PLEDGE

REAL ESTATE MORTGAGE

CHATTEL MORTGAGE
 – Pledge is a contract whereby the debtor
delivers to a creditor or third person a
movable or document evidencing incorporeal
right for the purpose of securing fulfillment
Definition of a principal obligation with the
understanding that when the obligation is
fulfilled, the thing delivered shall be returned
with all its fruits and accessions.
 ØReal Contract
ØAccessory Contract
Characteristics
ØUnilateral Contract
ØSubsidiary Contract
 1. Constituted to secure the fulfillment of a
principal obligation (NCC, Art. 2085);
2. Pledgor is the absolute owner of the thing
pledged; (NCC, Art. 2085);
3. Persons constituting the pledge have the free
Essential disposal of their property, and in the absence
requirements thereof, that they be legally authorized for
the purpose (NCC, Art. 2085); and
4. That the thing pledged be placed in the
possession of the creditor, or of a third
person by common agreement (NCC, Art.
2093). [If Art. 2093 is not complied with, the
pledge is void.]
 1. Conventional - By agreement of parties;
Kinds 2. Legal - By operation of law (NCC, Arts. 546,
1707, 1731, 1914, 1994 & 2004).
 1. Art. 546 – Right of the possessor in good faith to
retain the thing until refunded of necessary
expenses;
2. Art. 1707 – Lien on the goods manufactured or work
done by a laborer until his wages had been paid;
Instances of 3. Art. 1731 – Right to retain of a worker who executed
legal pledges work upon a movable until he is paid;
where there is 4. Art. 1914 – Right of an agent to retain the thing
subject of the agency until reimbursed of his
right of advances and damages (NCC, Arts. 1912 and 1913);
retention 5. Art. 1994 – Right of retention of a depositary until
full payment of what is due him by reason of the
deposit; and
6. Art. 2004 – Right of the hotel-keeper to retain things
of the guest which are brought into the hotel, until
his hotel bills had been paid.
 ØArt. 2096 – Public instrument necessary to
bind third persons
ØEmbodied in a public instrument
ØDescription of the thing pledged
Important ØDate of the pledge
provisions
ØArt. 2097 – Alienation of thing pledged is
allowed provided the pledgee consents.
ØArt. 2098 – Right of pledgee to retain thing
pledged.
 –Pledgor – The debtor; the one who
delivers the thing pledged to the creditor;
and
Parties
–Pledgee – The creditor; the one who
receives the thing pledged.
 1. To retain the thing until debt is paid (NCC, Art. 2098);
2. To possess the thing (NCC, Art. 2098);
3. To be reimbursed for the expenses made for the
preservation of the thing pledged (NCC, Art. 2099);
4. To apply fruits, interests, or earnings of the pledge to
the interest, if any then to the principal of the credit
Rights of a [NCC, Art. 2102(2)];

pledgee 5. To bring any action pertaining to the pledgor in order

to recover it from or defend it against a third person
(legal subrogation) (NCC, Art. 2103);
6. To sell at public auction in case of reasonable grounds
to fear destruction or impairment of the thing without
his fault (NCC, Art. 2108);
7. Option to demand replacement or immediate payment
of debt in case of deception as to substance and quality
(NCC, Art. 2109);
 8. To appropriate the thing in case of failure of second
public auction (NCC, Art. 2112);
9. To bid at public auction, unless he is only the bidder
(NCC, Art. 2113);
10. To collect and receive amount due on credit pledged
Rights of a (NCC, Art. 2118);
pledgee 11. To choose which of several things pledged will be sold
(NCC, Art. 2119);
12. To retain excess value in the public sale;
13. To retain thing until after full payment of the debt;
and
14. To object the alienation of the thing.
 1. Take care of the thing pledged with the diligence of a
good father of a family (NCC, Art. 2099);
2. GR: The pledgee cannot deposit the thing pledged to a
third person.
XPN: Unless there is stipulation contract (NCC, Art.
2100).
3. Apply the fruits, income, dividends, or interests produced
Obligations of or earned by the property, to interests or expenses first,
a pledgee then to the principal (NCC, Art.210 2 );
4. GR: Cannot use the thing pledged without authority
(NCC, Art. 2104);
XPNs:
a. If the pledgor had given him authority or permission
to use it; or
b. If the use of the thing is necessary for its preservation
but only for that purpose.
 5. To advise pledgor of the result of the public auction
(NCC, Art. 2116);
6. Return the thing pledged upon payment of debt; and
7. Advise pledgor of danger to the thing.
Obligations of 11. To choose which of several things pledged will be sold
a pledgee (NCC, Art. 2119);
12. To retain excess value in the public sale;
13. To retain thing until after full payment of the debt;
and
14. To object the alienation of the thing.
 1. Right to dispose the thing pledged, provided there is
consent of the pledgee (NCC, Art. 2097);
2. Right to ask that the thing pledged be deposited in
one of the following instances:
a. If the creditor uses the thing without
Rights of the authority (NCC, Art. 2104);
b. Misuses the thing, he may deposit the thing
pledgor judicially or extrajudicially (NCC, Art. 2104);
or
c. If the thing is in danger of being lost or
impaired because of negligence or willful act
of the pledge, he may deposit the thing with
a third person (NCC, Art. 2106).
 3. Right to demand the return of the thing pledged in
case of reasonable grounds to fear destruction or
impairment of the thing without the pledgee’s fault,
subject to the duty of replacement (NCC, Art. 2107);

Requisites:
Rights of the a) The pledger has reasonable grounds to fear the
pledgor destruction or impairment of the thing pledged;
b) There is no fault on the part of the pledgee;
c) The pledgee is offering in place of the thing, another
thing in pledge which is of the same kind and quality
as the former; and
d) The pledgee does not choose to exercise his right to
cause the thing pledged to be sold at public auction.
Rights of the 4. To bid and be preferred at the public auction
pledgor (NCC, Art. 2113).
 1. To advise the pledge of the flaws of the thing
(NCC, Arts. 2101 and 1951);
Obligations of 2. Not to demand the return of the thing until
the pledgor after full payment of the debt, including
interest due thereon and expenses incurred
for its preservation (NCC, Art. 2105).
Third party Any third person who has any right in or to the
thing pledged may satisfy the principal
pledgors/ obligation as soon as the latter becomes due and
mortgagors demandable (NCC, Art. 2117).
 – A pledgee can foreclose the thing pledged
when there is no payment of the debt on time,
Foreclosure the object of the pledge may be alienated for
the purpose of satisfying the claims of the
pledgee.
Options of an 1. Foreclose the thing pledged; or
unpaid 2. Abandon the pledge and file a claim for
creditor collection (NCC, Art. 2087).
 1. The obligation must be due and unpaid;
2. The sale of the thing pledged must be at
Procedure for public auction;
the public sale 3. There must be notice to the pledgor and
of a thing owner, stating the amount for which the sale
pledged is to be held; and
4. The sale must be conducted by Notary
Public.
 1. The public;
2. Pledgor/owner/debtor – They shall be
Who can bid preferred if same terms as the highest
in a public bidder is offered; and
auction? 3. Pledgee/creditor – He must not be the
only bidder, otherwise, his bid is invalid
and void.
 GR: Debtor is not entitled to the excess in case
the value of the thing pledged is more than the
principal obligation.
Effect of sale XPN: Contrary stipulation.
of the thing ----
pledged Creditor not entitled to recover deficiency,
notwithstanding any stipulation to the contrary.
Contrary stipulation is considered void.
 1. The same cause of extinguishment of all other
obligation;
2. If the thing pledged is returned by the pledgee to the
pledgor or owner, the pledge is extinguished (NCC,
Art. 2110);
3. A statement in writing by the pledgee that he
Extinguishment renounces or abandons the pledge (NCC, Art. 2111);
4. Payment of the debt;
5. Sale of thing pledge at public auction (NCC, Art.
2112); or
6. Appropriation of the thing in case of failure of second
public auction (NCC, Art. 2112).
 REAL
BASIS PLEDGE ESTATE
MORTGAGE
Contract Real contract Consensual contract
Subject matter is Subject matter is real
Kind of Property
personal property. property.
Pledge vs Property delivered to
Mortgage Delivery
pledgee or by
Not necessary
consent to a third
person.
Possession of the Possession of the
Possession of thing thing pledged is thing mortgaged
pledged/mortgaged vested in the remains with the
creditor. debtor.
 REAL
BASIS PLEDGE ESTATE
MORTGAGE
Pledgee has the right
to receive the fruits
of the thing pledged,
with the obligation of
Pledge vs Right to receive the
fruits
applying the same to
Mortgagee does not
possess such right.
the interest of the
Mortgage debt, if owing, and
the balance, if any, to
the principal.
Mortgagor can sell
Pledgor can sell the
the property
thing pledged only
Authority to Sell mortgaged even
with the consent of
without the consent
the pledgee.
of the mortgagee.