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Case Digests_Art 2093-2120 1 MHH_2.

2_Credit Transactions

Calibo vs CA
A tractor owned by private respondent was offered by Mike Abella, his son, as security in Betita vs Guanzon
the payment of his rents in arrears with petitioner who took possession thereof. This tractor A document purporting to be a chattel mortgage, but which is not executed in conformity
became the subject of a suit for replevin with private respondent alleging that the pledge with the Chattel Mortgage Law and has not been recorded, is of no effect as against parties.
was made without his knowledge and consent. Petitioner, on the other hand, alleged that A pledge is not effective as against third parties unless evidence of its date appears in a
the tractor was validly pledged to him by respondent's son to answer for his financial public instrument. The filing of a private document of pledge with the sheriff after the levy
obligations. In the alternative, petitioner asserted that the tractor was left with him in the of execution does not create a lien superior to that of the attachment. The delivery of
concept of an innkeeper, on deposit. The trial court rendered judgment in favor of private possession referred to in article 1863 of the Civil Code and essential to the validity of a
respondent. The same was affirmed on appeal by the Court of Appeals. Hence, this pledge means actual possession of the property pledged and a mere symbolic delivery is not
recourse. sufficient.

In a contract of pledge, the creditor is given the right to retain his debtor's movable property Lopez vs CA
in his possession, or that of a third person to whom it has been delivered. It does not apply On June 2, 1959, petitioner obtained a loan of P20,000.00 from Prudential Bank payable in
where, as in this case, the lessee is not the owner of the property. In deposit, a person one year with an interest of 10% per annum. Petitioner posted a surety bond to secure his
receives an object belonging to another with the obligation of safely keeping it and of full and faithful performance of his obligation under the promissory now with the Philippine
returning the same. There is no deposit where the principal purpose for receiving the object American Insurance Company (Philamgen) as his surety. In return for the undertaking of
is not for safekeeping. Philamgen under the surety bond, petitioner executed on the same day an indemnity
agreement and a deed of assignment of shares of stock in favor of the said company,
In a contract of pledge, the creditor is given the right to retain his debtor's movable property endorsing in blank and delivering the stock certificate to the latter. The assignment of shares
in his possession, or in that of a third person to whom it has been delivered, until the debt is was made due to a commitment made by determinate third parties to the surety that in
paid. For the contract to be valid, it is necessary that: case petitioner defaults in payment said third parties would buy the shares from the surety
(1) the pledge is constituted to secure the fulfillment of a principal obligation; and the proceeds will be paid to the bank. When the obligation became due, and petitioner
(2) the pledgor be the absolute owner of the thing pledged; and (3) the person failed to pay, Philamgen paid the loan and subsequently sued petitioner for reimbursement.
constituting the pledge has the free disposal of his property, and in the absence The trial court after hearing dismissed the complaint finding that the transfer of stock in the
thereof, that he be legally authorized for the purpose. name of Philamgen was absolute and had extinguished petitioner's obligation under the
indemnity agreement. On appeal, the Court of Appeals held that the stock assignment made
As found by the trial court and affirmed by respondent court, the pledgor in this case, Mike in favor of the surety was a pledge, intended as a security for the payment of the obligation
Abella, was not the absolute owner of the tractor that was allegedly pledged to petitioner. of petitioner to the surety. In this petition for review, petitioner claims that the transfer of
The tractor was owned by his father, private respondent, who left the equipment with him shares was a dacion en pago; and that there was novation of the indemnity contract when
for safekeeping. Clearly, the second requisite for a valid pledge, that the pledgor be the the surety and the determinate third parties agreed that the latter would buy the shares of
absolute owner of the property, is absent in this case. Hence, there is no valid pledge. stock from the former so that the bank obligations of petitioner could be paid from the
proceeds.
In a contract of deposit, a person receives an object belonging to another with the
obligation of safely keeping it and of returning the same. Petitioner himself states that he The Supreme Court held that considering that the indemnity agreement connotes a
received the tractor not to safely keep it but as a form of security for the payment of Mike continuing obligation of petitioner towards the surety while the stock assignment indicates
Abella's obligations. There is no deposit where the principal purpose for receiving the object a complete discharge of the same obligation, the existence of the indemnity agreement is
is not safekeeping. inconsistent with the theory of an absolute sale for and in consideration of the same
Case Digests_Art 2093-2120 2 MHH_2.2_Credit Transactions

undertaking of the surety, and strong and cogent reasons exist to conclude that the surety same could not have been constituted when the stock assignment was executed. Moreover,
and petitioner intended the stock assignment as a pledge; that the assignment of stock is there is no express provision in the terms of the stock assignment between the surety and
not a dation in payment since the obligation of the petitioner towards the surety has not the petitioner that the principal obligation (which is the loan) is immediately extinguished by
matured at the time the same was executed; and that there was no novation of the reason of such assignment.
obligation by substitution of debtor since it was not established nor shown that petitioner
would be released from responsibility. In case of doubt as to whether a transaction is pledge or a dation in payment, the
presumption is in favor of pledge, the latter being the lesser transmission of rights and
The indemnity agreement and the stock assignment must be considered together as related interests.
transactions because in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered (Article 1371, New Under Article 1291 of the New Civil Code, obligations may be modified by:
Civil Code). Thus, considering that the indemnity agreement connotes a continuing (1) changing their object or principal condition;
obligation of Lopez towards Philamgen while the stock assignment indicates a complete (2) substituting the person of the debtor;
discharge of the same obligation, the existence of the indemnity agreement whereby Lopez (3) subrogating a third person in the rights of the creditor.
had to pay a premium of P1,000.00 for a period of one year and agreed at all times to And in order that an obligation may be extinguished by another which substitute the same,
indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason it is imperative that it be so declared in unequivocal terms, or that the old and the new
of it becoming a surety, is inconsistent with the theory of an absolute sale for and in obligations be on every point incompatible with each other. Novation which consists in
consideration of the same understanding of Philamgen. There would have been no necessity substituting a new debtor in the place of the original one, may be made even without the
for the execution of the indemnity agreement if the stock assignment was really intended as knowledge or against the will of the latter, but not without the consent of the creditor.
an absolute conveyance. Hence there are strong and cogent reasons to conclude that the Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.
parties intended said stock assignment to complement the indemnity agreement and
thereby sufficiently guarantee the indemnification of Philamgen should it be required to pay Paray vs Rodriguez
Lopez's loan to Prudential Bank. Facts: Respondents were the owners, in their respective personal capacities, of shares of
stock in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during
The facts and circumstances leading to the execution of the stock assignment, Exhibit C, and the years 1979 to 1980, respondents secured by way of pledge of some of their shares of
the admission of Lopez prove that it is in fact a pledge. The appellate court is correct in stock to petitioners Sps Parays the payment of certain loan obligations. When the Parays
ruling that the following requirements of a contract of pledge have been satisfied: (1) that it attempted to foreclose the pledges on account of respondents' failure to pay their loans,
be constituted to secure the fulfillment of a principal obligation; (2) that the pledger be the respondents filed complaints with the RTC. Notice of Sale for public auction of shares of
absolute owner of the thing pledged; and (3) that the person constituting the pledge has the stock. Respondents caused consignation of sums to RTC.
free disposal of the property, and in the absence thereof, that he be legally authorized for
the purpose. Held: 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,
Petitioner's "sale, assignment and transfer" unto the surety of the shares of stock, coupled as if respondents were exercising such right. In that perspective, the Court of Appeals made
with their endorsement in blank and delivery, is not dation in payment, because the debt or three crucial conclusions favorable to respondents: that their act of consigning the
obligation of the petitioner to his surety has not matured when petitioner "alienated" his payments with the RTC should be deemed done in the exercise of their right of redemption;
4,000 shares of stock to his surety. Petitioner's obligation would arise only when he would that the buyer at public auction does not ipso facto become the owner of the pledged
default in the payment of the principal obligation (the loan) to the bank and the surety had shares pending the lapse of the one-year redemptive period; and that the collective sale of
to pay for it. Such fact being adverse to the nature and concepts of dation in payment, the the shares of stock belonging to several individual owners without specification of the
Case Digests_Art 2093-2120 3 MHH_2.2_Credit Transactions

apportionment in the applications of payment deprives the individual owners of the provisions governing the extrajudicial sale of pledged properties that prohibits the pledges
opportunity to know of the price they would have to pay for the purpose of exercising the of several different pledge contracts from auctioning all of the pledged properties on a
right of redemption. single occasion, or from the buyer at the auction sale in purchasing all the pledged
The appellate court's dwelling on the right of redemption is utterly off-tangent. The right of properties with a single purchase price. The relative insignificance of ascertaining the
redemption involves payments made by debtors after the foreclosure of their properties, definite apportionments of the sale price to the individual shares lies in the fact that once a
and not those made or attempted to be made, as in this case, before the foreclosure sale. pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever
The proper focus of the Court of Appeals should have been whether the consignations made deficiency or excess there may be between the purchase price and the amount of the
by respondents sufficiently acquitted them of their principal obligations. A pledge contract is principal obligation. A different ruling though would obtain if at the auction, a bidder
an accessory contract, and is necessarily discharged if the principal obligation is expressed the desire to bid on a determinate number or portion of the pledged shares. In
extinguished. 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
Preliminary, it must be clarified that the subject sale of pledged shares was an extrajudicial correspondingly not all of the pledge contracts extinguished. The same situation also would
sale, specifically a notarial sale, specifically a notarial sale, as distinguished from a judicial lie if one or some of the owners of the pledged shares participated in the auction, bidding
sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs only on their respective pledged shares.
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 There is no doubt that if the principal obligation is satisfied, the pledges should be
thing pledged. 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
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged
execution sales, more precisely execution sales of real property. The right to redeem against the will of the creditor, unless and until he has paid the debt and its interest. At the
property sold as security for the satisfaction of an unpaid obligation does not exist same time, the right of the pledgee to foreclose the pledge is also established under the Civil
preternaturally. Neither is it predicated on proprietary right, which, after the sale of Code. When the credit has not been satisfied in due time, the creditor may proceed with the
property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is sale by public auction under the procedure provided under Article 2112 of the Code.
a bare statutory privilege to be exercised only by the persons named in the statute. The
right of redemption over mortgaged real property sold extrajudically is established by Act Union Bank vs Juniat, Winwood Apparel Inc, Wingyan Apparel Inc and Nonwoven Fabric
No. 3135, as amended. The said law does not extend the same benefit to personal property. Phils.
In fact, there is no law in our statute books which vests the right of redemption over Facts: Petitioner filed with the RTC a Complaint 9 with prayer for the issuance of ex-parte
personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the
as the vehicle for any legislative intent to bestow a right of redemption over personal person in possession of the mortgaged motorized sewing machines and equipment
property, since that law governs the extrajudicial sale of mortgaged personal property, but (Nonwoven). Petitioner alleged that Juniat, acting for and in behalf of Winwood and
the statute is definitely silent on the point. Obviously, since there is no right to redeem Wingyan, executed a promissory note and a Chattel Mortgage over several motorized
personal property, the rights of ownership vested unto the purchaser at the foreclosure sale sewing machines and other allied equipment to secure their obligation arising from export
are not entangled in any suspensive condition that is implicit in a redemptive period. bills transactions to petitioner in the amount of P1.1 million, and as additional security,
Juniat executed a Continuing Surety agreement. However, the mortgaged motorized sewing
Under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose machines were insufficient to answer for the obligation. Nonwoven filed an Answer,
which of the items should be sold if two or more things are pledged. No similar option is contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no
given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code binding effect on Nonwoven and that it has a better title over the motorized sewing
Case Digests_Art 2093-2120 4 MHH_2.2_Credit Transactions

machines and equipment because these were assigned to it by Juniat pursuant to their then informed them that the time for the redemption had already elapsed. The plaintiffs
Agreement. renewed their offer to redeem the jewelry by paying the loan, but met with the same reply.

Held: Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of Held: Javellana claimed that the jewels were sold to him. But the SC thinks otherwise as he
Wingyan and Winwood, in favor of petitioner does not bind Nonwoven. However, it must be continued in possession of the documents evidencing the loan and the pledge. If the
pointed out that petitioner's primary cause of action is for a sum of money with prayer for defendant really bought these jewels, it seems natural that Filomena would have demanded
the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood, the surrender of the documents evidencing the loan and the pledge, and the defendant
Wingyan, and the person in possession of the motorized sewing machines and equipment. would have returned them to plaintiff.
Thus, the fact that the Chattel Mortgage executed in favor of petitioner was not notarized
does not affect petitioner's cause of action. Petitioner only needed to show that the loan of From the foregoing that, as the jewels in question were in the possession of the defendant
Juniat, Wingyan and Winwood remains unpaid and that it is entitled to the issuance of the to secure the payment of a loan of P1,500, with interest thereon at the rate of 25 per cent
writs prayed for. Considering that writs of attachment and replevin were issued by the RTC, annum from August 31, 1911, to August 31, 1912, and the defendant having subsequently
Nonwoven had to prove that it has a better right of possession or ownership over the extended the term of the loan indefinitely, and so long as the value of the jewels pledge was
attached properties. This it failed to do. sufficient to secure the payment of the capital and accrued interest, the defendant is bound
to return the jewels or their value (P12,000) to plaintiffs, and the plaintiffs, and the plaintiffs
A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, have the right to demand the same upon the payment by them of the rate of 25% per
snap machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation. annum from August 28, 1911.
However, under Article 2096 of the Civil Code, "a pledge shall not take effect against third
persons if a description of the thing pledged and the date of the pledge do not appear in a An action for the recovery of the goods which were pledged to secure the payment of a loan
public instrument." Hence, just like the chattel mortgage executed in favor of petitioner, the evidenced by a document is an action on a written contract, if the pledge appears in the
pledge executed by Juniat in favor of Nonwoven cannot bind petitioner. document evidencing the loan, although it is not expressly stated therein that, upon the
payment of the debt, the debtor may demand their restitution, because it is essential in the
Sarmiento and Villaseñor vs Javellana contract of pledge that upon the payment of the principal obligation the pledger shall have
Facts: On August 28, 1911, the defendant loaned the plaintiffs the sum of P1,500 with the right to demand the return of the goods pledged. In such a case the period of
interest at the rate of 25 per cent per annum for the term of one year. To guarantee this prescription of the action is ten years from the date on which the debtor any have paid the
loan, the plaintiffs pledged a large medal with a diamond in the center and surrounded with debt and demanded the return of the goods pledged.
ten diamonds, a pair of diamonds earrings, a small comb with twenty-diamonds, and two
diamond rings, which the contracting parties appraised at P4,000. This loan is evidenced by In a contract of loan with interest wherein a term was fixed for the payment thereof, it
two documents wherein the amount appears to be P1,875, which includes the 25% interest presumed that said term was established for the benefit of the creditor as well as that of the
on the sum of P1,500 for the term of one year. The plaintiff allege that at the maturity of debtor, unless from its tenor or others circumstances it appears to have been stipulated for
this loan, the plaintiff Eusenio M. Villasenor, being unable to pay the loan, obtained from the benefit of one or the other only. (Article 1127, Civil Code.) In such a case the debtor has
the defendant an extension, with the condition that the loan was to continue, drawing no right to pay the debt before the lapse of said period, without the consent of the creditor,
interest at the rate of 25 per cent per annum, so long as the security given was sufficient to and demand the devolution of the goods that were pledge to secure the payment. Only
cover the capital and the accrued interest. In the month of August, 1919, the plaintiff after the expiration of said period may debtor make payment, and, therefore, the action for
Eusebio M. Dreyfus, went to the house of the defendant and offered to pay the loan and the recovery of the goods pledged arises only after the lapse of said period of prescription of
redeem the jewels, taking with him, for this purpose, the sum of P11,000, but the defendant said action.

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