DEFINITION OF PLEDGE

Pledge is a contract by virtue of which the debtor

delivers to the creditor (or to a third person by
common agreement) a movable property susceptible
of appropriation or a document evidencing incorporeal
rights for the purpose of securing the fulfillment 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 in
appropriate cases).

KINDS:

1.) Voluntary or Conventional- one which is created by

agreement of the parties; or

2.) Legal - one which is created by operation of law

(Examples Art.546,612,1731,1814,1994 and 2004)

CHARACTERISTICS:

1.) Real Contract -which requires delivery for its

perfection (Art.1316)

2.) Unilateral because it creates an obligation solely

on the part of the creditor to return the thing subject
thereof upon fulfillment o the principal obligation or
Bilateral if a third party pledge receives fees from the
creditor for entering into the pledge agreement.
3.)Nominate Contract, because it has been given a
specific name by the Civil Code.

4.)Formal Contract, because a particular form is

required for the contract of pledge. (Art.2096)

5.) Onerous Contract if the pledge was given by the

debtor, as the debtor granted the pledge in
consideration of the loan or the principal obligation
being secured or Gratuitous Contract if a third-party
pledger receives no compensation for entering into
the pledge agreement.

In case of doubt as to whether the transaction is one of pledge or

dacion en pago, the presumption is that it is a pledge as this
involves lesser transmission of rights and interest.

PARTIES

1.)Pledgor (may be the debtor or a third person)

>must be the absolute owner of the thing pledged

>must have free disposal of the thing pledged
>must be legally authorized for the purpose

2.)Pledgee
 ESSENTIAL REQUISITES
1.) Consent

*minors and insane or demented persons cannot give

consent to a contract of pledge.

2.) Object Certain

*movable things(within the commerce of men,

susceptible of appropriation)

*certain incorporeal rights Art. 2095

3.) Cause of the Obligation

*the compensation stipulated in the pledge or the

mere liberality of the pledgor

4.) Art. 2085

a.) the pledge must be constituted to secure the

fulfillment of a principal obligation;
b.) the pledgor must be the absolute owner of the
thing pledged;
c.) the pledgor must have free disposal of the property
pledged, and in the absence thereof, that the pledgor
be legally authorized for the purpose.
5.) Delivery of the thing

*A pledge is a real Contract which requires delivery for

its perfection Art.1316

*Without delivery, there cannot be a pledge.

TYPE OF DELIVERY DEPENDS UPON THE

NATURE OF THE THING PLEDGED

1.) Actual - actual possession of the property pledged.

2.)Constructive - the thing pledges must be placed

under the effective control and possession of the
pledgee(or the third person by common agreement).

Art.2093 Transfer of possession essential in pledge

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.

Art.2094 Subject matter of pledge

All movables which are within commerce may be
pledged, provided they are susceptible of possession.
*it cannot be extended or made to apply to real
property, the movable must be within the commerce of
men and susceptible of possession.

Art.2095 Incorporeal rights evidenced by documents

Incorporeal rights, evidenced by negotiable
instruments, bills of lading, shares of stock, bonds,
warehouse receipts and similar documents may als be
pledged. The instrument proving the right pledged
shall be delivered to the creditor, and if negotiable,
must be indorsed.

*Not all incorporeal rights can be the subject of a

pledge

*This provision enumerates documents in which the

transfer of the instrument either by delivery or
indorsement transfers ownership right or property
represented by the instrument.

*Ordinary contract rights cannot be pledged by

delivery of the signed contract to the pledge as the
delivery of the contract does not transfer ownership of
the contracts rights.

Art. 2096 Public Instrument necessary to bind third

persons

Public instrument- one attested and certified by a

public officer authorized by law to administer oath,
such as a notary public which contains a description
of the thing pledged and the date of the pledge.

Purpose: To forestall fraud, because a debtor may

attempt to conceal his property from his creditors
when he sees it in danger of execution by simulating a
pledge thereof with an accomplice.

Efffect of non-compliance: still valid and is binding

upon the parties to the pledge if all essential requisites
of the contract of pledge are present and the subject
of the pledge has been delivered by the pledgor.

Art. 2097 Alienation by the pledgor of the thing

pledged

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
pledge consents to the alienation, but the latter shall
continue in possession.

*The pledgor restrains his ownership of the thing

pledged. He may, therefore, sell the same provided
the pledged consents to the sale but the pledgee must
continue in possession during the existence of the
pledge.
Art.2098 Right of the pledged to retain the thing
pledged

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.
*the possession of the pledged constitutes his
security.

*but the right of retention is limited only to the

fulfillment of the principal obligation for which the
pledge was created.

Art. 2099 Obligation of pledgee to take due care of

thing pledged

The creditor shall take care of the thing pledged with

the diligence of a good father of a family; he has the
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.

*because upon the fulfillment of the principal

obligation, the pledgee must return the thing pledged.

*in case of the loss or deterioration of the thing

pledged due to fortuitous event, the pledgee cannot
be held responsible.
*but the pledgee is liable for loss or deterioration by
reason of fraud, negligence, delay or violation of the
terms of the contract.

Art.2100 Obligation of pledgee not to deposit thing

pledged with another
The pledge cannot deposit the thing pledged with a
third person , unless there is a stipulation authorizing
him to do so.

*The prohibition is necessary for the protection of the

pledgor or the owner of the thing pledged.

Responsibility of pledgee for acts of his employees or

agents.

The pledgee is responsible for the acts of his agents

or employees with respect to the thing pledged.

*because their acts are in, legal effect, deemed his.

Art.2101 Responsibility of pledgor for flaws of the

thing pledged.

The pledger has the same responsibility as bailor in

commodatum in the case under article 1951.

(Art.1951)
Art.2102 Right of pledgee to compensate earnings of
pledge with debt

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 pledger or owner of the animals
pledged, but shall be subject to the pledge, if there is
no stipulation to the contrary.

*While the pledgee has no right to use the thing

pledged or to appropriate the fruits the rod without the
authority of the owner, the pledgee can apply the
fruits, income, dividends, interests earned or produced
by the thing pledged to the payment of interest, if
owing, and thereafter to the principal of his credit.

ART.2103 Right of pledgee against third persons

Unless the 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.
Thank

*He is authorized to bring such action as pertaining to

the owner in order to recover it or defend it, against
claims of third persons. Furthermore, unless given the
right, the creditor might be prejudiced by the
negligence of the owner.