PLEDGE

Abando, Ann Margarette
Co, Ronna Rica

Pagco, Christopher Ronn
Pledge
Chapter 2: Pledge
Article 2093: Transfer of possession is necessary

- Case: Yuliongsiu vs PNB, Gr no. L-19227, February 17, 1968
- Related provisions: Article 1316, 2092
Article 2094: Subject matter of pledge: Movable

- Related provisions:
Article 2095: Incorporeal rights may also be pledged

- Case: Caltex Phils Inc. vs CA, Gr no. 97753, August 10, 1992
- Related provisions: Articles 416, 417
Article 2096: Pledge must be in a public instrument to bind third persons

- Case: Pacific Commercial Company vs PNB, Gr no. L-24893, August 23, 1926
- Case: Caltex Phils Inc. vs CA, Gr no. 97753, August 10, 1992
- Related provisions: Section 4 of Act No. 1508
Article 2097: Alienation by the pledgor of the thing pledged with consent of the pledgee
- Case: PNB vs Atendido, Gr no. L-6342, January 26, 1954
- Related provisions: Articles 2112, 2093, 2098, 1634
Article 2098: Creditor’s right of retention until the debt is paid

- Related provisions: Articles 2105
Article 2099: Duty of the creditor to take care of the thing pledged; Creditor’s right to reimbursement
- Related provisions: Articles 1163, 1174, 1170
Article 2100: Pledgee cannot deposit the thing pledged with another
Article 2101: Liability to pay damages for known hidden flaws

- Related provisions: Article 1951
Article 2102: Pledgee’s right to compensate fruits and earnings of pledge with debt
- Related provisions:Articles 2132, 2127
Article 2103: Creditor’s right to bring actions against third persons

- Case: PNB vs Atendido, Gr no. L-6342, January 26, 1954
Article 2104: Creditor cannot use the thing pledged

Article 2105: Pledgor’s right to demand return of the thing pledged

- Case: Sarmiento vs Javellana, G.R. No. L-18500, October 2, 1922
- Related provisions: Articles 1118, 2099, 2107, 1196
Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

Article 2106: Pledgor’s right to ask for deposit of the thing pledged
Article 2107: Right of pledgor to substitute the thing pledged
Article 2108: Right of pledgee to sell the thing pledged at public sale
Article 2109: Right of pledgee to demand substitute or immediate payment
Article 2110: Extinguishment of pledge by return of the thing pledged

- Related provisions: Article 2093, 2105, 2111, 2115
Article 2111: Extinguishment of pledge by renunciation or abandonment

- Related provisions: Articles 6, 1273, 1231
Article 2112: Right of pledgee in case of non-payment of debt in due time

Article 2113: Right of pledgor and pledgee to bid at public sale
Article 2114: Bid must be for cash
Article 2115: Extinguishment of debt by sale of the thing pledged

- Case: Manila Surety & Fidelity Co. vs Velayo, Gr no. L-21069, October 26, 1967
- Related provision: Section 14 of Act No. 1508, article 2141, 1484(3)
Article 2116: Duty of the pledgee to advise pledgor or owner of result of sale
Article 2117: Right of third person to satisfy the debt

Article 2118: Pledgee’s right to collect and receive amount due on credit pledged
Article 2119: Pledgee’s right to choose which of several things pledged shall be sold
Article 2120: Right of third person who pledged his own property
- Related provisions: Article 2085 par 2, 2066-2070, 2077-2081
Article 2121: Pledges created by operation of law

- Related provisions: Articles 546, 1731, 1994, 1707, 2004
Article 2122: Rules in case of sale of pledges created by operation of law

- Related provisions: Article 2098, 2099, 2112, 2110, 2111
Article 2123: Rules as to pawnshops and other establishments

- Related provisions: PD No. 114

CHAPTER 2
PLEDGE
Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to constitute the
contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by
common agreement. (1863)
 Pledge
 Real contract
 Without delivery, there cannot be pledge.(Mcmicking vs Martinez, 15 Phil. 204) 1
 Types of delivery
1. Actual delivery
2. Constructive delivery
 Note: Type of delivery will depend upon the nature and the peculiar circumstances of
each case.2
 Case:
 Yuliongsiu vs PNB, Gr no. L-19227, February 17, 1968
 The pledgee was entitled to the actual possession of the vessels. While it is true
that plaintiff continued operating the vessels after the pledge contract was entered
into, his possession was expressly made "subject to the order of the
pledgee." The provision of Art. 2110 of the present Civil Code being new —
cannot apply to the pledge contract here which was entered into on June 30,
1947. On the other hand, there is an authority supporting the proposition that the
pledgee can temporarily entrust the physical possession of the chattels pledged to
the pledgor without invalidating the pledge. In such a case, the pledgor is
regarded as holding the pledged property merely as trustee for the pledgee.
 The type of delivery will depend upon the nature and the peculiar circumstances
of each case. The parties here agreed that the vessels be delivered by the "pledgor
to the pledgor who shall hold said property subject to the order of the pledgee."
Considering the circumstances of this case and the nature of the objects pledged,
i.e., vessels used in maritime business, such delivery is sufficient.
 Since the defendant bank was, pursuant to the terms of pledge contract, in full
control of the vessels thru the plaintiff, the former could take actual possession at
any time during the life of the pledge to make more effective its security. Its
taking of the vessels therefore was not unlawful.
 Related provisions
 Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected
until the delivery of the object of the obligation.
 Article 2092. A promise to constitute a pledge or mortgage gives rise only to a personal
action between the contracting parties, without prejudice to the criminal responsibility
incurred by him who defrauds another, by offering in pledge or mortgage as
unencumbered, things which he knew were subject to some burden, or by
misrepresenting himself to be the owner of the same.
Art. 2094. All movables which are within commerce may be pledged, provided they are susceptible of
possession. (1864)and cases on credit transactions by Hector De Leon, 13th ed
Reference: Comments
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of stock, bonds,
 Subject matter of pledge
 In the very nature of things, a pledge (or chattel mortgage) is confined and limited to
personal property. (Arts. 416, 417)3
 The movable must be within the commerce of men and susceptible of possession. 4
 Incorporeal rights evidenced by documents whether negotiable or not may also be
pledged. The document must be delivered to the creditor; if negotiable, it must be
indorsed in favor of the creditor.5
Art. 2096. 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. (1865a)
 Contents of public instruments

1. Description of the thing pledged
2. Date of pledge
 Purpose of the requirement

 To forestall fraud
 Case:
 Pacific Commercial Company vs PNB, Gr no. L-24893, August 23, 1926
 Section 4 of Act No. 1508, entitled "an Act providing for the mortgaging of
personal property, and for the registration of the mortgages so executed,"
provides:
A chattel mortgage shall not be valid against any person except the mortgagor,
his executors or administrators, unless the possession of the property is delivered
to and retained by the mortgagee or unless the mortgage is recorded in the office
of the register of deeds of the province in which the mortgagor resides at the time
of making the same, or, if he resides without the Philippine Islands, in the
province in which the property is situated.
 A chattel mortgage is not valid against any person except the mortgagor, his
executors or administrators, without delivery of possession of the property,
unless the mortgage is recorded in the office of the register of deeds of the
province. 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.
 Caltex Phils Inc. vs CA, Gr no. 97753, August 10, 1992

 The mere delivery of the thing pledged did not legally vest in pledgee any right
effective against and binding upon third person. The requirement under Article
2096 is not a mere rule of adjective law prescribing the mode whereby proof may
be made of the date of a pledge contract, but a rule of substantive law prescribing
a condition without which the execution of a pledge contract cannot affect third
persons adversely.
 Related provisions:

 Article 1625. An assignment of a credit, right or action shall produce no effect as against
third person, unless it appears in a public instrument, or the instrument is recorded in
the Registry of Property in case the assignment involves real property.
Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor or owner,
subject to the pledge. The ownership of the thing pledged is transmitted to the vendee or transferee as soon
as the pledgee consents to the alienation, but the latter shall continue in possession. (n)
 Alienation by the pledgor of the thing pledged

 Pledgor retains his ownership of the thing pledged, therefore, he may sell the same
provided the pledgee consents to the sale.6
 Thing sold may be alienated to satisfy the obligation. (Art 2112)
 Pledgee must continue in possession during the existence of the pledge. (Arts 2093,
2098)
 Case:
 PNB vs Atendido, Gr no. L-6342, January 26, 1954
 Citing Martinez vs. Philippine National Bank, 93 Phil., 765. In conclusion, we
hold that where a warehouse receipt or quedan is transferred or endorsed to a
creditor only to secure the payment of a loan or debt, the transferee or endorsee
does not automatically become the owner of the goods covered by the warehouse
receipt or quedan but he merely retains the right to keep and with the consent of
the owner to sell them so as to satisfy the obligation from the proceeds of the
sale, this for the simple reason that the transaction involved is not a sale but only
a mortgage or pledge, and that if the property covered by the quedans or
warehouse receipts is lost without the fault or negligence of the mortgagee or
pledgee or the transferee or endorsee of the warehouse receipt or quedan, then
said goods are to be regarded as lost on account of the real owner, mortgagor or
pledgor.
Art. 2098. The contract of pledge gives a right to the creditor to retain the thing in his possession or in that
of a third person to whom it has been delivered, until the debt is paid. (1866a)
 Creditor’s right of retention

 Only until the debt is paid
 Limited only to the fulfillment of the principal obligation
Art. 2099. The creditor shall take care of the thing pledged with the diligence of a good father of a family;
he has a right to the reimbursement of the expenses made for its preservation, and is liable for its loss or
deterioration, in conformity with the provisions of this Code. (1867)

 In case of loss or deterioration of the thing pledged
1. If due to fortuitous event – pledgee cannot be held responsible. (Art. 1174)
2. If due to fraud, negligence, delay, or violation of the terms of the contract – pledgee is
liable. (Art. 1170)
 Article 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the stipulation of
the parties requires another standard of care.
 Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
 Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
Art. 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a stipulation
authorizing him to do so.
The pledgee is responsible for the acts of his agents or employees with respect to the thing pledged. (n)
Art. 2101. The pledgor has the same responsibility as a bailor in commodatum in the case under Article
1951. (n)
 Requisites:
1. There is a flaw or defect in the thing pledged;
2. The flaw or defect is hidden;
3. The pledgor is aware thereof;
4. He does not advise the pledgee of the same; and
5. The pledgee suffers damages by reason of the said flaw or defect.7
 Article 1951. The bailor who, knowing the flaws of the thing loaned, does not advise the
bailee of the same, shall be liable to the latter for the damages which he may suffer by
reason thereof.
Art. 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor shall
compensate what he receives with those which are owing him; but if none are owing him, or insofar as the
amount may exceed that which is due, he shall apply it to the principal. Unless there is a stipulation to the
contrary, the pledge shall extend to the interest and earnings of the right pledged.
In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals pledged, but
shall be subject to the pledge, if there is no stipulation to the contrary. (1868a)
 Article 2132. By the contract of antichresis the creditor acquires the right to receive the
fruits of an immovable of his debtor, with the obligation to apply them to the payment of
the interest, if owing, and thereafter to the principal of his credit.
 Article 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third person.
Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to
recover it from, or defend it against a third person. (1869)
 Case:
 PNB vs Atendido, Gr no. L-6342, January 26, 1954
 In the contract of pledge, the pledgor continues to be the owner of the thing
pledged during the pendency of the obligation, it stands to reason that in case of
loss of the property, the loss should be borne by the pledgor.
 If the right of the plaintiffs to recover the thing pledged is covered by a written
contract, the time for the prescription of this action is ten years, according to
section 43 of the Code of Civil Procedure.
Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if he should do
so, or should misuse the thing in any other way, the owner may ask that it be judicially or extrajudicially
deposited. When the preservation of the thing pledged requires its use, it must be used by the creditor but
only for that purpose. (1870a)
 GR: Creditor/Pledgee cannot use the thing pledge

XPN:
1. With authority from the owner/pledgor; or
2. When preservation of the thing pledged requires its use, it must be used by the creditor
but only for that purpose.
 Instances when the pledgor or owner may ask the thing pledged be deposited judicially or
extrajudicially.
1. Creditor uses the thing without authority of the owner;
2. Creditor misuses the thing in any other way;
3. Thing is in danger of being lost or impaired because of the negligence or willful act of the
pledgee. (Art. 2106)

 Article 1977. The depositary cannot make use of the thing deposited without the express
permission of the depositor.
Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited requires its use, it must be used
but only for that purpose.
Art. 2105. 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, with expenses in a proper case. (1871)
 Pledgor’s right to demand return of the thing pledged

 GR: Pledgor cannot ask for the return of the thing pledge
XPN:
1. Debt has already been paid;
2. Pledgor is allowed to substitute the thing pledged which is in danger of
destruction or impairment with another thing of the same kind and quality(Art.
2107), without prejudice to the right of the pledgee under Article 2108.
 Note: Prescription will not begin to run on the action to demand the return of the thing
pledge while the obligation subsists, neither will the possession of the pledgee as such
ripen into ownership by prescription because such possession is not in the concept of an
owner. (Article 1118)8
 Case:
 Sarmiento vs Javellana, G.R. No. L-18500, October 2, 1922
 The pledgee having subsequently extended the term of the loan indefinitely, and
so long as the value of the jewels pledged was sufficient to secure the payment of
the capital and the accrued interest, the pledgee is bound to return the jewels or
their value to the pledgor, and the pledgor have the right to demand the same
upon the payment by them of the debt.
 Article 1196. Whenever in an obligation a period is designated, it is presumed to have
been established for the benefit of both the creditor and the debtor, unless from the tenor
of the same or other circumstances it should appear that the period has been established
in favor of one or of the other.
 Article 1118. Possession has to be in the concept of an owner, public, peaceful and
uninterrupted.
Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of being lost
or impaired, the pledgor may require that it be deposited with a third person. (n)
Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing pledged,
without the fault of the pledgee, the pledgor may demand the return of the thing, upon offering another thing
in pledge, provided the latter is of the same kind as the former and not of inferior quality, and without
prejudice to the right of the pledgee under the provisions of the following article.
The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged. (n)
 Requisites for the application of Article 2017
1. The pledgor has reasonable grounds to fear the destruction or impairment of the thing
pledged;
2. There is no fault on the part of the pledgee;
3. The pledgor is offering in place of the thing, another thing in pledge which is of the same
kind and quality as the former; and
4. The pledgee does not choose to exercise his right to cause the thing pledged to be sold at
public auction.
Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or diminution in
value of the thing pledged, he may cause the same to be sold at a public sale. The proceeds of the auction
shall be a security for the principal obligation in the same manner as the thing originally pledged. (n)
 Right of pledgee to sell the thing pledged

1. There is danger of destruction, impairment, or diminution in value of the thing pledged;
2. Without the fault of the pledgee;
3. Sale must be a public sale;
4. Pledgee shall keep the proceeds of the sale as security for the fulfillment of the principal
obligation.
 Note: Pledgee’s right to have the thing pledged sold at public auction under Article 2108
is superior to the pledgor’s right to substitute the thing pledged under Article 2107. The
law says the pledgor is given the right “without prejudice to the right of the pledgee.”
(Art. 2107)9
Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may either claim
another thing in its stead, or demand immediate payment of the principal obligation. (n)
 Remedies of pledgee in case he is deceived as to the substance or quality of the thing pledged
1. To claim another thing in pledged; or
2. To demand immediate payment of the principal obligation.
Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner, there is a
prima facie presumption that the same has been returned by the pledgee. This same presumption exists if the
thing pledged is in the possession of a third person who has received it from the pledgor or owner after the
constitution of the pledge. (n)

 Extinguishment of pledge by return of the thing pledged
 Reason: One of the essential requisites of pledge is that the thing pledged be placed in
the possession of the creditor, or of a third person by common agreement. (Art. 2093)
 Presumption may be rebutted by evidence to the contrary, as for example, that the return
was merely for the substitution of the thing pledged (Art. 2105), or that the thing was
stolen and given by the thief to the pledgor or owner. There is authority supporting the
proposition that the pledgee can temporarily entrust the physical possession of the chattel
pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is
regarded as holding the pledged property merely as trustee for the pledgee. (Yuliongsiu
vs PNB, Gr no. L-19227, February 17, 1968)10
 Causes of extinguishment of pledge

1. Payment of debt (Art 2105);
2. By renunciation or abandonment of pledge (Art. 2111);
3. By sale of the thing pledge at public auction (Art. 2115)
4. Prescription (Art. 1231);
5. Loss of the thing (Art. 1231);
6. Merger (Art. 1231);
7. Compensation (Art. 1231);
8. Novation (Art. 1231)
Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to
extinguish the pledge. For this purpose, neither the acceptance by the pledgor or owner, nor the return of the
thing pledged is necessary, the pledgee becoming a depositary. (n)
 Extinguishment of pledge by renunciation or abandonment

 Pledge is a personal right of the pledgee which may be waived. (Art. 6)
 The principal debt, however, is not affected by the waiver of the pledge. But the waiver
of the principal obligation carries with it that of the pledge. (Ar. 1273)
 Article 1273. The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force.
 Article 1231. Obligations are extinguished:
1. By payment or performance;
2. By the loss of the thing due;
3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor and debtor;
5. By compensation;
6. By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment

of a resolutory condition, and prescription, are governed elsewhere in this Code.
Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall be made at a public auction, and with notification to
the debtorComments
Reference: and theandowner
cases onofcredit
thetransactions
thing pledged inDea Leon,
by Hector proper13thcase,
ed stating the amount for which the public sale
is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held;
and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this
 Requisites for sale of the thing pledged
1. The debt is due and unpaid;
2. The sale must be at a public auction;
3. There must be notice to the pledgor and owner, stating the amount due;
4. The sale must be made with the intervention of a notary public.
 Note: Posting of the notice of sale and publication is not required. Sale is actually
extrajudicial in character without intervention by the courts.
 Right of pledgee to appropriate the thing pledged

 Pledgee may appropriate the thing pledged if after the first and second auctions, the thing
is not sold. This is an exception to the prohibition against pactum commisorio. (Art.
2088) If the creditor appropriates the thing, it shall be considered as full payment for his
entire claim and the debtor is not entitled to the excess in case the value of the thing
pledged is more than the principal obligation. (Art 2115)11
Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a better right if he
should offer the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)
Art. 2114. All bids at the public auction shall offer to pay the purchase price at once. If any other bid is
accepted, the pledgee is deemed to have been received the purchase price, as far as the pledgor or owner is
concerned. (n)
Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the
proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless it
is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary. (n)
 Right of creditor in case of non-payment of debt

1. Creditor may file a case for collection of sum of money against the debtor. In this case,
creditor may recover the deficiency from the debtor.
2. Sale of the thing pledged. By electing to sell the thing pledged, instead of suing on the
principal obligation, the creditor waives any other remedy, and must abide by the rules of
the sale. In such a case, creditor cannot recover the deficiency from the debtor (Art. 2112
and 2115).
 Effect of sale of the thing pledged

 Extinguishes the principal obligation, whether or not the proceeds of the sale is more or
less than the amount due.
 If there is a excess:

GR: debtor is not entitled to the excess
XPN: there is an agreement to the contrary
 If the price of sale is less: creditor is not entitled to recover the deficiency. A contrary
stipulation is void. Reason: to compel the creditor to hold an honest public sale.
 Case:
 Manila Surety & Fidelity Co. vs Velayo, Gr no. L-21069, October 26, 1967
 Article 2115 is clear and unmistakable, and its effect cannot be evaded. By
electing to sell the articles pledged, instead of suing on the principal obligation,
the creditor has waived any other remedy, and must abide by the results of the
sale. No deficiency is recoverable.
 It is well to note that the rule of Article 2115 is by no means unique. It is but an
extension of the legal prescription contained in Article 1484(3) of the same Code,
concerning the effect of a foreclosure of a chattel mortgage constituted to secure
the price of the personal property sold in installments, and which originated in
Act 4110 promulgated by the Philippine Legislature in 1933.
 Article 1484 (3). In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
 Section 14 of Act No. 1508 – mortgagor is entitled to recover the excess of the proceeds
of the sale in foreclosure proceedings.
 Article 2141. The provisions of this Code on pledge, insofar as they are not in conflict
with the Chattel Mortgage Law, shall be applicable to chattel mortgages.
Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the result
thereof. (n)
 Purpose of this article:

 To enable the pledgor or owner to take steps for the protection of his rights where he has
reasonable grounds to believe that the sale was not an honest one.12
Art. 2117. Any third person who has any right in or to the thing pledged may satisfy the principal obligation
as soon as the latter becomes due and demandable.(n)
 Right of third person to satisfy the debt

 GR: Creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation. (Art. 1236)

 XPN: Third person who has any right in or to the thing pledged may pay the debt as soon
as it becomes due and demandable and the creditor cannot refuse to accept the payment.
(Art 2117)
 Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor. (1158a)
Art. 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee may collect
and receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus,
should there be any, to the pledgor. (n)
 Article 2009. As to matters not provided for in this Code, judicial sequestration shall be
governed by the Rules of Court.
Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be sold, unless
there is a stipulation to the contrary. He may demand the sale of only as many of the things as are necessary
for the payment of the debt. (n)
Art. 2120. If a third party secures an obligation by pledging his own movable property under the provisions
of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to 2070, and Articles 2077
to 2081. He is not prejudiced by any waiver of defense by the principal obligor. (n)
 Article 2066. The guarantor who pays for a debtor must be indemnified by the latter.
The indemnity comprises:
1. The total amount of the debt;
2. The legal interests thereon from the time the payment was made known to the
debtor, even though it did not earn interest for the creditor;
3. The expenses incurred by the guarantor after having notified the debtor that
payment had been demanded of him;
4. Damages, if they are due.

 Article 2067. The guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor.
If the guarantor has compromised with the creditor, he cannot demand of the debtor more
than what he has really paid.
 Article 2068. If the guarantor should pay without notifying the debtor, the latter may
enforce against him all the defenses which he could have set up against the creditor at the
time the payment was made.
 Article 2069. If the debt was for a period and the guarantor paid it before it became due,
he cannot demand reimbursement of the debtor until the expiration of the period unless
the payment has been ratified by the debtor.
 Article 2070. If the guarantor has paid without notifying the debtor, and the latter not
being aware of the payment, repeats the payment, the former has no remedy whatever
against the debtor, but only against the creditor. Nevertheless, in case of a gratuitous
guaranty, if the guarantor was prevented by a fortuitous event from advising the debtor of
the payment, and the creditor becomes insolvent, the debtor shall reimburse the guarantor
for the amount paid.
 Article 2077. If the creditor voluntarily accepts immovable or other property in payment
of the debt, even if he should afterwards lose the same through eviction, the guarantor is
released.
 Article 2078. A release made by the creditor in favor of one of the guarantors, without
the consent of the others, benefits all to the extent of the share of the guarantor to whom
it has been granted.
 Article 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty. The mere failure on the part of the creditor to
demand payment after the debt has become due does not of itself constitute any extention
of time referred to herein.
 Article 2080. The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be subrogated to the rights,
mortgages, and preference of the latter.
 Article 2081. The guarantor may set up against the creditor all the defenses which pertain
to the principal debtor and are inherent in the debt; but not those that are personal to the
debtor.
Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731, and 1994,
are governed by the foregoing articles on the possession, care and sale of the thing as well as on the
termination of the pledge. However, after payment of the debt and expenses, the remainder of the price of
the sale shall be delivered to the obligor. (n)
Art. 2122. A thing under a pledge by operation of law may be sold only after demand of the amount for
which the thing is retained. The public auction shall take place within one month after such demand. If,
without just grounds, the creditor does not cause the public sale to be held within such period, the debtor
may require the return of the thing. (n)
 Instances of pledges by operation of law

1. Article 546: Necessary and Useful Expenses
2. Article 1731
3. Article 1994

4. Article 1914: Right of agent to retain the thing pledged
5. Article 1707:
 Note: Article 1994 refers to a depositary. Article 2004 is also an instance of a legal
pledge and refers to a hotelkeeper.
 Rules in cases of pledge by operation of law:

1. The provisions on the possession (Art. 2098), care (Art. 2099), and sale of the thing
pledged (Art. 2112) as well as on the extinguishment of the thing pledged (Art. 2110,
2111) governing conventional pledges are applicable to pledges created by operation of
law.
2. In legal pledge, there is no definite period for the payment of the principal obligation.
The pledgee must, therefore, make a demand for the payment. Without such demand, he
cannot exercise the right of sale at public auction. (Art. 2112) The pledgee must proceed
with the sale within one month after demand; otherwise, the debtor may require him to
return the thing retained. (Art. 2122)13
 Note: In conventional pledge, debtor is not entitled to excess unless otherwise agreed
(Art. 2115). In legal pledge, the remainder of the price of the sale after payment of the
debt and expenses, shall be delivered to the debtor. (Art. 2121)
 Article 546
 Article 1731. He who has executed work upon a movable has a right to retain it by way
of pledge until he is paid.
 Article 1994. The depositary may retain the thing in pledge until the full payment of
what may be due him by reason of the deposit.
 Article 1914. The agent may retain in pledge the things which are the object of the
agency until the principal effects the reimbursement and pays the indemnity set forth in
the two preceding articles.
 Article 1707. The laborer's wages shall be a lien on the goods manufactured or the work
done.
Art. 2123. With regard to pawnshops and other establishments, which are engaged in making loans secured
by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the
provisions of this Title. (1873a)
 PD No. 114
 Regulates the establishment and operation of pawnshops.
Footnotes:
1 Comments and cases on credit transactions by Hector De Leon, 13th ed, pg 359

Reference:
Comments and cases on credit transactions by Hector De Leon
Summary: (Diagram) Pledgee may secure:

(1) All kinds of
obligations
Constituted to secure (2) Voidable,
principal obligation. unenforceable,
natural
(Art 2085) obligations
(Art 2086, 2052, 2091)
Third persons may

Pledgor is the absolute secure another
owner of the thing persons’s debt.
pledged. (Art 2085)
(Art 2085) Future property - Void

Essential Requisites
of Pledge
(Article 2085 &
2093) Pledgor’s right to
demand return of the
Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed thing pledged
GR: Pledgor cannot ask
for the return of the
thing pledge
Pledgor have the right
of free disposal or has
legal authority.
(Art 2085)
Transfer of possession
of the thing pledged
either to:
1. Creditor
2. Third person
by common GR: Pledgee cannot
agreement deposit the thing
(Art 2093) pledged with a third
person.
XPN: There is
stipulation authorizing
him.
(Art. 2100)
Extinguishment of
pledge by return of the
thing pledged.
(Art. 2110)
Creditor may file a case

for collection of sum of
money against the
If debtor fails to pay on debtor.
due date, creditor may:
Note: creditor may
recover the deficiency
from the debtor.
Thing pledged may be

sold or alienated to pay
debt
(Art. 2087, 2112)
Before maturity
Note: Sale of the thing GR: No
pledged shall extinguish XPN: Debtor/Pledgor
the principal obligation. fails to fulfill certain
Creditor cannot recover conditions
the deficiency from the
debtor.
(Art. 2115)
GR: Debtor is not entitled

to excess (Art 2115)
XPN: debtor is entitled
1.there is an agreement to
the contrary;
At maturity
Yes if debtor fails to pay
(Art 2087, 2112)
Requisites:
1.Debt is due and unpaid;
2.Sale must be at a public
auction
3.There must be notice t
the pledgor and owner,
stating the amount due;
and
4. The sale must be made
GR: Pactum with the intervention of a
Commissorium - notary public.
Approppriation of the
thing pledged by the
creditor is not allowed.
(Art 2088)
XPN: allowed only if the

thing pledged is not sold
at 2 public auctions.
(Art 2112)
Summary: All movables within

the commerce of man
1. (Art. 2094)
Object
Incorporeal rights
(Art. 2095)
Between the parties:

Any form
2.
Form
As regards third
person:
Must be in public
instrument showing (a)
description of the thing
pledged, and (b) date of
pledge
(Art. 2096)
Thing pledged
3.
Extent
Fruits/ Income /
Offspring
(Art. 2102)
4. To alienate, with consent of the pledgee, the thing pledged

(Art. 2097
To continue to be the owner, unless the thing is expropriated.

(Art. 2103)
To ask that the thing pledged be judicially or extra-judicially

deposited if it is used by the creditor without authority or for
purpose other than for its preservation.
Rights of (Art. 2104)
the debtor
or pledgor
To ask for the return of the thing pledged after he has paid the
amount due. (Debt, interest, expenses)
(Art. 2105)
To require that the thing pledged be deposited with a third

person if it is in danger of being lost or impaired thru the
negligence or willfull act of the pledgee.
(Art. 2106)

Right of pledgor to substitute the thing pledged, which is of the
same kind and quality.
(Art. 2107)
5. To pay the debt, interest, and expenses
Rights of
the debtor
or pledgor
To pay damages if pledgee may suffer by

reason of flaws or defect of the thing pledged
and pledgor is aware of such defect but did
not advise the pledgee.
(Art. 2101)
6. Possession of the thing pledged

(Art. 2093)
To demand reimbursement of the expenses made for its

preservation.
(Art. 2099)
To bring actions in order to recover it from, or defend it against

third person.
(Art. 2103)
To use the thing pledged in case where:

(a) He is authorized to do so;
(b) Use is necessary for the preservation of the thing.
(Art. 2104)
Rights of
the creditor
or pledgee To cause the the sale of the thing pledged at public sale if there
is:
(a) Danger of destruction;
(b) Impairment;
(c) Diminution in value
without his fault.
Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed (Art. 2108)
If he is deceived on the substance or quality of the thing
pledged, he may either:
(a) Claim another thing in place of the thing pledged; or
(b) Demand immediate payment of the principal obligation.
(Art. 2109)
To collect and receive the amount due from the debtor.
To sell the thing pledged upon default of the debtor.

(Art. 2112)
7. To take care of the thing pledged with the diligence of a good

father of a family.
(Art. 2099)
To be liable for the loss or deterioration of the thing pledged.

(Art. 2099)
XPN: Cause by fortuitous event.
(Art. 1174)
Not to deposit the thing pledged with a third person unless

authorized.
Obligations (Art. 2100)
of creditor
or pledgee
To be responsible of the acts of his agents or employees with
respect to the thing pledged.
(Art. 2100)
Not to used the thing pledged, except:

(a) Authorized;
(b) Use is necessary for its preservation.
(Art. 2104)
To deliver to the debtor the remainder/surplus of the price of the
sale of pledges created by operation of law.
(Art. 2121)
8.
To be indemnified by the debtor if he pays the creditor.
Rights of To be subrogated to all the rights of the creditor if he pays the

third person creditor.
who pledges
his own
property to To be released from liability in the following cases:
secure the (a) Debt was already paid
debt of (b) If an extension of time is granted to debtor by the
another creditor without his consent.
(Art. 2079)
(c) If through the act of the creditor, pledgor cannot be
subrogated to the rights of creditor.
(Art. 2080)
9. Indirect Cause When principal obligation is extinguished.
Extinguishment
of pledge Return by the pledgee
- Any stipulation that pledge is not
Direct Cause extinguish by the return is void.
- Prima facie presumption:
(a) If the thing pledged is found in the
possession of pledgor/owner;
(b) In possession of third person who has
received it from pledgor.
(Art. 2110)
Renunciation or Abandonment in writing

by the Pledgee
- Acceptance is not necessary
- Pledgee becomes a depositary if the
thing pledged is not yet return.
- Principal debt is not affected by the
Formalities waiver of the pledge.
1. By public auction - Waiver of the principal obligation
2. Through a notary public carries with it that of the pledge.
3. Notice to the debtor and (Art. 1273)
owner – state the amount (Art. 2111)
due.
(Art. 2112)
Appropriation of the thing pledged if not
sold in two public auctions
(Art. 2112)
Who may bid?
1. Pledgor or owner
2. Pledgee Sale of the thing pledged
3. Third person (Art. 2112)
(Art. 2113)
Note:
(a) pledgor has a better right if his Effect of Sale
offer is the same as the highest - Principal obligation is extinguished
bidder. whether proceeds is equal or not to
(b) pledgee’s offer shall not be the amount of principal obligation.
valid if he is the only bidder. - Excess:
GR: debtor is not entitled to the
excess
Required amount of bid XPN: there is an agreement to the
All bids shall offer to pay the contrary
purchase price at once. - Deficit: creditor is not entitled to
(Art. 2114) recover the deficiency. A contrary
stipulation is void.
(Art. 2115)

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Abando, Ann Margarette

Co, Ronna Rica

Article 2093: Transfer of possession is necessary

Article 2094: Subject matter of pledge: Movable

Article 2095: Incorporeal rights may also be pledged

Article 2096: Pledge must be in a public instrument to bind third persons

Article 2098: Creditor’s right of retention until the debt is paid

Article 2101: Liability to pay damages for known hidden flaws

Article 2103: Creditor’s right to bring actions against third persons

Article 2104: Creditor cannot use the thing pledged

Article 2105: Pledgor’s right to demand return of the thing pledged

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

Article 2107: Right of pledgor to substitute the thing pledged

Article 2109: Right of pledgee to demand substitute or immediate payment

Article 2110: Extinguishment of pledge by return of the thing pledged

Article 2111: Extinguishment of pledge by renunciation or abandonment

Article 2112: Right of pledgee in case of non-payment of debt in due time

Article 2113: Right of pledgor and pledgee to bid at public sale

Article 2114: Bid must be for cash

Article 2115: Extinguishment of debt by sale of the thing pledged

Article 2117: Right of third person to satisfy the debt

Article 2121: Pledges created by operation of law

Article 2122: Rules in case of sale of pledges created by operation of law

Article 2123: Rules as to pawnshops and other establishments

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Contents of public instruments

 Purpose of the requirement

 Caltex Phils Inc. vs CA, Gr no. 97753, August 10, 1992

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Alienation by the pledgor of the thing pledged

 Creditor’s right of retention

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 GR: Creditor/Pledgee cannot use the thing pledge

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Pledgor’s right to demand return of the thing pledged

 Right of pledgee to sell the thing pledged

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Causes of extinguishment of pledge

 Extinguishment of pledge by renunciation or abandonment

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment

 Right of pledgee to appropriate the thing pledged

 Right of creditor in case of non-payment of debt

 Effect of sale of the thing pledged

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Purpose of this article:

 Right of third person to satisfy the debt

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Instances of pledges by operation of law

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

 Rules in cases of pledge by operation of law:

Reference: Comments and cases on credit transactions by Hector De Leon, 13th ed

Summary: (Diagram) Pledgee may secure:

(Art 2086, 2052, 2091)

Third persons may

(Art 2085) Future property - Void

Creditor may file a case

Thing pledged may be

GR: Debtor is not entitled

XPN: allowed only if the

Summary: All movables within

Between the parties:

4. To alienate, with consent of the pledgee, the thing pledged

To continue to be the owner, unless the thing is expropriated.