1

G.R. No. L-19227

1968

February

17,

DIOSDADO YULIONGSIU
Vs
PHILIPPINE NATIONAL BANK (Cebu Branch)
FACTS:
Plaintiff-appellant Yuliongsiu was the owner of two vessels, purchased by installment or on
account. Plaintiff, however, failed to pay for the vessels.
Thereafter, plaintiff obtained a loan of P50,000 from the defendant PNB. To guarantee its
payment, plaintiff pledged his vessels.
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.
These two notes were never paid at all by plaintiff on their respective due dates.
Meanwhile defendant bank took physical possession of three pledged vessels after the first
note fell due and was not paid. The FS-203 was subsequently surrendered by the defendant bank
to the Philippine Shipping Commission which rescinded the sale to plaintiff for failure to pay the
remaining installments on the purchase price thereof. The other two boats, the M/S Surigao and
the M/S Don Dino were sold by defendant bank to third parties.
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 lower court rendered its decision in favor of
the defendant bank. Plaintiffs motion for reconsideration and new trial was denied.
Issue:
1) Whether or not the taking of physical possession of the vessels by the bank was justified by the
contract of pledge
2) Whether or not the private sale of the pledged vessels by the defendant to itself without notice
to the plaintiff was valid
Held:
In support of the first assignment of error, plaintiff-appellant would have this Court hold it 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 it is a pledge contract.Necessarily, this judicial admission binds the
plaintiff.
The defendant bank as pledgee was therefore entitled to the actual possession of the vessels.

Plaintiff-appellant would also urge the court to rule that constructive delivery is insufficient
to make pledge effective. 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.
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. Act 3135 refers only, and is limited, to foreclosure of real
estate mortgages. 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, 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.

2
2. BETITA V. GANZON EL AL. G. R. NO. L-24137, 49 PHIL. 87,
FACTS:
This action is brought to recover the possession of four carabaos with damages in the sum
of P200.
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, Eulogio
Betita, alleged 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.
RTC: inasmuch as that 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.
ISSUE: WON there was a valid chattel mortgage or pledge
HELD: NO

 It is not a sufficient chattel mortgage; 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.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:
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.
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;
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 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.
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.
The alleged pledge is also ineffective for another reason: 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.
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.
Manresa:
Therefore, in order that the contract of pledge may be complete, it is indispensable that the
aforesaid delivery take place .
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. 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.
SC REVERSED
3
Sarmiento v. Javellana
Facts:
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.
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; 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.

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.

Issue: W/N the jewelries were sold to Javellana?

Held: No, the jewelries were mortgaged to Javellana.

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.

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.
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.

4
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. LAUREANO ATENDIDO,
defendant-appellant.
Nature: An appeal from a decision of CFI Nueva Ecija ordering Atendido to pay PNB the sum of
P3,000, with interest thereon at the rate of 6% per annum from June 26, 1940, and the costs of
action.
Facts: June 26, 1940 - Atendido obtained from PNB a loan of P3,000 payable in 120 days with
interest at 6% per annum from the date of maturity. To guarantee the payment of the obligation,
Atendido pledged to PNB 2,000 cavanes of palay deposited in a warehouse in Bulacan. Atendido
endorsed the corresponding warehouse receipt in favor of PNB.
Before the maturity of the loan, the 2,000 cavanes of palay disappeared for unknown reasons in
the warehouse. When the loan matured Atendido failed to pay. The present action was instituted.
Atendido claims that the warehouse receipt covering the palay which was given as security
having been endorsed in blank in favor of PNB, and the palay having been lost or disappeared, he
thereby became relieved of liability. He also claims that he is entitled to an indemnity which
represents the difference between the value of the palay lost and the amount of his obligation. CFI
ruled in favor of PNB. Atendido appealed
Issue: Whether the surrender of the warehouse receipt covering the 2,000 cavanes of palay given
as a security, endorsed in blank, to PNB, has the effect of transferring their title or ownership to
PNB.
SC Held: CFI decision affirmed.
The surrendering of the warehouse receipt was not that of a final transfer but merely as a
guarantee to the fulfillment of the original obligation of P3,000.00.
The 2,000 cavanes of palay covered by the warehouse receipt were given to PNB only as a
guarantee to secure the fulfillment by Atendido of his obligation. This appears in the contract
between them wherein it is expressly stated that said 2,000 cavanes of palay were given as a
collateral security.
The delivery of said palay being merely by way of security, it follows that by the very nature of
the transaction its ownership remains with Atendido (the pledgor) subject only to foreclosure in
case of non-fulfillment of the obligation.
If the obligation is not paid upon maturity the most that PNB (the pledgee) can do is to sell the
property and apply the proceeds to the payment of the obligation and to return the balance, if any,
to the pledgor (Article 1872, Old Civil Code).
According to the SC, this is the essence of this contract, for, according to law, a pledgee cannot
become the owner of, nor appropriate to himself, the thing given in pledge (Article 1859, Old
Civil Code).
If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the
pendency of the obligation, in case of loss of the property, the loss should be borne by the pledgor
(owner).

The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to PNB
does not alter the situation, the purpose of such endorsement being merely to transfer the juridical
possession of the property to the pledgee and to forestall any possible disposition thereof on the
part of the pledgor.
5
Manila Surety vs Velayo
Facts:
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.
The judgment was made however the execution was 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.
Issue:
Whether the sale of the pledged jewelry extinguished any further liability on his part under Article
2115 of the 1950 Civil Code
Held:
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.