PARAY & ESPELETA V.

RODRIGUEZ

Facts:
Respondents were the owners, in their respective personal capacities, of shares
of stocks in a corporation known as Quirino-Leonor-Rodriguez Realty Inc. They
secured by way of pledge of some of their shares of stock to petitioners the
payment of certain loan obligations.
When the petitioners attempted to foreclose the pledges on account of
respondents failure to pay their loans, the latter filed complaints with the RTC
seeking the declaration of nullity of the pledge agreements, among others.
The RTC ruled in favor of petitioners and allowed the foreclosure and sale at
public auction of the various pledges. This decision eventually attained finality.
Respondents then received Notices of Sale, which indicated that the pledged
shares were to be sold at public auction. Before the scheduled sale, they
consigned amounts with the RTC claiming that they had attempted to tender
these amounts to the petitioners, but they refused to accept. However, the public
auction still took place as scheduled, where petitioner Espeleta successfully won
the bid for the pledged shares.
Respondents filed a complaint seeking the declaration of the nullity of the
auction, arguing that their tender of payment and consignation extinguished their
loan obligations and discharged the pledge contracts. Petitioners countered that
such were made long after their obligations had fallen due.
RTC dismissed the complaint, agreeing with the petitioners position. In addition,
it held that the proper remedy was for the petitioners to have participated in the
auction sale. The CA reversed on appeal, ruling that the consignation
extinguished the loan obligation. The basis for such ruling was an imputed policy
of the law that favored redemption and mandated a liberal construction of
redemption laws. Also, the CA held that the shares of stock should have beem
sold individually since they belonged to different pledgers.
Hence, the instant petition.

Issues and Held:

WoN the respondents act of consigning the payments should be deemed done in
the exercise of their right of redemption- NO.
o CA: The consignations made by the respondents should be construed in
light of the rules of redemption since the respondents were exercising that
right.
o SC: 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.
o 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 case at bar involves an extrajudicial sale, specifically a
notarial sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts.
o Moreover, what is involved is personal property, and no law or
jurisprudence establishes or affirms such right. Indeed, no such right
exists. Sec. 39 of the Rules of Civil Procedure even starkly utters that the
 right of redemption applies to real properties, not personal properties,
sold on execution.
o The right to redeem property sold as security for the satisfaction of an
unpaid obligation is a bare statutory privilege to be exercised only by the
persons named in the statute.
o Since the pledged shares are not subject to redemption, the CA had no
business invoking and applying the inexistent right of redemption.
WoN the buyer at public auction ipso facto becomes the owner of the pledged
shares- YES.
o CA: The buyer at public auction does not ipso facto become the owner of
the auction shares pending the 1 year redemptive period enjoyed by the
buyer is also incorrect.
o SC: Given that there is no right of redemption existing in the first place as
explained above, the theory of the CA is incorrect.
WoN the procedure in the auction sale was faulty- NO.
o CA: The sale was improperly done since the sale was in bulk of the
pledged shares despite the fact that they were owned by several people.
The pledgers would be denied the opportunity to know exactly how much
they would need to shoulder to exercise the right of redemption.
o SC: The concern is rendered a non-issue by the fact that there can be no
right to redemption in the first place.
o Also, the RoC requires for properties to be sold separately in execution
sales, not extrajudicial sales. No provision of law requires pledged
properties sold at auction to be sold separately.
o Moreover, there is nothing in the CC 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.
WoN the consignations made by the respondents extinguished their pledge
contracts so as to enjoin petitioners from auctioning the pledged shares- NO.
o CA: The respondents had satisfied the requirements under Sec. 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.
o SC: This provision only applied to execution sales, not extrajudicial sales.
Even if it were applicable, the failure of the payment to cover the interest
due renders it insufficient to stay the sale (5% monthly interest was not
included in the consigned payment).
o The effect of the finality of the judgments in the civil cases below (gave
due course to the foreclosure and sale at public auction of the pledges)
should not be discounted. Petitioners right to proceed with the auction
sale was affirmed not only by law, but also by a final court judgment.

Ruling:
 Petition granted.