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G.R.No.L19227

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RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L19227February17,1968
DIOSDADOYULIONGSIU,plaintiffappellant,
vs.
PHILIPPINENATIONALBANK(CebuBranch),defendantappellee.
VicenteJaime,ReginoHermosisima&E.Lumontad,Sr.forplaintiffappellant.
TomasBesa,R.B.delosReyesandC.E.Medinafordefendantappellee.
BENGZON,J.P.,J.:
Plaintiffappellant Diosdado Yuliongsiu 1 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 FS203, valued at
P210,672.24, which was purchased by him from the Philippine Shipping Commission, by installment or on
account.AsofJanuaryorFebruary,1943,plaintiffhadpaidtothePhilippineShippingCommissiononlythesum
ofP76,500andthebalanceofthepurchasepricewaspayableatP50,000ayear,dueonorbeforetheendofthe
currentyear.2
OnJune30,1947,plaintiffobtainedaloanofP50,000fromthedefendantPhilippineNationalBank,Cebu
Branch.Toguaranteeitspayment,plaintiffpledgedtheM/SSurigao,M/SDonDinoanditsequityintheFS203to
thedefendantbank,asevidencedbythepledgecontract,Exhibit"A"&"1Bank",executedonthesamedayand
dulyregisteredwiththeofficeoftheCollectorofCustomsforthePortofCebu.3
Subsequently,plaintiffeffectedpartialpaymentoftheloaninthesumofP20,000.Theremainingbalance
wasrenewedbytheexecutionoftwo(2)promissorynotesinthebank'sfavor.Thefirstnote,datedDecember18,
1947,forP20,000,wasdueonApril16,1948whilethesecond,datedFebruary26,1948,forP10,000,wasdue
onJune25,1948.Thesetwonoteswereneverpaidatallbyplaintiffontheirrespectiveduedates.4
On April 6, 1948, the bank filed 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,
from March 11 to March 31, 1948, sevenBank of the Philippine Islands checks totalling P184,000. The drawer
thereofoneofthecoaccusedhadnofundsinthedraweebank.However,inconnivancewithoneemployee
of defendant bank, plaintiff was able to withdraw the amount credited to him before the discovery of the
defraudation on April 2, 1948. Plaintiff and his coaccused were convicted by the trial court and sentenced to
indemnify the defendant bank in the sum of P184,000. On appeal, the conviction was affirmed by the Court of
Appeals on October 31, 1950. The corresponding writ of execution issued to implement the order for
indemnificationwasreturnedunsatisfiedasplaintiffwastotallyinsolvent.5
Meanwhile,togetherwiththeinstitutionofthecriminalaction,defendantbanktookphysicalpossessionof
threepledgedvesselswhiletheywereatthePortofCebu,andonApril29,1948,afterthefirstnotefelldueand
wasnotpaid,theCebuBranchManagerofdefendantbank,actingasattorneyinfactofplaintiffpursuanttothe
termsofthepledgecontract,executedadocumentofsale,Exhibit"4",transferringthetwopledgedvesselsand
plaintiff'sequityinFS203,todefendantbankforP30,042.72.6
TheFS203wassubsequentlysurrenderedbythedefendantbanktothePhilippineShippingCommission
which rescinded the sale to plaintiff on September 8, 1948, for failure to pay the remaining installments on the
purchasepricethereof.7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by defendant
banktothirdpartiesonMarch15,1951.
OnJuly19,1948,plaintiffcommencedactionintheCourtofFirstInstanceofCebutorecoverthethree
vessels or their value and damages from defendant bank. The latter filed its answer, with a counterclaim for
P202,000 plus P5,000 damages. After issues were joined, a pretrial was held resulting in a partial stipulation of
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factsdatedOctober2,1958,recitingmostofthefactsabovenarrated.Duringthecourseofthetrial,defendant
amended its answer reducing its claim from P202,000 to P8,846.01, 8 but increasing its alleged damages to
P35,000.
ThelowercourtrendereditsdecisiononFebruary13,1960ruling:(a)thatthebank'stakingofphysical
possessionofthevesselsonApril6,1948wasjustifiedbythepledgecontract,Exhibit"A"&"1Bank"andthelaw
(b)thattheprivatesaleofthepledgedvesselsbydefendantbanktoitselfwithoutnoticetotheplaintiffpledgoras
stipulated in the pledge contract was likewise valid and (c) that the defendant bank should pay to plaintiff the
sums of P1,153.99 and P8,000, as his remaining account balance, or setoff these sums against the indemnity
whichplaintiffwasorderedtopaytoitinthecriminalcases.
When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to Us, the
amountinvolvedbeingmorethanP200,000.00.
Insupportofthefirstassignmentoferror,plaintiffappellantwouldhavethisCourtholdthatExhibit"A"&"1
Bank" is a chattel mortgage contract so that the creditor defendant could not take possession of the chattels
objectthereofuntilaftertherehasbeendefault.Thesubmissioniswithoutmerit.Thepartiesstipulatedasafact
thatExhibit"A"&"1Bank"isapledgecontract
3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant Bank, and the
plaintiff obtained and received from the said Bank the sum of P50,000.00, and in order to guarantee the
paymentofthisloan,thepledgecontract,Exhibit"A"&Exhibit"1Bank",wasexecutedanddulyregistered
withtheOfficeoftheCollectorofCustomsforthePortofCebuonthedateappearingtherein(Emphasis
supplied)
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Necessarily,thisjudicialadmissionbindstheplaintiff.Withoutanyshowingthatthiswasmadethrupalpable
mistake,noamountofrationalizationcanoffsetit.9
Thedefendantbankaspledgeewasthereforeentitledtotheactualpossessionofthevessels.Whileitis
truethatplaintiffcontinuedoperatingthevesselsafterthepledgecontractwasenteredinto,hispossessionwas
expresslymade"subjecttotheorderofthepledgee." 10 TheprovisionofArt.2110ofthepresentCivilCode 11
beingnewcannotapplytothepledgecontractherewhichwasenteredintoonJune30,1947.Ontheother
hand, there is an authority supporting the proposition that the pledgee can temporarily entrust the physical
possessionofthechattelspledgedtothepledgorwithoutinvalidatingthepledge.Insuchacase,thepledgoris
regardedasholdingthepledgedpropertymerelyastrusteeforthepledgee.12
Plaintiffappellant would also urge Us to rule that constructive delivery is insufficient to make pledge
effective.HepointstoBetitav.Ganzon,49Phil.87whichruledthattherehastobeactualdeliveryofthechattels
pledged.ButthenthereisalsoBancoEspaolFilipinov.Peterson,7Phil.409rulingthatsymbolicdeliverywould
suffice. 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 EspaolFilipino v. Peterson, the objects
pledgedgoodscontainedinawarehousewerehardlycapableofactual,manualdeliveryinthesensethatit
was impractical as a whole for the particular transaction and would have been an unreasonable requirement.
Thus,forpurposesofshowingthetransferofcontroltothepledgee,deliverytohimofthekeystothewarehouse
sufficed.Inotherwords,thetypeofdeliverywilldependuponthenatureandthepeculiarcircumstancesofeach
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
objectspledged,i.e.,vesselsusedinmaritimebusiness,suchdeliveryissufficient.
Sincethedefendantbankwas,pursuanttothetermsofpledgecontract,infullcontrolofthevesselsthru
the plaintiff, the former could take actual possession at any time during the life of the pledge to make more
effectiveitssecurity.ItstakingofthevesselsthereforeonApril6,1948,wasnotunlawful.Norwasitunjustified
consideringthatplaintiffhadjustdefraudedthedefendantbankinthehugesumofP184,000.
ThestandWehavetakenisnotwithoutprecedent.TheSupremeCourtofSpain,inasimilarcaseinvolving
Art.1863oftheoldCivilCode,13hasruled:14
Quesibienlanaturalezadelcontratodeprendaconsisteenpasarlascosasapoderdelacreedoro
deunterceroynoquedarenladeldeudor,comohasucedidoenelcasodeautos,eslociertoquetodas
las partes interesadas, o sean acreedor, deudor y Sociedad, convinieron que continuaran los coches en
poderdeldeudorparanosuspendereltrafico,yelderechodenousodelaprendapertenencealdeudor,
y el de dejar la cosa bajo su responsabilidad al acreedor, y ambos convinieron por creerlo util para las
partescontratantes,yestasnoreclamanperjuiciosnoseinfringio,entreotrosestearticulo.

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Inthesecondassignmentoferrorimputedtothelowercourtplaintiffappellantattacksthevalidityofthe
private sale of the pledged vessels in favor of the defendant bank itself. It is contended first, that the cases
holding that the statutory requirements as to public sales with prior notice in connection with foreclosure
proceedingsarewaivable,arenolongerauthoritativeinviewofthepassageofAct3135,asamendedsecond,
that the charter of defendant bank does not allow it to buy the property object of foreclosure in case of private
salesandthird,thatthepriceobtainedatthesaleisunconscionable.
Thereisnomeritintheclaims.TherulingsinPhilippineNationalBankv.DePoli,44Phil.763andElHogar
Filipinov.Paredes,45Phil.178arestillauthoritativedespitethepassageofAct3135.Thislawrefersonly,andis
limited,toforeclosureofrealestatemortgages.15So,whateverformalitiesthereareinAct3135donotapplyto
pledge. Regarding the bank's authority to be the purchaser in the foreclosure sale, Sec. 33 of Act 2612, as
amendedbyActs2747and2938onlystatesthatifthesaleispublic,thebankcouldpurchasethewholeorpart
ofthepropertysold"freefromanyrightofredemptiononthepartofthemortgagororpledgor."Thisevenargues
againstplaintiff'scasesincetheimportthereofisthisifthesalewereprivateandthebankbecamethepurchaser,
the mortgagor or pledgor could redeem the property. Hence, plaintiff could have recovered the vessels by
exercisingthisrightofredemption.Heistheonlyonetoblamefornotdoingso.
Regardingthethirdcontention,ontheassumptionthatthepurchasepricewasunconscionable,plaintiff's
remedy was to have set aside the sale. He did not avail of this. Moreover, as pointed out by the lower court,
plaintiffhadatthetimeanobligationtoreturntheP184,000fraudulentlytakenbyhimfromdefendantbank.
Thelastassignmentoferrorhastodowiththedamagesallegedlysufferedbyplaintiffappellantbyvirtueof
thetakingofthevessels.Butinviewoftheresultsreachedabove,thereisnomoreneedtodiscussthesame.
Onthewhole,Wecannotsaythelowercourterredindisposingofthecaseasitdid.Plaintiffappellantwas
notalltooinnocentashewouldhaveUsbelieve.Hediddefraudthedefendantbankfirst.Ifthelattercountered
withtheseizureandsaleofthepledgedvesselspursuanttothepledgecontract,itwasonlytoprotectitsinterests
after plaintiff had defaulted in the payment of the first promissory note. Plaintiffappellant did not come to court
withcleanhands.
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiffappellant. So
ordered.
Concepcion,C.J.,Reyes,J.B.L.,Dizon,Makalintal,Zaldivar,Sanchez,Castro,AngelesandFernando,JJ.,
concur.
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Footnotes
1DiosdadoYuliongsiuhas,sinceDecember6,1962,diedandbeensubsequentlysubstitutedbyhiswidow

EmerencianaA.Yuliongsiu,forherself,andasguardianadlitemoftheirdaughterRoseYuliongsiu.
2Par.1,PreTrialOrderofOct.2,1958RecordonAppeal,p.39.
3Par.3,PreTrialOrderofOct.2,1958RecordonAppeal,p.40.
4Par.4,PreTrialOrderofOct.2,1958RecordonAppeal,pp.4043.
5Pars.89,PreTrialOrderofOct.2,1958RecordonAppeal,pp.4546.
6Par.6,PreTrialOrderofOct.2,1958RecordonAppeal,p.44.
7Par.5,PreTrialOrderofOct.2,1958RecordonAppeal,pp.4344.
8Therewasan8thcheck,forP18,000,depositedbyplaintiffandforwhichthedrawerhadnofunds.This

amountlessplaintiff'sactualbalanceofP9,153.99inhisaccountgivesthebankanP8,846.01credit.
9Sec.2,Rule129,RulesofCourt.
10Exh."A"&"1Bank"recitesinpart:"...thePledgor...herebygivesPossessionofsuchpropertyforthe

purpose of this pledge to the Pledgor who shall hold said property subject to the order of the Pledge."
(Emphasissupplied)
11Providing that if after the perfection of the pledge, the thing is found in the pledgor's possession, it is

presumedthatthesamewasreturnedbythepledgee,therebyextinguishingthepledge.
1272C.J.S.4041.
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13Whichprovides:"InadditiontotherequisitesmentionedinArticle1857,itshallbenecessary,inorderto

constitutethecontractofpledge,thatthepledgedbeplacedinthepossessionofthecreditororofathird
personappointedbycommonconsent."
14Sentenciadel23deAbrilde1929,citedin29Scaevola346.
15LunaV.Encarnacion,91Phil.531.
TheLawphilProjectArellanoLawFoundation

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