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Banco Espanol Filipino v Peterson

Facts

On March 4, 1905, Banco Espanol Filipino (BEP) executed a contract of loanin favor of Francisco Reyes for P141 702.00. Reyes was already indebted tothe bank for P84 415.00. His total debt was therefore P226 117.38.

 To secure payment of the P141k and the P84k, Reyes executed a publicinstrument1. Mortgaging several of his properties2. Pledging part of his personal property to BEP (P90 591.75 worth of wines,liquors and canned goods), which were stored at a warehouse he rented inManila

BEP and Reyes agreed that the goods should be delivered to Ramon Garcia(depositary) for safekeeping. Reyes turned over the goods to R. Garcia bygiving him the warehouse keys.

On September 29, 1905, BEP and Reyes substituted Luis Sierra in place of R.Garcia as the depositary.

On October 19, 1905, Juan Garcia (yes, related to Ramon) brought an actionagainst Francisco Reyes and Ramon Agtarat. CFI Manila ruled against Reyesand Agtarat for P15 000.00.

On the same day, Sheriff James Peterson entered the warehouse where thegoods pledged to BEP were stored under the custody of the depositary,Sierra. Peterson levied upon P30 000 worth of the goods pledged to thebank, depriving the latter of possession of the same, as stipulated in theMarch 4 contract of loan.

IssuesWas the contract of pledge between BEP and Reyes to secure a loan valid?Was Reyes still in possession of the pledged property, thereby making thecontract defective?

Held

 The contract was valid. Reyes was no longer in possession of the pledgedproperty. BEP had symbolic possession of the same.

 The contract complies with all the requisites of a valid pledge contract, asprescribed by the Civil Code:1. The property was pledged to secure a debt

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2. The date of execution, the terms of the pledge, and the property pledgedappeared in a public instrument3. The property pledged was placed in the hands of a third person (in thiscase, Sierra) by common consent of the debtor and creditor, under thesupervision of an agent (in this case, Rodriguez) of the bank

Reyes, after the pledge, parted with the possession of his personal property,which was delivered to a third person (R. Garcia, and subsequently, Sierra)who would take care of them for BEP.

Sierra was the third person appointed by common consent of BEP (creditor)and Reyes (debtor), to hold possession over the goods pledged in favor of the bank under the direct supervision of Rodriguez, an agent specificallyappointed by the bank.

 The contract in question was, therefore, a perfect contract of pledge under

articles 1857 and 1863 of the Civil Code, it having been conclusively shownthat the pledgee (BEP) took charge and possession of the goods pledgedthrough a depositary (Sierra) and a special agent (Rodriguez) appointed byit, each of whom had a duplicate key to the warehouse wherein the saidgoods were stored, and that the pledgee (BEP), itself, received and collectedthe proceeds of the goods as they were sold.

 The legality of the pledge was not affected by the fact that the goodsremained in the warehouse formerly rented by Reyes the pledgor. This isbecause after the pledge had been agreed upon, and after the depositoryappointed with common consent of the parties had taken possession of the

said property, Reyes could no longer dispose of the same because BEP wasthe only party allowed to do so through Sierra and Rodriguez.

 The symbolic transfer of the goods through delivery of the keys to thewarehouse where the goods were stored was sufficient evidence to showthat Sierra, the depositary appointed by both BEP and Rodriguez, was legallyplaced in possession of the goods.

Since the contract of pledge was valid, BEP had a better right to the goodscompared to J. Garcia. The Court ordered either the return of the improperlylevied goods, or the payment of their value, P30 000.