PEDRO ALCANTARA vs. AMBROSIO ALINEA ..........2 G.R. No. 3227 March 22, 1907 ...........................

80. JOSE McMICKING, sheriff of Manila, plaintiffappellee, vs. PEDRO MARTINEZ and GO JUNA, defendants..........................................................................3 CALTEX (PHILIPPINES), INC. vs. CA and SECURITY BANK AND TRUST COMPANY ...............4 84. Insular life vs Young- Part V: pledge- II Provisions applicable only to pledge..................................................5 Manila Surety vs Venelayo ..............................................7 PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION, and EAST ASIA OIL COMPANY,INC., Petitioners, vs. EIB SECURITIES, INC., Respondent....................................8

PEDRO ALCANTARA vs. AMBROSIO ALINEA

G.R. No. 3227

March 22, 1907

aforesaid contract, whereby this court can find that the contract was null, and under no consideration whatever would it be just to apply to the plaintiff articles 1859 and 1884 of the same code. The contract ( pactum commissorium) referred to in Law 41, title 5, and law 12, title 12, of the fifth Partida, and perhaps included in the prohibition and declaration of nullity expressed in articles 1859 and 1884 of the Civil Code, indicates the existence of the contracts of mortgage or of pledge or that of antichresis, none of which have coincided in the loan indicated herein. It was agreed between plaintiff and defendants herein that if defendants should not pay the loan of 480 pesos in January, 1905, the property belonging to the defendants and described in the contract should remain sold for the aforesaid sum, and such agreement must be complied with, inasmuch as there is no ground in law to oppose the compliance with that which has been agreed upon, having been so acknowledged by the obligated parties. The document of contract has been recognized by the defendant Alinea and by the witnesses who signed same with him, being therefore an authentic and efficacious document, in accordance with article 1225 of the Civil Code; and as the amount loaned has not been paid and continues in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instrument be executed by the vendees.

FACTS Plaintiff alleged that on the 29th day of February, 1904, the defendants, Ambrosio Alinea and Eudosia Belarmino, borrowed from him the sum of 480 pesos, payable in January of said year 1905 under the agreement that if, at the expiration of the said period, said amount should not be paid it would be understood that the house and lot, the house being constructed of strong materials, owned by the said defendants and located in the town of San Pablo on the street of the same name, Province of La Laguna, be considered as absolutely sold to the plaintiff for the said sum; and that, notwithstanding that the time for the payment of said sum has expired and no payment has been made, the defendants refuse to deliver to plaintiff the said property, openly violating that which they contracted to do and depriving him to his loss of the rents which plaintiff should received, the same counting from February, 1905. In view of the refusal of defendants to deliver the property, plaintiff brought action to recover the property and rents from defendants. ISSUE Whether or not the contract in question is in the nature of pactum commissorium. RULING No. it is not pactum commissorium. We have in this case a contract of loan and a promise of sale of a house and lot, the price of which should be the amount loaned, if within a fixed period of time such amount should not be paid by the debtor-vendor of the property to the creditor-vendee of same. Either one of the contracts are perfectly legal and both are authorized respectively by articles 1451, 1740, and 1753, and those following, of the Civil Code. The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the nonpayment or return of the amount loaned, has not produced any charge in the nature and legal conditions of either contract, or any essential defect which would tend to nullify the same. If the promise of sale is not vitiated because, according to the agreement between the parties thereto, the price of the same is to be the amount loaned and not repaid, neither would the loan be null or illegal, for the reason that the added agreement provides that in the event of failure of payment the sale of property as agreed will take effect, the consideration being the amount loaned and not paid. No article of the Civil Code, under the rules or regulations of which such double contract was executed, prohibits expressly, or by inference from any of its provisions, that an agreement could not be made in the form in which the same has been executed. conditions required for their validity exist." This legal The property, the sale of which was agreed to by the debtors, does not appear mortgaged in favor of the creditor, because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property, in accordance with article 1875 of the Civil Code, and the document of contract, Exhibit A, does not constitute a mortgage, nor could it possibly be a mortgage, for the reason of said document is not vested with the character and conditions of a public instrument. By the aforesaid document, Exhibit A, said property could not be pledged, not being personal property, and notwithstanding the said double contract the debtor continued in possession thereof and the said property has never been occupied by the creditor. Neither was there ever nay contract of antichresis by reason of the said contract of loan, as is provided in articles 1881 and those following of the Civil Code, inasmuch as the creditor-plaintiff has never been in possession thereof, nor has he enjoyed the said property, nor for one moment ever received its rents; therefore, there are no proper terms in law, taking into consideration the terms of the conditions contained in the

80. JOSE McMICKING, sheriff of Manila, vs. PEDRO MARTINEZ and GO JUNA, defendants.

plaintiff-appellee,

Facts: The defendant, Pedro Martinez, some time during the year 1908 obtained judgment in the Court of First Instance of the city of Manila against one Maria Aniversario; that thereafter execution was issued upon said judgment and the sheriff levied upon apailebot, Tomasa, alleged to be the property of said Maria Aniversario; that thereupon the said defendant Go Juna intervened and claimed a lien upon said boat by virtue of a pledge of the same to him by the said Maria Aniversario made on the 27th day of February, 1907, which said pledge was evidenced by a public instrument bearing that date. This action was brought by the sheriff against Go Juna and Pedro Martinez to determine the rights of the parties to the funds in his hands. Maria Aniversario was not made a party. The said Pedro Martinez alleged as a defense that the pledge which said document was intended to constitute had not been made effective by delivery of the property pledged, as required by article 1863 of the Civil Code, and that, therefore, there existed no preference in favor of said Go Juna. The court below found with the contention of the said Pedro Martinez, declared a preference in his favor, and ordered the sheriff to pay over the said funds in consonance therewith. An appeal was taken from said judgment. Issue: WON pledge is constituted Ruling: The conclusion of the Court of First Instance that the property was not delivered in accordance with the provisions of article 1863 of the Civil Code is sustained by the proofs. His conclusion that the pledge was ineffective against Martinez is correct. It appears, however, that the document of pledge is a public document which contains an admission of indebtedness. In other words, while it is intended to be a pledge, it is also a credit which appears in a public document. Article 1924, paragraph 3, letter a, is therefore applicable; and, said public document antedating the judgment of defendant Martinez, takes preference thereover. The validity of that document in so far as it shows an indebtedness against Maria Aniversario and its effectiveness against her have not, however, been determined. She is not a party to this action. No judgment can be rendered affecting her rights or liabilities under said instrument. If said instrument is invalid or for any other cause unenforceable against her, it would be wholly unjust, by declaring its preference over a debt acknowledged by and conclusive against her, to require that said funds be paid over to the holder of said document. That would be to require her to pay a debt which has not only not been shown to be enforceable against her but which, as a witness for the defendant Martinez on the trial of this cause, she expressly and vehemently repudiated as a valid claim against her. The judgment is, therefore, reversed; and it is ordered that the cause be returned to the court below; that the plaintiff bring in Maria Aniversario as a party to this action, and that she be given an opportunity to make her defense, if she have any, to the document in question under proper procedure. No finding as to costs. So ordered.

clear and unambiguous language or other circumstances excluding an intent to pledge. CALTEX (PHILIPPINES), INC. vs. CA and SECURITY BANK AND TRUST COMPANY FACTS:Defendantbank(Sucat Branch) issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the CTDs to herein plaintiff in connection with his purchased of fuel products from the latter.Sometime in March 1982, Angel dela Cruz informed the Sucat Branch Manger, that he lost all the CTDs. Mr. Tiangco advised him to execute and submit a notarized Affidavit of Loss, which he did, so280 replacement CTDs were issued in his favor. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of P875,000.00. On the same date, he executed a notarized Deed of Assignment of Time Deposit (in favor of defendant bankstating therein that the bank has "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity. Sometime in November, 1982, the Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." Plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits. No copy of the requested documents was furnished herein defendant.Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan, In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees. TC dismissed the complaint. CA affirmed. ISSUE: (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; HELD: (1) CTD stated the following Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days.after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum. The CTDs in question are negotiable instruments. The CTDs in question undoubtedly meet the requirements of the law for negotiability. The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment. (2) The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. Although the CTDs are bearer instruments, a valid negotiation thereof, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products.If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily said so, instead of using the words "to guarantee" in the letter. Had it produced the receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness, it could have proved that the CTDs were delivered as payment and not as security. The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, which inceptively provide: Art. 2095. 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. Art. 2096. 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. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096 is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely. On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge.It has been said that a 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 continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of

84. Insular life vs Young- Part V: pledge- II Provisions applicable only to pledge (Note: Cnxa kung haba kayo, just focus on 2nd issue for our topic.) FACTS: Respondent Robert Young, together with his associates and corespondents, acquired by purchase Home Bankers Savings and Trust Co., now petitioner Insular Savings Bank ("the Bank," for brevity), from the Licaros family for P65M Young and his group obtained 55% equity in the Bank, while Jorge Go and his group owned the remaining 45%. Subsequently, the Bank granted respondents and others individual loans in the total amount of P153M, secured by promissory notes.[3] On 1990, Benito Araneta, a stockholder of the Bank, signified his intention to purchase 99.82% of its outstanding capital stock for P340M, subject to the condition that the ownership of all the shares will be consolidated in Young's name and paid Young P14M as part of the downpayment. To carry out the intended sale to Araneta, Young bought from Jorge Go and his group their 45% equity in the Bank for P153M. In order to pay this amount, Young obtained a short-term loan of P17M from Interbank to finance the purchase. However, Araneta backed out from the intended sale and demanded the return of his downpayment. Meanwhile, Young's loan from Interbank became due. On August 27, 1991, through the intervention of Asian Oceanic, Young and Insular Life entered into a Credit Agreement.[5] Under its provisions, Insular Life extended a loan to Young in the amount of P200M. To secure the loan, Young, acting in his behalf and as attorney-in-fact of the other stockholders, executed on the same day a Deed of Pledge[6] over 1,324,864 shares which represented 99.82% of the outstanding capital stock of the Bank. The next day, he also executed a promissory note[7] in favor of Insular Life in the same amount with an interest rate of 26% per annum to mature 120 days from execution. The Credit Agreement further provides that Insular Life shall have the prior right to purchase the Schedule I Shares (owned by Young) and the Schedule II Shares (owned by the other stockholders of the Bank), as well as the 250,000 shares which will be issued after the additional capital of P25,000,000.00 (payable from the proceeds of the loan) shall have been infused. On October 1, 1991, Insular Life and Insular Life Pension Fund formally informed Young of their intention to acquire 30% and 12%, respectively, of the Bank's outstanding shares, subject to due diligence audit and proper documentation.[8] On October 9, 1991, Insular Life and Young, authorized to represent the other stockholders, entered into a Memorandum of Agreement (MOA),[9]wherein Insular Life and its Pension Fund agreed to purchase 830,860 common shares and 311,572 common shares, respectively, for a total consideration of P198M. The MOA is also subject to these "condition precedents":[11] (1) Young shall infuse additional capital ofP50M into the Bank, and (2) Insular Life and its Pension Fund shall undertake a due diligence audit on the Bank to determine whether the provision for P60M doubtful account made by Young is sufficient. The audit revealed several check-kiting operations which amounted to P340M. When asked to explain these anomalies, Young, who was then the Bank's President, assumed responsibility since it happened during his incumbency. Thereupon, he offered to the Bank the 45% of his holdings as security. He admitted that he has compromised the interest of the Bank and thus tendered his resignation. The Board deferred its acceptance.[12] On October 21, 1991, Young signed a letter[13] prepared by Atty. Jacinto Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of the Bank's Board of Directors, stating that due to business reverses, he shall not be able to pay his obligations under the Credit Agreement between him and Insular Life. Consequently, Young "unconditionally and irrevocably waive(s) the benefit of the period" of the loan (up to December 26, 1991) and Insular "may consider (his) obligations thereunder as defaulted." He likewise interposes no objection to Insular Life's exercise of its rights under the said agreement. Forthwith, Insular Life, upon notice to Young, foreclosed the pledge constituted upon the shares. Since the shares were not sold at the two

public auctions, Insular Life appropriated to itself, not only the original 1,324,864 shares, but also the 250,000 shares subsequently issued by the Bank and delivered to Insular Life by way of pledge. Thus, Insular Life gave Young an acquittance of his entire claim,[14] Thereafter, title to the said shares was consolidated in the name of Insular Life. On January 7, 1992, Young and his associates filed a complaint[17] against the Bank, Insular Life and its counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale, specific performance and damages. The complaint alleges, inter alia, that the notarial sale conducted by petitioner Atty. Jacinto Jimenez is void as it does not comply with the requirement of notice of the second auction sale; that Young was forced by the officers of Insular Life to sign letters to enable them to have control of the Bank; that under the MOA, Insular Life should apply the purchase price of P198,000,000.00 (corresponding to the 55% of the outstanding capital stock of the Bank) to Young's loan of P200,000,000.00 and pay the latter P162,000,000.00, representing the remaining 45% of its outstanding capital stock, which must be set-off against the loans of the other respondents. RTC dismissing the complaint. ISSUE: 1. WON the MOA dated October 9, 1991 valid and enforceable between the parties despite respondent Young's failure to comply with the terms and conditions thereof. NO 2. WON the foreclosure of the pledge held on October 29, 1992 is void. NO RULING: 1.) the Court of Appeals construed the MOA as a contract of sale since it applied Article 1599 of the Civil Code which pertains to cases where there is a breach of warranty. We disagree. The Memorandum of Agreement pertinently provides: "1. Insular Life and the Pension Fund hereby agree to purchase from the Vendor and the Vendor agrees to convey, transfer, assign EIGHT HUNDRED THIRTY THOUSAND EIGHT HUNDRED SIXTY (830,860) Common Shares and THREE HUNDRED ELEVEN THOUSAND FIVE HUNDRED SEVENTY TWO (311,572) Common Shares of Home Bankers Savings and Trust Co., respectively, Insular Life and the Pension Fund, or to such person designated by Insular Life or the Pension Fund, for a total consideration of ONE HUNDRED NINETY-EIGHT MILLION PESOS (P198,000,000.00), subject to the following terms and conditions and representations and warranties made by the Vendor: A. REPRESENTATION AND WARRANTIES: 1. As of September 30, 1991, the total outstanding paid in capital of the bank is ONE HUNDRED FIFTY SEVEN MILLION SEVEN HUNDRED FOURTEEN THOUSAND NINE HUNDRED PESOS (P157,714,900.00), 2. As of September 30, 1991, the total net worth of the bank is ONE HUNDRED FOURTEEN MILLION EIGHT HUNDRED ONE THOUSAND FIVE HUNDRED THIRTY NINE PESOS (P114,801,593.00), 3. As of September 30, 1991, the total loans with doubtful recovery amounted to SIXTY MILLION PESOS (P60,000,000.00), which includes the loans with doubtful recovery contained in the May 1991 findings of the Central Bank and an additional provision for certain loan accounts identified and listed by Robert T. Young, 4. The entire proceeds of the sale shall be used to pay off the outstanding debt of Robert T. Young to Insular Life. B. CONDITION PRECEDENTS: Upon the signing of this Agreement and prior to the execution of a Deed of Sale by the parties, the following events shall occur: 1. The Vendor shall infuse an additional capital of FIFTY MILLION PESOS (P50,000,000.00) into the Bank, 2. The Vendee shall undertake a due diligence audit on the bank for a period not exceeding 60 days from the date of the signing of this Agreement, and the audit shall be undertaken to determine that the provision for SIXTY MILLION PESOS (P60,000,000.00) for doubtful account is sufficient, 3. After signing of this Agreement and during the 60 days due diligence audit of the Vendee, as mentioned in No. 2, the Vendor shall endorse and deliver the stock certificates representing TWENTY FIVE (25%) percent of the total outstanding capital stock of the bank to the Vendee, the stock certificates shall be returned to the Vendor at the end of the 60 days due diligence audit and after the

Vendee is satisfied that the provision of SIXTY MILLION PESOS (P60,000,000.00) for doubtful accounts is sufficient.[28] (Emphasis ours) Contrary to the findings of the Court of Appeals, the foregoing provisions of the MOA negate the existence of a perfected contract of sale. The MOA is merely a contract to sell since the parties therein specifically undertook to enter into a contract of sale if the stipulated conditions are met and the representation and warranties given by Young prove to be true. The obligation of petitioner Insular Life to purchase, as well as the concomitant obligation of Young to convey to it the shares, are subject to the fulfillment of the conditions contained in the MOA. Once the conditions, representation and warranties are satisfied, then it is incumbent upon the parties to perform their respective obligations under the contract. Conversely, in the event that these conditions are not met or complied with, no obligation on the part of either party arises. This is in accord with Article 1181 of the Civil Code which provides that "(i)n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition." And when the obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot be enforced against him unless the condition is complied with.[29] Here, the MOA provides that Young shall infuse additional capital of P50M into the Bank. It likewise specifies the warranty given by Young that the doubtful accounts of petitioner Bank amounted to P60M only. However, records show that Young failed to infuse the required additional capital. Moreover, the due diligence audit shows that Young was involved in fraudulent schemes like check-kiting[30] which amounted to a staggering P344M. This belies his representation that the doubtful accounts of petitioner Bank amounted only toP60M. As a result of these anomalous transactions, the reserves of the Bank were depleted and it had to undergo a ten-year rehabilitation plan under the supervision of the Central Bank. Significantly, respondents do not dispute petitioners assertion that Young committed fraud, misrepresented the warranties and failed to comply with his obligations under the MOA. Accordingly, no right in favor of Young's arose and no obligation on the part of Insular Life was created.[31] In Mortel vs. Kassco, Inc.,[32] this Court held: In contracts subject to a suspensive condition, the birth or effectivity of such contracts only takes place if and when the event constituting the condition happens or is fulfilled, and if the suspensive condition does not take place or is not fulfilled, the parties would stand as if the conditional obligation had never existed. Since no sale transpired between the parties, the Court of Appeals erred in concluding that Insular Life purchased 55% of the total shares of the Bank under the MOA. Consequently, its findings that the debt of Young has been fully paid and that Insular Life is liable to pay for the remaining 45% equity have no basis. It must be emphasized that the MOA did not convey title of the shares to Insular Life. If ever there was delivery of the said shares to Insular Life, it was because they were pledged by Young to Insular Life under the Credit Agreement. It would be unfair on the part of Young to demand compliance by Insular Life of its obligations when he himself was remiss in his own. Neither can he feign ignorance of the stipulation in the MOA since it is presumed that he read the same and was satisfied with its provisions before he affixed his signature therein. The fact that no deed of sale was subsequently executed by the parties confirms the conclusion that no sale transpired between them. 2.) Notably, the Deed of Pledge which secured the Credit Agreement between the parties, covered not only 1,324,864 shares which then constituted 99.82% of the total outstanding shares of petitioner Bank, but also the 250,000 shares subsequently issued. Consequently, when Young waived in his letter the period granted him under the said agreement and manifested his inability to pay his obligation (which waiver has been declared by the RTC and the CA to be valid), the loan extended by petitioner Insular Life became due and demandable.[33] Definitely, petitioners merely exercised the right granted to them under the law, which is to foreclose the pledge constituted on the shares, in satisfaction of respondent Young's loan.

The Court of Appeals also erred in declaring that the auction sale is void since petitioners failed to send a separate notice for the second auction. Article 2112 of the Civil Code provides: The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public for the sale of the thing pledged. The sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim. Clearly, there is no prohibition contained in the law against the sending of one notice for the first and second public auction as was done here by petitioner Insular Life. The purpose of the law in requiring notice is to sufficiently apprise the debtor and the pledgor that the thing pledged to secure payment of the loan will be sold in a public auction and the proceeds thereof shall be applied to satisfy the debt. When petitioner Insular Life sent a notice to Young informing him of the public auction scheduled on October 28, 1991, and a second auction on the next day, October 29, in the event that the shares are not sold on the first auction, the purpose of the law was achieved. We thus reject respondents' argument that the term "second one" refers to a separate notice which requires the same formalities as the first notice.

Manila Surety vs Venelayo Facts: 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; to indemnify the Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as well as reimburse the same for all money it should pay or become liable to pay under the bond including costs and attorneys' fees. As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the latter's further protection", with power to sell the same in case the surety paid or become obligated to pay any amount of money in connection with said bond, applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs. The judgment was made however the execution was 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. Issue: whether the sale of the pledged jewelry extinguished any further liability on his part under Article 2115 of the 1950 Civil Code Held: 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.

Held: We rule that EIB has no legal authority to sell the DMCI shares for the purpose or reacquiring the KKP shares. G.R. No. 184036 October 13, 2010 Sec. 7 of the SDAA pertains to outstanding obligations or indebtedness of petitioners to EIB but does not cover any obligation of petitioners to thirdparty purchasers to reacquire its KKP shares under the "full cross to seller" buy-back obligation subject of the various notices of sale. The above proviso also gives EIB the authority to sell or dispose of petitioners securities or properties in its possession to pay for petitioners indebtedness to EIB. It is, thus, evident from the above SDAA provision that said lien and authority granted to EIB to dispose of petitioners securities or properties in the formers possession apply only to discharge and pay off petitioners indebtedness to EIB and nothing more. Sec. 7 of the SDAA does not apply to petitioners obligations to third-party purchasers of their KKP shares under the "full cross to seller" obligation, and certainly EIB could not use said provision for the repurchase of the KKP shares. Indubitably, the sale of the DMCI shares made by EIB is null and void for lack of authority to do so, for petitioners never gave their consent or permission to the sale. Thus, the sale of the DMCI shares to buy back the KPP shares is illegal and ineffective, since it is only answerable for the liabilities of petitioners to EIB and no one else. The notices of sale issued by EIB covering the sale of the KKP shares of petitioners clearly show that the very same KKP shares sold to third parties albeit under a buy-back arrangement and the "Property" of petitioners were made the collaterals to secure the payment of the reacquisition. Since the possession of the KKP shares and the "Property" were placed in EIB, a third party by common agreement, then the accessory contract in the case at bar is a contract of pledge governed by Arts. 2085 to 2092 of the Civil Code, which are provisions common to pledge and mortgage, and Arts. 2093 to 2139 on pledge. 2. The answer is no. On April 1, 2004, petitioners ordered the sale of 60,790,000 KPP shares to any buyer. Petitioners failed to reacquire or buy back the KPP shares at PhP 0.18 per share after 30 days from date of transaction. As petitioners failed to deliver funds to EIB to honor the buy-back obligation, not to mention the cash account obligations of petitioners in the amount of PhP 70 million to EIB, EIB had no recourse but to sell the DMCI shares of petitioners to reacquire the KPP shares. Thus, on various dates in June 2004, EIB, without petitioners knowledge and consent, sold petitioners 32,180,000 DMCI shares at the controlling market price. On January 12, 2005, petitioners wrote EIB demanding the return of the 32,180,000 DMCI shares. On January 12, 2005, EIB rejected petitioners demand for the return of the DMCI shares, as those were already sold to cover the buy back of the KPP shares. Petitioners prayer is the return of the 32,180,000 DMCI shares by EIB to them. Issue: 1. whether EIB can be compelled to return DMCI shares to petitioners based on the alleged unauthorized disposal or sale of said shares to comply with the buy back of the KKP shares. The query is whether or not the pledge on "KKP Shares/Property" is valid. The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated "Property" as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which provides that "a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument." The thing pledged must be amply and clearly described and specifically identified. Evidently, the word "Property" is vague, broad, and confusing as to the See Art. 2085 It is indispensable that the pledgor is the absolute owner of the thing pledged (second element). In the case at bar, the KKP shares were sold to third parties by EIB and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void.36 Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of his or her property, and in the absence of that free disposal, that he or she be legally authorized for the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares.

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION, and EAST ASIA OIL COMPANY,INC., Petitioners, vs. EIB SECURITIES, INC., Respondent. EIB is the stockbroker of petitioners. Petitioners and EIB entered into a SDAA, Annex "1" of EIBs answer, which governed the relationship between petitioners as clients and EIB as stockbroker. Sec. 7 of the SDAA provides: xxxThe client agrees that all monies and/or securities and/or all other property of the Client (plaintiffs) in the defendants custody or control held from time to time shall be subject to a general lien in favour of Company for the discharge of all or any indebtedness of the Client to the Company. Xxx The company shall be entitled at any time and without notice to the Client to retain, apply, sell or dispose of all or any of the [clients] property if any such obligation or liability is not discharged in full by the client when due or on demand in or towards the payment and discharge of such obligation or liability and the Company shall be under no duty to the client as to the price obtained or any losses or liabilities incurred or arising in respect of any such sale or disposal. xxx It is clear from the SDAA that all monies, securities, and other properties of petitioners in EIBs custody or control shall be subject to a general lien in favor of the latter solely for the discharge of all or any indebtedness to EIB. petitioners, through their broker, EIB, bought 60,790,000 KKP shares of stock at the Philippine Stock Exchange (PSE).thereafter petitioners bought 16,180,000 DMCI shares of stock through EIB likewise at the PSE, while 16,000,000 DMCI shares of petitioners were transferred to EIB by Westlink Global Equities, Inc. Thus, a total of 32,180,000 DMCI shares of stock owned by petitioners were placed in the custody or control of EIB.

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ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on "property" is void and without legal effect. Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. 371avvphi1 The DMCI shares which EIB construed to be included within the ambit of the word "property" cannot be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness of the word "Property" and the non-applicability of the SDAA to the sale of the KKP shares.