UNION BANK OF THE PHILIPPINES vs. ALAIN* JUNIAT, WINWOOD APPAREL, INC., WINGYAN APPAREL, INC.

,
NONWOVEN FABRIC PHILIPPINES (G.R. No. 171569, August 1, 2011)
DEL CASTILLO, J.:
To have a binding effect on third parties, a contract of pledge must appear in a public instrument. 1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the June 23, 2005 Decision3and the February 9,
2006 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 66392.
Factual Antecedents
Petitioner Union Bank of the Philippines (Union Bank) is a universal
banking corporation organized and existing under Philippine laws.5
Respondents Winwood Apparel, Inc. (Winwood) and Wingyan Apparel, Inc. (Wingyan) are domestic corporations engaged in the
business of apparel manufacturing.6 Both respondent corporations are owned and operated by respondent Alain Juniat (Juniat), a
French national based in Hongkong.7 Respondent Nonwoven Fabric Philippines, Inc. (Nonwoven) is a Philippine corporation engaged
in the manufacture and sale of various types of nonwoven fabrics.8
On September 3, 1992, petitioner filed with the Regional Trial Court (RTC) of Makati, Branch 57, a Complaint 9with prayer for the
issuance of ex-parte writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of
the mortgaged motorized sewing machines and equipment.10Petitioner alleged that Juniat, acting for and in behalf of Winwood and
Wingyan, executed a promissory note11dated April 11, 1992 and a Chattel Mortgage12 dated March 27, 1992 over several motorized
sewing machines and other allied equipment to secure their obligation arising from export bills transactions to petitioner in the amount
of P1,131,134.35;13 that as additional security for the obligation, Juniat executed a Continuing Surety Agreement 14 dated April 11,
1992 in favor of petitioner;15 that the loan remains unpaid;16 and that the mortgaged motorized sewing machines are insufficient to
answer for the obligation.17
On September 10, 1992, the RTC issued writs of preliminary attachment and replevin in favor of petitioner.18 The writs were served by
the Sheriff upon Nonwoven as it was in possession of the motorized sewing machines and equipment.19 Although Nonwoven was not
impleaded in the complaint filed by petitioner, the RTC likewise served summons upon Nonwoven since it was in possession of the
motorized sewing machines and equipment.20
On September 28, 1992, Nonwoven filed an Answer,21 contending that the unnotarized Chattel Mortgage executed in favor of
petitioner has no binding effect on Nonwoven and that it has a better title over the motorized sewing machines and equipment because
these were assigned to it by Juniat pursuant to their Agreement22dated May 9, 1992.23 Juniat, Winwood, and Wingyan, on the other
hand, were declared in default for failure to file an answer within the reglementary period. 24
On November 23, 1992, petitioner filed a Motion to Sell Chattels Seized by Replevin, 25 praying that the motorized sewing machines
and equipment be sold to avoid depreciation and deterioration.26 However, on May 18, 1993, before the RTC could act on the motion,
petitioner sold the attached properties for the amount ofP1,350,000.00.27
Nonwowen moved to cite the officers of petitioner in contempt for selling the attached properties, but the RTC denied the same on the
ground that Union Bank acted in good faith.28
Ruling of the Regional Trial Court
On May 20, 1999, the RTC of Makati, Branch 145,29 rendered a Decision30 in favor of petitioner. The RTC ruled that both the Chattel
Mortgage dated March 27, 1992 in favor of petitioner and the Agreement dated May 9, 1992 in favor of Nonwoven have no obligatory
effect on third persons because these documents were not notarized.31However, since the Chattel Mortgage in favor of petitioner was
executed earlier, petitioner has a better right over the motorized sewing machines and equipment under the doctrine of "first in time,
stronger in right" (prius tempore, potior jure).32 Thus, the RTC disposed of the case in this wise:
WHEREFORE, above premises considered, judgment is hereby rendered as follows:

1.] Declaring the [petitioner] UNION BANK OF THE PHILIPPINES, as having the better right to the goods and/or
machineries subject of the Writs of Preliminary Attachment and Replevin issued by this Court on September 10, 1992.
2.] Declaring the [petitioner] as entitled to the proceeds of the sale of the subject machineries in the amount of P1,350,000.00;
3.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and Wingyan Apparel, Inc. to be jointly and severally liable
to the [petitioner], for the deficiency between the proceeds of the sale of the machineries subject of this suit [P1,350,000.00]
and original claim of the plaintiff [P1,919,907.03], in the amount ofP569,907.03, with legal interest at the rate of 12% per
annum from date of this judgment until fully paid; and
4.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and Wingyan Apparel, Inc. to be jointly and severally liable
to the [petitioner] for the amount of P50,000.00 as reasonable attorneys fees; and
5.] Cost of this suit against the [respondents].
SO ORDERED.33
Nonwoven moved for reconsideration34 but the RTC denied the same in its
Order35 dated July 14, 1999.
Ruling of the Court of Appeals
On appeal, the CA reversed the ruling of the RTC. The CA ruled that the contract of pledge entered into between Juniat and Nonwoven
is valid and binding, and that the motorized sewing machines and equipment were ceded to Nonwoven by Juniat by virtue of a dacion
en pago.36 Thus, the CA declared Nonwoven entitled to the proceeds of the sale of the attached properties.37 The fallo reads:
WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE. [Petitioner] Union Bank of the
Philippines is hereby DIRECTED to pay Nonwoven Fabric Philippines, Inc. P1,350,000.00, the amount it holds in escrow, realized
from the May 18, 1993 sale of the machineries to avoid deterioration during pendency of suit. No pronouncement as to costs.
SO ORDERED.38
Petitioner sought reconsideration39 which was denied by the CA in a Resolution40 dated February 9, 2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:
1. Whether x x x the Court of Appeals committed serious reversible error in setting aside the Decision of the trial court
holding that Union Bank of the Philippines had a better right over the machineries seized/levied upon in the proceedings
before the trial court and/or the proceeds of the sale thereof;
2. Whether x x x the Court of Appeals seriously erred in holding that [Nonwoven] has a valid claim over the subject sewing
machines.41
Petitioners Arguments
Echoing the reasoning of the RTC, petitioner insists that it has a better title to the proceeds of the sale. 42Although the Chattel Mortgage
executed in its favor was not notarized, petitioner insists that it is nevertheless valid, and thus, has preference over a subsequent
unnotarized agreement.43 Petitioner further claims that except for the said agreement, no other evidence was presented by Nonwoven
to show that the motorized sewing machines and equipment were indeed transferred to them by Juniat/Winwood/Wingyan. 44
Respondent Nonwovens Arguments

Nonwoven, on the other hand, claims ownership over the proceeds of the sale under Article 154445 of the Civil Code on double sale,
which it claims can be applied by analogy in the instant case.46 Nonwoven contends that since its prior possession over the motorized
sewing machines and equipment was in good faith, it has a better title over the proceeds of the sale. 47 Nonwoven likewise maintains
that petitioner has no right over the proceeds of the sale because the Chattel Mortgage executed in its favor was unnotarized,
unregistered, and without an affidavit of good faith.48
Our Ruling
The petition has merit.
Nonwoven lays claim to the attached motorized sewing machines and equipment pursuant to the Agreement it entered into with Juniat,
to wit:
Hong Kong, 9th May, 1992
With reference to talks held this morning at the Holiday Inn Golden Mile Coffee Shop, among the following parties:
a. Redflower Garments Inc. Mrs. Maglipon
b. Nonwoven Fabrics Phils. Inc. Mr. J. Tan
c. Winwood Apparel Inc./Wing Yan Apparel, Inc. Mr. A. Juniat, Mrs. S. Juniat
IT WAS AGREED THAT:
a. Settlement of the accounts between Nonwoven Fabrics Phils. Inc. and Winwood Apparel Inc./Wing Yan Apparel, Inc. should be
effected as agreed through partial payment by L/C with the balance to be settled at a later date for which Winwood Apparel, Inc.
agrees to consign 94 sewing machines, 3 snap machines and 2 boilers, presently in the care of Redflower Garments Inc., to the care of
Nonwoven Fabrics Phils., Inc. as guarantee. Meanwhile, Nonwoven will resume delivery to Winwood/Win Yang as usual.
x x x x49 (Emphasis supplied.)
It insists that since the attached properties were assigned or ceded to it by Juniat, it has a better right over the proceeds of the sale of
the attached properties than petitioner, whose claim is based on an unnotarized Chattel Mortgage.
We do not agree.
Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of Wingyan and Winwood, in favor of petitioner does
not bind Nonwoven.50 However, it must be pointed out that petitioners primary cause of action is for a sum of money with prayer for
the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of the
motorized sewing machines and equipment.51 Thus, the fact that the Chattel Mortgage executed in favor of petitioner was not
notarized does not affect petitioners cause of action. Petitioner only needed to show that the loan of Juniat, Wingyan and Winwood
remains unpaid and that it is entitled to the issuance of the writs prayed for. Considering that writs of attachment and replevin were
issued by the RTC,52 Nonwoven had to prove that it has a better right of possession or ownership over the attached
properties.1avvphil This it failed to do.
A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, snap machines and boilers were pledged to
Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code, "[a] pledge shall not take effect
against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument." Hence, just
like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind petitioner.
Neither can we sustain the finding of the CA that: "The machineries were ceded to THIRD PARTY NONWOVEN by way of dacion
en pago, a contract later entered into by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN."53 As aptly pointed out by
petitioner, no evidence was presented by Nonwoven to show that the attached properties were subsequently sold to it by way of a
dacion en pago. Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap
machines and boilers were ceded to Nonwoven as payment for the Wingyans and Winwoods obligation. It bears stressing that there

can be no transfer of ownership if the delivery of the property to the creditor is by way of security.54 In fact, in case of doubt as to
whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of
rights and interests.55
In view of the foregoing, we are constrained to reverse the ruling of the CA. Nonwoven is not entitled to the proceeds of the sale of the
attached properties because it failed to show that it has a better title over the same.
WHEREFORE, the petition is hereby GRANTED. The assailed June 23, 2005 Decision and the February 9, 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 66392 are hereby REVERSED and SET ASIDE. The May 20, 1999 Decision of the Regional
Trial Court of Makati, Branch 145, is hereby REINSTATED and AFFIRMED.
SO ORDERED.

SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA vs. DRA. ABDULIA C. RODRIGUEZ, et al., (G.R.
No. 132287, January 24, 2006)
TINGA, J.:
The assailed decision of the Court of Appeals took off on the premise that pledged shares of stock auctioned off in a notarial sale could
still be redeemed by their owners. This notion is wrong, and we thus reverse.
The facts, as culled from the record, follow.
Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the Quirino-LeonorRodriguez Realty Inc.1 Sometime during the years 1979 to 1980, respondents secured by way of pledge of some of their shares of
stock to petitioners Bonifacio and Faustina Paray ("Parays") the payment of certain loan obligations. The shares pledged are listed
below:
Miguel Rodriguez Jariol .1,000 shares covered by Stock Certificates No. 011, 060, 061 & 062;
Abdulia C. Rodriguez . 300 shares covered by Stock Certificates
No. 023 & 093;
Leonora R. Nolasco .. 407 shares covered by Stock Certificates
No. 091 & 092;
Genoveva Soronio. 699 shares covered by Stock Certificates
No. 025, 059 & 099;
Dolores R. Soberano. 699 shares covered by Stock Certificates
No. 021, 053, 022 & 097;
Julia Generoso .. 1,100 shares covered by Stock Certificates
No. 085, 051, 086 & 084;
Teresita Natividad.. 440 shares covered by Stock Certificates
Nos. 054 & 0552
When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints
with the Regional Trial Court (RTC) of Cebu City. The actions, which were consolidated and tried before RTC Branch 14, Cebu City,
sought the declaration of nullity of the pledge agreements, among others. However the RTC, in its decision 3 dated 14 October 1988,
dismissed the complaint and gave "due course to the foreclosure and sale at public auction of the various pledges subject of these two
cases."4 This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court. The Entry of Judgment
was issued on 14 August 1991.
Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction on 4 November
1991. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of
various amounts. It was claimed that respondents had attempted to tender these payments to the Parays, but had been rebuffed. The
deposited amounts were as follows:

Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991

Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991
Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991
38,385.44 .. 14 Oct. 1991
Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991
Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991
Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991
520,216.39 ..11 Nov. 1991
Miguela Jariol . 490,000.00.. 18 Oct. 1991
88,000.00 ..18 Oct. 19915
Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding the
amount of P6,200,000.00 for all of the pledged shares. None of respondents participated or appeared at the auction of 4 November
1991.
Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public auction. The
complaint, docketed as Civil Case No. CEB-10926, was assigned to Branch 16 of the Cebu City RTC. Respondents argued that their
tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts.
Petitioners countered that the auction sale was conducted pursuant to the final and executory judgment in Civil Cases Nos. R-20120
and 20131, and that the tender of payment and consignations were made long after their obligations had fallen due.
The Cebu City RTC dismissed the complaint, expressing agreement with the position of the Parays. 6 It held, among others that
respondents had failed to tender or consign payments within a reasonable period after default and that the proper remedy of
respondents was to have participated in the auction sale.7 The Court of Appeals Eighth Division however reversed the RTC on appeal,
ruling that the consignations extinguished the loan obligations and the subject pledge contracts; and the auction sale of 4 November
1991 as null and void.8 Most crucially, the appellate court chose to uphold the sufficiency of the consignations owing to an imputed
policy of the law that favored redemption and mandated a liberal construction to redemption laws. The attempts at payment by
respondents were characterized as made in the exercise of the right of redemption.
The Court of Appeals likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of
stock as they had belonged to different pledgors. Thus, it was observed that the minutes of the auction sale should have specified in
detail the bids submitted for each of the shares of the pledgors for the purpose of knowing the price to be paid by the different
pledgors upon redemption of the auctioned sales of stock.
Petitioners now argue before this Court that they were authorized to refuse as they did the tender of payment since they were
undertaking the auction sale pursuant to the final and executory decision in Civil Cases Nos. R-20120 and 20131, which did not
authorize the payment of the principal obligation by respondents. They point out that the amounts consigned could not extinguish the
principal loan obligations of respondents since they were not sufficient to cover the interests due on the debt. They likewise argue that
the essential procedural requisites for the auction sale had been satisfied.
We rule in favor of petitioners.
The fundamental premise from which the appellate court proceeded was that the consignations made by respondents should be
construed in light of the rules of redemption, as if respondents were exercising such right. In that perspective, the Court of Appeals
made three crucial conclusions favorable to respondents: that their act of consigning the payments with the RTC should be deemed
done in the exercise of their right of redemption; that the buyer at public auction does not ipso facto become the owner of the pledged
shares pending the lapse of the one-year redemptive period; and that the collective sale of the shares of stock belonging to several

individual owners without specification of the apportionment in the applications of payment deprives the individual owners of the
opportunity to know of the price they would have to pay for the purpose of exercising the right of redemption.
The appellate courts dwelling on the right of redemption is utterly off-tangent. The right of redemption involves payments made by
debtors after the foreclosure of their properties, and not those made or attempted to be made, as in this case, before the foreclosure
sale. The proper focus of the Court of Appeals should have been whether the consignations made by respondents sufficiently acquitted
them of their principal obligations. A pledge contract is an accessory contract, and is necessarily discharged if the principal obligation
is extinguished.
Nonetheless, the Court is now confronted with this rather new fangled theory, as propounded by the Court of Appeals, involving the
right of redemption over pledged properties. We have no hesitation in pronouncing such theory as discreditable.
Preliminarily, it must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to
proceed before a Notary Public to the sale of the thing pledged.9
In this case, petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the pledged shares by public auction.
However, extrajudicial sale was stayed with the filing of Civil Cases No. R-20120 and 20131, which sought to annul the pledge
contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them in the following fashion:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaints at bar, and
(1) Declaring the various pledges covered in Civil Cases Nos. R-20120 and R-20131 valid and effective; and
(2) Giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases.
Costs against the plaintiffs.
SO ORDERED.10
The phrase "giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases" may give
rise to the impression that such sale is judicial in character. While the decision did authorize the sale by public auction, such
declaration could not detract from the fact that the sale so authorized is actually extrajudicial in character. Note that the final judgment
in said cases expressly did not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to
conduct such sale at their own volition.
Indeed, as affirmed by the Civil Code,11 the decision to proceed with the sale by public auction remains in the sole discretion of the
Parays, who could very well choose not to hold the sale without violating the final judgments in the aforementioned civil cases. If the
sale were truly in compliance with a final judgment or order, the Parays would have no choice but to stage the sale for then the order
directing the sale arises from judicial compulsion. But nothing in the dispositive portion directed the sale at public auction as a
mandatory recourse, and properly so since the sale of pledged property in public auction is, by virtue of the Civil Code, extrajudicial
in character.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely execution
sales of real property.
The Court of Appeals expressly asserted the notion that pledged property, necessarily personal in character, may be redeemed by the
creditor after being sold at public auction. Yet, as a fundamental matter, does the right of redemption exist over personal property? No
law or jurisprudence establishes or affirms such right. Indeed, no such right exists.
The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Neither is it
predicated on proprietary right, which, after the sale of property on execution, leaves the judgment debtor and vests in the purchaser.
Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute. 12

The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law
does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests the right of redemption
over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative
intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal
property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon
by the Court of Appeals, starkly utters that the right of redemption applies to real properties, not personal properties, sold on
execution.
Tellingly, this Court, as early as 1927, rejected the proposition that personal property may be covered by the right of redemption.
In Sibal 1. v. Valdez,13 the Court ruled that sugar cane crops are personal property, and thus, not subject to the right of
redemption.14 No countervailing statute has been enacted since then that would accord the right of redemption over personal property,
hence the Court can affirm this decades-old ruling as effective to date.
Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no business invoking and applying the
inexistent right of redemption. We cannot thus agree that the consigned payments should be treated with liberality, or somehow
construed as having been made in the exercise of the right of redemption. We also must reject the appellate courts declaration that the
buyer of at the public auction is not "ipso facto" rendered the owner of the auctioned shares, since the debtor enjoys the one-year
redemptive period to redeem the property. Obviously, since there is no right to redeem personal property, the rights of ownership
vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.
The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares, notwithstanding the fact that these shares
were owned by several people, on the premise the pledgors would be denied the opportunity to know exactly how much they would
need to shoulder to exercise the right to redemption. This concern is obviously rendered a non-issue by the fact that there can be no
right to redemption in the first place. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same
time must be sold separately, such as in the case of lot sales for real property under Section 19. However, these instances again pertain
to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at
auction be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the items
should be sold if two or more things are pledged.15 No similar option is given to pledgors under the Civil Code. Moreover, there is
nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledgee of several
different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in
purchasing all the pledged properties with a single purchase price. The relative insignificance of ascertaining the definite
apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee
nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal
obligation.16
A different ruling though would obtain if at the auction, a bidder expressed the desire to bid on a determinate number or portion of the
pledged shares. In such a case, there may lie the need to ascertain with particularity which of the shares are covered by the bid price,
since not all of the shares may be sold at the auction and correspondingly not all of the pledge contracts extinguished. The same
situation also would lie if one or some of the owners of the pledged shares participated in the auction, bidding only on their respective
pledged shares. However, in this case, none of the pledgors participated in the auction, and the sole bidder cast his bid for all of the
shares. There obviously is no longer any practical reason to apportion the bid price to the respective shares, since no matter how slight
or significant the value of the purchase price for the individual share is, the sale is completed, with the pledgor and the pledgee not
entitled to recover the excess or the deficiency, as the case may be. To invalidate the subject auction solely on this point serves no
cause other than to celebrate formality for formalitys sake.
Clearly, the theory adopted by the Court of Appeals is in shambles, and cannot be resurrected. The question though yet remains
whether the consignations made by respondents extinguished their respective pledge contracts in favor of the Parays so as to enjoin the
latter from auctioning the pledged shares.
There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article 2098 of the Civil Code
provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article 2105 of the
Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and
until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the
Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the
procedure provided under Article 2112 of the Code.

Respondents argue that their various consignations made prior to the auction sale discharged them from the loan and the pledge
agreements. They are mistaken.
Petitioners point out that while the amounts consigned by respondents could answer for their respective principal loan obligations,
they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per month or 60% per annum.
Before this Court, respondents, save for Dolores Soberano, do not contest this interest rate as alleged by petitioners. Soberano, on the
other hand, challenges this interest rate as "usurious."17
The particular pledge contracts did not form part of the records elevated to this Court. However, the 5% monthly interest rate was
noted in the statement of facts in the 14 October 1988 RTC Decision which had since become final. Moreover, the said decision
pronounced that even assuming that the interest rates of the various loans were 5% per month, "it is doubtful whether the interests so
charged were exorbitantly or excessively usurious. This is because for sometime now, usury has become legally inexistent." 18 The
finality of this 1988 Decision is a settled fact, and thus the time to challenge the validity of the 5% monthly interest rate had long
passed. With that in mind, there is no reason for the Court to disagree with petitioners that in order that the consignation could have
the effect of extinguishing the pledge contracts, such amounts should cover not just the principal loans, but also the 5% monthly
interests thereon.
It bears noting that the Court of Appeals also ruled that respondents had satisfied the requirements under Section 18, Rule 39, which
provides that the judgment obligor may prevent the sale by paying the amount required by the execution and the costs that have been
incurred therein.19 However, the provision applies only to execution sales, and not extra-judicial sales, as evidenced by the use of the
phrases "sale of property on execution" and "judgment obligor." The reference is inapropos, and even if it were applicable, the failure
of the payment to cover the interests due renders it insufficient to stay the sale.
The effect of the finality of the judgments in Civil Cases Nos. R-20120 and R-20131 should also not be discounted. Petitioners right
to proceed with the auction sale was affirmed not only by law, but also by a final court judgment. Any subsequent court ruling that
would enjoin the petitioners from exercising such right would have the effect of superseding a final and executory judgment.
Finally, we cannot help but observe that respondents may have saved themselves much trouble if they simply participated in the
auction sale, as they are permitted to bid themselves on their pledged properties. 20 Moreover, they would have had a better right had
they matched the terms of the highest bidder.21 Under the circumstances, with the high interest payments that accrued after several
years, respondents were even placed in a favorable position by the pledge agreements, since the creditor would be unable to recover
any deficiency from the debtors should the sale price be insufficient to cover the principal amounts with interests. Certainly, had
respondents participated in the auction, there would have been a chance for them to recover the shares at a price lower than the amount
that was actually due from them to the Parays. That respondents failed to avail of this beneficial resort wholly accorded them by law is
their loss. Now, all respondents can recover is the amounts they had consigned.
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the decision of the Cebu
City RTC, Branch 16, dated 18 November 1992 is REINSTATED. Costs against respondents.
SO ORDERED.