ARENAS vs.

RAYMUNDO

FACTS : Estanislaua Arenas was the owner and proprietor of the jewelry, alleged that the jewelries 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 and appropriated to her own use the money thereby obtained.
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 (owner), 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. The trial court 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
clerkof this court.

ISSUE : WON defendant Raymundo is entitled to retain the thing pledge.

HELD : 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 actedin 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 thesame 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 sentencewhich
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 thejewelry 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 paymentof 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 ofan 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.

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 [Link] 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. Case: MANILA SURETY & FIDELITY CO., INC., vs. NOEMI ALMEDA, doing business under the name and
style of ALMEDATRADING, GENEROSO ESQUILLO and NATIONAL MARKETING CORPORATION,Date: July
31, 1970Ponente: REYESPlace: MANILA

Facts: Noemi Almeda, doing business under the name and style of Almeda Trading, entered into a
contract with the National MarketingCorporation (NAMARCO) for the purchase of goods on credit,
payable in 30 days from the dates of deliveries As required by' theNAMARCO, a bond for P5,000.00,
undertaken by the Manila Surety & Fidelity Co., Inc. was posted by the purchaser to secure thelatter's
faithful compliance with the terms of the contract. The agreement was later supplemented and a new
bond for the same amountof P5,000.00, also undertaken by the Manila Surety & Fidelity Co., Inc. was
given in favor of the NAMARCO The bonds uniformly contained the following provisions:2. Should the
Principal's account on any purchase be not paid on time, then the Surety, shall, upon demand, pay said
account immediately to theNAMARCO;3. Should the account of the Principal exceed the amount of FIVE
THOUSAND (P5,000.00) PESOS, Philippine Currency, such excess up to twenty(20%) per cent of said
amount shall also be deemed secured by this Bond;4. The Surety expressly waives its right to demand
payment and notice of non-payment and agreed that the liability of the Surety shall be direct
andimmediate and not contingent upon the exhaustion by the NAMARCO of whatever remedies it may
have against the Principal and same shall be valid and continuous until the obligation so guaranteed is
paid in full; and5. The Surety also waives its right to be notified of any extension of the terms of
payment which the NAMARCO may give to the Principal, it being understood that were extension is
given to satisfy the account, that such extension shall not extinguish the guaranty unless the same is
made against the express wish of the Surety. The marketing firm demanded from the purchaser Almeda
Trading the settlement of its back accounts which, allegedly amounted to P16,335.09. Furnished with
copy of the NAMARCO's demand- letter, the surety company thereafter also wrote to the said purchaser
urging it to liquidate its unsettled accounts with the NAMARCO however, previous to this, Generoso
Esquillo instituted voluntary insolvency proceeding in the Court of First Instance of Laguna and by order
of said court he was declared [Link] Surety & Fidelity Co., Inc., commenced in the Court of
First Instance of Manila Civil Case against the spouses Noemi Almeda and Generoso Esquillo, and the
NAMARCO, to secure its release from liability under the bonds executed in favor of NAMARCO. The
action was based on the allegation that the defendant spouses had become insolvent and that
defendant NAMARCO had rescinded its agreement with them and had already demanded payment of
the outstanding accounts of the couple. The court rendered judgment sustaining NAMARCO's
contention that the insolvency of the debtor-principal did not discharge the surety's liability under the
bond.

Issue: WON the insolvency of a debtor-principal does not release the surety from its obligation to the
creditor under the bond.

Held: YES Ratio: There is no question that under the bonds posted in favor of the NAMARCO in this case,
the surety company assumed to make immediate payment to said firm of any due and unsettled
accounts of the debtor-principal, even without demand and notice of the debtor's non-payment, the
surety, in fact, agreeing that its liability to the creditor shall be direct, without benefit of exhaustion of
the debtor's properties, and to remain valid and continuous until the guaranteed obligation is fully
satisfied. Appellant secured to the creditor not just the payment by the debtor-principal of his accounts,
but the payment itself of such accounts. Clearly, a contract of suretyship was thus created, the appellant
becoming the insurer, not merely of the debtor's solvency or ability to pay, but of the debt [Link]
guarantor's action for release can only be exercised against the principal debtor and not against the
creditor Under the Civil Code, with the debtor's insolvency having been judicially recognized, herein
appellant's resort to the courts tobe released from the undertaking thus assumed would have been
appropriate. Nevertheless, , as is apparent from the precise terms of the legal provision. "The
guarantor" (says Article 2071 of the Civil Code of the Philippines) "even before having paid, may proceed
against the principal debtor ------------------ to obtain a release from the guaranty ---------------." The
juridical rule grants no cause of actionagainst the creditor for a release of the guaranty, before payment
of the credit, for a plain reason: the creditor is not compellable torelease the guaranty (which is a
property right) against his will. For, the release of the guarantor imports an extinction of his obligationto
the creditor; it connotes, therefore, either a remission or a novation by subrogation, and either
operation requires the creditor's assentfor its validity (See Article 1270 and Article 1301). Especially
should this be the case where the principal debtor has become insolvent,for the purpose of a guaranty is
exactly to protect the creditor against such a contingency. In the case at bar, it is true that the
guaranteed claim of NAMARCO was registered or filed in the insolvency proceeding. Butappellant can
not utilize this fact in support of its petition for release from the assumed undertaking. For one thing, it
is almost acertainty that creditor NAMARCO can not secure full satisfaction of its credit out of the
debtor's properties brought into the insolvencyproceeding. Considering that under the contract of
suretyship, which remains valid and subsisting, the entire obligation may even bedemanded directly
against the surety itself, the creditor's act in resorting first to the properties of the insolvent debtor is to
the surety'sadvantage.

SPS. BONIFACIO AND FAUSTINA PARAY v. DRA. ABDULIA C. RODRIGUEZ, GR NO.

132287, 2006-01-24
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 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.
When the Parays attempted to foreclose the pledges on account of respondents' failure to
pay their loans, respondents filed complaints with the Regional Trial Court (RTC) of Cebu
City.
The actions, which were consolidated and tried before RTC Branch 14, Cebu City, sought
the... declaration of nullity of the pledge agreements, among others. However the RTC, in
its decision[3] dated 14 October 1988, dismissed the complaint and gave "due course to the
foreclosure and sale at public auction of the various pledges subject of these two... cases."
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.
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.
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.
Issues:
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.
Ruling:
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]
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.
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.
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.
Principles:
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

PNB vs. LAUREANO ATENDIDO

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.

G.R. No. L-19227 February 17, 1968 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. Plaintiff’s 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 Us 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