Pledge & Its Nature (Credit Transactions)

The judgment must be reversed unless the document above quoted can be considered either a chattel mortgage or else a pledge. That it is not a sufficient chattel mortgage is evident; it does not meet the requirements of section 5 of the Chattel Mortgage Law (Act No. 1508), has not been recorded and, considered as a chattel mortgage, is consequently of no effect as against third parties (Williams vs. McMicking, 17 Phil., 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.

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. (G.R. No. L-24137 March 29, 1926)

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