G.R. No.

97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

FACTS:

In various dates, defendant, a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of P1,120,000.00,

Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter.

Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch
Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised
said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant
bank's procedure, if he desired replacement of said lost CTDs

On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank
in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same
date, said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)
which stated, among others, that he (de la Cruz) surrenders to defendant bank "full control
of the indicated time deposits from and after date" of the assignment and further authorizes
said bank to pre-terminate, set-off and "apply the said time deposits to the payment of
whatever amount or amounts may be due" on the loan upon its maturity.

Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.)
Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein
plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).

Plaintiff was requested by herein defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" but no copy of the requested
documents was furnished herein defendant.

Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the
value of the CTDs in a letter dated February 7, 1983

On April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due
and on August 5, 1983, the latter set-off and applied the time deposits in question to the
payment of the matured loan.

In view of the foregoing, plaintiff filed the instant complaint, praying that defendant
bank be ordered to pay it the aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum,
moral and exemplary damages as well as attorney's fees.

RTC: dismissed complaint.

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CA: CTDs are negotiable instruments but the petitioner cannot recover since it requires both
delivery and indorsement. The petitioner contents that the CTDs were delivered as payment
and not as security is bereft of merit. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz could at the most constitute petitioner only as a holder for
value by reason of his lien. FINDINGS OF THE CA UPHELD BY SC.

ISSUE: WN the certs in question are negotiable instruments and won the provisions on the
CC on pledge be applied instead of the NIL.

HELD:

Yes. CTDs in question are negotiable instruments. However, governed by the provisions in
Civil Code on pledge.

The pertinent law on this point is that where the holder has a lien on the instrument arising
from contract, he is deemed a holder for value to the extent of his lien. 23 As such holder
of collateral security, he would be a pledgee but the requirements therefor and
the effects thereof, not being provided for by the Negotiable Instruments Law,
shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24
which inceptively provide:

"Art. 2095. Incorporeal rights, evidenced by negotiable

instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed."

"Art. 2096. A pledge shall not take effect against third

persons if a description of the thing pledged and the date of
the pledge do not appear in a public instrument."

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[G.R. No. L-49120. June 30, 1988.]

ESTATE OF GEORGE LITTON petitioner, vs. CIRIACO B. MENDOZA and

COURT OF APPEALS, respondents.

Facts:

The present case stemmed from Civil Case No. Q-8303 1 entitled "Alfonso Tan vs. Ciriaco
B. Mendoza," an action for the collection of a sum of money representing the value of two
(2) checks which plaintiff Tan claims to have been delivered to him by defendant Mendoza,
private respondent herein, by way of guaranty with a commission.

The Bernals purchased on credit from Tan some cotton materials worth P80,796.62,
payment of which was guaranteed by Mendoza (defendant/respondent).

Tan delivered the said cotton materials to the Bernals. In view of the said arrangement, on
November 1963, C.B.M. Products, through Mendoza, asked and received from the Bernals
PBTC Check No. 626405 for P80,796.62 dated February 20, 1964 with the understanding
that the said check will remain in the possession of Mendoza

Meanwhile, the said check matured without having been cashed and Mendoza demanded
the issuance of another check 4 in the same amount without a date.

On February 28, 1964, defendant Mendoza issued two (2) PNB checks in favor of Tan in the
total amount of P80,796.62. He informed the Bernals of the same and told them that they
are indebted to him and asked the latter to sign an instrument whereby Mendoza assigned
the said amount to Insular Products Inc.

Tan had the two checks issued by Mendoza discounted in a bank. However, the said checks
were later returned to Tan with the words stamped "stop payment" which appears to have
been ordered by Mendoza for failure of the Bernals to deposit sufficient funds for the check
that the Bernals issued in favor of Mendoza. Tan brought an action against Mendoza.

While both actions were pending resolution by the trial court, on March 20, 1966, Tan
assigned in favor of George Litton, Sr. his litigatious credit (petitioner) contained
in a deed of assignment which reads in part:

x x x by way of securing or guaranteeing my obligation to Mr.

GEORGE LITTON, SR., do by these presents CEDE, ASSIGN,
TRANSFER AND CONVEY unto the said Mr. GEORGE LITTON,
SR., my claim against C.B.M. Products, Inc., personally
guaranteed by Mr. Ciriaco B. Mendoza x x x

RTC: After due trial, the lower court ruled that the said PNB checks were issued by Mendoza
in favor of Tan for a commission in the sum of P4,847.79 and held Mendoza liable as a
drawer whose liability is primary and not merely as an indorser and thus directed Mendoza
to pay Tan the sum of P76,000.00, the sum still due, plus damages and attorney's fees. 10

Mendoza seasonably filed an appeal with the Court of Appeals, dockted as C.A. G.R. No.
41900-R, arguing in the main that his liability is one of an accommodation party and not as
a drawer.

CA: Affirmed in toto ruling of RTC.

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On February 25, 1977, Mendoza filed a motion for reconsideration praying that the decision
of January 27, 1977 be set aside, principally anchored upon the ground that a compromise
agreement was entered into between him and Tan which in effect released
Mendoza from liability. While the case was still pending reconsideration by the respondent
court, Tan, the assignor, died leaving no properties whatever to satisfy the claim of the
estate of the late George Litton, Sr.

The purpose of a compromise being to replace and terminate controverted claims, courts
encourage the same. A compromise once approved by final order of the court has the force
of res judicata between parties and should not be disturbed except for vices of consent or
forgery.

In this case, petitioner seeks to set aside the said compromise on the ground that previous
thereto, Tan executed a deed of assignment in favor of George Litton, Sr. involving the
same litigated credit.

ISSUE: WON Tan (assignor) may enter into a compromise agreement with
Mendoza without informing Litton, his assignee. NEGATIVE

HELD:

The validity of the guaranty or pledge in favor of Litton has not been questioned.
Our examination of the deed of assignment shows that it fulfills the requisites of
a valid pledge or mortgage. Although it is true that Tan may validly alienate the litigatious
credit as ruled by the appellate court, citing Article 1634 of the Civil Code, said provision
should not be taken to mean as a grant of an absolute right on the part of the
assignor Tan to indiscriminately dispose of the thing or the right given as security.
The Court rules that the said provision should be read in consonance with Article 2097 of
the same code. Although the pledgee or the assignee, Litton, Sr. did not ipso facto become
the creditor of private respondent Mendoza, the pledge being valid, the incorporeal right
assigned by Tan in favor of the former can only be alienated by the latter with due notice
to and consent of Litton, Sr. or his duly authorized representative. To allow the assignor to
dispose of or alienate the security without notice and consent of the assignee will render
nugatory the very purpose of a pledge or an assignment of credit.

Moreover, under Article 1634, the debtor has a corresponding obligation to reimburse the
assignee, Litton, Sr. for the price he paid or for the value given as consideration for the
deed of assignment. Failing in this, the alienation of the litigated credit made by Tan in favor
of private respondent by way of a compromise agreement does not bind the assignee,
petitioner herein.

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DIOSDADO YULIONGSIU, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK (CEBU
BRANCH), defendant-appellee.

Facts:

Plaintiff-appellant 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 FS-203, valued at P210,672.24, which was purchased by him from the
Philippine Shipping Commission, by installment or on account.

On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine National
Bank, Cebu Branch. To guarantee its payment, plaintiff pledged the M/S Surigao, M/S Don
Dino and its equity in the FS-203 to the defendant bank.

Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The
remaining balance was renewed by the execution of two (2) promissory notes in the bank's
favor. The first note, dated December 18, 1947, for P20,000, was due on April 16, 1948
while the second, dated February 26, 1948, for P10,000, was due on June 25, 1948. These
two notes were never paid at all by plaintiff on their respective due dates.

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, seven Bank of the Philippine Islands
checks totalling P184,000. The drawer thereof — one of the co-accused — had no funds in
the drawee bank. However, in connivance with one employee of defendant bank, plaintiff
was able to withdraw the amount credited to him before the discovery of the defraudation
on April 2, 1948. (RTC Convicted plaintiff- YULIONGSIU)

Defendant bank took physical possession of the three pledged vessels while they
were at the Port of Cebu, and on April 29, 1948, after the first note fell due and was not
paid, the Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff
pursuant to the terms of the pledge contract, executed a document of sale.

On July 19, 1948, plaintiff commenced action in the Court of First Instance of Cebu to
recover the three vessels or their value and damages from defendant bank.

RTC ruling: (a) that the bank's taking of physical possession of the vessels on April 6, 1948
was justified by the pledge contract and the law; (b) that the private sale of the pledged
vessels by defendant bank to itself without notice to the plaintiff-pledgor as 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 set-off
these sums against the indemnity which plaintiff was ordered to pay to it in the criminal
cases.

Plaintiff-appellant contends that it is a chattel mortgage contract o that the creditor

defendant bank could not take possession of the chattels object thereof until after there has
been default.

ISSUES:

won the parties entered into a pledge or a chattel mortgage contract. – THE
CONTRACT IS PLEDGE

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The defendant bank as pledgee was therefore entitled to the actual possession of the
vessels. While it is true that plaintiff continued operating the vessels after the pledge
contract was entered into, his possession was expressly made "subject to the order of the
pledgee." 10 The provision of Art. 2110 of the present Civil Code 11 being new-
cannot apply to the pledge contract here which was entered into on June 30, 1947.
On the other hand, there is authority supporting the proposition that the pledgee can
temporarily entrust the physical possession of the chattels pledged to the pledgor without
invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged
property merely as trustee for the pledgee.

WON Constructive delivery is sufficient to make pledge effective? Depends.

Consider the circumtances and the nature of the thing pledged.

Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to

make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87 which ruled that there
has to be actual delivery of the chattels pledged. But then there is also Banco Espanol
Filipino v. Peterson, 7 Phil. 409 ruling that symbolic delivery would suffice.

In Betita v. Ganzon, the objects pledged — carabaos — were easily capable of actual,
manual delivery unto the pledgee. In Banco Espanol-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. Thus, for purposes of showing the transfer of control to the
pledgee, delivery to him of the keys to the warehouse sufficed. In other words, 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.

Since the defendant bank was, pursuant to the terms of the pledge contract, in full control
of the vessels thru the plaintiff, the former could take actual possession at any time during
the life of the pledge to make more effective its security. Its taking of the vessels therefore
on April 6, 1948, was not unlawful.

WON THE statutory requirements as to public sales with prior notice in connection
with foreclosure proceedings are waivable, are no longer authoritative in view of
the passage of Act 3135. Negative.

The rulings in Philippine National Bank v. De Poli, 44 Phil. 763 and El Hogar Filipino v.
Paredes, 45 Phil. 178 are still authoritative despite the passage of Act 3135. This law
refers only, and is limited, to foreclosure of real estate mortgages. So, whatever formalities
there are in Act 3135 do not apply to pledge.