Vda. De Bautista vs.

Marcos, 3 SCRA 434

Facts: Defendant Marcos obtained a loan in the amount of P2,000 from plaintif
Vda. de Bautista and to secure payment thereof, conveyed to the latter by way of
mortgage of an unregistered parcel of land in Tarlac.

Subsequently Marcos filed in behalf of the heirs of her deceased mother Victoriana
Cainglet (who are Marcos herself and her three sisters), an application for the
issuance of a free patent over the land in question, on the strength of the cultivation
and occupation of said land by them and their predecessor since July, 1915 and as a
result it was registered in their names.

Since Marcos' debt of P2,000 to plaintif remained unpaid, the latter filed the
present action against Marcos and her husband for the payment thereof, or in
default of the debtors to pay, for the foreclosure of her mortgage on the land given
as security. Defendants moved to dismiss the action, pointing out that the land is
covered by a free patent and could not, be taken within five years from the issuance
of the patent for the payment of any debts of the patentees contracted prior to the
expiration of said five-year period and alleging as well that the real contract
between the parties was an antichresis and not a mortgage.

Issue: Whether there was a mortgage and if there was, can the land in question be
used as security for that mortgage?

Held: No. It is an essential requisite for the validity of a mortgage that the
mortgagor be the absolute owner of the thing mortgaged. The mortgage here in
question is void and inefective because at the time it was constituted, the
mortgagor was not yet the owner of the land mortgaged and could not, for that
reason, encumber the same to the plaintif. Nor could the subsequent acquisition by
the respondent of title over said land through the issuance of a free patent validate
and legalize the deed of mortgage under the doctrine of estoppel since upon the
issuance of said patient, the land in question was thereby brought under the
operation of the Public Land Law that prohibits the taking of said land for the
satisfaction of debts contracted prior to the expiration of five years from the date of
the issuance of the patent). This prohibition should include not only debts
contracted during the five-year period immediately preceding the issuance of the
patent but also those contracted before such issuance, if the purpose and policy of
the law, which is "to preserve and keep in the family of the homesteader that
portion of public land which the State has gratuitously given to him, is to be upheld.

Although the principal debtor may be the pledgor or mortgagor, the law allows third
persons, which are not parties to the principal obligation, to secure the by pledging
or mortgaging their own property.

In either case, in a contract of pledge or mortgage, the pledgor or mortgagor

remains to be the owner of the collateral. Although a pledge or mortgage is
regarded as lien, or legal right or interest that a creditor has in anothers property, it
passes no title to creditor. And although the collateral may be delivered to the
creditor, the delivery is only to secure the fulfilment of the principal obligation and
does not empower the creditor to convey the collateral in favour of another person.
The right to dispose is an attribute of ownership, and includes the right to donate,
sell, pledge or mortgage. Thus the creditor, not being the owner of the collateral
cannot dispose of the whole or part of the collateral.

Bachrach Motor vs. Icarangal, 68 Phil 287

Facts: Defendant Icaragal, with Figueroa, received, executed in favor of the

plaintif, Bachrach Motor , a promissory note for P1,614, and in security for its
payment, Icaragal executed a real estate mortgage on a parcel of land in Laguna,
which was duly registered on August 5, 1931, in the registry of deeds of the
Province of Laguna. Thereafter, promissors defaulted in the payment of the agreed
monthly installments; wherefore, plaintif instituted in the Court of First Instance of
Manila an action for the collection of the amount due on the note. Judgment was
there rendered for the plaintif. A writ of execution was issued and, in pursuance
thereof, the sherif of Laguna, at the indication of the plaintif, levied on the
properties of the defendants, including that which has been mortgaged by Icaragal
in favor of the plaintif. The other defendant herein, Oriental Commercial, interposed
a third-party claim, alleging that by virtue of a writ of execution issued in another
case by the municipal court of the City of Manila, the property which was the
subject of the mortgage and which has been levied upon by the sherif, had already
been acquired by it at the public auction. By reason of this third-party claim, the
sherif desisted from the sale of the property and, in consequence thereof, the
judgment rendered in favor of the plaintif remained unsatisfied. Whereupon,
plaintif instituted an action to foreclose the mortgage but the trial court dismissed
the complaint and, from the judgment thus rendered plaintif took the present
appeal.

Issue: Whether plaintif is barred from foreclosing the real estate mortgage after it
has elected to sue and obtain a personal judgment against the defendant?

Held: Yes. A mortgage creditor may institute against the mortgage debtor either a
personal action for debt or real action to foreclose the mortgage. In other words, he
may pursue either of the two remedies, but not both. By such election, his cause of
action can by no means be impaired, for each of the two remedies is complete in
itself. Thus, an election to bring personal action will leave open to him all the
properties of the debtor for attachment and execution, even including the
mortgaged property itself. And, if he waives such personal action and pursues his
remedy against the mortgaged property, an unsatisfied judgment thereon would
still give him the right to sue for a deficiency judgment, in which case, all the
properties of the defendant, other than the mortgaged property, are again open to
him for the satisfaction of the deficiency. In either case, his remedy is complete, his
cause of action undiminished, and any advantages attendant to the pursuit of one
or the other remedy are purely accidental and are all under his right of election. On
the other hand, a rule that would authorize the plaintif to bring a personal action
against the debtor and simultaneously or successively another action against the
mortgaged property, would result not only in multiplicity of suits so ofensive to
justice and obnoxious to law and equity, but also in subjecting the defendant to the
vexation of being sued in the place of his residence of the plaintif, and then again
in the place where the property lies.

The creditor's cause of action is not only single but indivisible, although the
agreements of the parties, evidenced by the note and the deed of mortgage, may
give rise to diferent remedies. The cause of action should not be confused with the
remedy created for its enforcement. And considering, as we have shown, that one of
the two remedies available to the creditor is as complete as the other, he cannot be
allowed to pursue both in violation of those principles of procedure intended to
secure simple, speedy and unexpensive administration of justice.

Bank of America, NT & Sa vs. American Realty Corporation and CA, 321
SCRA 659

Facts:Petitioner granted loans to 3 foreign corporations. As security, the latter

mortgaged a property located in the Philippines owned by respondent. Respondent
is a third party mortgagor who pledged its own property in favor of the 3 debtor-
foreign corporations.

The debtors failed to pay. Thus, petitioner filed collection suits in foreign courts to
enforce the loan. Subsequently, it filed a petition in the Sherif to extra-judicially
foreclose the said mortgage, which was granted.

On 12 February 1993, private respondent filed before the Pasig RTC, Branch 159, an
action for damages against the petitioner, for the latters act of foreclosing extra-
judicially the real estate mortgages despite the pendency of civil suits before
foreign courts for the collection of the principal loan.

Issue: Whether petitioners act of filing a collection suit against the principal
debtors for the recovery of the loan before foreign courts constituted a waiver of the
remedy of foreclosure?

Held: Yes. In the absence of express statutory provisions, a mortgage creditor may
institute against the mortgage debtor either a personal action or debt or a real
action to foreclose the mortgage. In other words, he may pursue either of the two
remedies, but not both. By such election, his cause of action can by no means be
impaired, for each of the two remedies is complete in itself.

In our jurisdiction, the remedies available to the mortgage creditor are deemed
alternative and not cumulative. Notably, an election of one remedy operates as a
waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of
the suit for collection or upon the filing of the complaint in an action for foreclosure
of mortgage. As to extrajudicial foreclosure, such remedy is deemed elected by the
mortgage creditor upon filing of the petition not with any court of justice but with
the Office of the Sherif of the province where the sale is to be made.

In the case at bar, petitioner only has one cause of action which is non-payment of
the debt. Nevertheless, alternative remedies are available for its enjoyment and
exercise. Petitioner then may opt to exercise only one of two remedies so as not to
violate the rule against splitting a cause of action.

Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency
of filing four civil suits before foreign courts, necessarily abandoned the remedy to
foreclose the real estate mortgages constituted over the properties of third-party
mortgagor and herein private respondent ARC. Moreover, by filing the four civil
actions and by eventually foreclosing extra-judicially the mortgages, petitioner in
efect transgressed the rules against splitting a cause of action well-enshrined in
jurisprudence and our statute books.

PNB vs.Mallorca, 21 SCRA 694

Facts: Lavilles mortgaged 48,965 square meter-parcel of land to PNB as security for
a loan of P1,800. while the mortgage was in full force and efect, and without PNB's
knowledge and consent, Lavilles sold to respondent Mallorca 20,000 square meters
of the mortgaged land.

Mallorca then asked the court to have the sale duly annotated on the title, and, for
the purpose, to require PNB to surrender the owner's copy of the TCT to the Register
of Deeds.

The court order then directed PNB to deliver said TCT to the Register of Deeds, and
warned that "[t]he mortgage in favor of the Philippine National Bank is duly
registered in the Office of the Register of Deeds and to whomsoever the land is sold
the vendee will assume the responsibility of complying with the provisions of the
mortgage."

The Register of Deeds then cancelled the TCT, and issued a new one making two co-
owner's copies of the title one each for Lavilles and one for Mallorca. PNB's
mortgage lien was annotated on both.

Lavilles failed to pay her mortgage debt. PNB, then foreclosed the mortgage
extrajudicially. A certificate of sale was issued to PNB as the highest bidder in the
foreclosure sale. This certificate of sale was registered with the Register of Deeds.
Mallorca then sued PNB to enforce her right of redemption with damages. Judgment
was rendered in the case stated, dismissing the claim for damages but declaring
Mallorca "entitled to exercise her right of redemption with respect to the 20,000
square meters sold to her by Lavilles within the period specified by law."

Mallorca's appeal from this judgment wasdenied by the lower court since it was filed
out of time. Her move to reconsider was rejected. She then went to the Court of
Appeals on mandamus. The appellate court denied the same for lack of merit.
Mallorca failed to exercise her right of redemption as decreed by the court.

Thus, the final deed of sale in favor of PNB was presented to the Register of Deeds
for registration but the latter refused to register without Mallorca's co-owner's copy
of TCT. Thus the Register of Deeds required Mallorca to surrender said copy but she
did not comply. Thus, PNB lodged the present petition for consolidation of title in the
cadastral court. The bank prayed that Mallorca's co-owner's copy of TCT be declared
null and void, and that the Register of Deeds be directed to cancel the same and to
issue a new title in the name of PNB, upon payment of the legal fees.

Issue: Whether respondents interest in the lot remained unafected by the

foreclosure and subsequent sale to PNB?

Held: No. A mortgage directly and immediately subjects the property upon which it
is imposed, whoever the possessor may be, to the fulfilment of the obligation for
whose security it was constituted. Sale or transfer cannot afect or release the
mortgage. A purchaser is necessarily bound to acknowledge and respect the
encumbrance to which is subjected the purchased thing and which is at the disposal
of the creditor in order that he, under the terms of the contract, may recover the
amount of his credit therefrom. For, a recorded real estate is a right in rem, a lien on
the property whoever its owner may be. Because the personality of the owner is
disregarded; the mortgage subsists notwithstanding changes of ownership; the last
transferee is just as much of a debtor as the first one; and this, independent of
whether the transferee knows or not the person of the mortgagee. So it is, that a
mortgage lien is inseparable from the property mortgaged. All subsequent
purchasers thereof must respect the mortgage, whether the transfer to them is with
or without the consent of the mortgagee. For, the mortgage, until discharge, follows
the property.

Also against respondents cause is one other special feature of a real mortgage, its
indivisibility. The Court has understood mortgage indivisibility in the sense that each
and every parcel under mortgage answers for the totality of the debt.

It does not really matter that the mortgagee, as in this case, did not oppose the
subsequent sale. Naturally, because the sale was without PNB's knowledge. Even if
such knowledge is chargeable to PNB, its failure to object to the sale could not have
any impairing efect upon its rights as mortgagee. After all, a real mortgage is
merely an encumbrance; it does not extinguish the title of the debtor, whose right
to dispose a principal attribute of ownership is not thereby lost. And, on the
assumption that PNB recognized the efficaciousness of the sale by Lavilles of a
portion of the mortgaged land to Mallorca, which Lavilles "had the right to make"
and which anyway PNB "cannot oppose", PNB cannot be prejudiced thereby, for, at
all events, "such sale could not afect the mortgage, as the latter follows the
property whoever the possessor may be.

Central Bank of the Philippines vs. CA and Tolentino, 139 SCRA 46

Facts: Island Savings Bank, upon favorable recommendation of its legal

department, approved the loan application for P80,000 of Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his
100-hectare land. The loan called for a lump sum of P80,000, repayable in semi-
annual installments for 3 yrs, with 12% annual interest. After the agreement, a mere
P17K partial release of the loan was made by the bank and Tolentino and his wife
signed a promissory note for the P17,000 at 12% annual interest payable w/in 3 yrs.
An advance interest was deducted from the partial release but this prededucted
interest was refunded to Tolentino after being informed that there was no fund yet
for the release of the P63K balance.

Monetary Board of Central Bank, after finding that bank was sufering liquidity
problems, prohibited the bank from making new loans and investments. And after
the bank failed to restore its solvency, the Central Bank prohibited Island Savings
Bank from doing business in the Philippines. Island Savings Bank in view of the non-
payment of the P17K filed an application for foreclosure of the real estate mortgage.
Tolentino filed petition for specific performance or rescission and damages with
preliminary injunction, alleging that since the bank failed to deliver P63K, he is
entitled to specific performance and if not, to rescind the real estate mortgage.

Issue: Whether petitioner can foreclose the mortgage?

Held: No. Since Island Savings Bank failed to furnish the P63,000 balance of the
P80,000 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000 is 78.75% of P80,000, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares.
The mortgage covering the remainder of 21.25 hectares subsists as a security for
the P17,000 debt. 21.25 hectares is more than sufficient to secure a P17,000 debt.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the
Civil Code is inapplicable to the facts of this case.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted

presupposes several heirs of the debtor or creditor which does not obtain in this
case. Hence, the rule of indivisibility of a mortgage cannot apply.
 1ST REQUISITE
SECURED OBLIGATIONS

China Bank v. CA

Facts:
On 21 August 1974, Galiciano Calapatia, a stockholder of private respondent Valley
Golf and Country Club, inc. pledge his stock certificate to petitioner China Banking
Corporation. On 3 August 1983, Calapatia obtained a loan of P20,000 from
petitioner, payment of which was secured by the aforestated pledge agreement still
existing between calapatia and petitioner.

Issue: is the agreement between Calapatia and China bank for the second pledge
valid?

Held:
Yes, the court has held that A careful perusal of the pledge agreement will
readily reveal that the contracting parties explicitly stipulated therein that
the said pledge will also stand as security for any future advancements (or
renewals thereof) that Calapatia (the pledgor) may procure from petitioner.
The contract provides This pledge is given as security for the prompt
payment when due of all loans, overdrafts, promissory notes, drafts, bills or
exchange, discounts, and all other obligations of every kind which have
heretofore been contracted, or which may hereafter be contracted, xxx

The validity of the pledge agreement between petitioner and Calapatia cannot thus
be held suspect by VGCCI. As candidly explained by petitioner, the promissory note
of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first
promissory note covered by the same pledge agreement.

5th REQUISITE
NECESSITY OF DELIVERY

U.S. v Terrell

Facts:
Howard Terrell, desiring to borrow from Jacinto Lim Jap P1000 wrote a letter to him
asking for a loan of that amount for thirty days, and with the letter inclosed the
promissory note of the defendant for that sum and also a bill of sale of his law
library, carriage and team of horses, and book accounts, stating in the letter that
the bill of sale was sent as security for the loan. The law library remained in the
possession of the defendant.

Issue: Was the contract of pledge legally consummated?

Held:
 No the court has held that while the bill of sale delivered by the defendant to
Lim Jap appear on its face to be an absolute sale of the books, etc. the letter of the
defendant accompanying it states in efect that it was a transfer of the property as
security for the loan, or an ofer to pledge the property for the payment of the
debt.
It has been frequently held that an instrument in the form of a bill of sale may
be construed as a pledge.
On the question of pledges, it has been held that a peldgor is still the general
owner of the property. Under the civill code (art. 1863) it is necessary, in order to
constitute the contract of pledge that the pledge should be placed in possession of
the creditor, or of a third person, by common consent. Until the delivery of the
thing, the whole rests in an executory contract, and the pledgee acquires no right
of property in the thing. The creditor acquires no rights in or to the property until
he takes it into his possession, because a pledge is merely a lien, and possession
is indispensable to the right of a lien. Jacinto Lim Jap, through his failure or neglect
to take his property into his possession, must be presumed to have waived the
right given him by the contract to make good his lien, if saw fit to do so.
It follows that the element of possession failing, there can be no pawn or
pledge, and that the possession of the defendant, with the consent of Lim Jap, was
absolute and unqualified, and not special or subordinate, and that he committed
no crawl in selling the property.

The court stated in US v. Apilo that the contract of pledge was not legally
consummated because the objects of which the pledge was to consist were not
placed in possession of the creditor, nor of a third person, but remained in the
possession of the debtor, who having the free disposition over those objects as if
they were his own, committed no infraction of the penal law by transferring them.

McMicking v. Martinez (G.R. No. L-5219)

Facts:
Pedi Martinez, in 1908 obtained judgment in the CFI against one Maria Aniversario.
The execution was issued upon said judgment and the sherif McMicking levied
upon a pailebot named Tomasa. Defendant Go Juna, intervened and claimed a lien
upon said boat by virtue of a pledge of the same to him by Aniversario. The pledge
was evidenced by a public. Pedro Martinez contends that the pledge had not been
made efective by delivery of the property pledged, as required by Article 1863
(now Art. 2093) and therefore there existed no preference in favor of Go Juna.

Issue: Is the contention of Martinez correct?

Held:
Yes, the court has held that the conclusion of the CFI that the property was not
delivered in accordance with the provisions of Article 1863 (now Art.2093) of the
Civil Code is sustained by the proofs. His conclusion that the pledge was
inefective against Martinez is correct.

Betita v. Ganzon (G.R. No. L-24137)

Facts:
Alejo de la Flor recovered a judgment against Tiburcia Buhayan for the sum of P140
with costs. In lieu of the said judgment, the sherif, Ganzon, levied execution on the
carabaos which were found in the possession of Simon Jacinto but registered in the
name of Buhayan. Petitioner Betita presented a third party claim alleging that the
carabaos had been mortgaged to him and as evidence thereof presented a
document. The sherif still proceeded with the sale of the animals at a public auction
where they were purchased by the defendant Clemente Perdena for the sum of
P200.

Issue: was there an efective pledge between Buhayan and Betita?

Held:
No, the court has held that the pledge is inefective because the plaintif-pledgee
never had actual possession of the property within the meaning of Article 2093 of
the New Civil Code. At the time of the levy the animals in question were in the
possession of one Simon Jacinto. Under the said article 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. It
appears that the carabaos was neither in the possession of the Betita and that there
was no agreement between the parties that Jacinto would be considered as
depositary. It is of course evident that the delivery of possession referred to in
article 2093 implies a change in the actual possession of the property
pledged and that a mere symbolic delivery is not sufficient. The carabaos
remained in the possession of Jacinto and Buhayan thus in reality there was no
change in possession.

El Banco Espanol-Filipino v. Peterson (G.R. No. 3088)

Facts:
Plaintif alleges in its complaint that under the contract entered into on the 4th of
March, 1905, by and between the Spanish-Filipino Bank and Francisco Reyes, the
former, loaned to the latter total sum of P226,117.38, Philippine currency;
That to secure the payment of these two sums and the interest thereon, the debtor,
Francisco Reyes, by a public instrument executed before a notary on the aforesaid
date mortgaged in favor of the plaintif bank several pieces of property belonging to
him, and pledged to the said bank part of his personal property, specifying the
proportion on which the said real and personal property thus mortgaged and
pledged in favor of the plaintif corporation would be respectively liable for the
payment of the debt;

That the property pledged by the debtor to the bank included a stock or
merchandise, consisting of wines, liquors, canned goods, and other similar articles
valued at P90,591.75, then stored in the warehouses of the debtor, Reyes, No. 12
Plaza Moraga, in the city of Manila, which said goods and merchandise were liable
for the payment of the said sum of P90,591.75, Philippine currency;

that in the aforesaid deed of pledge it was agreed by and between the bank and the
debtor, Reyes, that the goods should be delivered to Ramon Garcia y Planas for
safe-keeping, the debtor having actually turned over to the said Garcia y Planas the
goods in question by delivering to him the keys of the warehouse in which they
were kept;

that in a subsequent contract entered into by and between the debtor, Reyes, and
the plaintif bank, was modified so as to provide that the goods then (September
29) in possession the depositary should only be liable for the sum of P40,000,
Philippine currency, Luis M.a Sierra having been subsequently appointed by
agreement between the bank and the debtor as depositary of the goods thus
pledged in substitution for the said Ramon Garcia y Planas.

Issue: Was there a valid transfer of the goods or delivery?

Held:
Yes, the court has held that the contract in question was a perfect contract of
pledge, it having been conclusively shown that the pledgee took charge and
possession of the goods pledged through a depository and a special agent
appointed by it, each of whom had a duplicate key to the warehouse wherein the
said goods were stored, and that the pledgee, itself, received and collected the
proceeds of the goods as they were sold.

The fact that the said goods continued in the warehouse which was formerly rented
by the pledgor, Reyes, does not afect the validity and legality of the pledge, it
having been demonstrated that after the pledge had been agreed upon, and
after the depository appointed with the common consent of the parties
had taken possession of the said property, the owner, the pledgor, could
no longer dispose of the same, the pledgee being the only one authorized to do
so through the depositary and special agent who represented it, the symbolical
transfer of the goods by means of the delivery of the keys to the
warehouse where the goods were stored being sufficient to show that the
depositary appointed by the common consent of the parties was legally
placed in possession of the goods.

Yuliongsiu v. Philippine National Bank (G.R. No. L-19227)

Facts:
Yuliongsiu was the owner of two (2) vessels, namely: The M/S Surigao, valued at
P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-203,
valued at P210,672.24, which was purchased by him from the Philippine Shipping
Commission, by installment or on account. Plaintif had paid to the Philippine
Shipping Commission only the sum of P76,500 and the balance of the purchase
price was payable at P50,000 a year, due on or before the end of the current year.
Yuliongsiu obtained a loan of P50,000 from PNB. To guarantee its payment, plaintif
pledged the M/S Surigao, M/S Don Dino and its equity in the FS-203, as evidenced
by the pledge contract , duly registered with the office of the Collector of Customs
for the Port of Cebu. Yuliongsiu efected partial payment of the loan in the sum of
P20,000. 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 Yuliongsiu on
their respective due dates. After judgment of the cases filed, a writ of execution
issued to implement the order for indemnification was returned unsatisfied as
Yuliongsiu was totally insolvent. Meanwhile, PNB took physical possession of three
pledged vessels while they were at the Port of Cebu, and after the first note fell due
and was not paid, the Manager of PNB, acting as attorney-in-fact of
Yuliongsiu pursuant to the terms of the pledge contract, executed a document of
sale, transferring the two pledged vessels and Yuliongsiu's equity in FS-203, to PNB
for P30,042.72.The FS-203 was subsequently surrendered by PNB to the Philippine
Shipping which rescinded the sale to Yuliongsiu, for failure to pay the remaining
installments on the purchase price. The other two boats were sold by PNB to third
parties. Yuliongsiu commenced action in the CFI to recover the three vessels or their
value and damages from PNB. One of his contentions was that constructive delivery
is insufficient to make a pledge, citing the case of Betita v. Ganzon.

Issue: Was there sufficient delivery between the parties?

Held:
Yes, the court has held that 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. An examination of the peculiar nature of the things pledged in the two
cases will readily dispel the apparent contradiction between the two rulings.
In Betita v. Ganzon, the objects pledged carabaos were easily capable of
actual, manual delivery unto the pledgee. In Banco Espaol-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.

6. FORM OF PLEDGE
Ong v. IAC (G.R. No. 74073)
Facts:
Madrigal Shipping Co., Inc. applied for and was granted a loan by the Consolidated
Bank and Trust Corporation (Solidbank for short) in the amount of P2,094,000.00. To
secure the fulfillment of the obligations of Madrigal Shipping Co., Inc. to the
Solidbank, and credit accommodations which the former may from time to time
obtain from the latter both parties executed a Pledge Agreement wherein Madrigal
Shipping, Co., Inc. gave additional securities or collaterals in the form of a pledge in
favor of the bank, its barge and tugboat. Madrigal Shipping Co., Inc. failed to pay its
obligation to the Solidbank. The creditor bank had to sell the pledged properties.
Nevertheless, when the pledgee bank was to sell the pledged properties, it found
out that the tugboat and the barge had surreptitiously been taken from the Tanque
Bodega, Pasig River, Manila, without the knowledge and consent of the Solidbank.
Petitioner Honesto Ong, a successful bidder in a public auction by virtue of a writ of
execution issued by the National Labor Relations Commission (NLRC), bought one
barge which was subject of the pledge. Private respondent (Solidbank) filed a
complaint against Honesto Ong, et al. for Replevin with Damages.
 Issue: whether or not the contract of pledge entered into by and between
Solidbank and Madrigal Shipping Co., Inc. is binding on the petitioners Ong

Held:
Yes, the court has held that under Article 2096 of the Civil Code that for a pledge to
take efect against third persons, it should be in a public instrument which must
contain the description of the thing pledged and the date of the pledge. Petitioners
contention that the contract of pledge by and between Solidbank and Madrigal
Shipping Co., Inc. was not recorded under Sections 804 and 809 of the Tarif and
Customs Code and argue that it is not binding on third persons like the petitioners is
untenable. Art. 2096 has been interpreted in the sense that for the contract to
afect third persons, apart from being in a public instrument, possession of the thing
pledged must in addition be delivered to the pledgee. All these requirements have
been complied with, in the case at bar. The pledge agreement is a public
instrument, the same having been notarized. Subject of the pledge (MSC Barge No.
601) was delivered to the Solidbank which had it moored at Tanque Bodega, Pasig
River, Manila, where it was guarded by a security guard. Therefore the Solidbank
has the light of retention of the barge in question pledged to it until it is paid. The
Civil Code expressly provides;

Art. 2090. The contract of pledge gives right to the creditor to retain the thing in his
possession or in that of a third person to whom it has been delivered, until the debt
is paid.

Applying these concepts in the case at bar, the pledgee is obviously a lawful and
rightful possessor of the personal property pledged.

I. OWNERSHIP OF COLLATERAL (DEBTOR/PLEDGOR IS

THE OWNER; ARTICLE 2103)
Estate of Litton vs Mendoza and CA
Facts:
Tan brought an action against Mendoza for collection of a sum of
money. While the case was pending, Tan assigned his litigated credit to
Litton, securing the former's obligation to the latter. The lower court
subsequently ruled in favor of Tan in the collection case. Pending appeal by
Mendoza in the Court of Appeals, Tan and Mendoza entered into a
compromise agreement; Tan acknowledged all his claims against Mendoza
has been settled. The Court of Appeals affirmed the lower court's findings.
Mendoza filed for a motion for reconsideration invoking the compromise
agreement with Tan releasing him from liability.

Issue:
Is the compromise agreement valid?

Ruling:
 No. The compromise was committed by Mendoza in connivance with
Tan to defraud Litton. Although Tan may validly alienate the litigated credit
under Article1634, said provision should not be taken so as to grant an
absolute right to the assignor to indiscriminately dispose of the thing or right
given as security. The assignment made by Tan to Litton took the form of a
valid pledge and its validity has not been questioned. The right under Article
1634 must be read in consonance with Article 2097. Although the pledgee-
assignee (Litton) did not ipso facto become the creditor of Mendoza, by
virtue of the pledge, the pledgor (Tan) can only alienate his litigated credit
with due notice and consent of Litton. More to the point, in Article 1634 the
debtor has to reimburse the assignee.

Manila Banking Corporation vs Teodoro Jr.

FACTS:
Plaintif extended loans to defendants in the sum of P10,000.00.

On January 24, 1964, the Anastacio Teodoro Jr. (Son) executed in favor
of plaintif a Deed of Assignment of Receivables from the Emergency
Employment Administration in the sum of P44,635.00. The Deed of
Assignment provided that it was for and in consideration of certain credits,
loans, overdrafts and other credit accommodations extended to defendants
as security for the payment of said sum and the interest thereon.
April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly
and severally, executed in favor of plaintif a Promissory Note (No. 11487) for
the sum of P10,420.00 payable in 120 days, or on August 25, 1966, at 12%
interest per annum. Defendants failed to pay the said amount inspire of
repeated demands and the obligation.
On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr.
(Father) and Anastacio Teodoro, Jr. (Son) executed in favor of plaintif two
Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00
respectively. Father and Son made a partial payment on the May 3, 1966
promissory Note but none on the June 20, 1966 Promissory Note.
For failure of defendants to pay the sums due on the Promissory Note,
this action was instituted on November 13, 1969, originally against the
Father, Son, and the latter's wife. Because the Father died, however, during
the pendency of the suit, the case as against him was dismissed under the
provisions of Section 21, Rule 3 of the Rules of Court. The action, then is
against defendants Son and his wife for the collection of the amounts of the
PNs unpaid.

ISSUE:

Whether or not the assignment of receivables has the efect of payment of

all the loans contracted by appellants from appellee bank?
RULING:

The Deed of Assignment provided that it was for and in

consideration of certain credits, loans, overdrafts, and their credit
accommodations in the sum of P10,000.00 extended to appellants
by appellee bank, and as security for the payment of said sum and
the interest thereon; that appellants as assignors, remise, release,
and quitclaim to assignee bank all their rights, title and interest in
and to the accounts receivable assigned (1st paragraph).

...the title and right of possession to said account receivable is to

remain in said assignee and it shall have the right to collect directly
from the debtor, and whatever the Assignor does in connection with
the collection of said accounts, it agrees to do so as agent and
representative of the Assignee and it trust for said Assignee ...(Ibid.
par. 2 of Deed of Assignment).

It was further stipulated that the assignment will also stand as a

continuing guaranty for future loans of appellants to appellee bank and
correspondingly the assignment shall also extend to all the accounts
receivable; appellants shall also obtain in the future, until the consideration
on the loans secured by appellants from appellee bank shall have been fully
paid by them (No. 9).

The deed of assignment was intended as collateral security for the

bank loans of appellants, as a continuing guaranty for whatever sums would
be owing by defendants to plaintif, as stated in stipulation No. 9 of the deed.

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.

Citibank N.A. vs Sabeniano

FACTS:

Respondent Modesta R. Sabeniano was a client of both petitioners

Citibank and FNCB Finance.

Petitioner Citibank, N.A. (formerly known as the First National City

Bank) is a banking corporation duly authorized and existing under the laws of
the United States of America and licensed to do commercial banking
activities and perform trust functions in the Philippines.

Petitioner Investor's Finance Corporation, which did business under the

name and style of FNCB Finance, was an affiliate company of petitioner
Citibank, specifically handling money market placements for its clients.
 Respondent obtained several loans from petitioner Citibank, for which
she executed Promissory Notes (PNs), and secured by (a) a Declaration of
Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of
Assignment of her money market placements with petitioner FNCB Finance.

Respondent failed to pay her loans despite repeated demands by

petitioner Citibank, the latter exercised its right to of-set or compensate
respondent's outstanding loans with her deposits and money market
placements, pursuant to the Declaration of Pledge and the Deeds of
Assignment executed by respondent in its favor.

Petitioner Citibank supposedly informed respondent Sabeniano of the

foregoing compensation through letters, dated 28 September 1979 and 31
October 1979. Petitioners were therefore surprised when six years later, in
1985, respondent and her counsel made repeated requests for the
withdrawal of respondent's deposits and money market placements with
petitioner Citibank, including her dollar accounts with Citibank-Geneva and
her money market placements with petitioner FNCB Finance.

Respondent filed a Complaint against petitioners, claiming that

petitioners refused to return her deposits and the proceeds of her money
market placements despite her repeated demands, thus, compelling
respondent to file Civil Case against petitioners for "Accounting, Sum of
Money and Damages."

The lower court rendered its decision declaring as null and void the
set-of made by the Petitioners to respondent's deposits and money
placements. The appellate court affirmed the lower court decision.

ISSUE:

Was the compensation made by petitioners to respondent's money

market placements proper?

RULING:
As to her money market placements with FNCB Finance- in these
money market placements, respondent was the creditor and petitioner FNCB
Finance the debtor; while, as to the outstanding loans, petitioner Citibank
was the creditor and respondent the debtor. Consequently, legal
compensation, would not apply.

What petitioner Citibank actually did was to exercise its rights to the
proceeds of respondent's money market placements with petitioner FNCB
Finance by virtue of the Deeds of Assignment executed by respondent in its
favor.
Standard clauses in all of the Deeds provide that

The ASSIGNOR and the ASSIGNEE hereby further agree as follows:

xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon
demand, as the case may be, the ASSIGNEE is fully authorized and
empowered to collect and receive the PLACEMENT (or so much thereof
as may be necessary) and apply the same in payment of the OBLIGATIONS.
xxxx
5. This Assignment shall be considered as sufficient authority to
FNCB Finance to pay and deliver the PLACEMENT or so much thereof
as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in
accordance with terms and provisions hereof.

Petitioner Citibank was only acting upon the authority granted to it

under the foregoing Deeds when it finally used the proceeds of PNs, paid by
petitioner FNCB Finance, to partly pay for respondent's outstanding loans.
Strictly speaking, it did not effect a legal compensation or off-set
under Article 1278 of the Civil Code, but rather, it partly
extinguished respondent's obligations through the application of
the security given by the respondent for her loans.
Although the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge by respondent
to petitioner Citibank of her credit due from petitioner FNCB
Finance by virtue of her money market placements with the latter.

ART. 2118. If a credit has been pledged becomes due before it is redeemed,
the pledgee may collect and receive the amount due. He shall apply the
same to the payment of his claim, and deliver the surplus, should there be
any, to the pledgor.

The PNs matured, without them being redeemed by respondent, so

that petitioner Citibank collected from petitioner FNCB Finance the proceeds
thereof, which included the principal amounts and interests earned by the
money market placements, and applied the same against respondent's
outstanding loans, leaving no surplus to be delivered to respondent.

*As to the dollar account, compensation was also not applicable, thus absent
a declaration of pledge, no remittance from the respondent's dollar account
can be made to apply to her outstanding loan.

7. OBJECT / SUBJECT MATTER OF PLEDGE

Pacific Commercial Co. v. PNB

Facts:

the Gulf Plantation Company executed to the Philippine National Bank a contract of
pledge in which the Plantation Company is named as the pledgor, and the Philippine
National Bank as the pledgee, in which it is recited that the Gulf Plantation
Company has obtained certain credits, loans, overdrafts, etc., from the pledgee. In
consideration thereof the pledgor hypothecated and pledged to the pledgee and
hereby delivered the possession, for the purpose of the pledge, of all the property
itemized in schedule A.

Schedule A:
Lease No. 63 of 534 hectares of public situated in the municipality of Pantucan,
Davao Province, P. I., planted to 236,000 hemp and 700 coconut trees, valued at
P430,000.
Forty-eight buildings of permanent materials valued at P5,500 situated on above
lease. Two buildings of strong materials valued at P15,000.
One thousand piculs hemp now in the plantation bodega at Pantucan all belonging
to the "Gulf Plantation, Incorporated," valued at P45,000.
Twenty three carabaos, 38 bullocks, 18 horses, valued at P6,450.
One launch "Peril" valued at P18,000; one auxiliary boat "Manuela," P9,000; one
launch "Rigel," P800; one launch "New Kirk," P3,500 and cargo boats, P200.

A part of the contract provides, xxx the pledgee may dispose of the pledged
property in the manner herein provided, or in accordance with the Chattel Mortgage
Law, at the option of the pledgee."

The pledgor appoints the pledgee as attorney-in-fact of the pledgor with full power
and authority after any condition of the pledge may have been broken to enter the
premises where the pledged property is located, and take possession of it by force,
if necessary, and seize and take actual possession of it without an order of the
court, and to sell, assign and deliver the property pledged, or any part thereof, at
the option of the pledgee. Provision is then made for the application of the proceeds
of any sale of the property under the pledge.

Subsequently, an insolvency petition was filed to have the Gulf Plantation Company
declared insolvent. PNB filed a petition to make their contract of pledge part of
proceeding.

Issue: Are the objects under the contract valid?

Held:
No, the court has held that a pledge or chattel mortgage is confined and limited to
personal property, and it cannot be extended or made to apply to real property. The
property described are lease No. 63 of 534 hectares of public land planted to
236,000 hemp and 700 coconut trees valued at P430,000, and forty-eight buildings
of permanent materials valued at P5,500, and two buildings of strong materials
valued at P15,000. It may well be doubted whether that kind of property could
become the subject matter of a pledge or chattel mortgage.
It will be noted that it is a pledge of a lease of public land which is planted to hemp
and coconut trees, and of forty-eight buildings of permanent materials and of two
buildings of strong materials, clearly indicating that the buildings were attached to
the soil and as such would be real estate.

It will also be noted that the pledge was executed in 1918, and it is very probable
that the one thousand piculs of hemp have long since been sold. As to the twenty-
three carabaos, thirty-eight bullocks and eighteen horses, there is no provision for
the increase. Hence, the pledge, if valid for any purpose, should be confined and
limited to the particular property described in the pledge, and would not include any
increase.