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PROVISIONS

COMMON TO
PLEDGE &
MORTGAGE
ALUA ANGELES CABRILLAS MOSLARES
PANLILIO

PLEDGE
A contract by virtue of which the debtor
delivers to the creditor or to a third person
a movable, or instrument evidencing
incorporeal rights for the purpose of
securing the fulfillment of the of a principal
obligation.
It is a real contract
It is an accessory contract
It is a unilateral contract

KINDS OF PLEDGE
Voluntary or conventional created
by agreement of parties
Legal created by operation of Law

ESSENTIAL REQUIREMENTS OF
PLEDGE AND MORTGAGE
Constituted to secure
principal obligation

fulfillment

of

All kinds of obligation, whether pure or subject to a


suspensive or resolutory obligation (Article 2091)
Voidable, unenforceable or natural obligations (Article
2086)

Pledgor or mortgagor is absolute owner


Ownership at the time pledge or mortgage is
constituted
Third persons may pledge or mortgage their property
(Article 2085)

ESSENTIAL REQUIREMENTS OF
PLEDGE AND MORTGAGE
Pledged or mortgaged
alienated to pay debt

may

be

sold

or

General Rule: The thing pledged or mortgaged


cannot be sold or alienated since payment of the
debt cannot yet be compelled
Exception: If the pledger or mortgagor fails to fulfill
certain conditions, such a violation would make the
debt due and entitle the pledgee or mortgagee to
have the thing sold through the formalities required
by law

PLEDGE AND MORTGAGE


DISTINGUISHED
Constituted
on movable
PLEDGE
(Article 2094)
The property is delivered to
the pledgee (Article 2093)
Must be in public instrument
showing a description of the
thing pledged in order to bind
third persons (Article 2096)
Can sell the thing pledged
with the consent of the
pledgee

MORTGAGE
Constituted
on
immovable
Delivery is not necessary
Not valid against third
person if not registered
Sell the property
mortgaged without the
consent of the
mortgagee

APPROPRIATION OF THE THING


PLEDGED OR MORTGAGED
Pledge
Appropriation in pledge is allowed only if the thing
pledged is not sold at two public auctions. (Article
2112)

Mortgage
Not allowed

Prohibition of pactum commissorium this


stipulation is void; the creditor is only allowed
only to move for the sale of the thing pledged or
mortgaged

INDIVISIBILITY OF PLEDGE AND


MORTGAGE
General Rule: A pledge or mortgage is
indivisible; It also applies even if the
debtors are jointly liable.
Exception: The pledge or mortgage is
divisible if several things are given in
pledge or mortgage and each one of
them guarantees only a determinate
portion of the credit.

PROMISE TO CONSTITUTE
PLEDGE OR MORTGAGE
Only gives rise to a personal right
The debtor can be compelled by the
creditor to fulfill his promise by
executing the pledge or mortgage.

PROVISIONS
APPLICABLE ONLY TO
PLEDGE

TRANSFER OF POSSESSION
Necessity of actual or physical delivery
Object of the Pledge
All movable within the commerce of men which
are susceptible of possession
Incorporeal rights evidenced by negotiable
instruments, bills of lading, shares of stock,
bonds, warehouse receipts, and similar
documents

FORM OF PLEDGE
Between Parties
May be in any form as in fact the mere
delivery of the object is sufficient to bind
the parties

As to third persons
The pledge must be in a public
instrument showing a description of the
thing pledged and the date of the pledge

RIGHTS OF THE
DEBTOR/PLEDGOR
Alienation of the thing pledged (Article 2097)
To continue to be the owner of the thing pledged unless it is
expropriated (Article 2103)
To ask that the thing pledged be judicially or extra judicially
deposited if it is used without authority or for a purpose other
than for its preservation (Article 2104)
To demand return of the thing pledged after he has paid the
debt and its interest with expenses in a proper case(Article
2105)
To ask for deposit of thing pledged (Article 2106)
To substitute the thing pledged (Article 2107)

OBLIGATIONS OF THE
DEBTOR/PLEDGOR
To pay the debt and its interest, with expenses in a proper
case, when they are due (Article 2105)
To pay damages that the pledgee may suffer by reason of
the flaws of the thing pledged, if he was aware of such
flaws but did not advise the pledgee of the same (Article
2101)

RIGHTS OF THE
CREDITOR/PLEDGEE

To retain in his possession the thing pledged until the debt


is paid (Article 2098)
To demand reimbursement of the expenses made for the
preservation of the thing pledged (Article 2099)
To bring actions which pertain to the owner of the thing
pledged in order to recover it from, or defend it against,
third persons (Article 2103)
To compensate earnings of pledge with debt (Article 2102)
To use the thing pledge if he is authorized to do so, or
when its use is necessary for the preservation of the thing
(Article 2104)

RIGHTS OF THE
CREDITOR/PLEDGEE
To cause sale of the thing pledged (Article 2108,
2112)
To demand substitute or immediate payment in
case he is deceived (Article 2109)
To collect and receive amount due on credit
pledged (Article 2118)

OBLIGATIONS OF THE
CREDITOR/PLEDGEE
To take care of the thing pledged with the diligence of a
good father of a family (Article 2099)
To be liable for the loss or deterioration of the thing
pledged unless it is due to fortuitous event (Article 2099)
Not to deposit thing pledged with another (Article 2100)
To be responsible for the acts of his agents or employees
with the respect of the thing pledged (Article 2100)
To deliver to the debtor the surplus after paying his claim
from what he has collected on a credit that was pledged
and which has become due before it is redeemed (Article
2118)

RIGHTS OF A THIRD PERSON WHO PLEDGES HIS OWN


MOVABLE PROPERTY TO SECURE THE DEBT OF ANOTHER

To be indemnify by the debtor if he pays the


creditor (Article 2120)
To be subrogated to all the rights of the
creditor against the debtor if he pays the
creditor (Article 2120)

Extinguishment of Pledge
Direct cause
Return by pledgee of the thing pledged to the owner
(Article 2110)
Renunciation or abandonment in writing by the pledgee
of the pledge (Article 2111)
Sale of the thing pledge (Article 2112)
o
o

Price is more than the amount of the obligation, the debtor shall be
entitled to the excess, unless there is an agreement
Price is less, the creditor cannot recover the deficiency even if
stipulated (Article 2115)

SALE OF THE THING PLEDGED


Formalities
By public auction
Through a notary public
With notice to the debtor and the owner of the thing pledged,
stating the amount for which the public sale is to be held (Article
2112)

Who may bid at the public auction


Pledgor/owner
Pledgee
Third persons

Required amount of bids


All bids shall offer to pay the purchase price at once (Article 2114)

RULES WHEN TWO OR MORE


THINGS ARE PLEDGED
It is limited only by stipulation, he may demand
the sale of only as many of the things as are
necessary for the payment of debt (Article 2119)

LEGAL PLEDGE
Possessory lien by a possessor in good faith.
Possessory lien by a worker.
Depositarys right of retention

LAWS ON PAWNSHOPS AND SIMILAR


ESTABLISHMENTS
It shall be governed primarily by special laws and
regulations concerning them, and subsidiarily by
the provisions of pledge in the Civil Code.