Banco Español-Filipino v Peterson

GR No. 3088, 6 February 1907

Torres, J

Plaintiff-defendant: Banco Español-Filipino v Peterson

Defendants-Appellees: James Peterson, sheriff of Manila and Juan Garcia

FACTS:
 In March 1905, Francisco Reyes and petitioner bank Banco Español entered into
a contract of loan, where Reyes borrowed the total sum of P226,117.38.
 To secure payment, Reyes executed, before a notary, a mortgage and pledged
to the bank part of his personal property. These goods; which consist of wines,
liquors, canned goods and other similar articles; were stored in Reyes’
warehouse.
 Both Reyes and petitioner bank agreed that the pledged goods be delivered to
Ramon Garcia for safekeeping. Reyes turned the goods in question to Garcia
by delivering to him the keys of the warehouse where the goods were kept.
 In September 1905, Reyes and petitioner bank executed a new contract
modifying among others the appointed depositary. They appointed Luis Sierra as
new depositary.Also, that Mariano Rodriguez was assigned by petitioner bank as
its agent to supervise Sierra in keeping the property.
 Meanwhile, in a suit filed by Ramon Garcia against Francisco Reyes and Ramon
Agtarat, the trial court rendered judgment in favor of Garcia. The court ordered
both Reyes and Agtarat to solidarily pay Garcia the sum of P15,000 and upon
which a judgment execution was issued against the property of the two
defendants.
 For the purpose of levying upon the property of Reyes and Agtarat, and upon
Garcia’s request, respondent Sheriff James Peterson entered Reyes’ warehouse
where the goods pledged to petitioner bank were stored, and levied upon them.
 This deprived petitioner bank of the possession of the pledged goods that they
were entitled under the March 1905 contract. Petitioner bank then sued Peterson
and Garcia on October 24, 1905, praying that the execution levied upon the
pledged goods be rendered illegal and that the goods be returned to petitioner
bank’s possession.
 Defendants Peterson and Garcia contended that the action must be dismissed
because petitioner bank had no interest in the property, alleging that Reyes
never actually parted with the goods in question. Thus, the contract of pledge
was not valid.
 The trial court decided in favor of defendants and dismissed the case. The trial
court ruled that the contract of pledge entered between Reyes and petitioner
 bank was not valid because Reyes continued in possession of the goods and
that neither the creditor petitioner bank nor the depositary were ever in
possession of the property pledged.

ISSUE:
1. Whether Reyes continued in possession of the pledged property after the
property had been pledged to petitioner bank.

2. Whether the contract of pledge was valid, thus petitioner bank had
preferential right over the claim of Garcia to the property pledged to the extent
of its value.

RULING:
1. No. The symbolic transfer by means of the delivery of the keys of the
premises, where the goods were stored, is sufficient to consider that the
creditor, or the depositary appointed by common consent of the parties, in
legal possession of the said goods.

In the present case, although the goods were continued to be stored in the
warehouse rented by pledgor Reyes, it does not mean that he continued to be in
possession of the goods in question. The fact that Reyes delivered the keys of
the warehouse to the appointed depositary after the pledge had been agreed
upon, demonstrated that Reyes could no longer dispose of the goods and the
pledgee petitioner bank, through its depositary Sierra and its special agent
Rodriguez, is in possession of the goods.

Therefore, Reyes did not have continued possession of the goods.

2. Yes. Under Article 1857 of the Civil Code, a contract is a contract of pledge if
the following are complied: that the property was pledged to secure a debt,
the date date of the execution, the terms of the pledge and the property
pledged all appear in a public document and the property would be placed in
the hands of a third person by common consent of the debtor and creditor,
under the supervision of an agent of the bank. In the present case, all the
requisites of a contract of pledge exist. The trial court’s decision was reversed
and the Supreme Court ruled that the contract of pledge was valid and that
petitioner bank had preferential right over that of Juan Garcia to the goods in
question, and ordered Garcia and Peterson to return to the petitioner bank the
property improperly levied upon.