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Pledge Cases:

12. China Bank v CA, 270 SCRA Ruling:

CHINA BANKING CORPORATION (CBC) vs. COURT OF APPEALS, and The SC ruled that the case involved intra corporate dispute and was within the
VALLEY GOLF and COUNTRY CLUB, INC.(VGCCI), G.R. No. 117604. March jurisdiction of the SEC. Being the highest bidder during the public auction sale
26, 1997 of said stock on 17 September 1985, CBC became a share holder of the
VGCCI. As such, the dispute was between the firm (VGCCI) and its share
Facts: On 21 August 1974, Galicano Calapatia, Jr. (Calapatia) a stockholder of holder (CBC). Moreover, VGCCI’s defense in selling the stock was based on
VGCCI, pledged his Stock Certificate No. 1219 to petitioner CBC. On 16 the stipulations in its by-laws, which provides that "after a member shall have
September 1974, CBC wrote VGCCI requesting that the aforementioned been posted as delinquent, the Board may order his/her/its share sold to
pledge agreement be recorded in its books. VGCCI replied on 27 Sep. 1974 satisfy the claims of the Club . . ." . VGCCI caps its argument by asserting that
that the deed of pledge executed by Calapatia in petitioner's favor was duly its corporate by-laws should prevail, which require the interpretation and
noted in its corporate books. legality of its by-laws, thus, is within the jurisdiction of the SEC.

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, The SC also ruled that CBC is the lawful owner of the stock by virtue of the
payment of which was secured by the aforestated pledge agreement still pledge and the subsequent sale to fulfill the obligation secured by the pledge.
existing between Calapatia and petitioner. Due to Calapatia's failure to pay his The pledge was valid, contrary to VGCCI’s argument, amidst the fact that it
obligation, CBC, on 12 April 1985, filed a petition for extrajudicial was executed in 1974 and the promissory note it secured was obtained only it
foreclosure before a Notary Public. Prior to the auction, CBC requested 1983 because the pledge agreement revealed that the contracting parties
VGCCI that said pledged stock be transferred to its name and be recorded in explicitly stipulated therein that the said pledge will also stand as security for
VGCCI’s books. VGCCI, however, refused in view of Calapatia’s unsettled any future advancements (or renewals thereof) that Calapatia (the pledgor)
accounts with the club. Nevertheless, CBC continued with the auction, in which may procure from CBC. As a matter of fact, the 1983 promissory note was but
it was the highest bidder. a renewal of a prior promissory note covered by the same pledge agreement.
VGCCI’s argument that due to Calapatia's failure to settle his delinquent
On 21 November 1985, VGCCI sent Calapatia a notice demanding full accounts, it had the right to sell the share in question in accordance with the
payment of his overdue account, which was followed by a demand letter dated express provision found in its by-laws, is also without merit. Firstly, CBC being
12 December 1985 and another notice dated 22 November 1986. On 10 a third party when it agreed to have the stock as pledge, was not privy to
December 1986, VGCCI sold Calapatia's share of stock thru public auction in VGCCI’s by-laws. Secondly, by-laws are meant to apply in the internal conduct
which it was the highest bidder. On 5 May 1989, CBC advised VGCCI that it is of the firm and cannot have the force of law, especially when it concerns the
the new owner of Calapatia's stock by virtue of being the highest bidder in the rights of a third party.
17 September 1985 auction and requested that a new certificate of stock be
issued in its name. On 2 March 1990, VGCCI replied that "for reason of In order to be bound, the third party must have acquired knowledge of the
delinquency" Calapatia's stock was already sold at a public auction. CBC filed pertinent by-laws at the time the transaction or agreement between said third
a case before the RTC, which the RTC dismissed for lack of jurisdiction party and the shareholder was entered into, in this case, at the time the pledge
believing that the case involved intra corporate dispute. CBC then filed a case agreement was executed. VGCCI could have easily informed petitioner of its
before the SEC, which ruled in favor of VGCCI. On reconsideration, the SEC by-laws when it sent notice formally recognizing petitioner as pledgee of one of
en banc decided in favor of CBC. On appeal, the CA reversed the SEC en its shares registered in Calapatia's name. Petitioner's belated notice of said by-
banc’s decision for lack of jurisdiction believing that the case was not an intra laws at the time of foreclosure will not suffice.
corporate dispute within the jurisdiction of the SEC.

Issues: Whether the case involved intra corporate dispute

whether CBC was the lawful owner of the Stock Certificate No. 1219.
13. Ong v IAC, 201 SCRA 543 only the sum of P76,500 and the balance of the purchase price was payable at
P50,000 a year, due on or before the end of the current year.
Facts: Madrigal Shipping applied and granted a loan by Consolidated Bank
and Trust Corp (Solidbank for short) in the amount of P2,094,000 with 10% per On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
annum evidenced by Promissory Note. To secure the loan, the parties Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff
executed a Pledge Agreement, with the barge and tugboat of Madrigal as pledged the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the
pledge. Madrigal failed to pay. When the pledgee bank was to sell the pledged defendant bank, as evidenced by the pledge contract.
properties, it found out that the tugboat and the barge had surreptitiously been
taken from the Tanque Bodega, Pasig River, where the vessels were moored Subsequently, plaintiff effected partial payment of the loan in the sum of
and towed, without the knowledge and consent of Solidbank. 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,
Meanwhile, Ong bought the barge from Ocampo, the successful bidder in a for P20,000, was due on April 16, 1948 while the second, dated February 26,
public auction by virtue of a writ of execution issued by the NLRC (Madrigal 1948, for P10,000, was due on June 25, 1948. These two notes were never
has a labor case before the NLRC). Solidbank filed a complaint for Replevin paid at all by plaintiff on their respective due dates.
with Damages before the CFI. CFI ordered petitioners to deliver and release
the barge to Solidbank. IAC dismissed the petition for lack of merit. The bank filed criminal charges against plaintiff and two other accused for
estafa thru falsification of commercial documents because plaintiff had, as last
Issue: WON the contract of pledge is binding on petitioners Ong? indorsee deposited with defendant bank seven (7) BPI checks. The drawer
(one of the accused) had no funds in the drawee bank. However, in
Ruling: Yes. Undoubtedly, petitioners rely heavily on the fact that the contract connivance with one employee of defendant bank, plaintiff was able to
of pledge by and between Solidbank and Madrigal Shipping Co., Inc. was not withdraw the amount credited to him before the discovery of the defraudation
recorded under Sections 804 and 809 of the Tariff and Customs Code and on April 2, 1948.
argue that it is not binding on third persons like the petitioners. It is, however,
stated under Article 2096 of the Civil Code that for a pledge to take effect CFI (RTC) convicted plaintiff and his co-accused and sentenced to indemnify
against third persons, it should be in a public instrument which must contain the defendant bank. CA affirmed RTC’s decision upon appeal.
the description of the thing pledged and the date of the pledge.
Meanwhile, together with the institution of the criminal action, defendant bank
The requirements have all been complied with. First, the pledge agreement is took physical possession of three pledged vessels while they were at the Port
a public instrument, the same having been notarized and under the notarial of Cebu, and on April 29, 1948, after the first note fell due and was not paid,
seal. Second, the subject of the pledge was delivered to Solidbank which had the Cebu Branch Manager of defendant bank, acting as attorney-in-fact of
it moored at Tanque Bodega, Pasig River and was guarded. Therefore, plaintiff pursuant to the terms of the pledge contract, transferring the two
Solidbank has the right of retention of the barge in question pledged to it until it pledged vessels and plaintiff's equity in FS-203, to defendant bank.
is paid. Solidbank is the rightful and lawful possessor.
The FS-203 was subsequently surrendered by the defendant bank to the
14. Yu Liongsui v PNB, 22 SCRA 585 Philippine Shipping Commission which rescinded the sale to plaintiff for failure
to pay the remaining installments on the purchase price thereof. The other two
FACTS: Yuliongsiu was the owner of two (2) vessels: M/S Surigao and M/S boats, the M/S Surigao and the M/S Don Dino were sold by defendant bank to
Don Dino and operated the FS-203 which was purchased by him from the third parties.
Philippine Shipping Commission, by installment or on account. As of January
or February, 1943, plaintiff had paid to the Philippine Shipping Commission Plaintiff commenced action in the CFI (RTC) of Cebu to recover the three
vessels or their value and damages from defendant bank. CFI ruled (1) that the
bank’s taking of physical possession of the vessels was justified by the pledge Thus, for purposes of showing the transfer of control to the pledgee, delivery to
contract and the law; (2) that the private sale of the pledged vessels by him of the keys to the warehouse sufficed. In other words, the type of delivery
defendant bank to itself without notice to the plaintiff-pledgor as stipulated in will depend upon the nature and the peculiar circumstances of each case. The
the pledge contract was likewise valid; and (3) that the defendant bank should parties here agreed that the vessels be delivered by the "pledgor to the
pay to plaintiff the sums of P1,153.99 and P8,000, as his remaining account pledgor who shall hold said property subject to the order of the pledgee."
balance, or set-off these sums against the indemnity which plaintiff was Considering the circumstances of this case and the nature of the objects
ordered to pay to it in the criminal cases. pledged, i.e., vessels used in maritime business, such delivery is sufficient.

Plaintiff’s motion for reconsideration and new trial denied. Hence, this petition. Since the defendant bank was, pursuant to the terms of pledge contract, in full
ISSUE: control of the vessels thru the plaintiff, the former could take actual possession
1. W/N the contract between the bank and petitioner as to the 3 vessels is one at any time during the life of the pledge to make more effective its security. Its
of a contract of chattel mortgage not pledge? taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it
2. W/N private sale of the pledged vessels in favor of the defendant bank itself unjustified considering that plaintiff had just defrauded the defendant bank in
is valid? the huge sum of P184,000.

HELD: 2. Yes. The private sale of the vessels is valid. It is contended first, that the
Petition is without merit. cases holding that the statutory requirements as to public sales with prior
notice in connection with foreclosure proceedings are waivable, are no longer
1. The parties stipulated as a fact that it is a pledge contract: authoritative in view of the passage of Act 3135, as amended; second, that the
3. That a credit line of P50,000.00 was extended to the plaintiff by the charter of defendant bank does not allow it to buy the property object of
defendant Bank, and the plaintiff obtained and received from the foreclosure in case of private sales; and third, that the price obtained at the
said Bank the sum of P50,000.00, and in order to guarantee the sale is unconscionable.
payment of this loan, the pledge contract, Exhibit "A" & Exhibit "1-
Bank", was executed and duly registered with the Office of the There is no merit in the claims. This law (Act 3135) refers only, and is limited,
Collector of Customs for the Port of Cebu on the date appearing to foreclosure of real estate mortgages. So, whatever formalities there are in
therein; (Emphasis supplied) Act 3135 do not apply to pledge. Regarding the bank's authority to be the
purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts
Necessarily, this judicial admission binds the plaintiff. Without any showing that 2747 and 2938 only states that if the sale is public, the bank could purchase
this was made thru palpable mistake, no amount of rationalization can offset it. the whole or part of the property sold " free from any right of redemption on the
part of the mortgagor or pledgor." This even argues against plaintiff's case
The defendant bank as pledgee was therefore entitled to the actual possession since the import thereof is this if the sale were private and the bank became
of the vessels. While it is true that plaintiff continued operating the vessels after the purchaser, the mortgagor or pledgor could redeem the property. Hence,
the pledge contract was entered into, his possession was expressly made plaintiff could have recovered the vessels by exercising this right of
"subject to the order of the pledgee. The provision of Art. 2110 of the present redemption. He is the only one to blame for not doing so. Regarding the third
Civil Code 11 being new — cannot apply to the pledge contract here which contention, on the assumption that the purchase price was unconscionable,
was entered into on June 30, 1947. On the other hand, there is an authority plaintiff's remedy was to have set aside the sale. He did not avail of this.
supporting the proposition that the pledgee can temporarily entrust the Moreover, as pointed out by the lower court, plaintiff had at the time an
physical possession of the chattels pledged to the pledgor without invalidating obligation to return the P184,000 fraudulently taken by him from defendant
the pledge. In such a case, the pledgor is regarded as holding the pledged bank.
property merely as trustee for the pledgee.
On the whole, we cannot say the lower court erred in disposing of the case as
it did. Plaintiff-appellant was not all-too-innocent as he would have us believe. Ruling: NO. The accepted rule is that the negotiability or non-negotiability of
He did defraud the defendant bank first. If the latter countered with the seizure an instrument is determined from the writing, that is, from the face of the
and sale of the pledged vessels pursuant to the pledge contract, it was only to instrument itself. In the construction of a bill or note, the intention of the parties
protect its interests after plaintiff had defaulted in the payment of the first is to control, if it can be legally ascertained. The duty of the court in such case
promissory note. Plaintiff-appellant did not come to court with clean hands. is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of
15. Caltex v CA, 212 SCRA 448 the words they have used. What the parties meant must be determined by
what they said.
Facts: In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs)
from Security Bank and Trust Company for the former’s deposit with the said In this case, CTDs are negotiable. If it was really the intention of respondent
bank amounting to P1,120,000.00. Angel de la Cruz subsequently delivered bank to pay the amount to Angel de la Cruz only, it could have with facility so
the CTDs to Caltex in connection with the purchase of fuel products from expressed that fact in clear and categorical terms in the documents, instead of
Caltex. having the word "BEARER". Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. Cruz requires both delivery and indorsement. For, although petitioner seeks to
He executed an affidavit of loss and submitted it to the bank. The bank then deflect this fact, the CTDs were in reality delivered to it as a security for De la
issued another set of CTDs. In the same month, Angel de la Cruz acquired a Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were
loan of P875,000.00 and he used his time deposits as collateral. delivered as payment for the fuel products or as a security has been dissipated
and resolved in favor of the latter by petitioner's own authorized and
In November 1982, a representative from Caltex went to Security Bank to responsible representative himself.
present the CTDs (delivered by de la Cruz) for verification. Caltex advised
Security Bank that de la Cruz delivered Caltex the CTDs as security for In a letter dated November 26, 1982 addressed to respondent Security Bank,
purchases he made with the latter. Security Bank refused to accept the CTDs J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of
and instead required Caltex to present documents proving the agreement deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
made by de la Cruz with Caltex. Caltex however failed to produce said purchases of fuel products". If it were true that the CTDs were delivered as
documents. payment and not as security, petitioner's credit manager could have easily said
so, instead of using the words "to guarantee" in the letter. Further, had it
In April 1983, de la Cruz’ loan with Security bank matured and no payment was produced the receipt prayed for, it could have proved, if such truly was the fact,
made by de la Cruz. Security Bank eventually set-off the time deposit to pay off that the CTDs were delivered as payment and not as security.
the loan.
The character of the transaction between the parties is to be determined by
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security their intention, if it was intended to secure the payment of money, it must be
Bank argued that the CTDs are not negotiable instruments even though the construed as a pledge; even though a transfer its object and character might
word “bearer” is written on their face because the word “bearer” contained still be qualified and explained by contemporaneous writing declaring it to have
therein refer to depositor and only the depositor can encash the CTDs and no been a deposit of the property as collateral security. It has been said that a
one else. transfer of property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the debt
Issue: Whether or not it issued a receipt showing that the CTDs were continues in inexistence and is not discharged by the transfer.
delivered to it by De la Cruz as payment of the latter's alleged indebtedness to
In the present case, however, there was no negotiation in the sense of a
transfer of the legal title to the CTDs in favor of petitioner in which situation, for
obvious reasons, mere delivery of the bearer CTDs would have sufficed. 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. NCC provides that 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 and that
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. Aside
from the fact that the CTDs were only delivered but not indorsed petitioner
failed to produce any document evidencing any contract of pledge or
guarantee agreement between it and Angel de la Cruz so, the mere delivery of
the CTDs did not legally vest in petitioner any right effective against and
binding upon respondent bank.

The Supreme court affirmed the decision of the CA in affirming the RTC’s
decision of dismissing said petition.