Title
Lopez vs. Court of Appeals
Case
G.R. No. L-33157
Decision Date
Jun 29, 1982
Lopez pledged shares as loan security; Philamgen paid his debt, sought reimbursement. SC ruled it a pledge, not payment, obliging Lopez to repay. Shares to be returned upon settlement.
loan
surety bond
indemnity agreement
A

Case Summary (G.R. No. L-33157)

Factual Background

On June 2, 1959, petitioner obtained a P20,000.00 loan from Prudential Bank and Trust Company and executed a promissory note securing payment in one year with interest at ten percent per annum. On the same date petitioner executed Surety Bond No. 14164 naming Philippine American General Insurance Co., Inc. (Philamgen) as surety and executed an indemnity agreement obligating petitioner to indemnify and hold Philamgen harmless for any loss or expense arising from its suretyship. Petitioner also executed a document titled “Stock Assignment Separate from Certificate” whereby he declared that he "sells, assigns, and transfers" four thousand shares of Baguio Military Institute stock to Philamgen and irrevocably appointed Philamgen attorney to transfer the stock on the books of the institute; he endorsed and delivered the certificate to Philamgen. The loan approval was conditioned on acceptable suretyship and it was the parties’ understanding that, if petitioner defaulted, Messrs. Emilio Abello and Pio Pedrosa would purchase the shares and use the proceeds to satisfy the bank.

Post-Maturity Events and Transfers

When petitioner failed to pay at maturity on June 2, 1960, Prudential Bank made demands on petitioner and Philamgen. Prudential Bank sued in August 1961. Confronted with suit, Vice-President Abello instructed Atty. Sumawang to transfer the shares to Philamgen and promised that Abello and Pedrosa would thereafter buy the shares so the bank could be paid. At Abello’s instruction Philamgen requested transfer of Stock Certificate No. 44; that certificate was canceled and a new certificate No. 171 was issued to Philamgen on November 17, 1961. The initial complaint was dismissed, but after continued nonpayment Prudential Bank filed a fresh complaint on November 8, 1963. Petitioner wrote Philamgen on November 18, 1963 inquiring about the pledged shares. On December 9, 1963 Philamgen paid the bank P27,785.89 and obtained a subrogation receipt.

Trial Court Proceedings

Philamgen sued petitioner in the Court of First Instance of Manila for reimbursement of the amount it had paid. After trial the court dismissed the complaint. The trial court found that the evidence did not support Philamgen’s contention that petitioner merely pledged the shares; rather, the court held that the shares had been transferred and that Philamgen had become the registered owner upon issuance of the new certificate. The trial court reasoned that, having appropriated the shares without qualification, Philamgen had effectively been reimbursed and could not pursue petitioner without causing double payment; it suggested that Philamgen should sue Abello and Pedrosa on their promise.

Court of Appeals' Ruling

On appeal the Court of Appeals reversed. The appellate court held that the stock assignment was in truth a pledge and that the transfer of the stocks into Philamgen’s name was not intended to make Philamgen the owner. The Court of Appeals ruled that, even if an appropriation had occurred, such appropriation would be null as a pactum commissorium. The court concluded that Philamgen held the shares merely as security pending payment by petitioner and ordered petitioner to pay Philamgen P27,785.89 with interest at twelve percent per annum from December 9, 1963, ten percent of P27,785.89 as attorney’s fees, and costs of suit.

Issues Presented on Certiorari

Petitioner sought review on certiorari presenting two principal questions: (a) whether the transaction constituted a dacion en pago (dation in payment) or a pledge where petitioner “sold, assigned and transferred” and delivered duly endorsed shares to Philamgen in consideration of a contingent obligation; and (b) whether the separate arrangement that Messrs. Abello and Pedrosa would buy the shares and pay the obligation effected a novation by substitution of debtor.

Petitioner's Contentions Before the Supreme Court

Petitioner argued that the stock assignment was an outright sale and thus a dacion en pago that extinguished his obligation. He emphasized the express language of the stock assignment—“sells, assigns and transfers,” “for value received”—and asserted that the delivery of endorsed shares and the issuance of a certificate in Philamgen’s name completed an immediate extinguishment of the debt. Petitioner further contended that even if the transaction began as a pledge, it became a dacion en pago when Philamgen had the shares transferred to its name and accepted them in satisfaction of the obligation.

Supreme Court's Disposition

The Supreme Court affirmed the Court of Appeals in toto and imposed costs against petitioner. The Court held that the transaction constituted a pledge, not a dacion en pago, and that there was no novation by substitution of debtor. The Court affirmed the award of P27,785.89 with interest and attorney’s fees as previously decreed by the Court of Appeals.

Legal Reasoning — Characterization of the Stock Assignment as a Pledge

The Court analyzed the stock assignment in light of contemporaneous documents and acts, particularly the indemnity agreement executed the same day. The Court applied Article 1371 of the New Civil Code on construing intention from contemporaneous and subsequent acts and observed that the indemnity agreement evidenced a continuing obligation by petitioner inconsistent with an absolute sale. The Court recognized the outward language of sale in the stock assignment but concluded that the surrounding circumstances and the indemnity agreement demonstrated an intent to secure the suretyship, not to effect an immediate extinguishment of the debt. The Court invoked Article 2085 and Article 2087, which prescribe the requisites and incident rights of the contract of pledge, and Articles 2093 and 2095 on possession and pledge of incorporeal rights, and held that the transaction satisfied the elements of a pledge. The Court relied on petitioner’s own letter of November 18, 1963 in which he characterized the shares as “pledged,” and on authorities cited in the record supporting the presumption that transfers of this nature are for collateral security in the absence of clear intent to the contrary. The Court explained that transfer of title or of registration in the books of the corporation does not convert a pledge into outright ownership; where incorporeal property is pledged the pledgee may hold symbolic title while only acquiring a special property as security. The Court further noted that Article 1352 requires cause for a contract and that, had the principal obligation been immediately extinguished, the indemnity agreement would have been unnecessary.

Legal Reasoning — Rejection of Dacion in Payment and Analysis of Maturity

The Court examined Article 1245 governing dacion in payment and explained that dacion in payment operates as a novation or sale only when the debt is susceptible of immediate extinguishment and when parties intend the thing delivered to operate as performance. The Court found that petitioner’s obligation to Philamgen was contingent on default to the bank and therefore had not matured on June 2, 1959 when the stock assignment was executed. The Court reasoned that the absence of an express provision in the stock assignment extinguishing the bank loan and the contemporaneous indemnity agreement further defeated the contention that the parties intended an immediate dacion in payment. The Court cited authority holding that where doubt exists between pledge and dation, the presumption favors pledge.

Legal R

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