G.R. No.

L-19227             February 17, 1968

DIOSDADO YULIONGSIU, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.
BENGZON, J.P., J.:
     
FACTS: Plaintiff-appellant Diosdado Yuliongsiu obtained a loan from the defendant PNB. To guarantee its payment, plaintiff pledged
his 2 vessels and its equity in the FS-203 to the defendant bank, as evidenced by the pledge contract, duly registered with the office
of the Collector of Customs for the Port of Cebu. Subsequently, plaintiff effected partial payment of the loan. The remaining balance
was renewed by the execution of 2 promissory notes in the bank's favor. These two notes were never paid at all by plaintiff on their
respective due dates. Hence, the bank filed a 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 7 BPI checks. 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. Plaintiff and his co-accused were
convicted by the trial court. On appeal, the conviction was affirmed by the CA. A corresponding writ of execution was issued to
implement the order for indemnification but it was returned unsatisfied as plaintiff was totally insolvent.
          Meanwhile, together with the institution of the criminal action, defendant bank took physical possession of three pledged
vessels after the first note fell due and was not paid. Also, pursuant to the pledge contract, the bank executed a document of sale,
transferring the two pledged vessels and plaintiff's equity in FS-203, to the bank. 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defendant bank to the Philippine Shipping Commission which rescinded the sale to plaintiff for failure to pay the remaining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 were sold by defendant bank to third parties. On the other hand,
plaintiff commenced action before the CFI to recover the three vessels or their value and damages from defendant bank. The lower
court rendered its decision in favor of the bank ruling: (a) that the bank's taking of physical possession of the vessels was justified
by the pledge contract 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. Plaintiff’s MR was denied, hence, he elevated the case on
appeal. Plaintiff alleged that the pledge contract is a chattel mortgage contract. Hence, the creditor defendant could not take
possession of the chattels object thereof until after there has been default.
ISSUE: WON the parties entered into a pledge contract.
RULING: The Court ruled in the affirmative.
During pre-trial, the parties had a partial stipulation of facts wherein they stipulated as a fact that the contract marked as
evidence is a pledge contract. Necessarily, such judicial admission binds the plaintiff. Without any showing that this was made thru
palpable mistake, no amount of rationalization can offset it. 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."  The provision of Art. 2110 of the present Civil Code being 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.
In the case of Banco Español-Filipino v. Peterson, the court ruled that symbolic delivery would suffice for the effectivity of
pledge, contrary to the position of plaintiff that constructive delivery is insufficient to make pledge effective. In  Betita v. Ganzon, the
objects pledged — carabaos — were easily capable of actual, manual delivery unto the pledgee. In Banco Español-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 was not unlawful. Nor was it unjustified considering that plaintiff had just defrauded the defendant bank in a huge
sum of money. In relation to the private sale of the pledged vessels in favor of the defendant bank itself, the court ruled that such
sales valid. The plaintiff contended 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. The court, however, did not
give credence to plaintiff’s contention. 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.

The petition is denied.