Credits - Pledge

8/21/2019 Credits - Pledge

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[ G.R. No. 171569, August 01, 2011 ]UNION BANK OF THE PHILIPPINES, PETITIONER, VS. ALAIN * JUNIAT,

WINWOOD APPAREL, INC., WINGYAN APPAREL, INC., NONWOVEN FABRIC PHILIPPINES, RESPONDENTS.

DEL CASTILLO, J.:To have a binding effect on third parties, a contract of pledge must appear in a publicinstrument.[1]

This Petition for Review on Certiorari [2] under Rule 4 of the Rules of !ourt assails the

"une 2#, 2$$ %ecision[#]

and the &ebruar' (, 2$$) Resolution[4]

of the !ourt of *ppeals +!* in !*-.R. !/ 0o. ))#(2.

Factual At!c!"!t#

Petitioner nion an3 of the Philippines +nion an3 is a universal ban3ingcorporation organied and e5isting under Philippine laws.[]

Respondents 6inwood *pparel, 7nc. +6inwood and 6ing'an *pparel, 7nc. +6ing'anare domestic corporations engaged in the business of apparel manufacturing.[)] othrespondent corporations are owned and operated b' respondent *lain "uniat +"uniat,a &rench national based in 8ong3ong.[9] Respondent 0onwoven &abric Philippines,7nc. +0onwoven is a Philippine corporation engaged in the manufacture and sale ofvarious t'pes of nonwoven fabrics. [:]

;n <eptember #, 1((2, petitioner filed with the Regional Trial !ourt +RT! of =a3ati,ranch 9, a !omplaint[(]with pra'er for the issuance of e5-parte writs of preliminar'attachment and replevin against "uniat, 6inwood, 6ing'an, and the person inpossession of the mortgaged motoried sewing machines and e>uipment.[1$]Petitioner alleged that "uniat, acting for and in behalf of 6inwood and 6ing'an, e5ecuted apromissor' note[11]dated *pril 11, 1((2 and a !hattel =ortgage [12] dated =arch 29,1((2 over several motoried sewing machines and other allied e>uipment to securetheir obligation arising from e5port bills transactions to petitioner in the amount ofP1,1#1,1#4.#?[1#] that as additional securit' for the obligation, "uniat e5ecuted a!ontinuing <uret' *greement[14] dated *pril 11, 1((2 in favor of petitioner?[1] that theloan remains unpaid?[1)] and that the mortgaged motoried sewing machines areinsufficient to answer for the obligation.[19]

;n <eptember 1$, 1((2, the RT! issued writs of preliminar' attachment and replevinin favor of petitioner.[1:] The writs were served b' the <heriff upon 0onwoven as itwas in possession of the motoried sewing machines and e>uipment.[1(] *lthough0onwoven was not impleaded in the complaint filed b' petitioner, the RT! li3ewiseserved summons upon 0onwoven since it was in possession of the motoried sewingmachines and e>uipment.[2$]

;n <eptember 2:, 1((2, 0onwoven filed an *nswer, [21] contending that theunnotaried !hattel =ortgage e5ecuted in favor of petitioner has no binding effect on0onwoven and that it has a better title over the motoried sewing machines ande>uipment because these were assigned to it b' "uniat pursuant to their *greement[22]dated =a' (, 1((2.[2#] "uniat, 6inwood, and 6ing'an, on the otherhand, were declared in default for failure to file an answer within the reglementar'period.[24]

;n 0ovember 2#, 1((2, petitioner f iled a =otion to <ell !hattels <eied b' Replevin,[2] pra'ing that the motoried sewing machines and e>uipment be sold to avoiddepreciation and deterioration.[2)] 8owever, on =a' 1:, 1((#, before the RT! couldact on the motion, petitioner sold the attached properties for the amount ofP1,#$,$$$.$$.[29]

0onwowen moved to cite the officers of petitioner in contempt for selling the attachedproperties, but the RT! denied the same on the ground that nion an3 acted ingood faith.[2:]

Rul$% &' t(! R!%$&al T)$al C&u)t;n =a' 2$, 1(((, the RT! of =a3ati, ranch 14,[2(] rendered a %ecision[#$] in favorof petitioner. The RT! ruled that both the !hattel =ortgage dated =arch 29, 1((2 infavor of petitioner and the *greement dated =a' (, 1((2 in favor of 0onwoven haveno obligator' effect on third persons because these documents were not notaried.[#1] 8owever, since the !hattel =ortgage in favor of petitioner was e5ecuted earlier,petitioner has a better right over the motoried sewing machines and e>uipmentunder the doctrine of @first in time, stronger in right@ + prius tempore, potior jure).[#2] Thus, the RT! disposed of the case in this wiseA68BRB&;RB, above premises considered, Cudgment is hereb' rendered as followsA1.] %eclaring the [petitioner] 07;0 *0D ;& T8B P87E7PP70B<, as having thebetter right to the goods andFor machineries subCect of the 6rits of Preliminar' *ttachment and Replevin issued b' this !ourt on <eptember 1$, 1((2.

2.] %eclaring the [petitioner] as entitled to the proceeds of the sale of the subCectmachineries in the amount of P1,#$,$$$.$$?#.] %eclaring [respondents] *llain "uniat, 6inwood *pparel, 7nc. and 6ing'an *pparel, 7nc. to be Cointl' and severall' liable to the [petitioner], for the deficienc'between the proceeds of the sale of the machineries subCect of this suit[P1,#$,$$$.$$] and original claim of the plaintiff [P1,(1(,($9.$#], in the amount ofP)(,($9.$#, with legal interest at the rate of 12G per annum from date of this Cudgment until full' paid? and4.] %eclaring [respondents] *llain "uniat, 6inwood *pparel, 7nc. and 6ing'an *pparel, 7nc. to be Cointl' and severall' liable to the [petitioner] for the amount ofP$,$$$.$$ as reasonable attorne's fees? and.] !ost of this suit against the [respondents].<; ;R%BRB%.[##]

0onwoven moved for reconsideration[#4]

but the RT! denied the same in its;rder [#] dated "ul' 14, 1(((.

Rul$% &' t(! C&u)t &' A!al#;n appeal, the !* reversed the ruling of the RT!. The !* ruled that the contract ofpledge entered into between "uniat and 0onwoven is valid and binding, and that themotoried sewing machines and e>uipment were ceded to 0onwoven b' "uniat b'virtue of a dacion en pago.[#)] Thus, the !* declared 0onwoven entitled to theproceeds of the sale of the attached properties.[#9] The fallo readsA!ERE"ORE, premises considered, the assailed decision is hereb' RE#ERSED$%& SET ASIDE. [Petitioner] nion an3 of the Philippines is hereb' DIRECTED topa' 0onwoven &abric Philippines, 7nc. P1,#$,$$$.$$, the amount it holds in escrow,realied from the =a' 1:, 1((# sale of the machineries to avoid deterioration duringpendenc' of suit. 0o pronouncement as to costs.SO ORDERED.[#:]



Petitioner sought reconsideration[#(] which was denied b' the !* in aResolution[4$] dated &ebruar' (, 2$$).

Issu's8ence, the present recourse where petitioner interposes the following issuesA

1. 6hether 5 5 5 the !ourt of *ppeals committed serious reversible error insetting aside the %ecision of the trial court holding that nion an3 of thePhilippines had a better right over the machineries seiedFlevied upon in theproceedings before the trial court andFor the proceeds of the sale thereof?

2. 6hether 5 5 5 the !ourt of *ppeals seriousl' erred in holding that[0onwoven] has a valid claim over the subCect sewing machines.[41]

P!t$t$&!)+# A)%u!t#Bchoing the reasoning of the RT!, petitioner insists that it has a better title to theproceeds of the sale.[42] *lthough the !hattel =ortgage e5ecuted in its favor was notnotaried, petitioner insists that it is nevertheless valid, and thus, has preference overa subse>uent unnotaried agreement.[4#] Petitioner further claims that e5cept for thesaid agreement, no other evidence was presented b' 0onwoven to show that themotoried sewing machines and e>uipment were indeed transferred to them b'"uniatF6inwoodF6ing'an.[44]

R!#&"!t N&-&!+# A)%u!t#0onwoven, on the other hand, claims ownership over the proceeds of the sale under

*rticle 144[4] of the !ivil !ode on double sale, which it claims can be applied b'analog' in the instant case.[4)] 0onwoven contends that since its prior possessionover the motoried sewing machines and e>uipment was in good faith, it has a bettertitle over the proceeds of the sale.[49] 0onwoven li3ewise maintains that petitioner hasno right over the proceeds of the sale because the !hattel =ortgage e5ecuted in itsfavor was unnotaried, unregistered, and without an affidavit of good faith.[4:]

Ou( Ru)*%g

T+' 't*t*o% +$s -'(*t.0onwoven la's claim to the attached motoried sewing machines and e>uipmentpursuant to the *greement it entered into with "uniat, to witA8ong Dong, (th =a', 1((2

6ith reference to tal3s held this morning at the 8olida' 7nn olden =ile !offee <hop,among the following partiesA

a. Redflower arments 7nc. - =rs. =agliponb. 0onwoven &abrics Phils. 7nc. - =r. ". Tanc. 6inwood *pparel 7nc.F6ing Han *pparel, 7nc. - =r. *. "uniat, =rs. <. "uniat

7T 6*< *RBB% T8*TAa. <ettlement of the accounts between 0onwoven &abrics Phils. 7nc. and 6inwood *pparel 7nc.F6ing Han *pparel, 7nc. should be effected as agreed through partialpa'ment b' EF! *t+ t+' /$)$%' to /' s'tt)'& $t $ )$t'( &$t' o( +*+ *%oo&A$('), I%. $g(''s to o%s*g% 9 s'*%g -$+*%'s, 3 s%$ -$+*%'s $%& 2/o*)'(s, ('s'%t)4 *% t+' $(' o R'&)o'( G$(-'%ts I%., to t+' $(' oNo%o'% "$/(*s +*)s., I%. $s gu$($%t''.=eanwhile, 0onwoven will resume

deliver' to 6inwoodF6in Hang as usual.5 5 5 5[4(] +Bmphasis supplied.

7t insists that since the attached properties were assigned or ceded to it b' "uniat, ithas a better right over the proceeds of the sale of the attached properties thanpetitioner, whose claim is based on an unnotaried !hattel =ortgage.

' &o %ot $g(''.7ndeed, the unnotaried !hattel =ortgage e5ecuted b' "uniat, for and in behalf of6ing'an and 6inwood, in favor of petitioner does not bind 0onwoven.[$] 8owever, itmust be pointed out that petitionerIs primar' cause of action is for a sum of mone'

with pra'er for the issuance of e5-parte writs of attachment and replevin against"uniat, 6inwood, 6ing'an, and the person in possession of the motoried sewingmachines and e>uipment.[1] Thus, the fact that the !hattel =ortgage e5ecuted infavor of petitioner was not notaried does not affect petitionerIs cause of action.Petitioner onl' needed to show that the loan of "uniat, 6ing'an and 6inwoodremains unpaid and that it is entitled to the issuance of the writs pra'ed for.!onsidering that writs of attachment and replevin were issued b' the RT!,[2] 0onwoven had to prove that it has a better right of possession or ownership overthe attached properties. This it failed to do.

* perusal of the *greement dated =a' (, 1((2 clearl' shows that the sewingmachines, snap machines and boilers were pledged to 0onwoven b' "uniat toguarantee his obligation. 8owever, under *rticle 2$() of the !ivil !ode, @[a] pledgeshall not ta3e effect against third persons if a description of the thing pledged and the

date of the pledge do not appear in a public instrument.@ 8ence, Cust li3e the chattelmortgage e5ecuted in favor of petitioner, the pledge e5ecuted b' "uniat in favor of0onwoven cannot bind petitioner.

0either can we sustain the finding of the !* thatA @The machineries were ceded toT87R% P*RTH 0;06;/B0 b' wa' of dacion en pago, a contract later entered intob' 6706;;%F670H*0 and T87R% P*RTH 0;06;/B0.@[#] *s aptl' pointed outb' petitioner, no evidence was presented b' 0onwoven to show that the attachedproperties were subse>uentl' sold to it b' wa' of a dacion en pago. *lso, there isnothing in the *greement dated =a' (, 1((2 to indicate that the motoried sewingmachines, snap machines and boilers were ceded to 0onwoven as pa'ment for the6ing'anIs and 6inwoodIs obligation. 7t bears stressing that there can be no transferof ownership if the deliver' of the propert' to the creditor is b' wa' of securit'.[4] 7n

fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago,the presumption is that it is a pledge as this involves a lesser transmission of rightsand interests.[]

7n view of the foregoing, we are constrained to reverse the ruling of the !*.0onwoven is not entitled to the proceeds of the sale of the attached propertiesbecause it failed to show that it has a better title over the same.

!ERE"ORE, the petition is hereb' GRANTED. The assailed "une 2#, 2$$%ecision and the &ebruar' (, 2$$) Resolution of the !ourt of *ppeals in !*-.R. !/0o. ))#(2 are hereb' RE#ERSED $%& SET ASIDE. The =a' 2$, 1((( %ecision ofthe Regional Trial !ourt of =a3ati, ranch 14, ishereb' REINSTATED and A""IRED.SO ORDERED. Corona, C.J., (Chairperson), Leonardo-De Castro,Bersamin, and Villarama, Jr. JJ., concur.



[ .R. 0;. 1#22:9, "anuar' 24, 2$$) ]

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TINGA, J.:

The assailed decision of the !ourt of *ppeals too3 off on the premise that pledged shares

of stoc3 auctioned off in a notarial sale could still be redeemed b' their owners. This notionis wrong, and we thus reverse.

The facts, as culled from the record, follow.

Respondents were the owners, in their respective personal capacities, of shares of stoc3 ina corporation 3nown as the Juirino-Eeonor-Rodrigue Realt' 7nc. [1] <ometime during the'ears 1(9( to 1(:$, respondents secured b' wa' of pledge of some of their shares ofstoc3 to petitioners onifacio and &austina Para' +@Para's@ the pa'ment of certain loanobligations. The shares pledged are listed belowA

=iguel Rodrigue"ariol

1,$$$ shares covered b' <toc3 !ertificates 0o. $11, $)$, $)1 K$)2?

*bdulia !. Rodrigue #$$ shares covered b' <toc3 !ertificates 0o. $2# K $(#?

Eeonora R. 0olasco 4$9 shares covered b' <toc3 !ertificates 0o. $(1 K $(2?enoveva <oronio )(( shares covered b' <toc3 !ertificates 0o. $2, $( K $((?%olores R. <oberano )(( shares covered b' <toc3 !ertificates 0o. $21, $#, $22 K $(9?"ulia eneroso 1,1$$ shares covered b' <toc3 !ertificates 0o. $:, $1, $:) K

$:4?Teresita 0atividad 44$ shares covered b' <toc3 !ertificates 0os. $4 K $[2]

6hen the Para's attempted to foreclose the pledges on account of respondentsI failure topa' their loans, respondents filed complaints with the Regional Trial !ourt +RT! of !ebu!it'. The actions, which were consolidated and tried before RT! ranch 14, !ebu !it',sought the declaration of nullit' of the pledge agreements, among others. 8owever theRT!, in its decision[#] dated 14 ;ctober 1(::, dismissed the complaint and gave @duecourse to the foreclosure and sale at public auction of the various pledges subCect of thesetwo cases.@[4] This decision attained finalit' after it was affirmed b' the !ourt of *ppealsand the <upreme !ourt. The Bntr' of "udgment was issued on 14 *ugust 1((1.

Respondents then received 0otices of <ale which indicated that the pledged shares were

to be sold at public auction on 4 0ovember 1((1. 8owever, before the scheduled date ofauction, all of respondents caused the consignation with the RT! !ler3 of !ourt of variousamounts. 7t was claimed that respondents had attempted to tender these pa'ments to thePara's, but had been rebuffed. The deposited amounts were as followsA

*bdulia !. Rodrigue P 12$,$)).)) .. 14 ;ct. 1((1

Eeonora R. 0olasco 299,#:1.:2 .. 14 ;ct. 1((1

enoveva R. <oronio 42,##.$ .. 14 ;ct. 1((1

#:,#:.44 .. 14 ;ct. 1((1

"ulia R. eneroso )#:,#:.$$ .. 2 ;ct. 1((1

Teresita R. 0atividad 2)4,#9.$$ .. 11 0ov. 1((1

%olores R. <oberano 12,$#1.)1.. 2 ;ct. 1((1

2$,21).#( ..11 0ov. 1((1=iguela "ariol 4($,$$$.$$.. 1: ;ct. 1((1

::,$$$.$$ ..1: ;ct. 1((1[]

0otwithstanding the consignations, the public auction too3 place as scheduled, withpetitioner /idal Bspeleta successfull' bidding the amount of P),2$$,$$$.$$ for all of thepledged shares. 0one of respondents participated or appeared at the auction of 40ovember 1((1.

Respondents instead filed on 1# 0ovember 1((1 a complaint see3ing the declaration ofnullit' of the concluded public auction. The complaint, doc3eted as !ivil !ase 0o. !B-1$(2), was assigned to ranch 1) of the !ebu !it' RT!. Respondents argued that theirtender of pa'ment and subse>uent consignations served to e5tinguish their loanobligations and discharged the pledge contracts. Petitioners countered that the auctionsale was conducted pursuant to the final and e5ecutor' Cudgment in !ivil !ases 0os. R-2$12$ and 2$1#1, and that the tender of pa'ment and consignations were made long aftertheir obligations had fallen due.

The !ebu !it' RT! dismissed the complaint, e5pressing agreement with the position ofthe Para's.[)] 7t held, among others that respondents had failed to tender or consignpa'ments within a reasonable period after default and that the proper remed' ofrespondents was to have participated in the auction sale. [9] The !ourt of *ppeals Bighth%ivision however reversed the RT! on appeal, ruling that the consignations e5tinguishedthe loan obligations and the subCect pledge contracts? and the auction sale of 4 0ovember

1((1 as null and void.[:] =ost cruciall', the appellate court chose to uphold the sufficienc'of the consignations owing to an imputed polic' of the law that favored redemption andmandated a liberal construction to redemption laws. The attempts at pa'ment b'respondents were characteried as made in the e5ercise of the right of redemption.

The !ourt of *ppeals li3ewise found fault with the auction sale, holding that there was aneed to individuall' sell the various shares of stoc3 as the' had belonged to differentpledgors. Thus, it was observed that the minutes of the auction sale should have specifiedin detail the bids submitted for each of the shares of the pledgors for the purpose of3nowing the price to be paid b' the different pledgors upon redemption of the auctionedsales of stoc3.

Petitioners now argue before this !ourt that the' were authoried to refuse as the' did thetender of pa'ment since the' were underta3ing the auction sale pursuant to the final and

e5ecutor' decision in !ivil !ases 0os. R-2$12$ and 2$1#1, which did not authorie thepa'ment of the principal obligation b' respondents. The' point out that the amounts



consigned could not e5tinguish the principal loan obligations of respondents s ince the'were not sufficient to cover the interests due on the debt. The' li3ewise argue that theessential procedural re>uisites for the auction sale had been satisfied.

' (u)' *% $o( o 't*t*o%'(s.

The fundamental premise from which the appellate court proceeded was that theconsignations made b' respondents should be construed in light of the rules ofredemption, as if respondents were e5ercising such right. 7n that perspective, the !ourt of

*ppeals made three crucial conclusions favorable to respondentsA that their act of

consigning the pa'ments with the RT! should be deemed done in the e5ercise of theirright of redemption? that the bu'er at public auction does not ipso facto become the ownerof the pledged shares pending the lapse of the one-'ear redemptive period? and that thecollective sale of the shares of s toc3 belonging to several individual owners withoutspecification of the apportionment in the applications of pa'ment deprives the individualowners of the opportunit' to 3now of the price the' would have to pa' for the purpose ofe5ercising the right of redemption.

The appellate courtIs dwelling on the right of redemption is utterl' off-tangent. The right ofredemption involves pa'ments made b' debtors after the foreclosure of their properties,and not those made or attempted to be made, as in this case, before the foreclosure sale.The proper focus of the !ourt of *ppeals should have been whether the consignationsmade b' respondents sufficientl' ac>uitted them of their principal obligations. * pledgecontract is an accessor' contract, and is necessaril' discharged if the principal obligation is

e5tinguished.

0onetheless, the !ourt is now confronted with this rather new fangled theor', aspropounded b' the !ourt of *ppeals, involving the right of redemption over pledgedproperties. 6e have no hesitation in pronouncing such theor' as discreditable.

Preliminaril', it must be clarified that the subCect sale of pledged shares was ane5traCudicial sale, specificall' a notarial sale, as distinguished from a Cudicial sale ast'pified b' an e5ecution sale. nder the !ivil !ode, the foreclosure of a pledge occurse5traCudiciall', without intervention b' the courts. *ll the creditor needs to do, if the credithas not been satisfied in due time, is to proceed before a 0otar' Public to the sale of thething pledged.[(]

7n this case, petitioners attempted as earl' as 1(:$ to proceed e5traCudiciall' with the saleof the pledged shares b' public auction. 8owever, e5traCudicial sale was sta'ed with thefiling of !ivil !ases 0o. R-2$12$ and 2$1#1, which sought to annul the pledge contracts.The final and e5ecutor' Cudgment in those cases affirmed the pledge contracts anddisposed them in the following fashionA68BRB&;RB, premises considered, Cudgment is hereb' rendered dismissing thecomplaints at bar, and -

+1 %eclaring the various pledges covered in !ivil !ases 0os. R-2$12$ and R-2$1#1 validand effective? and

+2 iving due course to the foreclosure and sale at public auction of the various pledgessubCect of these two cases.

!osts against the plaintiffs.

<; ;R%BRB%.[1$]

The phrase @giving due course to the foreclosure and sale at public auction of the variouspledges subCect of these two cases@ ma' give rise to the impression that such sale is

Cudicial in character. 6hile the decision did authorie the sale b' public auction, suchdeclaration could not detract from the fact that the sale so authoried is actuall'e5traCudicial in character. 0ote that the final Cudgment in said cases e5pressl' did not directthe sale b' public auction of the pledged shares, but instead upheld the right of the Para'sto conduct such sale at their own volition.

7ndeed, as affirmed b' the !ivil !ode, [11] the decision to proceed with the sale b' publicauction remains in the sole discretion of the Para's, who could ver' well choose not to

hold the sale without violating the final Cudgments in the aforementioned civil cases. 7f thesale were trul' in compliance with a final Cudgment or order, the Para's would have nochoice but to stage the sale for then the order directing the sale arises from Cudicialcompulsion. ut nothing in the dispositive portion directed the sale at public auction as amandator' recourse, and properl' so since the sale of pledged propert' in public auctionis, b' virtue of the !ivil !ode, e5traCudicial in character.

The right of redemption as affirmed under Rule #( of the Rules of !ourt applies onl' toe5ecution sales, more precisel' e5ecution sales of real propert'.

The !ourt of *ppeals e5pressl' asserted the notion that pledged propert', necessaril'personal in character, ma' be redeemed b' the creditor after being sold at public auction.Het, as a fundamental matter, does the right of redemption e5ist over personal propert'L0o law or Curisprudence establishes or affirms such right. 7ndeed, no such right e5ists.

The right to redeem propert' sold as securit' for the satisfaction of an unpaid obligationdoes not e5ist preternaturall'. 0either is it predicated on proprietar' right, which, after thesale of propert' on e5ecution, leaves the Cudgment debtor and vests in the purchaser.7nstead, it is a bare statutor' privilege to be e5ercised onl' b' the persons named in thestatute.[12]

The right of redemption over mortgaged real propert' sold e5traCudiciall' is established b' *ct 0o. #1#, as amended. The said law does not e5tend the same benefit to personalpropert'. 7n fact, there is no law in our statute boo3s which vests the right of redemptionover personal propert'. *ct 0o. 1$:, or the !hattel =ortgage Eaw, ostensibl' could haveserved as the vehicle for an' legislative intent to bestow a right of redemption overpersonal propert', since that law governs the e5traCudicial sale of mortgaged personalpropert', but the statute is definitel' silent on the point. *nd <ection #( of the 1((9 Rulesof !ivil Procedure, e5tensivel' relied upon b' the !ourt of *ppeals, star3l' utters that theright of redemption applies to real properties, not personal properties, sold on e5ecution.

Tellingl', this !ourt, as earl' as 1(29, reCected the proposition that personal propert' ma'be covered b' the right of redemption. 7n Si/al 0.1. Valde2 ,[1#] the !ourt ruled that sugarcane crops are personal propert', and thus, not subCect to the right of redemption.[14] 0ocountervailing statute has been enacted since then that would accord the right ofredemption over personal propert', hence the !ourt can affirm this decades-old ruling aseffective to date.

<ince the pledged shares in this case are not subCect to redemption, the !ourt of *ppealshad no business invo3ing and appl'ing the ine5istent right of redemption. 6e cannot thusagree that the consigned pa'ments should be treated with liberalit', or somehow construedas having been made in the e5ercise of the right of redemption. 6e also must reCect theappellate courtIs declaration that the bu'er of at the public auction is not @ipso facto@

rendered the owner of the auctioned shares, since the debtor enCo's the one-'earredemptive period to redeem the propert'. ;bviousl', since there is no right to redeem



personal propert', the rights of ownership vested unto the purchaser at the foreclosuresale are not entangled in an' suspensive condition that is implicit in a redemptive period.

The !ourt of *ppeals also found fault with the apparent sale in bul3 of the pledged shares,notwithstanding the fact that these shares were owned b' several people, on the premisethe pledgors would be denied the opportunit' to 3now e5actl' how much the' would needto shoulder to e5ercise the right to redemption. This concern is obviousl' rendered a non-issue b' the fact that there can be no right to redemption in the first place. Rule #( of theRules of !ourt does provide for instances when properties foreclosed at the same timemust be sold separatel', such as in the case of lot sales for real propert' under <ection 1(.

8owever, these instances again pertain to e5ecution sales and not e5traCudicial sales. 0oprovision in the Rules of !ourt or in an' law re>uires that pledged properties sold atauction be sold separatel'.

;n the other hand, under the !ivil !ode, it is the pledgee, and not the pledgor, who isgiven the right to choose which of the items should be sold if two or more things arepledged.[1] 0o similar option is given to pledgors under the !ivil !ode. =oreover, there isnothing in the !ivil !ode provisions governing the e5traCudicial sale of pledged propertiesthat prohibits the pledgee of several different pledge contracts from auctioning all of thepledged properties on a single occasion, or from the bu'er at the auction sale inpurchasing all the pledged properties with a single purchase price. The relativeinsignificance of ascertaining the definite apportionments of the sale price to the individualshares lies in the fact that once a pledged item is sold at auction, neither the pledgee northe pledgor can recover whatever deficienc' or e5cess there ma' be between the

purchase price and the amount of the principal obligation.

[1)]

* different ruling though would obtain if at the auction, a bidder e5pressed the desire to bidon a determinate number or portion of the pledged shares. 7n such a case, there ma' liethe need to ascertain with particularit' which of the shares are covered b' the bid price,since not all of the shares ma' be sold at the auction and correspondingl' not all of thepledge contracts e5tinguished. The same situation also would lie if one or some of theowners of the pledged shares participated in the auction, bidding onl' on their respectivepledged shares. 8owever, in this case, none of the pledgors participated in the auction,and the sole bidder cast his bid for all of the shares. There obviousl' is no longer an'practical reason to apportion the bid price to the respective shares, since no matter howslight or significant the value of the purchase price for the individual share is, the sale iscompleted, with the pledgor and the pledgee not entitled to recover the e5cess or thedeficienc', as the case ma' be. To invalidate the subCect auction solel' on this point servesno cause other than to celebrate formalit' for formalit'Is sa3e.

!learl', the theor' adopted b' the !ourt of *ppeals is in shambles, and cannot beresurrected. The >uestion though 'et remains whether the consignations made b'respondents e5tinguished their respective pledge contracts in favor of the Para's so as toenCoin the latter from auctioning the pledged shares.

There is no doubt that if the principal obligation is satisfied, the pledges should beterminated as well. *rticle 2$(: of the !ivil !ode provides that the right of the creditor toretain possession of the pledged item e5ists onl' until the debt is paid. *rticle 21$ of the!ivil !ode further clarifies that the debtor cannot as3 for the return of the thing pledgedagainst the will of the creditor, unless and until he has paid the debt and its interest. *t thesame time, the right of the pledgee to foreclose the pledge is also established under the!ivil !ode. 6hen the credit has not been satisfied in due time, the creditor ma' proceedwith the sale b' public auction under the procedure provided under *rticle 2112 of the

!ode.

Respondents argue that their various consignations made prior to the auction saledischarged them from the loan and the pledge agreements. The' are mista3en.

Petitioners point out that while the amounts consigned b' respondents could answer fortheir respective principal loan obligations, the' were not sufficient to cover the interestsdue on these loans, which were pegged at the rate of G per month or )$G per annum.efore this !ourt, respondents, save for %olores <oberano, do not contest this interest rateas alleged b' petitioners. <oberano, on the other hand, challenges this interest rate as@usurious.@[19]

The particular pledge contracts did not form part of the records elevated to this !ourt.8owever, the G monthl' interest rate was noted in the statement of facts in the 14;ctober 1(:: RT! %ecision which had since become final. =oreover, the said decisionpronounced that even assuming that the interest rates of the various loans were G permonth, @it is doubtful whether the interests so charged were e5orbitantl' or e5cessivel'usurious. This is because for sometime now, usur' has become @legall' ine5istent.@@ [1:] Thefinalit' of this 1(:: %ecision is a settled fact, and thus the time to challenge the validit' ofthe G monthl' interest rate had long passed. 6ith that in mind, there is no reason for the!ourt to disagree with petitioners that in order that the consignation could have the effectof e5tinguishing the pledge contracts, such amounts should cover not Cust the principalloans, but also the G monthl' interests thereon.

7t bears noting that the !ourt of *ppeals also ruled that respondents had satisfied there>uirements under <ection 1:, Rule #(, which provides that the Cudgment obligor ma'

prevent the sale b' pa'ing the amount re>uired b' the e5ecution and the costs that havebeen incurred therein.[1(] 8owever, the provision applies onl' to e5ecution sales, and note5tra-Cudicial sales, as evidenced b' the use of the phrases @sale of propert' on e5ecution@and @Cudgment obligor.@ The reference is inapropos, and even if it were applicable, thefailure of the pa'ment to cover the interests due renders it insufficient to sta' the sale.

The effect of the finalit' of the Cudgments in !ivil !ases 0os. R-2$12$ and R-2$1#1 shouldalso not be discounted. PetitionersI right to proceed with the auction sale was affirmed notonl' b' law, but also b' a final court C udgment. *n' subse>uent court ruling that wouldenCoin the petitioners from e5ercising such right would have the effect of superseding afinal and e5ecutor' Cudgment.

&inall', we cannot help but observe that respondents ma' have saved themselves muchtrouble if the' simpl' participated in the auction sale, as the' are permitted to bidthemselves on their pledged properties.[2$] =oreover, the' would have had a better righthad the' matched the terms of the highest bidder.[21] nder the circumstances, with thehigh interest pa'ments that accrued after several 'ears, respondents were even placed ina favorable position b' the pledge agreements, since the creditor would be unable torecover an' deficienc' from the debtors should the sale price be insufficient to cover theprincipal amounts with interests. !ertainl', had respondents participated in the auction,there would have been a chance for them to recover the shares at a price lower than theamount that was actuall' due from them to the Para's. That respondents failed to avail ofthis beneficial resort wholl' accorded them b' law is their loss. 0ow, all respondents canrecover is the amounts the' had consigned.

68BRB&;RB, the petition is R*0TB%. The assailed decision of the !ourt of *ppeals is<BT *<7%B and the decision of the !ebu !it' RT!, ranch 1), dated 1: 0ovember 1((2is RB70<T*TB%. !osts against respondents.

<; ;R%BRB%.



3uisum/ing, (Chairman), Carpio and Carpio-orales, JJ., concur

Documents

Credits - Pledge