1) Paray v.
Rodriguez (CARO) Issue: W/N consignations made by respondents prior to the auction sale are sufficient
Petitioners: Sps. Bonifacio and Faustina Paray, Vidal Espeleta
Respondents: Dr. Abdulia Rodriguez, Miguela Jariol, Leonora Nolasco, Dolores
Soberano, Julia Generoso, Teresita Natividad, Genoveva Soronio [girl power]
Pledge – personal property!
Doctrine/s:
(1) Pledged shares, being personal property, cannot be subject to the exercise
of the right of redemption.
(2) For consignation of amounts under pledge to have the effect of extinguishing
a loan obligation, pledgor must consign principal amount + monthly interest
thereon.
(3) Art. 2098 provides that the right of the creditor to retain possession of the
pledged item exists only until the debt is paid. Art. 2105 further clarifies that
the debtor cannot ask for the return of the thing pledged against the will of
the creditor, unless and until he has paid the debt and its interest. At the
same time, the right of the pledgee to foreclose the pledge is also
established under the Civil Code. When the loan has not been satisfied in
due time, the creditor may proceed with the sale by public auction under Art.
2112.
Facts
- Respondents owned, in their personal capacities, shares of stock in a
corporation: Quirino-Leonor-Rodriguez Realty Inc.
- They pledged some of their shares of stock to Sps. Paray to secure payment
of their loans.
- When Sps. Paray attempted to foreclose the pledges due to respondent’s
failure to pay their loans, respondents filed complaints against them, seeking
to nullify the pledge agreements.
- TC  Sps. Paray, giving due course to the foreclosure and sale at public
auction of the pledges.
- When respondents received Notices of Sale, they consigned various
amounts with the RTC, claiming that they tendered these payments to Sps.
Paray but were not accepted.
- The public auction still took place.
- Respondents then filed a complaint seeking the declaration of nullity of the
concluded public auction on the ground that their tender of payment served
to extinguish their loan obligations and discharged the pledge contracts.
o Sps. Paray countered that the auction was valid and that the tender
of payment and consignation were made long after the obligations
became due
- TC  Sps. Paray, ruling that respondents failed to tender payment within a
reasonable time after default.
- CA, 8th division  respondents. It reversed the TC’s ruling on the ground
that the consignations extinguished the loan obligations and the pledge
contracts, and that the public auction was null and void. It upheld the liberal
construction on redemption laws—that the attempted payments were
construed as an exercise of the right of redemption.
- CA  respondents. It found fault with auction sale, ruling that there was a
need to individually sell the various shares because they belonged to
different pledgors.
to extinguish the loan obligations and the subject pledge contracts?
Held: NO. CA made 3 crucial errors in conclusion:
1 That consignation is deemed an exercise of respondents’ right of redemption
a. Right of redemption, under Rule 39, ROC, applies only to execution
sales of real property.
b. Thus, the pledged shares, being personal properties, are not
covered under the right of redemption.
c. CA, therefore had no reason to invoke such inexistent right
2 That the buyer at public auction does not ipso facto become the owner of the
pledged shares pending lapse of 1yr redemption period,
a. Obviously, since there is no right to redeem personal property,
rights of ownership vested onto the purchaser at the auction are not
tied to the redemption period
3 That a collective sale of individually owned shares of stock deprives the
owners of an opportunity to know of the price to pay for the purpose of
redemption
a. Still a non-issue because there is no right of redemption of personal
property. No law requires that pledged properties be sold
separately at auction. On the other hand, under the Civil Code, it is
the pledgee (Sps. Paray, in this case) not the pledgor who is given
the right to choose which items should be sold if more than 1 thing
is pledged.
Lastly, Art. 2098 provides that the right of the creditor to retain possession of the
pledged item exists only until the debt is paid. Art. 2105 further clarifies that the debtor
cannot ask for the return of the thing pledged against the will of the creditor, unless
and until he has paid the debt and its interest. At the same time, the right of the
pledgee to foreclose the pledge is also established under the Civil Code. When the
loan has not been satisfied in due time, the creditor may proceed with the sale by
public auction under Art. 2112.
However, the consignation of respondents could not discharge them from the loan
and pledge agreements because only the principal amount was consigned, excluding
interest thereon. SC ruled that for the consignation to have the effect of extinguishing
the pledge contracts, such amounts should cover not just the principal loans, but also
the 5% monthly interests thereon.
Who won: Sps. Paray.