YULIONGSIU v PNB
22 SCRA 585 (1968)
FACTS:
Yulongsiu owned 2 vessels and equity in FS-203, which
were purchased by him from the Philippine Shipping
Commission, by installment. Plaintiff obtained a loan
from defendant and to guarantee payment, plaintiff
pledged the 2 vessels and the equity on FS-203, as
evidenced by a pledge contract. Plaintiff made a partial
payment and the remaining balance was renewed by the
execution of 2 promissory notes in the bank’s favor.
These two notes were never paid at all by plaintiff on
their respective due dates.
Defendant bank filed a criminal case against plaintiff
charging the latter with estafa through falsification of
commercial documents, and the trial court convicted the
plaintiff and was sentenced to indemnify the defendant.
The corresponding writ of execution issued to implement
the order for indemnification was returned unsatisfied as
plaintiff was totally insolvent.
Meanwhile, together with the institution of the criminal
action, defendant took physical possession of the 2
vessels and transferred the equity on FS-203 to the
defendant. Later on, the 2 vessels were sold by
defendant to third parties.
Plaintiff commenced an action for recovery on the
pledged items, and alleges, among others, that the
contract executed was a chattel mortgage so the creditor
defendant could not take possession of the chattel object
thereof until after there has been default.
ISSUE: Whether the contract entered into between
plaintiff and defendant is a chattel mortgage or a valid
contract of pledge?
HELD: It’s a contract of pledge. The contract itself
provides that it is a contract of pledge and the judicial
admission that it is a pledge contract cannot be offset
without showing of palpable mistake.
The pledgee defendant was therefore entitled to the
actual possession of the vessels. The plaintiff’s
continued operation of the vessels after the pledge
contract was entered into places his possession subject
to the order of the pledge. The pledge can temporarily
entrust the physical possession of the chattels pledged
to the pledgor without invalidating the pledge. In this
case, the pledgor is regarded as holding the pledge
merely as a trustee for the pledge.
As to the validity of the pledge contract with regard to
delivery, plaintiff alleges that constructive delivery is
insufficient to make pledge effective. The Court ruled
that type of delivery will depend on the nature and
peculiar circumstances of each case. Since the
defendant bank was, pursuant to the pledge contract, in
full control of the vessels through plaintiff, the former
could take actual possession at any time during the life
of the pledge to make more effective its security
.
MANILA SURETY & FIDELITY V. VELAYO,
21 SCRA 515 (1967)
F: Manila Surety & Fidelity Co., upon request of Rodolfo
Velayo, executed a bond for P2,800.00 for the
dissolution of a writ of attachment obtained by one Jovita
Granados in a suit against Rodolfo Velayo in the Court
of First Instance of Manila. Velayo undertook to pay the
surety company an annual premium of P112.00 and
provided collateral jewelry with the authority to sell in
case Manila Surety will be obliged to pay. Judgment
having been rendered in favor of Jovita Granados and
against Rodolfo Velayo, and execution having been
returned unsatisfied, the surety company was forced to
pay P2,800.00 that it later sought to recoup from Velayo;
and upon the latter's failure to do so, the surety caused
the pledged jewelry to be sold, realizing therefrom a net
product of P235.00 only The surety files a claim against
Velayo because the security Is insufficient. Velayo
claims the sale of the jewelry even if insufficient
extinguishes the principal obligation.
Issue: Won Velayo’s contention is correct
Ruling: Yes! The sale of the thing pledged shall
extinguish the principal obligation, whther or not the
proceeds of the sale are equal to the amount of the
principal obligation, interest and expenses in a proper
case.