TOPIC Art 2093

CASE NO. G.R. No. L-19227

CASE NAME Yuliongsiu v PNB
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DOCTRINE
The type of delivery will depend upon the nature and the peculiar circumstances of each case. (Art 2093
doctrine)

There is authority supporting the proposition that the pledgee can temporarily entrust the physical
possession of the chattel pledged (e.g., vessels) 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. (Doctrine
involving Art 2110)

RECIT-READY DIGEST
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
bank’s 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?

It’s a contract of pledge. The contract itself provides that 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 plaintiff’s
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.

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FACTS
- Diosdado Yuliongsiu owns the vessels M/S Surigao and the M/S Dino.
o He also purchased the FS-203 from Philippine Shipping Commission by installment or
on account. Balance price was still due on or before the end of the year.
- Yuilongsiu obtained a loan worth P50,000 from Philippine National Bank (PNB) in Cebu.
o As guarantee, he entered into a pledge contract over the M/S Surigao, M/S Dino, and
its equity in the FS-203. After the pledge contract was entered into, Yuilongsiu still
operated the vessels but “subject to the order of the pledgee.” Further, the pledge contract
with PNB, entered on June 30, 1947, expressly states —

3. That a credit line of P50,000.00 was extended to 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” and 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. (Italics supplied)

- Yuliongsiu partially paid P20,000. For the balance, he executed two promissory notes in the
bank’s favor.
o Yuliongsiu did not pay these notes. When the first note became due and remained unpaid,
the General Manager of PNB, acting as an attorney-in-fact for Yulliongsiu pursuant to the
pledge contract, executed a document of sale transferring the three pledged vessels to
PNB.
o The bank took physical possession of them. It surrendered the FS-203 to Philippine
Shipping Commission, which rescinded the sale for having been still unpaid. It then sold
the two other boats to third parties.

- In another case, PNB charged him with estafa thru falsification of commercial documents.
o Yuliongsiu, as last indorseee, deposited with PNB seven BPI checks totaling
P184,000.00. The drawer had no funds in the bank. In connivance with PNB’s employee,
he was able to withdraw the amount credited to him before the discovery of the fraud.
PNB filed criminal charges against Yuiliongsiu and the two other parties for estafa thru
falsification of commercial documents.The Trial Court later convicted him and the Court
of Appeals affirmed. Yuiliongsiu, at that time, was insolvent.

- Yulliongsiu commenced judicial action to recover the three vessels

o He contends, first, that the agreement was a chattel mortgage contract.
o Thus, the bank, being a creditor, could not take possession of the chattels object until
after default. Second, constructive delivery is insufficient to make pledge effective. Here,
there’s no actual delivery of the vessels to PNB.

ISSUE/S and HELD

1. Whether the agreement was a pledge contract?
2. Whether Art. 2110 applies?
3. Whether constructive delivery is sufficient?

RATIO
[SYLLABUS ISSUE]As to delivery:
Constructive delivery, in this case, is sufficient.
- The sufficiency of such delivery depends on the circumstances and the nature of the
objects pledged.

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 o When objects are easily capable of actual, manual delivery, like carabaos, actual
delivery is necessary.
o When objects are otherwise, like goods in a warehouse, constructive delivery is
sufficient.
- APPLICATION: In this case, the vessels are used in maritime business so actual
delivery is not likely.
o Constructive delivery is sufficient.
o In the pledge contract, PNB was in full control of the vessel because Yuliongsui
can operate “subject to the order of the pledgee.”
o PNB thus can take actual possession at any time to make effective the security.
o That Yuliongsui defrauded the bank through estafa, the more reason the PNB was
justified in taking actual possession of the vessels.
o The parties here agreed that the vessels be delivered by the ‘pledgor to the
pledgee who shall hold said property subject to the order of the pledgee.’
Considering the circumstances of the case and the nature of the objects
pledged, i.e., vessels used in maritime business, such delivery is sufficient.”

As to the issue of type of contract:

The agreement was a pledge contract.
- The contract specifically states “in order to guarantee the payment of this loan, the pledge
contract…” is a judicial admission that binds Yuliongsiu.

As to the issue of applicability of 2110:

Art. 2110 does not apply.
- Art. 2110 of the New Civil Code provides that if after the perfection of the pledge, the
thing is found in the pledgor’s possession, it is presumed that the same was returned by
the pledgee, thereby extinguishing the pledge.
- This provision is new.
- The contract was entered into only on June 30, 1947.

DISPOSTIVE PORTION
WHEREFORE, the appealed judgment is, as it is hereby, a rmed. Costs against plaintiff-appellant. So
ordered.
NO SEPARATE OPINION
OTHER NOTES