Bachrach Motor Co. VS.

Lacson Ledesma
Facts:
Bachrach obtained judgment (in 1927) against Ledesma in two civil cases. The sheriff, in
compliance with the writ of execution issued in favor of Bachrach, attached and sold the right of
redemption of Ledesma over several properties, and attached as well all right, title to and interest that
Ledesma had in “Any bonus, dividend, shares of stock, money, or other property which Ledesma was
entitled to receive from Talisay-Silay Milling Co. Inc. on account of being a stockholder in that
corporation or which he is entitled to receive from that corporation for any other cause or pretext
whatsoever.” The properties and the shares Ledesma owned in Talisay were mortgaged to PNB as
securities to ensure his payment of P624,000. There was another mortgage over the real properties in
favor of PNB to answer for the debts of Central Talisay-Silay Milling. Central resolved to grant a bonus or
compensation to the owners of the properties mortgaged for the risk incurred from being subjected to
said mortgage lien. Under the resolution, Ledesma was allotted P19,911.11. This was payable only in
January, 1930. PNB brought an action against Ledesma and his wife for recovery of mortgage credit
(1928). In 1929, they amended the complaint to include Bachrach, “because they claim to have some
right to certain properties which are the subject matter of the complaint.” The court ruled in favor of
PNB, and ordered the sale of properties mortgaged. PNB was also granted the authority to sell the stock
certificates.
During the pendency of the case of PNB v. Ledesma, Bachrach filed an action against Talisay to recover
P13,850 which by virtue of the resolution was bestowed upon Ledesma by Central. PNB intervened,
alleging a preferred right, as said bonus being a civil fruit of the mortgaged lands, the bank became
entitled to it as the mortgage had become due. Judgment was rendered in favor of Bachrach. The SC
held that the bonus had no immediate relation to the lands in question but merely a remote and
accidental one. It was not a civil fruit, being a mere personal right of Ledesma.
In January, 1930, Stock Cert. 772 was issued in favor of Ledesma by Talisay. Ledesma ordered
this to be delivered to PNB. The 6,300 shares constituted the 2,100 original shares that was given as
pledge to PNB under the deed of mortgage. On Feb. 1931, the sheriff sold the whole 6,300 shares
covered by 772, and not only the 2,100 original shares. PNB informed Talisay of the sale, and Talisay
issued Stock Cert. 1155 representing 8,968 shares (6,300 + 2,100).

Issues:
-W/N Bachrach had a preferred right by virtue of the judgment and attachment made (1927) -
NO W/N the pledge was ineffective as against Bachrach because evidence of its date was not made to
appear in a public instrument – NO
-W/N the pledge could not legally exist as the Cert. was not the shares themselves - NO
HELD:
Plaintiff said it had a preferred right over the 6,300 shares because the stocks were in custodia
legis by virtue of the attachment/garnishment when Cert 772 was delivered to PNB, and when Talisay
issued Cert 1155 in favor of PNB. This contention was unfounded as it appeared that the stocks were
pledged to the bank prior to the garnishment.
Cert 772 was delivered to PNB on Feb 27, 1930. The garnishment was notified to the parties and
became effective on August 11, 1930, more than five months after delivery. On Feb, 1931, Talisay issued
Cert 1155 in favor of PNB.
According to Article 1865 of the Civil Code then, in order that a pledge may be effective as
against third persons, evidence of its date must appear in a public instrument in addition to the delivery
of the thing pledged to the creditor. However, Sec. 4 of the Chattel Mortgage Law implicitly modified
1865 – a contract of pledge and that of chattel mortgage need not appear in public instruments to be
effective against third persons, provided that delivery was made. Therefore, the pledge of the 6,300
shares was valid against Bachrach.
The contention that a certificate of stock or of stock dividends cannot be the subject matter of
contract of pledge or chattel mortgage was untenable. Certificates of stock or of stock dividends are
quasi negotiable instruments. They may be given in pledge or mortgage to secure an obligation. They
are transferable, when properly indorsed, by mere delivery, and by estoppel against the corporation or
against prior holders, as good a title to the transferee as if they were negotiable. It is to the public
interest that such use should be simplified and facilitated by placing them as nearly as possible on the
plane of commercial paper.