FRONDA, Stephanie C.

DEPOSIT

RAUL SESBREO

Vs

HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS

BANK

G.R. No. 89252 May 24, 1993

FACTS:

Raul Sesbreno made a money market placement in the amount of P300,000 with
PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note (DMC PN No.
2731), the Certificate of Securities Delivery Receipt indicating the sale of the Note with
notation that said security was in the custody of Pilipinas Bank, and postdated checks
drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13
March 1981. The checks were dishonored for having been drawn against insufficient
funds. Philfinance delivered to petitioner Denominated Custodian Receipt (DCR).

Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, and

handed her a demand letter informing the bank that his placement with Philfinance in
the amount reflected in the DCR had remained unpaid and outstanding, and that he in
effect was asking for the physical delivery of the underlying promissory note. Petitioner
then examined the original of the DMC PN No. 2731 and found: that the security had
been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face
value of P2,300,833.33, with the Philfinance as payee and private respondent Delta
Motors Corporation (Delta) as maker; and that on face of the promissory note was
stamped NON NEGOTIABLE. Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.

Petitioner later made similar demand letters again asking private respondent Pilipinas
for physical delivery of the original of DMC PN No. 2731.

Petitioner also made a written demand upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had
FRONDA, Stephanie C.

assigned to him said Note to the extent of P307,933.33. Delta, however, denied any
liability to petitioner on the promissory note.

As petitioner had failed to collect his investment and interest thereon, he filed an action
for damages against private respondents Delta and Pilipinas.

ISSUE:

Whether or not DMC PN No. 2731 marked as non-negotiable may be assigned

HELD:

YES. Only an instrument qualifying as a negotiable instrument under the relevant

statute may be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also be assigned or transferred.
The legal consequences of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the instrument:

The words not negotiable, stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions
relative thereto, and a bill, though not negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the original parties. 12 (Emphasis
added)

DMC PN No. 2731, while marked non-negotiable, was not at the same time stamped
non-transferable or non-assignable. It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.
FRONDA, Stephanie C.

Contract of Security- Pledge

PARAY v. RODRIGUEZ, ET AL., 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 account 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.
FRONDA, Stephanie C.

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.

Issue:

Whether or not the consignations made by respondents prior to the auction sale are
sufficient to extinguish the loan obligations and the subject pledged contracts.

Held:

No.
FRONDA, Stephanie C.

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.