Pacific Commercial vs. PNB

PACIFIC COMMERCIAL COMPANY et al vs. PNB (1926) Facts: On August 24, 1918 Golf Plantation Co. (GPC) and PNB executed a document, Exhibit A, where GPC was designated as “pledgor” and PNB as “pledgee”, pledging the ff items: a. Lease of 534 ha of land planted with hemp and coconut trees b. 48 buildings situated on the said lease c. 1,000 piculs of hemp d. 23 carabaos, 38 bullocks, 18 horses e. 3 launches Peril, Rigel and New Kirk, 1 auxiliary boat Manuela PNB is authorized to dispose of the pledged property in accordance with the Chattel Mortgage Law. On March 25, 1922 insolvency petition was filed. On Sept. 16, GPC was declared insolvent, and sheriff was ordered to take possession of the assets of the insolvent estate. On Oct. 23, Hughes was appointed as assignee, with PNB’s consent. On Nov. 3, PNB filed a petition seeking to: a. have Exhibit A declared effective and matured b. have preference over other creditors in payment of the debts i. if properties > P165T: balance shall be paid by GPC but PNB shall be admitted as ordinary creditor ii. if properties < P165T: PNB shall return the excess amount to Hughes Hughes filed a petition for authority to sell at public auction all the properties of the insolvent estate. Court rendered judgment in favor of PNB. It was entitled to possession of all of the estate of GPC. Properties shall be sold and be applied to PNB’s preferred claims. The creditors of GPC contend that: (a) Exhibit A or “agreement of pledge” is null and void because: (i) it was not registered, (ii) it involved real property. (b) PNB has renounced its preferred lien by consenting to the appointment of an assignee, who took possession of said properties. Issues/Held: 1. W/N Exhibit A was a pledge? YES 2. W/N Exhibit A is void for its defects? Not sure Ratio 1. Exhibit A must be construed as a pledge in form and substance. It is very apparent from the language used that it was prepared on the customary blank form of a pledge for the taking of properties under a pledge. However, it was never received or filed for any purpose until Feb. 24, 1921 or 2 1/2 years after it was executed. There was no evidence that it

was filed or recorded anywhere or by anyone, either as a chattel mortgage or pledge of personal of property. Hence, the receiving of it in the office of the register of deeds on February 24, 1921, is a nullity as to both a pledge and a chattel mortgage. 2. Exhibit A can be valid as a pledge of personal property if PNB took actual, physical possession of the property in 1918 and to make it valid against creditors or the assignee, the bank must have remain in such possession at the time GPC was declared insolvent. Without it, Exhibit A is void as a pledge, and the bank would not have a preference, and would not now be entitled to the possession of the property of the Plantation Company, or to have it sold and the proceeds applied to the satisfaction of its claim. Art. 1863 and Sec. 4 of Act 1508 (mortgaging of personal property/chattel mortgage) provides that the property pledged/mortgaged shall be placed in/delivered to the possession of the creditor or of a 3rd person appointed by common consent. Article 1863 of the Civil Code provides: “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.” Under Act 1508, it will be noted that, in the absence of such delivery of possession on the recording of the instrument in the office of the register of deeds, a chattel mortgages is valid only as to the mortgagor, his executors or administrators. Hence, it follows that, in the absence of such record and the delivery of possession a chattel mortgage is void as against the creditors or the assignee of an insolvent estate, and upon that question, there is no evidence in the record. If it was the purpose and intent of the bank to have Exhibit A received, filed and recorded as a chattel mortgage, it was not only its duty to so instruct the register of deeds, but it was its further duty to see that the instrument was received, filed and recorded as a chattel mortgage. Upon that point there is no evidence. That is to say, if it be a fact that at time the pledge was executed the bank took actual, physical possession of the property described in it, and continued to remain in such possession up to the time the petition for insolvency was filed, or that it was in such possession for more than thirty days prior to the filing of the petition, the pledge would then be valid as to the personal property, and the bank would then have a preference on that property for the amount found due and owing upon its claim. If be a fact that the bank was not in the actual, physical possession of the property at the time the insolvency petition was filed, and that the Plantation Company was in such possession as its own, then the bank would not have a preference over any other unsecured creditor. A pledge or chattel mortgage is limited to personal property and not real property. Dispositive: REVERSED and REMANDED to determine W/N the bank took actual possession of the property described in Exhibit A at the time of the execution of the pledge.