plaintiff made a partial payment and the remaining balance was
renewed by the execution of 2 promissory notes in the banks favor. These two notes were never paid at all by plaintiff on their
respective due dates
Defendant bank filed a criminal case against plaintiff charging the latter with estafa through falsification of commercial
documents, and the trial court convicted the plaintiff and was sentenced to indemnify the defendant. The corresponding writ of
execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent.
Meanwhile, together with the institution of the criminal action, defendant took physical possession of the 2 vessels and
transferred the equity on FS-203 to the defendant. Later on, the 2 vessels were sold by defendant to third parties. Plaintiff
commenced an action for recovery on the pledged items, and alleges, among others, that the contract executed was a chattel
mortgage so the creditor defendant could not take possession of the chattel object thereof until after there has been default.

ISSUE: Whether the contract entered into between plaintiff and defendant is a chattel mortgage or a valid contract of pledge?
HELD: Its a contract of pledge. The contract itself provides that it is a contract of pledge and the judicial admission that it is a
pledge contract cannot be offset without showing of palpable mistake. The pledgee defendant was therefore entitled to the actual
possession of the vessels. The plaintiffs continued operation of the vessels after the pledge contract was entered into places his
possession subject to the order of the pledge. The pledge can temporarily entrust the physical possession of the chattels pledged
to the pledgor without invalidating the pledge. In this case, the pledgor is regarded as holding the pledge merely as a trustee for
the pledge.
As to the validity of the pledge contract with regard to delivery, plaintiff alleges that constructive delivery is insufficient to make
pledge effective. The Court ruled that type of delivery will depend on the nature and peculiar circumstances of each case. Since
the defendant bank was, pursuant to the pledge contract, in full control of the vessels through plaintiff, the former could take
actual possession at any time during the life of the pledge to make more effective its security.

b. FBDC vs. Yllas Lending Corporation (Chrsital Javier)

FACTS: Tirreno leased a unit of FBDC in Bonifacio Global City. Section 22 of their contract states that if Tirreno fails to pay the
rent (incurs default) then FBDC will have the right of possession to the personal property of Tirreno and that FBDC will be able
to offset property with the unpaid rentals. Tirreno then failed to pay so FBDC occupied the leased premises. Another company,
Yllas Lending Corporation, filed for foreclosure of chattel mortgage against Tirreno because Tirreno also failed to pay the
company the money it lent him. Yllas Lending argued that the agreement between Tirreno and FBDC was a pactum comissorium,
a void stipulation in a pledge contract. FBDC countered that it was onlu a dacion en pago.

ISSUE: Is the stipulation in the lease contract a pactum comissorium or a dacion en pago?
RULING: It is neither. It is not a dacion en pago because there is no dation in payment when there is no transfer of ownership in
the creditor's favor, as when the possession of the thing is merely given to the creditor by way of security.
There is no pactum comissorium (a void stipulation in a pledge contract) since the contract is not a pledge. The
requisites of a pledge are:(1) the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor is the
absolute owner of the thing pledged; (3) the persons constituting the pledge have the free disposal of their property or have legal
authorization for the purpose; and (4) the thing pledged is placed in the possession of the creditor, or of a third person by
common agreement. (Articles 2085 and 2093) Article 2088 of the Civil Code prohibits the creditor from appropriating or
disposing the things pledged, and any contrary stipulation is void. Section 22 of the lease contract gives FBDC a means to collect
payment from Tirreno in case of termination of the lease contract or the expiration of the lease period and there are unpaid
rentals, charges, or damages. The existence of a contract of pledge, however, does not arise just because FBDC has means of
collecting past due rent from Tirreno other than direct payment. The trial court concluded that Section 22 constitutes a pledge
because of the presence of the first three requisites of a pledge: Tirreno's properties in the leased premises secure Tirreno's lease
payments; Tirreno is the absolute owner of the said properties; and the persons representing Tirreno have legal authority to
constitute the pledge. However, the fourth requisite, that the thing pledged is placed in the possession of the creditor, is absent.
There is non-compliance with the fourth requisite even if Tirreno's personal properties are found in FBDC's real property.
Tirreno's personal properties are in FBDC's real property because of the Contract of Lease, which gives Tirreno possession of the
personal properties. Since Section 22 is not a contract of pledge, there is no pactum commissorium.
The forfeiture of the personal property was a penal clause in the contract. A penal clause is an accessory obligation
which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a
special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled. Forfeiture of the properties is the only security that FBDC may apply in case of Tirreno's default in its
obligations.

C. Article 2095:
a. PNB vs. Atendido (R-U, Glenna)

Nature: An appeal from a decision of CFI Nueva Ecija ordering Atendido to pay PNB the sum of P3,000 with interest thereon at
the rate of 6% per annum from June 26, 1940, and the costs of action.
Facts: June 26, 1940 - Atendido obtained from PNB a loan of P3,000 payable in 120 days with interest at 6% per annum from the
date of maturity. To guarantee the payment of the obligation, Atendido pledged to PNB 2,000 cavanes of palay deposited in a
warehouse in Bulacan. Atendido endorsed the corresponding warehouse receipt in favor of PNB.
Before the maturity of the loan, the 2,000 cavanes of palay disappeared for unknown reasons in the warehouse. When
the loan matured Atendido failed to pay. The present action was instituted.
Atendido claims that the warehouse receipt covering the palay which was given as security having been endorsed in
blank in favor of PNB, and the palay having been lost or disappeared, he thereby became relieved of liability. He also claims that
he is entitled to an indemnity which represents the difference between the value of the palay lost and the amount of his
obligation. CFI ruled in favor of PNB. Atendido appealed.

ISSUE: Whether the surrender of the warehouse receipt covering the 2,000 cavanes of palay given as a security, endorsed in
blank, to PNB, has the effect of transferring their title or ownership to PNB.

SC HELD: CFI decision affirmed. The surrendering of the warehouse receipt was not that of a final transfer but merely as a
guarantee to the fulfillment of the original obligation of P3,000.00. The 2,000 cavanes of palay covered by the warehouse receipt
were given to PNB only as a guarantee to secure the fulfillment by Atendido of his obligation. This appears in the contract
between them 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 Atendido (the pledgor) subject only to foreclosure in case of non-fulfillment of the obligation. If the
obligation is not paid upon maturity the most that PNB (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).
According to the SC, 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, in case of loss of the property, the loss
should be borne by the pledgor (owner).
The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to PNB 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.

D. Article 2096:
a. Ocejo Perez vs. International Bank (1918) (Krizea Duron)

FACTS:
1) On March 7, 1914, Chua Teng Chong, executed to the International Banking Corporation a promissory note, payable one
month after date, for the sum of P20,000 which note was also attached to another private document, signed by Chua, which
stated that he had deposited with the bank, as security for the said note, 5,000 piculs of sugar, which were said stored in a
warehouse in Binondo, Manila.
2) The bank made no effort to exercise any active ownership over said merchandise until the April 16, when it discovered that the
amount of sugar stored in the said warehouse was much less than what was mentioned in the contract. The agreement between
the bank and Chua Teng Chong with respect to the alleged pledge of the sugar was never recorded in a public instrument.
3) On March 24, 1914, the plaintiff partnership Ocejo, Perez and Co., entered into contract with Chua for the sale to him of
sugar where the delivery should be made in April. The delivery was completed April 16, 1914, and the sugar was stored in the
buyer's warehouse situated at Muelle de la Industria. On this same date, the bank sent an employee to inspect the sugar described
in the pledge agreement, which should have been stored in the Calle Toneleros warehouse. It was discovered that the amount of
sugar in that warehouse did not exceed 1,800 piculs, it was supposed to have 5,000 piculs of sugar. Eventually, the employee was
informed that the rest of the sugar covered by the pledge agreement was stored in the warehouse at No. 119, Muelle de la
Industria. The bank's representative immediately went to this warehouse, found 3,200 piculs of sugar, of which he took immediate
possession, closing the warehouse with the bank's padlocks.
4) On April 17, 1914, partnership Ocejo presented, for collection, its account for the purchase price of the sugar, but chua refused
to make payment, and up to the present time the sellers have been unable to collect the purchase price of the merchandise in
question.
5) The partnership Ocejo made a demand on the bank for the delivery of the sugar, to which demand the bank refused to accede.
A suit was filed by Ocejo alleging that said defendant was unlawfully holding the seized sugar, the property of the plaintiff firm
Ocejo, which the bank had received from Chua Teng Chong, and prayed for the judgment for the possession of said sugar.
6) Subsequently, by agreement of the parties, the sugar was sold and the proceeds of the deposited in the bank. Afterwards, a
complaint in intervention was filed by Chua Seco, the assignee of the insolvency of Chua Teng Chong, asserting a preferential
right to the sugar, or to the proceeds of its sale contending that the sugar is the property of the insolvent estate represented by
him. The lower court rendered judgment in favor of the Oceja

ISSUES:
(a) Did title to the sugar pass to the buyer upon its delivery to him (chua seco)?
(b) Assuming to pay that the title passed to the buyer, did his failure to pay the purchase price authorize the seller to rescind the
sale?
(c) Can the pledge of the sugar to the bank be sustained upon the evidence as to the circumstances under which it obtained
physical possession thereof?
RULING:
A) The SC agreed with Chuas contention that he was entitled to demand payment of the sugar at any time after the delivery. No
term having been stipulated within which the payment should be made, payment was demandable at the time and place of the
delivery of the thing sold. The seller did not avail himself of his right to demand payment as soon as the right to such payment
arose, but as no term for payment was stipulated, he was entitled, to require payment to be made at any time after delivery, and it
was the duty of the buyer to pay the price immediately upon demand. In essence, the delivery had the effect of transmitting the
title of the sugar to the buyer.
B) Failure on the part of the buyer to pay the price on demand: Article 1506 of the Civil Code provides that the contract of sale
may be rescinded for the same causes as all other obligations, in addition to the special causes enumerated in the preceding
articles. It is also observed that the article does not distinguish the consummated sale from the merely perfected sale. In the contract of
the sale the obligation to pay the price is correlative to the obligation to deliver the thing sold. Nonperformance by one of the
parties authorizes the other to exercise the right, conferred upon him by the law, to elect to demand the performance of the
obligation or its rescission.
C) The sugar here in question could not be possibly have been the subject matter of the contract of pledge which the parties
undertook to create by the private document, inasmuch as it was not at the time the property of the bank, and this constitutes an
indispensable requisite for the creation of a pledge.
D) It is not shown that an effort was made to pledge the sugar, the subject matter of this case. Though it happened that the day
the sugar was delivered, the Chua gave the bank's representative the keys of the warehouse on the Muelle de la Industria in which
the sugar was stored, it was not because of an agreement concerning the pledge of the sugar. From the facts, no attempt was
made to enter into any agreement for the pledge of the sugar here in question. The bank took possession of that sugar under the
erroneous belief, based upon the false statement of Chua Teng Chong, that it was a part of the lot mentioned in the private
document. Even assuming that an attempt was made to pledge the sugar and that delivery was made in accordance with the
agreement, the pledge so established would be void as against third persons since it is provided Article 1865 of the Civil Code that
a pledge is without effect as against third persons "if the certainty of the date does not appear by public instrument."
E) As to assignee Chua Seco: He filed a complaint in intervention in this suit, in which he contends that by reason of its sale and
delivery by plaintiff to the insolvent, title to the sugar passed to the latter and that the pledge set up by the bank is void as to third
persons. The title to the sugar having been commenced against him before the declaration of insolvency, the assignee, Chua Seco,
has a better right to its possession or to the product of its sale during the pendency of this action. The decision of the court below
is therefore reversed, and it is decided that the assignee of the bankruptcy of Chua Teng Chong is entitled to the product of the
sale of the sugar here in question, to wit, P10,826.76, together with the interest accruing thereon, reserving proceedings. So
ordered.

E. Article 2099:
a. Cruz & Serrano VS. Chua A.H. Lee (54 PHIL 10) (Krizza Batulan)

FACTS: Chua took from Cruz and Serrano a pawn ticket in pledge to secure an obligation. The pledge was lost for failure of
Chua to renew the loan of Cruz and Serrano with the pawnbroker

ISSUE: WON Chua is bound to renew the ticket from time to time, by the payment of interest or premium
HELD: Yes. The ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to
hand by mere delivery of the ticket. It results that one who takes a pawn ticket in pledge acquired domination over the pledge.
Article 2099 contemplates that the pledge may have to undertake expenses in order to prevent the pledge from being lost; and
these expenses the pledge is entitled to recover from the pledgor. This follows that where, in a case like this, the pledge is lost by
failure of Chua to renew the loan, he is liable for the resulting damage. This duty of Chua is not destroyed by the fact that he has
obtained a judgment for the debt of Cruz and Serrano which was secured by the pledge.
The duty to use the diligence of good father of a family in caring for the thing pledged as long as the same remains in the
power of the pledge.

F. Article 2105:
a. Sarmiento v Javellana (June Lacpao)

FACTS: Spouses Villasenor obtained a loan from Javellana to be paid within one year with an interest of 25% p.a. evidenced by to
documents. They pledged 4,000 worth of jewels. Upon maturity, the Spouses requested for an extension. After 7 years, Villasenor
offered to pay the loan and redeem the jewels. Javellana refused on the ground that redemption period has already expired and he
has already bought the jewels from the wife of Villasenor. Villasenor brought an action against Javellana to compel the return of
the jewels pledged.

ISSUES:
1) WON Villasenor can still redeem the jewels?
2) WON the right to redeem has already expired?
RULING:
1) Yes. As the jewels in question were in the possession of the defendant to secure the payment of a loan of 1,500 with
interest thereon and for 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 to the plaintiffs, and the plaintiffs have the right to demand the same upon the payment by them of the sum of 1,500
plus interest.
2) An action for recovery of the goods which were pledged to secure the payment of a loan evidenced by a document is an
action on a written contract which has a prescriptive period of 10 years from the date on which the debtor may have paid the debt
and demanded the return of the goods pledged.
In this case, the expiration of the contract was in 1912 and the action to recover was filed in 1920, therefore, the action
has not yet prescribed.

G. Article 2112:
a. Spouses Paray vs Rodriguez, G.R. No. 132287, January 24, 2006 (Celeste Suamen)
FACTS: Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the
Quirino-Leonor-Rodriguez Realty Inc. Respondents secured by way of pledge of some of their shares to petitioners Bonifacio and
Faustina Paray the payment of certain loan obligations. When the Parays attempted to foreclose the pledges on account of
respondents failure to pay their loans, respondents filed complaints which sought the declaration of nullity of the pledge
agreements. 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.
Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding
the amount of P6,200,000.00 for all of the pledged shares.

ISSUE: Were the petitioners authorized to refuse, as they did, the tender of payment since they were undertaking the auction sale?
HELD: Yes. It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occur s
extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to
proceed before a Notary Public to the sale of the thing pledged. In this case, petitioners attempted as early as 1980 to proceed
extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil
Cases which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts
and disposed them. Since the pledged shares in this case are not subject to redemption, the CA 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. SC 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.
Petition is GRANTED. CAs decison is SET ASIDE and the decision of the Cebu City RTC, is REINSTATED.

H. Article 2115:
a. Manila Surety v. Velayo (Julius Ragay)

FACTS: Manila Surety executed a bond for P2800 in favor of Velayo for the dissolution of a writ of attachment obtained by
Granados against Velayo. Velayo undertook to pay Manila Surety P112 per year and provided collateral jewelry. Manila Surety was
authorized to sell the jewelry in case it will be obliged to pay. Manila Surety was forced to pay P2800, and asked for
reimbursement from Velayo. Velayo did not reimburse. Manila Surety sold the jewelry and obtained P235. Manila Surety filed a
claim against Velayo for the deficiency.

ISSUE: Is Manila Surety entitled to the deficiency?

RULING: No. The sale of the thing pledged shall extinguish the principal obligation, whther or not the proceeds of the sale are
equal to the amount of the principal obligation, interest and expenses in a proper case.