POSSESION
Banco Espanol Filipino v Peterson
(1907)
Facts: On March 4, 1905, Banco Espanol
Filipino (BEP) executed a contract of loan
in favor of Francisco Reyes for P141
702.00. Reyes was already indebted to the
bank for P84 415.00. His total debt was
therefore P226 117.38. To secure
payment of the P141k and the P84k,
Reyes executed a public instrument
mortgaging several of his properties and
ledging part of his personal property to
BEP (P90 591.75 worth of wines, liquors
and canned goods), which were stored at
a warehouse he rented in Manila. BEP and
Reyes agreed that the goods should be
delivered to Ramon Garcia (depositary)
for safekeeping. Reyes turned over the
goods to R. Garcia by giving him the
warehouse keys. On September 29, 1905,
BEP and Reyes substituted Luis Sierra in
place of R. Garcia as the depositary. On
October 19, 1905, Juan Garcia (yes,
related to Ramon) brought an action
against Francisco Reyes and Ramon
Agtarat. CFI Manila ruled against Reyes
and Agtarat for P15 000.00. On the same
day, Sheriff James Peterson entered the
warehouse where the goods pledged to
BEP were stored under the custody of the
depositary, Sierra. Peterson levied upon
P30 000 worth of the goods pledged to
the bank, depriving the latter of
possession of the same, as stipulated in
the March 4 contract of loan.
Issues
1. Was the contract of pledge
between BEP and Reyes to secure a
loan valid?
2. Was Reyes still in possession of the
pledged property, thereby making
the contract defective?
Ruling:
The contract was valid. Reyes was no
longer in possession of the pledged
property. BEP had symbolic possession of
the same.
The contract complies with all the
requisites of a valid pledge contract, as
prescribed by the Civil Code:
1. The property was pledged to secure a
debt
2. The date of execution, the terms of the
pledge, and the property pledged
appeared in a public instrument
3. The property pledged was placed in the
hands of a third person (in this case,
Sierra) by common consent of the debtor
and creditor, under the supervision of an
agent (in this case, Rodriguez) of the bank
Reyes, after the pledge, parted with the
possession of his personal property,
which was delivered to a third person (R.
Garcia, and subsequently, Sierra) who
would take care of them for BEP. Sierra
was the third person appointed by
common consent of BEP (creditor) and
Reyes (debtor), to hold possession over
the goods pledged in favor of the bank
under the direct supervision of Rodriguez,
an agent specifically appointed by the
bank. The contract in question was,
therefore, a perfect contract of pledge
under articles 1857 and 1863 of the Civil
Code, it having been conclusively shown
that the pledgee (BEP) took charge and
possession of the goods pledged through
a depositary (Sierra) and a special agent
(Rodriguez) appointed by it, each of
whom had a duplicate key to the
warehouse wherein the said goods were
stored, and that the pledgee (BEP), itself,
received and collected the proceeds of the
goods as they were sold. The legality of
the pledge was not affected by the fact
that the goods remained in the warehouse
formerly rented by Reyes the pledgor.
This is because after the pledge had been
agreed upon, and after the depository
appointed with common consent of the
parties had taken possession of the said
property, Reyes could no longer dispose
of the same because BEP was the only
party allowed to do so through Sierra and
Rodriguez. The symbolic transfer of the
goods through delivery of the keys to the
warehouse where the goods were stored
was sufficient evidence to show that
Sierra, the depositary appointed by both
BEP and Rodriguez, was legally placed in
possession of the goods. Since the
contract of pledge was valid, BEP had a
better right to the goods compared to J.
Garcia. The Court ordered either the
return of the improperly levied goods, or
the payment of their value, P30 000.