YULIONGSIU v PNB FACTS: Yulongsiu owned 2 vessels and equity in FS-203, which were purchased by him from the

Philippine Shipping Commission, by installment. Plaintiff obtained a loan from defendant and to guarantee payment, plaintiff pledged the 2 vessels and the equity on FS-203, as evidenced by a pledge contract. Plaintiff made a partial payment and the remaining balance was renewed by the execution of 2 promissory notes in the banks favor. These two notes were never paid at all by plaintiff on their respective due dates. Defendant bank filed a criminal case against plaintiff charging the latter with estafa through falsification of commercial documents, and the trial court convicted the plaintiff and was sentenced to indemnify the defendant. The corresponding writ of execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent. Meanwhile, together with the institution of the criminal action, defendant took physical possession of the 2 vessels and transferred the equity on FS-203 to the defendant. Later on, the 2 vessels were sold by defendant to third parties. Plaintiff commenced an action for recovery on the pledged items, and alleges, among others, that the contract executed was a chattel mortgage so the creditor defendant could not take possession of the chattel object thereof until after there has been default. ISSUE: Whether the contract entered into between plaintiff and defendant is a chattel mortgage or a valid contract of pledge? HELD: Its a contract of pledge. The contract itself provides t hat it is a contract of pledge and the judicial admission that it is a pledge contract cannot be offset without showing of palpable mistake. The pledgee defendant was therefore entitled to the actual possession of the vessels. The plaintiffs continued operation of the vessels after the pledge contract was entered into places his possession subject to the order of the pledge. The pledge can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. In this case, the pledgor is regarded as holding the pledge merely as a trustee for the pledge. As to the validity of the pledge contract with regard to delivery, plaintiff alleges that constructive delivery is insufficient to make pledge effective. The Court ruled that type of delivery will depend on the nature and peculiar circumstances of each case. Since the defendant bank was, pursuant to the pledge contract, in full control of the vessels through plaintiff, the former could take actual possession at any time during the life of the pledge to make more effective its security.

Caltex (Philippines) Inc. vs. CA GR 97753, 10 August 1992 -negotiability

FACTS: Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel dela Cruz who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. When Caltex presented said CTDs for verification with the bank and formally informed the bank of its decision to preterminate the same, the bank rejected Caltex claim and demand as Caltex failed to furnish copies of certain requested documents. In 1983, dela

Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed a complaint which was dismissed on the ground that the subject certificates of deposit are non-negotiable. ISSUE: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. RULING: The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts deposited shall be repayable to the depositor. And according to the document, the depositor 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. However, petitioner cannot recover on the CTDs. Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately ascertained, requires both delivery and indorsement. In this case, there was no indorsement as the CTDs were delivered not as payment but only as a security for dela Cruz' fuel purchases. **The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts deposited shall be repayable to the depositor. And according to the document, the depositor 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.

GR 97753, 10 August 1992 FACTS On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. ISSUE [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. HELD [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower courts findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. ISSUE [2]: Whether the CTDs negotiation require delivery only.

HELD [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.

ESTATE OF G. LITTON VS. MENDOZA (163 SCRA 246) Facts: Estate of G. Litton brought an action against Mendoza for the collection of a sum of money. While the case was pending resolution, EGL assigned in favor of (pledgee/assignee) by way of securing or guaranteeing EGLs obligation to the pledge his litigated credit against Mendoza duly submitted to the court with notice to the parties. The lower court ruled in favor of EGL. Subsequently, pending resolution of the appeal of Mendoza to the CA, Mendoza entered into a compromise agreement with EGL wherein EGL acknowledged that all his claims against Mendoza had been settled. Issue: WON the compromise agreement is valid Held: No. Although Mendoza may validly alienate the litigated credit under Article 1634, said provision should not be taken to mean as a grant of an absolute right on the part of the assignor EGL to indiscriminately dispose of the thing or the right given as security

MANILA SURETY v VELAYO 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, whther or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case.