Pledgecasedigest.docx

PLEDGE 10.

Calibo vs. CA, G.R. No. 120528, Jan. 29, 2001

1. Pablo Abella owns a tractor, which he left with his son Mike for safekeeping 2. Mike then kept in the garage of the house he was leasing from Dionisio Calibo 3. Dionisio learned that Mike had stopped paying rentals and had never paid the electric and water bills which he was bound to shoulder 4. Upon confrontation, Mike informed Dionisio that he would only be staying til the end of December and that he would be settling his account, offering the tractor as security 5. Mike even asked Calibo to find a buyer for the tractor 6. Lease ended and Mike vacated the premises; new tenant 7. Dionisio visited Mike few times in Cebu to try to settle with Mike re: outstanding accounts, but to no avail – out of town most of the time and that the prospective buyer of the tractor did not come back anymore 8. When confronted again, Mike reassured Calibo that tractor would stand as guarantee for its payment 9. When Pablo Abella came to claim and take possession of the tractor, Dionisio refused to give it up alleging that Mike left it with him as security for the payment of Mike’s obligation 10. Pablo offered to write a 2,000 check but Dionisio would only accept if Pablo will write a promissory note to cover the amount of the electric and water bills 11. Failed to agree so Pablo went back to Cebu 12. Pablo later instituted an action for replevin, claiming ownership of the tractor and seeking to recover possession thereof 13. RTC: granted, CA: affirmed 14. Ratio: Mike could not have validly pledged the subject tractor to Dionisio since he was NOT THE OWNER thereof, NOR WAS HE AUTHORIZED by its owner to PLEDGE the tractor. Or that IF NOT A PLEDGE, THEN A DEPOSIT was created (the primary purpose of which is safekeeping only and NOT TO SECURE PAYMENT OF DEBT) 15. Appeal to SC 16. Dionisio: valid pledge; tractor left to him in concept of innkeeper, on deposit, and he may hold onto it til Mike pay; principal-agent relationship, failure to repudiate = estoppel ISSUE: WON tractor valid security HELD: DENIED, LACK OF MERIT 1. Pledge: creditor is given the right to retain his debtor’s property til debt is paid a. Pledge is constituted to secure the fulfilment of a principal obligation b. Pledger absolute owner of thing pledged c. Person constituting the pledge has the free disposal of property or that he is legally authorized for the purpose 2. Hence, cannot validly bind the property in favour of creditor, and the pledgee or mortgagee in such case acquires no right whatsoever in the property pledged or mortgaged 3. Mike Abella not absolute owner: no valid pledge 4. As to agency relationship: for an agency relationship to be deemed implied, the principal must know (1869) that another person is acting on his behalf without authority- Mike was acting without Pablo’s knowledge, not just without authority; and principal will only be solidarily liable if he allowed his agent to act with full powersagain, lack of knowledge 5. No valid deposit: person receives an object belonging to another with the obligation of safely keeping it and of returning the same- THERE IS NO DEPOSIT WHERE THE PRINCIPAL PURPOSE FOR RECEIVING THE OBJECT IS NOT SAFEKEEPING 6. Hence, Dionisio had no right to refuse delivery of the tractor to its lawful owner because he had every right to seek to repossess property

11.

Paray vs. Rodriguez, G.R. No. 132287, January 24, 2006

FACTS: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 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 accou nt of respondents’ failure to pay their loans, respondents filed complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge agreements, among others. However the RTC dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various pledges. This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction. 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 payments to the Parays, but had been rejected. Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding for all of the pledged shares. None of respondents participated or appeared at the auction. Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public auction.

Respondents’ argument: Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts. Petitioners’ argument: Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the tender of payment and consignations were made long after their obligations had fallen due. They pointed 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 argued that the essential procedural requisites for the auction sale had been satisfied. Ruling of RTC: The RTC dismissed the complaint, expressing agreement with the position of the Parays. It held 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. Ruling of CA: The Court of Appeals however reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations and the subject pledge contracts; and the auction sale as null and void. It (CA) 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.

CA 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.

ISSUES: 1.

WON right of redemption exists over p ersonal properties (such as the subject pledged shares).

2. WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan obligations and the subject pledged contracts. 3. WON the act of respondents in consigning the payments should be deemed done in the exercise of their right of redemption owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. 4. WON a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the one-year redemptive period 5. WON there is a need to individually sell the various shares of stock as they had belonged to different pledgors.

HELD: 1.

No.

No law or jurisprudence establishes or affirms such right. Indeed, no such right exists. 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. 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. 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. In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them. Said judgment 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.

2.

No.

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. 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 monthly interests thereon. In the case at bar, 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.

3.

No.

The pledged shares in this case are not subject to redemption. Thus, the consigned payments should not be treated with liberality, or somehow construed as having been made in the exercise of the right of redemption.

4.

Yes.

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.

5.

No.

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. 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. RULING: Decision of the Court of Appeals is SET ASIDE and the decision of the RTC Cebu City is REINSTATED.

12.

Sarmiento and Villaseñor vs. Javellana, 43 Phil 884, Oct. 2, 1922

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. Villaseñor, 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. Villaseñor, 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.

13.

Manila Banking Corporation vs Teodoro Jr., GR. No. 53995, January 13, 1989

1. (MBC); 2. -

April 1966, Spouses Teodoro together with Teodoro Sr executed a PN in favour of Manila Banking Corp Payable within 120 days (until Aug), with 12% interest per annum; They failed to pay and left balance of 15k as of September 1969; May and June 1966, executed two PNs; 8k and 1k respectively payable within 120 days and 12% per annum; They made partial payment but still left 8.9k balance as of September 1969;

3. It appears than in 1964, Teodoro Jr executed a Deed of Assignment of Receivables in favour of MBC from Emergency Employment Administration; Amounted to 44k; The deed provided it was for consideration of certain credits, loans, overdrafts and other credit accommodations extended to the spouses and Teodoro Sr as security for the payment of said sum and interest thereon; and that they release and quitclaim all its rights, title and interest in the receivables; 4. In the stipulations of fact, it was admitted by the parties: That MBC extended loans to the spouses and Teodoro Jr because of certain contracts entered into by latter with EEA for fabrication of fishing boats and that the Philippine Fisheries Commission succeeded EEA after its abolition; That non-payment of the PNs was due to failure of the Commission to pay spouses; That the Bank took steps to collect from the Commission but no collection was effected; 5. For failure of the spouses and Teodor Sr to pay, MBC instituted against them; Teodoro Sr subsequently died so suit only against the spouses; 6. TC favoured MBC; MFR denied; Spouses appealed to CA but since issue pure question of law, CA forwarded to SC; Issues: W/N the assignment of receivables has the effect of payment of all the loans contracted by the spouses; No. W/N MBC must exhaust all legal remedies against PFC before it can proceed against the spouses. No Ratio: Assignment of credit: An agreement by virtue of which the owner of a credit(assignor) by a legal cause (e.g. sale, dation in payment, exchange or donation) and without the need of the consent of the debtor, transfers his credit and its accessory rights to another(assignee) who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor; May be in form of: o Sale o Dation in payment - when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person; o Donation – when it is by gratuitous title; o Guaranty – creditor gives as a collateral, to secure his own debt in favour of the assignee, without transmitting ownership; Obligations between the parties will depend upon the juridical relation which is the basis of the assignment; What is the legal effect of the Assignment (since its validity is not in question): 1. Assignment of receivables in 1964 did not transfer the ownership of the receivables to MBC and release the spouses from their loans; Consideration was for certain credits, loans, overdrafts and credit accommodations worth 10k extended by MBC to spouses and as security for the payment of said sum and interest thereon; also quitclaim of rights to MBC of their interest in the receivables; Stipulated also that it was a continuing guaranty for future loans and correspondingly, the assignment shall extend to all accounts receivable; Contention of spouses: not mere guaranty since it was stipulated: That the assignor release and quitclaim to assignee all its rights, title and interest in the accounts receivable; That title and right of possession to account receivable is to remain in assignee and it shall have right to collect directly from the debtor; that whatever the assignor does in connection with collection of such, it does so as agent and representative and in trust of assignee;

SC: character of transaction is not determined by the language in document but by intention of the parties;; If it was intended to secure the payment of money, it must be construed as a pledge. A transfer of property by the debtor to a creditor, even if sufficient on its farm to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer; Assignment of receivables did not result from sale or by virtue of a dation in payment; At time the deed was executed, the loans were non-existent yet; At most, it was a dation for 10k, the amount of credit with MBC indicated in the deed; at the time of execution, there was no obligation to be extinguished except for the 10k; 1292: in order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other; Deed of assignment intended as collateral security for the loans, as a continuing guaranty for whatever sums that would be owing by spouses; In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests (Lopez v CA); 2. MBC need not exhaust all legal remedies against PFC: Spouses, not being released by the assignment, remain as the principal debtors of MBC, rather than mere guarantors; The deed merely guarantees said obligations; 2058 (creditor must have exhausted property of debtor and resorted to all legal remedies before it can proceed to guarantor) does not apply to them; Appellants are both the principal debtors and the pledgors or mortgagors; MBC did try to collect but at OP, it was disapproved; so the loan was basically unsecured; DISMISSED. Feliciano, J. concurring. Justice Bidin’s, "the character of the transactions between the parties is not, however, determined by the language used in the document but by their intention” – not without exception; Deed here contains language which suggest that the parties intended complete alienation of title to and rights over the receivables; Words ‘remise’, ‘release’ and ‘quitclaim’ and clauses ‘ title the title and right of possession to said accounts receivable is to remain in said assignee" who "shall have the right to collect directly from the debtor’; Words ‘agent’ also convey the ideas; But such must be taken in conjunction with and qualified by other language showing intent of the parties that title to the receivables shall pass to the assignee for the limited purpose of securing another, principal obligation owed by the assignor to the assignee; Title moves from assignor to assignee but that title is defeasible being designed to collateralize the principal obligation: Operationally: means assignee is burdened to collateralize the principal obligation; taking the proceeds of the receivables assigned and applying such proceeds to the satisfaction of the principal obligation and returning any balance remaining thereafter to the assignor; The parties gave the deed of assignment the form of an absolute conveyance of title over the receivables assigned, essentially for the convenience of the assignee: Without such nature of absolute conveyance, the assignee would have to foreclose the properties; he would have to comply with documentation and registration requirements of a pledge or chattel mortgage); A deed of assignment by way of security avoids the necessity of a public sale impose by the rule on pactum commisorium, by in effect placing the sale of the collateral up front;

The foregoing is applicable where the deed of assignment of receivables combines elements of both a complete alienation of the credits and a security arrangement to assure payment of a principal obligation; Where the 2nd element is absent, the assignment would constitute essentially a mode of payment or dacion en pago; in order that a deed of assignment of receivables which is in form an absolute conveyance of title to the credits being assigned, may be qualified and treated as a security arrangement, language to such effect must be found in the document itself and that language, precisely, is embodied in the deed of assignment in the instant case;

14.

Citibank N.A. & Investors vs SAbeniano GR. No. 156132, October 12, 2006

FACTS: Modesta Sabeniano is a client of Citibank and FNCB Finance. On February 1978, Sabeniano obtained a loan of Php 200,000 from Citibank. This loan was followed with several other loans – some were paid, while some were not. Those that were not paid upon maturity were rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as of September 1979. These loans were secured by Sabeniano’s money market placements with FNCB Finance through a Deed of Assignment plus a Declaration of Pledge which states that all present and future fiduciary placements held in her personal and/or joint name with Citibank Switzerland, will secure all claims that Citibank may have or, in the future, acquire against her. The Deeds of Assignment were duly notarized, while the Declaration of Pledge was not notarized and Citibank’s copy was undated, while that of Sabeniano bore the date, September 24, 1979. Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to request payment. Her total unpaid loan initially amounted to Php 2,123,843.20 (inclusive of interests). Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of Sabeniano’s money market placement from FNCB Finance which totaled Php 1,022,916.66 and her deposits with Citibank which totaled Php 31,079.14 to set-off her loan. This reduced the unpaid balance to Php 1,069,847.40 as previously mentioned. Since the loan remains unpaid, Citibank proceeded to execute the Declaration of Pledge and remitted a total of $149,632.99 from Sabeniano’s Citibank-Geneva accounts to off-set the loan. Sabeniano then filed a complaint against Citibank for damages and specific performance (for proper accounting and return of the remitted proceeds from her personal accounts). She also contended that the proceeds of 2 promissory notes (PN) from her money market placements with Citibank were rolled over or reinvested into the petitioner bank, and these should also be returned to her. Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank was ordered to return the $149,632.99 to Sabeniano’s Citibank-Geneva account with a legal interest of 12% per annum. The RTC also ordered Sabeniano to pay her outstanding loan to Citibank without interests and penalty charges. Both parties appealed to the CA which affirmed the RTC’s decision, but further ruled entirely in favor of Sabeniano – holding that Citibank failed to establish her indebtedness and that all the executed deeds should be returned to her account. The case has now reached the Supreme Court. ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan was valid and legal.

HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as this was properly documented and sufficient in evidence. Thus, the execution of deeds was valid, especially that the agreement was duly notarized, signed and prepared in accordance with the law. The court also ordered Citibank to return the amount of P318,897.34 and P203,150.00 plus 14.5% per annum to Sabeniano. This is the total amount from the 2 PNs which were executed despite being reinvested in said bank. The bank was also ordered to pay moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000. The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity, Citibank cannot exercise automatic remittance from Sabeniano’s Citibank Geneva account to off-set her outstanding loan. The court also noted that the pledge was filled out irregularly – it was not notarized and Citibank’s copy bore no date. The original copy was not also produced in court. Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered her to pay the remaining balance of her loan which amounts to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest based on the maturity date that were agreed and stipulated upon by the parties.