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 11being 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.
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.
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.
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.

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
Araullo, C.J., Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.

RESOLUTION

April 4, 1923

AVANCEA, J.:

The defendant contends that 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.

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.
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.

DECISION

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 & 0552

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 decision3 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. 19915

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.
LORETA SERRANO, petitioner,
vs.
COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.

Cecilio D. Ignacio for petitioner.

Hildawa & Gomez for private respondent.

RESOLUTION

FELICIANO, J.:

Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from
Niceta Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary, Josefina
Rocco, to pawn the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc. ("Long
Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and
then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco
stipulated that it was redeemable "on presentation by the bearer."

Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket
issued by private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry
once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the
same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner
go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent
pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit
anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong
agreed.

On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for
qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the same date,
Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop, showed
Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in
case some one should redeem the same. The next day, on 10 July 1968, Yu An Kiong permitted one Tomasa
de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.

On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages
against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without first
notifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in favor of
petitioner, awarding her P26,500.00 as actual damages, with legal interest thereon from the date of the filing
of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.

Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent
Court of Appeals in a Decision promulgated on 26 September 1976.

The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo
ever apprised him of the misappropriation of petitioner's loan, or obtained a commitment from him not to
permit redemption of the jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the
loan's misappropriation only on 16 August 1968 when a subpoena duces tecum was served by the Manila
Fiscal's Office requiring him to bring the record of the pledge in connection with the preliminary investigation of
the estafa charge against Josefina Rocco. Consequently, the appellate court ruled, there could have been no
negligence, much less a grave one amounting to bad faith, imputable to Yu An Kiong as the basis for an
award of damages.

In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the
credibility of witnesses and the restoration of the trial court's decision.

Deliberating on the present Petition for Review, the Court considers that the public respondent Court of
Appeals committed reversible error in rendering its questioned Decision.
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of
witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to
observe the demeanor of witnesses while giving testimony which may indicate their candor or lack
thereof.1While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a
question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in
exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent
conclusions on questions of fact and the credibility of witnesses. 2

The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective
Mateo. It faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately on
21 March 1968 when Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But it must
be noted that Josefina Rocco simply disappeared without a trace on said date. Petitioner had no way of
knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed and then
misappropriated the proceeds of the loan. In the latter case, which was in fact what had occurred, petitioner
could have had no idea as to the identity of the pawnbroker. Moreover, this Court has several times
recognized that different people may have diverse reasons for failing to report promptly to the police their
having been victimized by some criminal or fraudulent scheme and that such failure does not by itself render
their subsequent testimony unworthy of credence.3

The Court of Appeals also found it hard to believe that Detective Mateo had failed to obtain a written
acknowledgment from Yu An Kiong of the receipt of the note as corroboration for his testimony. However,
absent evidence that it was an established practice for police officers to obtain such acknowledgment in
situations like the one here, it is difficult to see why Detective Mateo's behavior should be considered
unbelievable. On the other hand, as the trial court pointed out, it would not have been sensible for Detective
Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the latter had in fact then told the
policeman that the jewelry had already been redeemed.

The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry
pledged by Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may have
redeemed jewelry different from that owned by petitioner. This is curious and untenable because the record on
appeal indicates that Yu An Kiong had admitted in his answer and memorandum before the trial court that he
received pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry had been entrusted
to Josefina by petitioner as the latter's employer. It is clear from these judicial admissions that he considered
petitioner to have been the true owner of the jewelry.

Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material
inconsistency therein.1wphi1 On direct examination, petitioner said she "immediately" went to the private
respondent's establishment upon being informed by Niceta Ribaya of the possible whereabouts of her jewelry.
On cross-examination, she said she went to the establishment "a few days later." If this is an inconsistency, it
relates to an unimportant detail. What is clear is that in any event, petitioner testified that she went to the
respondent's pawnshop to meet Yu An Kiong and notify him of the misappropriation before anyone had
redeemed the jewelry.

We must also note that the Court of Appeals apparently over-looked a fact of substance which did not escape
the attention of the trial court. Petitioner's version of events was corroborated by Police Detective Mateo and
by Niceta Ribaya. These were two (2) individuals who had nothing to gain from the outcome of the case.
Certainly, their disinterested testimony should have been accorded more probative weight than the negative,
uncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically opposed version
of events calculated to show that in permitting redemption of the jewelry, he was acting in good faith. 4

The testimony of Detective Mateo was moreover supported by the presumption that he had acted in the
regular performance of his official duty as a police officer, a presumption that Yu An Kiong did not try to rebut.

This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her version
of events did in fact occur. We agree with the trial court that this burden of proof had been discharged by
petitioner because her evidence was direct and more credible and persuasive than that propounded by Yu An
Kiong,5 and corroborated by disinterested witnesses.

Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been
notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement
of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged
and to give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by
Article 21 of the Civil Code.6 The circumstance that the pawn ticket stated that the pawn was redeemable by
the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable
Instruments Law nor a negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third
person Tomasa de Leon, who redeemed the things pledged a day after petitioner and the police had notified
Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader
suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to
demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the
assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had not
conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in
reckless disregard of that duty in the instant case and must bear the consequences, without prejudice to its
right to recover damages from Josefina Rocco.

The trial court correctly held that private respondent was liable to petitioner for actual damages which
corresponded to the difference in the value of the jewelry (P48,500.00) and the amount of the loan
(P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the jewelry,
corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private respondent
Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must
pay to petitioner.

ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976
is hereby REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is
hereby REINSTATED in toto. No pronouncement as to costs.
G.R. No. L-5741 March 13, 1911

ESTANISLAUA ARENAS, ET AL., plaintiffs-appellees,

vs.
FAUSTO O. RAYMUNDO, defendant-appellant.

A.D. Gibbs, for appellant.

Gabriela La O, for appellees.

TORRES, J.:

This is an appeal field by the defendant from a judgment of conviction rendered by the Hon. Judge Araullo.

On the date of August 31, 1908, the attorneys for the plaintiffs, Estanislaua Arenas and Julian La O, brought
suit against Fausto O. Raymundo, alleging, as a cause of action, that Estanislaua Arenas was the owner and
proprietor of the jewelry described below with the respective value thereof:

Two gold tamborin rosaries, without bow or reliquary at

P40 each P80

One lady's comb for fastening the hair, made of gold and
silver, adorned with pearls of ordinary size and many small
pearls, one of which is missing 80

One gold ring set with a diamond of ordinary size 1,000

One gold bracelet with five small diamonds and

eight brillantitos de almendras 700

One pair of gold picaporte earrings with two diamonds of

ordinary size and two small ones 1,100

The plaintiffs alleged that the said jewelry, during the last part of April or the beginning of May, 1908, was
delivered to Elena de Vega to sell on commission, and that the latter, in turn, delivered it to Conception
Perello, likewise to sell on commission, but that Perello, instead of fulfilling her trust, pledged the jewelry in the
defendant's pawnshop, situated at No. 33 Calle de Ilaya, Tondo, and appropriated to her own use the money
thereby obtained; that on July 30, 1908, Conception Perello was prosecuted for estafa, convicted, and the
judgment became final; that the said jewelry was then under the control and in the possession of the
defendant, as a result of the pledge by Perello, and that the former refused to deliver it to the plaintiffs, the
owners thereof, wherefore counsel for the plaintiffs asked that judgment be rendered sentencing the
defendant to make restitution of the said jewelry and to pay the costs.

In the affidavit presented by the attorney for the plaintiffs dated September 2, 1908, after a statement and
description of the jewelry mentioned, it is set forth that the defendant was retaining it for the reason given in
the complaint, and that it was not sequestrated for the purpose of satisfying any tax or fine or by reason of any
attachment issued in compliance with any judgment rendered against the plaintiffs' property.

In discharge of the writ of seizure issued for the said jewelry on the 2nd of September, 1908, aforementioned,
the sheriff of this city made the return that he had, on the same date, delivered one copy of the bond and
another of the said writ to the defendant personally and, on the petition and designation of the attorney for the
plaintiffs, proceeded to seize the jewelry described in the writ, taking it out of the defendant's control, and held
it in his possession during the five days prescribed by law.

On the 15th of the same month and year, five days having elapsed without the defendant's having given bond
before the court, the sheriff made delivery of all the jewelry described in the said order to the attorney for the
plaintiff to the latter's entire satisfaction, who with the sheriff signed the return of the writ.

After the demurrer to the complaint had been overruled the defendant answered, setting forth that he denied
each and all of the allegations thereof which were not specifically admitted, explained, or qualified, and as a
special defense alleged that the jewelry, the subject matter of the complaint was pledged on his pawnshop by
Conception Perello, the widow of Pazos, as security for a loan of P1,524, with the knowledge, consent, and
mediation of Gabriel La O, a son of the plaintiffs, as their agent, and that, in consequence thereof, the said
plaintiffs were estopped from disavowing the action of the said Perello; the defendant therefore prayed that
the complaint be dismissed and that the jewelry seized at the instance of the plaintiffs, or the amount of the
loan made thereon, together with the interest due, be returned to the defendant, with the costs of the suit
against the plaintiffs.

The case came up for hearing on March 17, 1909, and after the presentation of oral testimony by both parties,
the count, on June 23 of the same year, rendered judgment sentencing the defendant to restore to the plaintiff
spouses the jewelry described in the complaint, the right being reserved to the defendant to institute his action
against the proper party. The counsel for the defendant excepted to this judgment, asked that the same be set
aside, and a new trial granted. This motion was denied, exceptions was taken by the appellant, and the proper
bill of exceptions was duly approved certified to, and forwarded to the clerk of this court.

This is an action for the replevin of certain jewelry delivered by its owner for sale on commission, and pledged
without his knowledge by Concepcion Perello in the pawnshop of the defendant, Fausto O. Raymundo, who
refuses to deliver the said jewelry unless first redeemed.

The said Concepcion Perello, who appropriated to herself the money derived from the pledging of the jewels
before mentioned, together with others, to the prejudice of their owner Estanislaua Arenas, was prosecuted in
the Court of First Instance of this City in cause No. 3955 and sentenced on July 30, 1908, to the penalty of
one year eight months and twenty-one days of prision correccional, to restore to the offended party the jewelry
specified in the complaint, or to pay the value thereof, amounting to P8,660, or, in case of insolvency, to suffer
the corresponding subsidiary imprisonment, and to pay the costs. This judgment is attested by the certified
copy attached under letter D to folio 26 of the record of the proceedings in the case of the same plaintiff
against Antonio Matute the pledgee of the other jewelry also appropriated by the said Concepcion Perello
which record forms a part of the evidence in this cause.

Perello having pledged the jewelry in question to the defendant Raymundo, and not having redeemed it by
paying him the amount received, it follows that the convicted woman, now serving the sentence imposed upon
her, could not restore the jewelry as ordered in that judgment, which has become final by the defendant's
acquiescence.

Article 120 of the Penal Code prescribes:

The restitution of the thing itself must be made, if be in the possession of a third person, who had
acquired it in a legal manner, reserving, however, his action against the proper person.

Restitution shall be made, even though the thing may be in the possession of a third person, who had
acquired it in a legal manner, reserving, however, his action against the proper person.

This provision is not applicable to a case in which the third person has acquired the thing in the
manner and with the requisites established by law to make it unrecoverable.

The provisions contained in the first two paragraphs of the preinserted article are based on the
uncontrovertible principle of justice that the party injured through a crime has, as against all others, a
preferential right to be indemnified, or to have restored to him the thing of which he was unduly deprived by
criminal means.

In view of the harmonious relation between the different codes in force in these Islands, it is natural and logical
that the aforementioned provision of the Penal Code, based on the rule established in article 17 of the same,
to wit, that every person criminally liable for a crime or misdemeanor is also civilly liable, should be in
agreement and accordance with the provisions of article 464 of the Civil Code which prescribes:

The possession of personal property, acquired in good faith, is equivalent to a title thereto. However,
the person who has lost personal property or has been illegally deprived thereof may recover it from
whoever possesses it.

If the possessor of personal property, lost or stolen, has acquired it in good faith at a public sale, the
owner can not recover it without reimbursing the price paid therefor.
 Neither can the owner of things pledged in pawnshops, established with the authorization of the
Government, recover them, whosoever may be the person who pledged them, without previously
refunding to the institution the amount of the pledge and the interest due.

With regard to things acquired on exchange, or at fairs or markets or from a merchant legally
established and usually employed in similar dealings, the provisions of the Code of Commerce shall
be observed.

On January 2, 1908, this court had occasion to decide, among other cases, two which were entirely analogous
to the present one. They were No. 3889, Varela vs. Matute, and No. 3890, Varela vs. Finnick (9 Phil., 479,
482).

In the decisions in both cases it appears that Nicolasa Pascual received various jewels from Josefa Varela to
sell on commission and that, instead of fulfilling the trust or returning the jewels to their owner, she pledged
some of them in the pawnshop of Antonio Matute and others in that of H.J. Finnick and appropriated to herself
the amounts that she received, to the detriment of the owner of the jewelry.

Tried estafa in cause No. 2429, the said Pascual was convicted and sentenced to the penalty of one year and
eleven months of prision correccional, to restore to Varela, the jewelry appropriated, or to pay the value
thereof, and, in case of insolvency, to subsidiary imprisonment; this judgment became final, whereupon the
defendant began to serve her sentence. The case just cited is identical to that of Concepcion Perello.

Josefa Varela, in separate incidental proceedings, demanded the restitution or delivery of possession of the
said jewelry; the pledgees, the pawnbrokers, refused to comply with her demand, alleging, among other
reasons, that they were entitled to possession. The two cases were duly tried, and the Court of First Instance
pronounced judgment, supporting the plaintiff's claims in each. Both cases were appealed by the defendants,
Matute and Finnick, and this court affirmed the judgments on the same grounds, with costs, and the decisions
on appeal established the following legal doctrines:

1. Crimes against property; criminal and civil liability. Where, in a proceeding instituted by reason of
a crime committed against property, the criminal liability of the accused has been declared, it follows
that he shall also be held civilly liable therefor, because every person who is criminally responsible on
account of a crime or misdemeanor is also civilly liable.

2. Id.; Recovery of property unlawfully in possession. Whoever may have been deprived this
property in consequence of a crime is entitled to the recovery thereof, even if such property is in the
possession of a third party who acquired it by legal means other than those expressly stated in article
464 of the Civil Code.

3. Personal property; title by possession. In order that the possession of personal property may be
considered as a title thereto it is indispensable that the same shall have been acquired in good faith.

4. Id.; Ownership; prescription. The ownership of personal property prescribes in the manner and
within the time fixed by articles 1955 and 1962, in connection with article 464, of the Civil Code.

In the cause prosecuted against Perello, as also in the present suit, it was not proven that Estanislaua Arenas
authorized the former to pawn the jewelry given to her by Arenas to sell on commission. Because of the mere
fact of Perello's having been convicted and sentenced for estafa, and for the very reason that she is now
serving her sentence must be complied with, that is, the jewelry misappropriated must be restored to its
owner, inasmuch as it exists and has not disappeared this restitution must be made, although the jewelry is
found in the pawnshop of Fausto O. Raymundo and the latter had acquired it by legal means. Raymundo
however retains his right to collect the amounts delivered upon the pledge, by bringing action against the
proper party. This finding is in accord with the provisions of the above article 120 of the Penal Code and first
paragraph of article 464 of the Civil Code.

The aforementioned decision, No. 3890, Varela vs. Finnick, recites among other considerations, the following:

The exception contained in paragraph 3 of said article is not applicable to the present case because a
pawnshop does not enjoy the privilege established by article 464 of the Civil Code. The owner of the
loan office of Finnick Brothers, notwithstanding the fact that he acted in good faith, did not acquire the
jewels at a public sale; it is not a question of public property, securities, or other such effects, the
 transfer, sale, or disposal of which is subject to the provisions of the Code of Commerce. Neither does
a pawnshop enjoy the privilege granted to a monte de piedad; therefore, Josefa Varela, who lost said
jewels and was deprived of the same in consequence of a crime, is entitled to the recovery thereof
from the pawnshop of Finnick Brothers, where they were pledged; the latter can not lawfully refuse to
comply with the provisions of article 120 of the Penal Code, as it is a question of jewels which has
been misappropriated by the commission of the crime of estafa, and the execution of the sentence
which orders the restitution of the jewels can not be avoided because of the good faith with which the
owner of the pawnshop acquired them, inasmuch as they were delivered to the accused, who was not
the owner nor authorized to dispose of the same.

Even supposing that the defendant Raymundo had acted in good faith in accepting the pledge of the jewelry in
litigation, even then he would not be entitled to retain it until the owner thereof reimburse him for the amount
loaned to the embezzler, since the said owner of the jewelry, the plaintiff, did not make any contract with the
pledgee, that would obligate him to pay the amount loaned to Perello, and the trial record does not disclose
any evidence, even circumstantial, that the plaintiff Arenas consented to or had knowledge of the pledging of
her jewelry in the pawnshop of the defendant.

For this reason, and because Conception Perello was not the legitimate owner of the jewelry which she
pledged to the defendant Raymundo, for a certain sum that she received from the latter as a loan, the contract
of pledge entered the jewelry so pawned can not serve as security for the payment of the sum loaned, nor can
the latter be collected out of the value of the said jewelry.

Article 1857 of the Civil Code prescribes as one of the essential requisites of the contracts of pledge and of
mortgage, that the thing pledged or mortgaged must belong to the person who pledges or mortgages it. This
essential requisite for the contract of pledge between Perello and the defendant being absent as the former
was not the owner of the jewelry given in pledge, the contract is as devoid of value and force as if it had not
been made, and as it was executed with marked violation of an express provision of the law, it can not confer
upon the defendant any rights in the pledged jewelry, nor impose any obligation toward him on the part of the
owner thereof, since the latter was deprived of her possession by means of the illegal pledging of the said
jewelry, a criminal act.

Between the supposed good faith of the defendant Raymundo and the undisputed good faith of the plaintiff
Arenas, the owner of the jewelry, neither law nor justice permit that the latter, after being the victim of the
embezzlement, should have to choose one of the two extremes of a dilemma, both of which, without legal
ground or reason, are injurious and prejudicial to her interest and rights, that is, she must either lose her
jewelry or pay a large sum received by the embezzler as a loan from the defendant, when the plaintiff Arenas
is not related to the latter by any legal or contractual bond out of which legal obligations arise.

It is true that the plaintiffs' son, attorney Gabriel La O, intervened and gave his consent when the Concepcion
Perello pawned the jewelry in litigation with Fausto Raymundo for P1,524? In view of the evidence offered by
the trial record, the answer is, of course, in the negative.

The parents of the attorney Gabriel La O being surprised by the disagreeable news of the disappearance of
various jewels, amounting in value to more than P8,600, delivered to Elena Vega for sale on commission and
misappropriated by Conception Perello, who received them from Vega for the same purpose, it is natural that
the said attorney, acting in representation of his parents and as an interested party, should have proceeded to
ascertain the whereabouts of the embezzled jewelry an to enter into negotiations with the pawnshop of Fausto
O. Raymundo, in whose possession he had finally learned were to be found a part of the embezzled jewels,
as he had been informed by the said Perello herself; and although, at first, at the commencement of his
investigations, he met with opposition on the part of the pledgee Raymundo, who objected to showing him the
jewels that he desired to see in order to ascertain whether they were those embezzled and belonging to his
mother, the plaintiff Arenas, thanks to the intervention of attorney Chicote and to the fact that they succeeded
in obtaining from the embezzler, among other papers, the pawn ticket issued by Raymundo's pawnshop,
Exhibit E, of the date of May 4, 1908, folio 19 of the record in the case against Matute, Gabriel La O
succeeded in getting the defendant to show him the jewelry described in the said ticket together with other
jewels that did not belong to La O's mother, that had been given the defendant by Ambrosia Capistrano,
Perello's agent, in pledge or security for a loan of P170.

Gabriel La O, continuing the search for other missing jewelry belonging to his mother, found that Fausto O.
Raymundo was in possession of it and had received it from the same embezzler as security for a debt,
although the defendant Raymundo would not exhibit it until he issued the pawn tickets corresponding to such
jewels; therefore, at Raymundo's request, Perello, by means of the document Exhibit C, signed by herself and
bearing date of June 10, 1908, folio 28 of the record, authorized her son Ramon to get from the defendant, in
her name, the pawn tickets of the said other jewelry, for which such tickets had not yet been issued;
Raymundo then wrote out the tickets Exhibits L, LL, and M, all dated June 22, 1908, and found on folios 20,
21 and 22 of the record of the aforesaid proceedings against Matute in the presence of the attorney Gabriel
La O, who kept the said three pawn tickets, after he had made sure that the jewels described therein and
which Raymundo, taking them out of his cabinet, exhibited to him at the time, were among those embezzled
from his mother.

So that, when the three aforementioned pawn tickets, Exhibits L, LL, and M, from the pawnshop of the
defendant were made out, the latter already, and for some time previous, had in his possession as a pledge
the jewelry described in them, and the plaintiffs' son naturally desiring to recover his parent's jewelry, was
satisfied for the time being with keeping the three pawn tickets certifying that such jewelry was pawned to the
defendant.

Moreover, the record discloses no proof that the attorney Gabriel La O consented to or took any part in the
delivery of the jewelry in question to the defendant as a pledge, and both the said defendant, Raymundo, and
the embezzler Perello, averred in their respective testimony that the said attorney La O had no knowledge of
and took no part in the pledging of the jewelry, and Perello further stated that she had received all the money
loaned to her by the defendant Raymundo. (Folios 13 to 14, and 76 to 80 of the record in the case against
Matute.)

The business of pawnshops, in exchange for the high and onerous interest which constitutes its enormous
profits, is always exposed to the contingency of receiving in pledge or security for the loans, jewels and other
articles that have been robbed, stolen, or embezzled from their legitimate owners; and as the owner of the
pawnshop accepts the same and asks for money on it, without assuring himself whether such bearer is or is
not the owner thereof, he can not, by such procedure, expect from the law better and more preferential
protection than the owner of the jewels or other articles, who was deprived thereof by means of a crime and is
entitled to be excused by the courts.

Antonio Matute, the owner of another pawnshop, being convinced that he was wrong, refrained from
appealing from the judgment wherein he was sentenced to return, without redemption, to the plaintiffs, another
jewel of great value which had been pledged to him by the same Perello. He undoubtedly had in mind some of
the previous decisions of this court, one of which was against himself.

For the foregoing reasons, whereby the errors attributed to the judgment of the Court of First Instance have
been discussed and decided upon, and the said judgment being in harmony with the law, the evidence and
the merits of the case, it is proper, in our opinion, to affirm the same, as we hereby do, with the costs against
the appellant. So ordered.