Professional Documents
Culture Documents
SUPREME COURT
Manila
EN BANC
G.R. No. L-19227
plaintiff the sums of P1,153.99 and P8,000, as his remaining account balance, or set-off these sums against
the indemnity which plaintiff was ordered to pay to it in the criminal cases.
When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to Us, the
amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant would have this Court hold that Exhibit "A" &
"1-Bank" is a chattel mortgage contract so that the creditor defendant could not take possession of the chattels
object thereof until after there has been default. The submission is without merit. The parties stipulated as a
fact that Exhibit "A" & "1-Bank" is a pledge contract
3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant Bank, and the
plaintiff obtained and received from the said Bank the sum of P50,000.00, and in order to guarantee the
payment of this loan, the pledge contract, Exhibit "A" & Exhibit "1-Bank", was executed and duly
registered with the Office of the Collector of Customs for the Port of Cebu on the date appearing
therein; (Emphasis supplied)1wph1.t
Necessarily, this judicial admission binds the plaintiff. Without any showing that this was made thru
palpable mistake, no amount of rationalization can offset it. 9
The defendant bank as pledgee was therefore entitled to the actual possession of the vessels. While it is
true that plaintiff continued operating the vessels after the pledge contract was entered into, his possession
was expressly made "subject to the order of the pledgee." 10 The provision of Art. 2110 of the present Civil
Code 11being new cannot apply to the pledge contract here which was entered into on June 30, 1947. On
the other hand, there is an authority supporting the proposition that the pledgee can temporarily entrust the
physical possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the
pledgor is regarded as holding the pledged property merely as trustee for the pledgee. 12
Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make pledge
effective. He points to Betita v. Ganzon, 49 Phil. 87 which ruled that there has to be actual delivery of the
chattels pledged. But then there is also Banco Espaol-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic
delivery would suffice. An examination of the peculiar nature of the things pledged in the two cases will readily
dispel the apparent contradiction between the two rulings. In Betita v. Ganzon, the objects pledged
carabaos were easily capable of actual, manual delivery unto the pledgee. In Banco Espaol-Filipino v.
Peterson, the objects pledged goods contained in a warehouse were hardly capable of actual, manual
delivery in the sense that it was impractical as a whole for the particular transaction and would have been an
unreasonable requirement. Thus, for purposes of showing the transfer of control to the pledgee, delivery to him
of the keys to the warehouse sufficed. In other words, the type of delivery will depend upon the nature and the
peculiar circumstances of each case. The parties here agreed that the vessels be delivered by the "pledgor to
the pledgor who shall hold said property subject to the order of the pledgee." Considering the circumstances of
this case and the nature of the objects pledged, i.e., vessels used in maritime business, such delivery is
sufficient.
Since the defendant bank was, pursuant to the terms of pledge contract, in full control of the vessels thru
the plaintiff, the former could take actual possession at any time during the life of the pledge to make more
effective its security. Its taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it unjustified
considering that plaintiff had just defrauded the defendant bank in the huge sum of P184,000.
The stand We have taken is not without precedent. The Supreme Court of Spain, in a similar case
involving Art. 1863 of the old Civil Code, 13 has ruled: 14
Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder del
acreedor o de un tercero y no quedar en la del deudor, como ha sucedido en el caso de autos, es lo
cierto que todas las partes interesadas, o sean acreedor, deudor y Sociedad, convinieron que
continuaran los coches en poder del deudor para no suspender el trafico, y el derecho de no uso de la
prenda pertenence al deudor, y el de dejar la cosa bajo su responsabilidad al acreedor, y ambos
convinieron por creerlo util para las partes contratantes, y estas no reclaman perjuicios no se infringio,
entre otros este articulo.
In the second assignment of error imputed to the lower court plaintiff-appellant attacks the validity of the
private sale of the pledged vessels in favor of the defendant bank itself. It is contended first, that the cases
holding that the statutory requirements as to public sales with prior notice in connection with foreclosure
proceedings are waivable, are no longer authoritative in view of the passage of Act 3135, as amended; second,
that the charter of defendant bank does not allow it to buy the property object of foreclosure in case of private
sales; and third, that the price obtained at the sale is unconscionable.
There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, 44 Phil. 763 and El
Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative despite the passage of Act 3135. This law refers
only, and is limited, to foreclosure of real estate mortgages. 15 So, whatever formalities there are in 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 2747 and 2938 only states that if the sale is public, the bank could purchase 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 since the import thereof is this if the sale were private and the bank
became the purchaser, the mortgagor or pledgor could redeem the property. Hence, plaintiff could have
recovered the vessels by exercising this right of redemption. He is the only one to blame for not doing so.
Regarding the third contention, on the assumption that the purchase price was unconscionable, plaintiff's
remedy was to have set aside the sale. He did not avail of this. Moreover, as pointed out by the lower court,
plaintiff had at the time an obligation to return the P184,000 fraudulently taken by him from defendant bank.
The last assignment of error has to do with the damages allegedly suffered by plaintiff-appellant by virtue
of the taking of the vessels. But in view of the results reached above, there is no more need to discuss the
same.
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. He did defraud the defendant bank first. If the latter
countered with the seizure and sale of the pledged vessels pursuant to the pledge contract, it was only to
protect its interests after plaintiff had defaulted in the payment of the first promissory note. Plaintiff-appellant
did not come to court with clean hands.
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiff-appellant. So
ordered.
DIOSDADO YULIONGSIU vs.PHILIPPINE NATIONAL BANK (Cebu Branch)
Facts: Yuliongsiu was the owner of two (2) vessels, namely: The M/S Surigao, valued at P109,925.78 and the
M/S Don Dino, valued at P63,000.00, and operated the FS-203, valued at P210,672.24, which was purchased
by him from the Philippine Shipping Commission, by installment or on account. As of January or February,
1943, plaintiff had paid to the Philippine Shipping Commission 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.
Yuliongsiu obtained a loan of P50,000 from PNB. To guarantee its payment, plaintiff pledged the M/S Surigao,
M/S Don Dino and its equity in the FS-203, as evidenced by the pledge contract , duly registered with the office
of the Collector of Customs for the Port of Cebu. Yuliongsiu effected partial payment of the loan in the sum of
P20,000. The remaining balance was renewed by the execution of 2 promissory notes in the bank's favor.
These two notes were never paid at all by Yuliongsiu on their respective due dates.
PNB filed criminal charges against Yuliongsiu and two other accused for estafa thru falsification of commercial
documents, and they were convicted by the trial court and sentenced to indemnify PNB in the sum of
P184,000. CA affirmed conviction. The corresponding writ of execution issued to implement the order for
indemnification was returned unsatisfied as Yuliongsiu was totally insolvent .Meanwhile, together with the
institution of the criminal action, PNB took physical possession of three pledged vessels while they were at the
Port of Cebu, and after the first note fell due and was not paid, the Manager of PNB, acting as attorney-in-fact
of Yuliongsiu pursuant to the terms of the pledge contract, executed a document of sale, transferring the two
pledged vessels and Yuliongsiu's equity in FS-203, to PNB for P30,042.72.The FS-203 was subsequently
surrendered by PNB to the Philippine Shipping which rescinded the sale to Yuliongsiu, for failure to pay the
remaining installments on the purchase price.
The other two boats were sold by PNB to third parties. Yuliongsiu commenced action in the CFI to recover the
three vessels or their value and damages from PNB. The lower court rendered its decision ruling: (a) that the
bank's taking of physical possession of the vessels was justified by the pledge contract and the law; (b) that
the private sale of the pledged vessels by PNB to itself withoutnotice to the plaintiff-pledgor as stipulated in the
pledge contract was likewise valid; and (c) that the PNB should paythe sums of P1,153.99 and P8,000, as his
remaining account balance, or set-off these sums against the indemnitywhich Yuliongsiu was ordered to pay to
it in the criminal cases.
Issue
: W/N the contract was a chattel mortgage so that PNB cannot take possession of the chattels until after there
has been default.
Held:
No. Pledge.
Ratio:
The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract. Necessarily, this judicial
admission binds Yuliongsiu. Without any showing that this was made thru palpable mistake, no amount of
rationalization can offset it.
PNB as pledgee was therefore entitled to the actual possession of the vessels. While it is true that Yuliongsiu
continued operating the vessels after the pledge contract was entered into, his possession was expressly
made subject to the order of the pledgee." The provision of Art. 2110 of the present Civil Code being new,
cannot apply to the pledge contract here which was entered into on June 30, 1947. On the other hand, there is
an authority supporting the proposition that the pledgee can temporarily entrust the physical possession of the
chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is regarded as
holding the pledged property merely as trustee for the pledgee.
Yuliongsiu also urge Us to rule that constructive delivery is insufficient to make pledge effective. The type of
delivery will depend upon the nature and the peculiar circumstances of each case. The parties here agreed
that the vessels be delivered by the "pledgor to the pledgor who shall hold said property subject to the order of
the pledgee."Considering the circumstances of this case and the nature of the objects pledged, i.e., a vessel
used in maritime business, such delivery is sufficient. Since PNB was, pursuant to the terms of pledge
contract, in full control of the vessels thru Yuliongsiu, the former could take actual possession at any time
during the life of the pledge to make more effective its security. Its taking of the vessels therefore was not
unlawful. Nor was it unjustified considering that Yuliongsiu had just defrauded the PNB in the huge sum of
P184,000
408; Giberson vs.A. N. Jureidini Bros., 44 Phi., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and
Provincial Sheriff of Occidental Negros, 46 Phil., 753).
Neither did the document constitute a sufficient pledge of the property valid against third parties. Article 1865 of
the Civil Code provides that "no pledge shall be effective as against third parties unless evidence of its date
appears in a public instrument." The document in question is not public, but it is suggested that its filing with
the sheriff in connection with the terceria gave in the effect of a public instrument and served to fix the date of
the pledge, and that it therefore fulfills the requirements of article 1865. Assuming, without conceding, that the
filing of the document with the sheriff had that effect, it seems nevertheless obvious that the pledge only
became effective as against the plaintiff in execution from the date of the filing and did not rise superior to the
execution attachment previously levied (see Civil Code, article 1227).
Manresa, in commenting on article 1865, says:
ART. 1865. A pledge will not be valid against a third party if the certainty of the date is not expressed in
a public instrument.
This article, the precept of which did not exist in our old law, answers the necessity for not disturbing
the relationship or the status of the ownership of things with hidden or simulated contracts of pledge, in
the same way and for the identical reasons that were taken into account by the mortgage law in order
to suppress the implied and legal mortgages which produce so much instability in real property.
Considering the effects of a contract of pledge, it is easily understood that, without this warranty
demanded by law, the case may happen wherein a debtor in bad faith from the moment that he sees
his movable property in danger of execution may attempt to withdraw the same from the action of
justice and the reach of his creditors by simulating, through criminal confabulations, anterior and
fraudulent alterations in his possession by means of feigned contracts of this nature; and, with the
object of avoiding or preventing such abuses, almost all the foreign writers advise that, for the
effectiveness of the pledge, it be demanded as a precise condition that in every case the contract be
executed in a public writing, for, otherwise, the determination of its date will be rendered difficult and its
proof more so, even in cases in which it is executed before witnesses, due to the difficulty to be
encountered in seeking those before whom it was executed.
Our code has not gone so far, for it does not demand in express terms that in all cases the pledge be
constituted or formalized in a public writing, nor even in private document, but only that the certainty of
the date be expressed in the first of the said class of instruments in order that it may be valid against a
third party; and, in default of any express provision of law, in the cases where no agreement requiring
the execution in a public writing exists, it should be subjected to the general rule, and especially to that
established in the last paragraph of article 1280, according to which all contracts not included in the
foregoing cases of the said article should be made in writing even though it be private, whenever the
amount of the presentation of one or of the two contracting parties exceeds 1,500 pesetas. (Vol. 12,
ed., p. 421.)
If the mere filing of a private document with the sheriff after the levy of execution can create a lien of pledge
superior to the attachment, the purpose of the provisions of article 1865 as explained by Manresa clearly be
defeated. Such could not have been the intention of the authors of the Code. (See also Ocejo, Perez &
Co. vs.International Banking Corporation, 37 Phil., 631 and Tec Bi & Co. Chartered Bank of India, Australia &
China, 41 Phil., 596.)
The alleged pledge is also ineffective for another reason, namely, that the plaintiff pledgee never had actual
possession of the property within the meaning of article 1863 of the Civil Code. But it is argued that at the time
of the levy the animals in question were in the possession of one Simon Jacinto; that Jacinto was the plaintiff's
tenant; and that the tenant's possession was the possession of his landlord.
It appears, however, from the evidence that though not legally married, Simon Jacinto and Tiburcia Buhayan
were living together as husband and wife and had been so living for many years. Testifying as a witness for the
plaintiff, Jacinto on cross-examination made the following statements:
Q. But the caraballas in question had never been in possession of Eulogio Betita? A. The three
young ones did not get into his hands.
Q. And the others? A. Sometimes they were in the hands of Betita and at other times in the hands of
Buhayan.
Q. Those are the caraballas which formerly were mortgaged by Buhayan to Betita, isn't that so? A.
Yes, sir.
Q. And the four carabaos now in question had never been in possession of Betita, but were in your
possession? A. When I worked they were in my hands.
Q. And before you worked, these caraballas were in possession of your mistress, Tiburcia Buhayan?
A. Yes, sir.
Q. Do you mean to say that from the possession of Tiburcia Buhayan the animals passed immediately
into your possession? A. Yes sir.
This testimony is substantially in accord with that of the defendant sheriff to the effect that he found the animals
at the place where Tiburcia Buhayan was living. Article 1863 of the Civil Code reads as follows:
In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the
contract of pledge, that the pledge be placed in the possession of the creditor or of a third person
appointed by common consent.
In his commentary on this article Manresa says:
This requisite is most essential and is characteristic of a pledge without which the contract cannot be
regarded as entered into or completed, because, precisely, in this delivery lies the security of the
pledge. Therefore, in order that the contract of pledge may be complete, it is indispensable that the
aforesaid delivery take place . . . . (P. 411, supra.)
It is, of course, evident that the delivery of possession referred to in article 1863 implies a change in the actual
possession of the property pledged and that a mere symbolic delivery is not sufficient. In the present case the
animals in question were in the possession of Tiburcia Buhayan and Simon Jacinto before the alleged pledge
was entered into and apparently remained with them until the execution was levied, and there was no actual
delivery of possession to the plaintiff himself. There was therefore in reality no change in possession.
It may further be noted that the alleged relation of landlord and tenant between the plaintiff and Simon Jacinto
is somewhat obscure and it is, perhaps, doubtful if any tenancy, properly speaking, existed. The land cultivated
by Jacinto was not the property of the plaintiff, but it appears that a part of the products was to be applied
towards the payment of Tiburcia Buhayan's debt to the plaintiff. Jacinto states that he was not a tenant until
after the pledge was made.
From what has been said it follows that the judgment appealed from must be reversed and it is ordered and
adjudged that the plaintiff take nothing by his action. Without costs. So ordered.
Civil Code). This is the essence of this contract, for, according to law, a pledgee cannot become the owner of,
nor appropriate to himself, the thing given in pledge (Article 1859, Old Civil Code). If by the contract of pledge
the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to
reason that in case of loss of the property, the loss should be borne by the pledgor. The fact that the
warehouse receipt covering the palay was delivered, endorsed in blank, to the bank does not alter the
situation, the purpose of such endorsement being merely to transfer the juridical possession of the property to
the pledgee and to forestall any possible disposition thereof on the part of the pledgor. This is true
notwithstanding the provisions to the contrary of the Warehouse Receipt Law.
In case recently decided by this Court (Martinez vs. Philippine National Bank, 93 Phil., 765) which involves a
similar transaction, this Court held:
In conclusion, we hold that where a warehouse receipt or quedan is transferred or endorsed to a
creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically
become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the
right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the
proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a
mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost
without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the
warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner,
mortgagor or pledgor.
Wherefore, the decision appealed from is affirmed, with costs against appellant.
According to the SC, this is the essence of this contract, for, according to law, a pledgee cannot become the
owner of, nor appropriate to himself, the thing given in pledge (Article 1859, Old Civil Code).
If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the pendency of
the obligation, in case of loss of the property, the loss should be borne by the pledgor (owner).
The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to PNB does not alter
the situation, the purpose of such endorsement being merely to transfer the juridical possession of the property
to the pledgee and to forestall any possible disposition thereof on the part of the pledgor.
October 2, 1922
From the foregoing it follows that, as the jewels in question were in the possession of the defendant to secure
the payment of a loan of P1,500, with interest thereon at the rate of 25 per cent per annum from Augusts 31,
1911, to August 31, 1912, and the defendant having subsequently extended the term of the loan indefinitely,
and so long as the value of the jewels pledged was sufficient to secure the payment of the capital and the
accrued interest, the defendant is bound to return the jewels or their value (P12,000) to plaintiffs, and the
plaintiffs have the right to demand the same upon the payment by them of the sum of P1,5000, plus the
interest thereon at the rate of 25 per cent per annum from August 28, 1911.
The judgment appealed from being in accordance with this findings, the same is affirmed without special
pronouncement as to costs. So ordered.
Araullo, C.J., Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.
RESOLUTION
April 4, 1923
AVANCEA, J.:
The defendant contends that the plaintiffs' action for the recovery of the jewels pledged has prescribed.
Without deciding whether or not the action to recover the thing pledged may prescribe in any case, it not being
necessary for the purposes of this opinion, but supposing that it may, still the defendant's contention is
untenable. In the document evidencing the loan in question there is stated: "I transfer by way of pledge the
following jewels." That this is a valid contract of pledge there can be no question. As a matter of fact the
defendant does not question it, but take s it for granted. However, it is contended that the obligation of the
defendant to return the jewels pledged must be considered as not stated in writing, for this obligation is not
expressly mentioned in the document. But if this contract of pledge is in writing, it must necessarily be admitted
that the action to enforce the right, which constitutes the essence of this contract, is covered by a written
contract. The duty of the creditor to return the thing pledged in case the principal obligation is fulfilled is
essential in all contracts of pledge. This constitutes, precisely, the consideration of the debtor in this accessory
contract, so that if this obligation of the creditor to return to thing pledged, and the right of the debtor to
demand the return thereof, are eliminated, the contract would not be a contract of pledge. It would be a
donation.
If the right of the plaintiffs to recover the thing pledged is covered by a written contract, the time for the
prescription of this action is ten years, according to section 43 of the Code of Civil Procedure.
The defendant contends that the time of prescription of the action of the plaintiffs to recover the thing pledged
must be computed from August 28, 1911, the date of the making of the contract of loan secured by this pledge.
The term of this loan is one year. However, it is contended that the action of the plaintiff to recover the thing
pledged accrued on the very date of the making of the contract, inasmuch as from that date they could have
recovered the same by paying the loan even before the expiration of the period fixed for payment. This view is
contrary to law. Whenever a term for the performance of an obligation is fixed, it is presumed to have been
established for the benefit of the creditor as well as that of the debtor, unless from its tenor or from other
circumstances it should appear that the term was established for the benefit of one or the other only (art. 1128
of the Civil Code.) In this case it does not appear, either from any circumstance, or from the tenor of the
contract, that the term of one year allowed the plaintiffs to pay the debt was established in their favor only.
Hence it must be presumed to have been established for the benefit of the defendant also. And it must be so,
for this is a case of a loan, with interest, wherein the term benefits the plaintiffs by the use of the money, as
well as the defendant by the interest. This being so, the plaintiffs had no right to pay the loan before the lapse
of one year, without the consent of the defendant, because such a payment in advance would have deprived
the latter of the benefit of the stipulated interest. It follows from this that appellant is in error when he contents
that the plaintiffs could have paid the loan and recovered the thing pledged from the date of the execution of
the contract and, therefore, his theory that the action of the plaintiffs to recover the thing pledged accrued from
the date of the execution of the contract is not tenable. 1awph!l.net
It must, therefore, be admitted that the action of the plaintiffs for the recovery of the thing pledged did not
accrue until August 31, 1912, when the term fixed for the loan expired. Computing the time from that date to
that of the filing of the complaint in this cause, October 9, 1920, it appears that the ten years fixed by the law
for the prescription of the action have not yet elapsed.
On the other hand, the contract of loan with pledge is in writing and the action of the defendant for the recovery
of the loan does not prescribe until after ten years. It is unjust to hold that the action of the plaintiffs for the
recovery of the thing pledged, after the payment of the loan, has already prescribed while the action of the
defendant for the recovery of the loan has not yet prescribed. The result of this would be that the defendant
might have collected the loan and at the same time kept the thing pledged.
nothing more nor less than that of a mortgage given as a collateral for the principal obligation in which
the creditor is entitled to a deficiency judgment for the balance should the collateral not command the
price equal to the undertaking.
It appearing that the collateral given by the defendant in favor of the plaintiff to secure this obligation
has already been sold for only the amount of P235.00, the liability of the defendant should be limited to
the difference between the amounts of P2,800.00 and P235.00 or P2,565.00.
We agree with the appellant that the above quoted reasoning of the appealed decision is unsound. The
accessory character is of the essence of pledge and mortgage. As stated in Article 2085 of the 1950 Civil
Code, an essential requisite of these contracts is that they be constituted to secure the fulfillment of a principal
obligation, which in the present case is Velayo's undertaking to indemnify the surety company for any
disbursements made on account of its attachment counterbond. Hence, the fact that the pledge is not the
principal agreement is of no significance nor is it an obstacle to the application of Article 2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of the sale of the pledged chattels must be
derived from stipulation. This is incorrect, because Article 2115, in its last portion, clearly establishes that the
extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency
notwithstanding any stipulation to the contrary.
The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the articles
pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide
by the results of the sale. No deficiency is recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the legal
prescription contained in Article 1484(3) of the same Code, concerning the effect of a foreclosure of a chattel
mortgage constituted to secure the price of the personal property sold in installments, and which originated in
Act 4110 promulgated by the Philippine Legislature in 1933.
WHEREFORE, the decision under appeal is modified and the defendant absolved from the complaint, except
as to his liability for the 1954 premium in the sum of P120.93, and interest at 12-1/2% per annum from June
13, 1954. In this respect the decision of the Court below is affirmed. No costs. So ordered.
F: Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for P2,800.00 for the
dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the
Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00
and provided collateral jewelry with the authority to sell in case Manila Surety will be obliged to pay. Judgment
having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been
returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from
Velayo; and upon the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing
therefrom a net product of P235.00 only The surety files a claim against Velayo because the security Is
insufficient. Velayo claims the sale of the jewelry even if insufficient extinguishes the principal obligation.
Issue: Won Velayos contention is correct
Ruling: Yes! The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds
of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case.