Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-31018 November 6, 1929

At the sa%e ti%e Cru# si$ned a further receipt containin$ a stipulation that the sale of the articles pled$e would beco%e absolute unless the a%ount stated in the receipt should be return within si5t" da"s. The tic(ets which for% the principal feature in these two pled$es represented a pair of dia%ond earrin$s previousl" pled$ed to !ldefonso Ta%buntin$ for P1,333, and several other pieces of *ewelr" priviousl" pled$ed to the Monte de Piedad for the a$$re$ate a%ount of P0,303. All of these tic(ets were renewable, accordin$ to the custo% of pawnbro(ers, upon pa"%ent fro% ti%e to ti%e of the su%s of %one" representin$ the interest accruin$ upon the debts for which the *ewelr" was pawned. The ri$ht of repurchasin$ the *ewelr", which was conceded to Cru# in the two receipt above %entioned, was never e5ercised b" hi%8 and on 9epte%ber 07, +/0., 'ee filed a co%plaint a$ainst Cru# in the Court of irst !nstance of Manila :case No. 637./;, in which it was alle$e that the receipts above %entioned had been drawn in the for% of a sale with stipulation for repurchase in si5t" da"s but it was understood between the parties that the transaction was a loan and that the *ewelr" and pawn tic(ets held b" 'ee constituted a %ere securit" for the %one" advanced b" hi% to Cru#. As a conse<uence 'ee as(ed for *ud$%ent a$ainst Cru# in the a%ount of P.,703. 4n March 6+, +/01, *ud$%ent in said action was rendered in the Court of irst !nstance favorabl" to the plaintiff and, althou$h an atte%pt was %ade to $et the decision reviewed in the 9upre%e Court, the *ud$%ent was affir%ed for failure of the appellants to cause a transcript of the oral testi%on" to be brou$ht to said court. + After affir%ance of the *ud$%ent in the 9upre%e Court the cause was returned to the Court of irst !nstance for e5ecution, but as a result of certain proceedin$s not necessar" to be here recounted, e5ecution in that case was suspended to wait the result of the *ud$%ent to be $iven in this case. !t appears that the defendant 'ee on Au$ust +=, +/0., renewed the ten pawn tic(ets issued b" the Monte de Piedad b" pa"in$ the interest necessar" to effect the renewal, but these tic(ets all e5pired on 4ctober +=, +/0., and were never renewed. The pawn tic(ets issued b" the Ta%buntin$>s pawnshop on the dia%ond earrin$s were dated Ma" +0, +/0., and re%ained $ood for one "ear, havin$ e5pired on Ma" +0, +/01. Althou$h the pawn tic(ets issued b" the Monte de Piedad e5pired on 4ctober +=, +/0., it is ad%itted that the" could have been renewed or the *ewelr" redee%ed at an" ti%e prior to actual sale at public auction, and these *ewels were not sold b" the Monte de Piedad until in the "ear +/01, when the" were, at different dates, brou$ht in b" the appraiser of the Monte de Piedad for the a%ount then due upon the respective *ewels. But the *ewelr" represented b" one of these pawn tic(ets was that thus not sold until Au$ust +3, +/0=. ro% this it will be seen that all of the pawned *ewelr" was still sub*ect to rede%ption when civil case No. 637./ was first called for trial on 2anuar" 6, +/01,

CORNELIO CRUZ !" CIRI#C# SERR#NO, plaintiffs-appellants, vs. C$U# #. $. LEE, defendant-appellant. Gibbs and McDonough for plaintiff-appellants. Antonio Gonzalez for defendant-appellant.

STREET, J.: This action was instituted in the Court of irst !nstance of the Cit" of Manila b" Cornelio Cru# and wife, for the purpose of recoverin$ a su% of %one" fro% the defendant Chua A.&. 'ee, representin$ the da%a$es alle$ed to have been sustained b" the% fro% the lapsin$ of certain pawn tic(ets which the" had pled$ed to the defendant under the circu%stances hereinafter stated. )pon hearin$ the cause the trial court $ave *ud$%ent in favor of the plaintiffs to recover of the defendant the su% of P+,+,+, with le$al interest fro% -ece%ber +., +/01, and with costs. ro% this *ud$%ent both plaintiffs and defendant appealed. !t appears that prior to 2une +3, +/0., the plaintiff Cornelio Cru# had pled$ed valuable *ewelr" to two different pawnshops in the cit" of Manila, na%el", the Monte de Piedad and !ldefonso Ta%buntin$, receivin$ therefor twelve pawn tic(ets showin$ the ter%s upon which the articles pled$ed were held b" the pled$es. 4n the date stated the plaintiff, bein$ desirous of obtainin$ a further loan upon the sa%e and other *ewels, presented hi%self to the defendant Chua A.& 'ee and pled$ed to hi% si5 pawn tic(ets of the Monte de Piedad and a bracelet and the si5 tic(ets 'ee delivered to the plaintiff a su% of %one", for which the plaintiff e5ecuted a receipt containin$ words to the effect that the a%ount of P6,303, therein stated, represented the value of the bracelet and pawn tic(ets and that it was understood that 'ee would beco%e the absolute owner of the articles pled$e if Cru# should not return said su% of %one" within the period of si5t" da"s. 4ne wee( thereafter Cru# a$ain presented hi%self at the place of business of 'ee and received the further su% of P6,733, at the sa%e ti%e deliverin$ two pawn tic(ets of the house of !ldefonso Ta%buntin$ and four pawn tic(ets of the Monte de Piedad.

and apparentl" the ri$ht of rede%ption on onl" one piece of *ewelr" had been foreclosed b" sale when the decision was rendered in the sa%e case at the end of March. The record does not show whether or not the earrin$s pawned to !ldefonso Ta%buntin$ were in fact sold after the tic(ets lapsed on Ma" +0, +/01, but it is proved that the *ewelr" was not forthco%in$ when a in<uir" was %ade therefor b" the present plaintiff with a view to rede%ption after *ud$%ent had been rendered in the instituted b" 'ee a$ainst hi%. The first two errors assi$ned in the brief of the defendant as appellant raise a <uestion of a preli%inar" nature, which is, whether the present action can be %aintained in view of the fact that the cause of action set out in the present co%plaint %i$ht have been ? so the defendant supposes ? used as a $round of defense or counterclai% in action No. 637./ of the Court of irst !nstance of Manila instituted b" the present defendant a$ainst the present plaintiff. )pon this it is insisted that the trial court should sustained the plea of res judicata interposed in this case b" the defendant. This contention is untenable for the reason that the facts which serve as the basis of the present action were not e5istence at the ti%e of co%%ence%ent of action No. 637./. )nder section /1 of the Code of Civil Procedure the defendant is re<uired to set up his counterclai% as a defense onl" in those cases where the ri$ht out of which the counterclai% arises e5isted at the ti%e of the co%%ence%ent of the action. The principal <uestion re<uirin$ decision in the case before us is one of law, na%el", whether a person who ta(es a pawn tic(ets in pled$e is bound to renew the tic(et fro% ti%e to ti%e, b" the pa"%ent of interest, or pre%iu%, as re<uired b" the pawnbro(er, until the ri$hts of the pled$or are finall" foreclosed. !n this connection reliance is placed b" the attorne" for the plaintiff upon article +=.1 of the Civil Code, which reads as follows@ The creditor %ust ta(e care of the thin$ $iven in pled$e with the dili$ence of a $ood father of a fa%il"8 he shall be entitled to recover an" e5penses incurred for its preservation and shall be liable for its loss or deterioration, in accordance with the provisions of this code. !n appl"in$ this provision to the situation before us it %ust be borne in %ind that the ordinar" pawn tic(et is a docu%ent b" virtue of which the propert" in the thin$ pled$ed passes fro% hand to hand b" %ere deliver" of the tic(et8 and the contract of the pled$e is, therefore, absolvable to bearer. !t results that one who ta(es a pawn tic(et in pled$e ac<uires do%ination over the pled$e8 and it is the holder who %ust renew the pled$e, if it is to be (ept alive. Article +=.1 conte%plates that the pled$ee %a" have to under$o e5penses in order to prevent the pled$e fro% bein$ lost8 and this e5penses the pled$ee is entitled to recover fro% the pled$or. ro% this it follows that were, in a case li(e this, the pled$e is lost b" the failure of the pled$ee to renew the loan, he is liable for the resultin$ da%a$e. Nor, in this case,

was the dut" of the pled$ee destro"ed b" the fact that the pled$ee had obtained a *ud$%ent for the debt of the pled$or which was secured b" the pled$e. The dut" to use the deli$ence of a $ood father of the fa%il" in carin$ for the pled$e subsists as lon$ as the pled$e article re%ains in the power of the pled$ee. !n this connection we <uote as follows fro% a %ono$raphic note appended to Ari$$s vs. -a" :60 A%. 9t. Rep., 1+=;, in which it is said@ As the holder of collateral securit" is entitled to its possession and to the e5tent of his interest is substantiall" the owner thereof, he %ust, to a certain e5tent at least, assu%e the duties of the ownership, and further%ore %ust protect the interest of his pled$or as well as his own, because the latter, b" $ivin$ the collateral securit", has parted with the power to protect hi%self. The contract carries with it the i%plication that the securit" shall be %ade available to dischar$e the obli$ation>@ Bheeler vs. Newbould, +. N.C., 6/.. Be apprehend that it carries with it the further i%plication that the propert", no %atter what its character, shall be lost throu$h the ne$li$ence or inattention of the pled$ee. !n co%%entin$ upon article +=.1 of the Civil Code, the co%%entator Manresa points out that the predecessor article in the Civil Code of +=7+ li%ited itself to declarin$ that the creditor should ta(e such care of the pled$e thin$ as the $ood father of the fa%il", and this led to a livel" controvers" a%on$ the civilians concernin$ the conse<uences of the dut" of conservation or safe(eepin$ i%posed upon the creditor. But this controvers", sa"s the learned author, has lar$el" lost its interest because the authors of the Code put an end to such discussions b" definin$ the responsibilit" of the creditor in a for% so clear and e5plicit as to leave no roo% for doubt :Manresa,Codigo Civil. ,,0., ,01;. !n the treatise of Colin and Capitant on the Civil 'aw, it is stated that the creditor who receives an article in pled$e %ust bear all the e5penses necessar" to secure the conservation of the pled$e and that the debtor is bound to rei%burse hi% for such e5penses. As an illustration of the dut" of the pled$ee to e5ercise dili$ence in preservin$ the pled$e, he states that a pled$ee who fails to renew at the proper ti%e the inscription of a %ort$a$e $uaranteein$ a credit will be liable for the da%a$e resultin$ fro% its loss :opus citat, p. 11;. To the sa%e effect is a passa$e found in the pa$es of the rench co%%entator Troplon$, -roit Civil Explique Du Gage, sec. ,0=. The <uestion of the e5tent of the dut" of the pled$ee in carin$ for the propert" pled$ed has often been discussed in connection with pled$es of collatteral securit". !n this case we find the followin$ observation %ade b" the author of the title DPled$eD in 0+ Rulin$ Case 'aw, to wit@ The ri$hts and duties of parties to a pled$e of securities for the pa"%ent of the debt %a" of course be fi5ed b" a$ree%ent as to the %anner in which

the" are to be collected, but as a $eneral rule not onl" is it the ri$ht of the holder of collateral securit" to collect the %one" thereon and appl" it to the principal debt but his duties in this respect are active and he is bound to ordinar" dili$ence to preserve the le$al validit" and pecuniar" value of the pled$e, and if b" ne$li$ence, wron$ful act or o%ission on his part loss is sustained, it %ust be borne b" hi%. :Pled$e, sec. 63.;!a"phil.net The application of the doctrine above e5pounded to the case in hand leads the conclusion that the defendant Chua A. &. 'ee in the case before us in liable for the value of the securities lost b" his failure to (eep the pled$es alive in the e5tent of their actual value over the a%ounts for which the sa%e were pled$ed8 and the trial court, in our opinion, co%%itted no error is so holdin$. There re%ains to be considered the <uestion of the proper valuation of the *ewelr" sacrificed in the %anner above stated. )pon this point we are of the opinion that the trial court was too conservative in its esti%ate8 and we find, upon the testi%on" of Manuel 2avier, appraiser of the 'a !nsular Pawnshop, and rancisco errer, a *ewelr" %erchant of Manila supple%ented b" that of the plaintiff, Cornelio Cru#, that the two dia%ond earrin$s represented b" the tic(ets issued b" Ta%buntin$>s pawnshop were fairl" worth P+,,333. !t is true that Cornelio Cru# testified that these *ewels cost hi% P++,333, but he at the sa%e ti%e stated that the" were at the ti%e of the trial in the court below worth at least P+7,333. A$ain, we are of the opinion that the *ewels represented b" the ten pawn tic(ets of Monte de Piedad were worth, at a conservation esti%ate, the su% of P,,3,3. !n fi5in$ these values it %ust be re%e%bered that it is not the practice of pawnshops to advance %ore than fro% thirt"-five to fift" per cent of the true value upon pled$es of *ewels. ro% the values of the *ewelr", as esti%ated above, there is of course to be deducted the a%ounts which had been advanced upon the pled$es with interest thereon at the situated rate of += per cent per annu% until the date when the offer was %ade b" the plaintiff Cornelio Cru# in writin$ to redee% the *ewelr". But it should be noted that the su% of P6,733 which the defendant advanced to Cru# upon the pled$e of the pawn tic(ets coverin$ the earin$s %ust not be deducted, because the defendant, in the prior action, has alread" recovered *ud$%ent for that a%ount. )pon li<uidation of the account between plaintiffs and defendant in confor%it" with the su$$estion above %ade, it results that the plaintiffs herein were da%a$ed b" the sacrifice of the *ewelr" in <uestion in the total a%ount of P.,.=1.7.. Also, in order to clarif" the appealed decision, it is declared that the plaintiff is entitled to recover the bracelet co%posed of seventeen dia%onds, for%in$ the additional pled$e %ade b" the plaintiff to the defendant, upon satisfaction of the *ud$%ent in civil case No. 637./.

The *ud$%ent appealed fro% is therefore %odified to the e5tent above indicated, na%el", that the plaintiffs shall recover of the defendant the su% of P.,.=1.7., with le$al interest fro% -ece%ber +., +/01, until the sa%e shall be paid, as well as the bracelet of seventeen dia%onds upon satisfaction of the *ud$%ent above %entioned. 9o ordered, without costs. Avance#a C.$. %illa&or 'strand $ohns (o&ualdez and %illa-(eal $$. concur.