G.R. No. 31018 , November 6, 1929
CORNELIO CRUZ and CIRIACA SERRANO, plaintiffs-appellants, vs. CHUA A. H. LEE, defendant-appellant.

FACTS

Cornelio Cruz pledged various pieces of jewelry to pawnshops (Monte de Piedad and Ildefonso Tambunting) and received pawn tickets. Needing further loans, he pledged these pawn tickets and a diamond bracelet to Chua A. H. Lee on two occasions, executing receipts stating the transactions were sales with a 60-day repurchase option. Cruz failed to repurchase. Lee later sued Cruz (Civil Case No. 30569) to recover the loan amounts, successfully proving the transactions were equitable mortgages (loans secured by the pledges). Lee, as holder of the pawn tickets, renewed the Monte de Piedad tickets once but allowed all tickets to lapse thereafter, leading to the sale of the pledged jewelry by the pawnshops. Cruz and his wife then filed this action against Lee to recover damages for the loss of the jewelry, alleging Lee failed in his duty as a pledgee to preserve the pledges.

ISSUE

Whether a pledgee (Chua A. H. Lee) who takes pawn tickets as security is obligated to renew the tickets and pay the necessary interest to prevent the foreclosure and sale of the pledged jewelry, and is consequently liable for damages for failing to do so.

RULING

Yes. The Supreme Court modified the trial court’s decision, increasing the award of damages.
Applying Article 1867 of the Civil Code, the pledgee has the duty to preserve the thing given in pledge with the diligence of a good father of a family. A pawn ticket is a negotiable document that passes dominion over the pledged property to its holder. Therefore, the pledgee who holds the ticket must take the necessary steps to keep the pledge alive, including renewing it by paying the accruing interest. By failing to renew the pawn tickets, Lee breached this duty and became liable for the resulting loss.
The Court fixed the value of the lost jewelry (two diamond earrings and the items from Monte de Piedad) at P14,000 and P4,040, respectively. From this total value (P18,040), the amounts advanced by the pawnshops plus 18% interest until Cruz’s offer to redeem were deducted. The P3,500 loan from Lee on the earrings was not deducted, as Lee had already obtained a judgment for that amount in the prior case. The net damages awarded to Cruz and his wife amounted to P6,687.56 with legal interest. The Court also clarified that Cruz is entitled to recover the pledged diamond bracelet upon satisfying the judgment in the prior case (Civil Case No. 30569).