 If pledgor not debtor: the cause is the:

Credit Transactions a. Compensation stipulated

Hector De Leon b. Mere liberality

Essential Requirements of Pledge and Mortgage

Title XVI: PLEDGE, MORTGAGE AND 1. Common Requisites

 Arts. 2085 and 2087 enumerate the essential
ANTICHRESIS requisites common to pledge and mortgage
 In both contracts, ownership of the thing is
CHAPTER 1: PROVISIONS COMMON TO PLEDGE given as security to the debtor
AND MORTGAGE 2. Necessity of Delivery
 In delivery lies the security of the pledge
Article 2085. The following requisites are essential to the  The mortgagor, as a general rule, retains the
contracts of pledge and mortgage: possession of the property mortgaged

(1) That they be constituted to secure the fulfillment of a
principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of
the thing pledged or mortgaged;
Constituted to Secure Fulfilment of a Principal Obligation
 May guarantee a, voidable, unenforceable, or natural
obligation
 Transfer or property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance,

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(3) That the persons constituting the pledge or mortgage should be treated as a pledge/mortgage if the debt

e r as
have the free disposal of their property, and in the absence continues in existence and is not discharged by the

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thereof, that they be legally authorized for the purpose. transfer

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 In case of a doubt as to whether a transaction is a
Third persons who are not parties to the principal pledge/mortgage or a dation in payment, the

o.
obligation may secure the latter by pledging or mortgaging
rs e presumption is in favor of pledge the latter being the
their own property. (1857) lesser transmission of rights
ou urc
Article 2086. The provisions of article 2052 are applicable Constituted by the Absolute Owner
to a pledge or mortgage. (n)  May be constituted also at least with the authority or
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consent of the owner of the property pledged

Article 2087. It is also of the essence of these contracts that
 A pledge/mortgage constituted by an impostor is void
aC s

when the principal obligation becomes due, the things in

 Foreclosure sale: still a sale in accordance with Art. 1458;
v i y re

which the pledge or mortgage consists may be alienated for mortgagor in default is the forced seller
the payment to the creditor. (1858)
Property Pledged or Mortgaged
Definition
1. Future Property
ed d

 Contract by virtue of which the debtor delivers to the  Cannot be pledged or mortgaged
ar stu

creditor or to a third person of a movable or document 2. Property acquired subsequently

evidencing incorporeal rights  A pledge/mortgage executed by one who is not
 Purpose is to secure the fulfilment of the obligation with the owner of the property pledged or
the understanding that when the obligation is fulfilled, mortgaged is without legal existence and
sh is

the thing shall be returned with all its fruits and registration cannot validate it
accessions 3. Transfer of motor vehicles registered subsequently
Th

 Chattel mortgage of a car executed on a date

Kinds of Pledge
earlier than the transfer of the registration
1. Voluntary or Conventional: created by the agreement of certificate but after the perfection of the
the parties contract of sale was perfected does not render
2. Legal: created by operation of law the mortgage in favor of seller invalid
(Montano vs Lim Ang)
Characteristics (RAUS) 4. Share in a co-ownership
 May be mortgaged
1. Real: perfected by delivery of the thing pledged
 Effect of alienation or the mortgage, with
2. Accessory: has no independent existence of its own
respect to the co-owners, shall be limited to the
3. Unilateral: creates an obligation solely on the part of the
portion which may be allotted to him in the
creditor to return the thing subject thereof upon
division upon the termination of the co-
fulfilment of the principal obligation
ownership
4. Subsidiary: obligation incurred does not arise until the
5. Property covered by Torrens title:
fulfilment of the principal obligation which is not secured
 GR: Art. 2085 requires that mortgagor must
Cause or Consideration have free disposal of the property
 EXPN: an innocent purchaser for value
 Cause insofar as the pledgor is concerned is the principal (mortgagee) relying on Torrens system is
obligation
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 protected (doctrine of mortgagee in good the payment of any deficiency should the
faith) property not be sufficient to cover the debt
 EXPN to EXPN: does not apply to banks which  Not solidarily liable with the principal obligor
should exercise more care and prudence in  An SPA authorizing another to mortgage one’s
dealing with registered lands property as security of the former’s obligation
does not of itself make the person executing
Pledgor or Mortgagor has Free Disposal of Property or Has Legal the same a co-mortgagor of the debtor
Authority
Pledge vs Real Mortgage
1. Free disposal of the property: property must not be
subject to any claim of a third person Pledge Mortgage
2. Capacity to dispose of property: pledgor or mortgagor Constituted on movables Constituted on immovable
has the capacity or the authority to make a disposition of Delivered to the pledgee, or by Delivery is not necessary
the property common consent to a third (Legaspi & Salcedo vs
person (Art. 2093) Celestial)
Thing Pledged or Mortgaged May be Alienated
Not valid against third persons: Not valid against third
 Implied as an inherent element of the transaction or unless description of the thing persons: if not registered
mortgage or pledge pledged and the date of the (Art. 2125)
 Creditor does not automatically become the owner if at pledge appear in a public
the time stipulated the obligation is still unfulfilled (Art. instrument (Art. 2096)
2112)

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 Remedy to mortgagee/pledgee: have the security given

e r as
Notes (Clemente)
sold at public auction and the proceeds of the sale

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applied to the payment of the obligation secured by the  Memorize Art. 2085

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mortgage/pledge  TCT is issued as to many co-owners as possible
 Owner may only sell (pledge) his pro-indiviso share; not

o.
Creditor not Required to Sue to Enforce Credit
rs e the actual portion (otherwise there would be no more co-
 To do so would be a nullification of his lien and would ownership)
ou urc
defeat the purpose of the pledge/mortgage (to give him  Under Art. 2087, in order that the thing pledged may be
preference over the property given as security for the alienated, it is not enough that it is only due; there must
satisfaction of his credit) (Northern Motors Inc. vs also be non-payment
o

Coquia)
aC s

Pledgor or Mortgagor may be a Third Person

Article 2088. The creditor cannot appropriate the things
v i y re

1. Accommodation pledge/mortgage: given by way of pledge or mortgage, or dispose of them.

 Not himself the recipient of the loan Any stipulation to the contrary is null and void. (1859a)
 Not necessary that he should be appraised
beforehand of the entire amount of the loan Right of Creditor where Debtor Fails to Comply with His Obligation
ed d

 The fact that the loan was solely for the benefit
1. Sale of subject property with formalities required by law
ar stu

of the debtor would not invalidate the pledge

 Remedy of the mortgagee is to foreclose the
or mortgage
mortgage
2. Duty of mortgagee to make proper inquiry
 if he wishes to secure a title to the mortgaged
 He is guilty of negligence if he relied solely on
property, he can buy it in a foreclosure sale
sh is

the representations made by the debtor,

2. Prohibition against appropriation of property
particularly where the creditor is engaged in
 Pledgor or mortgagor’s default does not
Th

the banking business (Rural Bank of Caloocan

vs CA)
 Where the mortgagee acts with undue haste
and does not ascertain the ownership of the
lands being mortgaged, as well as the authority
of the supposed agent executing the mortgage,
it cannot be considered an innocent mortgagee
(Insurance Services and Commercial Traders
Inc. vs CA)
3. Where mortgage gratuitous
 Strictly construed
 As to effect the least transmission of rights as
possible (Art. 1378)
4. Liability for deficiency
 Pledgor/mortgagor who pledged/mortgaged
his property to guarantee an indebtedness of
another person, without expressly assuming
personal liability for such debt, is not liable for
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operate to vest in the pledgee or mortgagee
the ownership of the property
 Requires foreclosure of the thing held as pledge
or mortgage
 Neither can creditor dispose of the same as
owner
 Applies to an immovable which is the object of
the contract if antichresis
Prohibition against Pactum Commissorium
1. Definition:
 a stipulation whereby the thing pledged or
mortgaged or under antichresis shall become
the property of the creditor in the event of non-
payment of the debt within the term fixed
 Creditor would be able to acquire ownership of
the property given as security without need of
a public sale or foreclosure required by law
 2. Stipulation
 Null and void
 Contrary to morals and public policy
3. Requisites
a. There should be a pledge, mortgage, or antichresis
of property
b. There should be stipulation for an automatic
appropriation by the creditor of the property in the
event of non-payment of the obligation within the
stipulated period
c. Note: immaterial whether voluntarily entered into
Prohibition refers to stipulation authorizing automatic
appropriation (examples of Pactum Commisorium)
1. A stipulation providing that the mortgaged property shall
be considered in full payment without further action in
court in case of non-payment
2. A stipulation in a purported pacto de retro sale that the
ownership over the property sold would automatically
pass to the vendee in case no redemption was effected
within the stipulated period
Article 2089. A pledge or mortgage is indivisible, even
though the debt may be divided among the successors in
interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt
cannot ask for the proportionate extinguishment of the
pledge or mortgage as long as the debt is not completely
satisfied.
Neither can the creditor's heir who received his share of the
debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there
being several things given in mortgage or pledge, each one
of them guarantees only a determinate portion of the
credit
The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the portion of
the debt for which each thing is specially answerable is

m
e r as
satisfied. (1860)
Permissible Stipulations (Where Pactum Commissorium not

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Applicable) Article 2090. The indivisibility of a pledge or mortgage is

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1. Subsequent modification of original contract: not affected by the fact that the debtors are not solidarily

o.
 Stipulations prohibited by Art. 2080 and 2137
rs e liable. (n)
are those executed or made simultaneously
Pledge or Mortgage Indivisible
ou urc
with the original contract
 No prohibition to modify original contract by 1. In General
subsequent agreement  Pledge/mortgage is one and indivisible as to
2. Subsequent voluntary cession of the property by the the contracting parties
o

debtor  Even If obligation is joint and solidary

aC s

 Would constitute novation of contract  Generally, the divisibility of the principal

v i y re

 Would amount to voluntary sale of the obligation is not affected by the indivisibility of
property for the amount of debt the pledge/mortgage
3. Promise to assign or sell 2. Single thing
 Because title remains in the debtor  Every portion of the property
 Does not in any way bind the property
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pledged/mortgaged is answerable for the

4. Authority to take possession of property upon whole obligation as soon as it falls due
ar stu

foreclosure 3. Several things

 Not repugnant to Art. 2088 or 2137  All of them are liable for the totality of the debt
 Analogous even to the provisions on Art. 2132  Creditor does not have to divide his action by
regarding antichresis and the provisions of the distributing the debt
sh is

Rules of Court (Rule 59)  True even when only a part of the debt remains
unpaid
Th

Risk of Loss of property pledged or mortgaged

 Debtor-owner bears the loss of the property
 Pledgee or mortgagee does not become the owner of the
property pledged or mortgaged
Notes (Clemente)
 Art. 2088 is not pactum commisorium
 Pactum commisorium is a stipulation that upon default of
the debtor, pledge becomes automatically the owner of
the thing pledged
 Emphasis on auction
 Art. 2137 is a real pactum (only immovable however)
 Reason for prohibition of pactum is that not all pledgers
are not the principal debtors themselves
 Another reason for prohibition is the lack of due process
in such stipulations
4. Debtor’s heir/creditor’s heir
 Cannot ask for the proportionate extinction of
the pledge/mortgage
 Creditor’s heir who has received his share of
the debt return the pledge or cancel the
mortgage if the debt is not completely satisfied
Exceptions to Rule of Indivisibility
1. Where each one of several things guarantees
determinate portions of credit
2. Where only portion of loan was released
3. Where there was failure of consideration
4. Where there is no creditor-debtor relationship
 Rule of indivisibility does not apply to the right
of redemption of an accommodation
mortgagor and his assignee, with respect to
whom this relationship is not present

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  Should be sold separately  EXPN: when price is grossly inadequate as to shock the
 Applies to execution sales (not to foreclosure) conscience of the courts
 Cannot be divided among the different properties  Relate with Legal Pledge
 Mortgagee has the right to have the properties, either or
both, jointly or singly, sold to satisfy his claim

When Real Mortgage and Chattel Mortgage in One Instrument
 Does not have the effect of fusing both securities into an
indivisible whole
 Both remain distinct agreements (both differ in the
subject matter and the governing laws)
Notes (Clemente)
 Pledge is generally indivisible
 When 2 or more things are pledged:
a. GR: still indivisible
b. EXPN: things pledged are specified for each
obligation
CHAPTER 2: PROVISIONS APPLICABLE ONLY TO
PLEDGE
Article 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)
Transfer of Possession essential in Pledge
1. To constitute contract
 Agreement to constitute pledge: only gives
rise to a personal action
 Movable is delivered to and placed in the

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possession of the creditor or a third person by

e r as
Article 2091. The contract of pledge or mortgage may common agreement: gives rise to real right
secure all kinds of obligations, be they pure or subject to a

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2. To affect third parties

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suspensive or resolutory condition. (1861)  Must be in a public instrument
 Possession of the thing pledged must also be

o.
All kinds of obligations can be secured by pledge or mortgage
rs e delivered to the pledgee
 Whether pure or conditional
ou urc
Type of Delivery Depends upon the Nature of Thing Pledged

1. Actual:
Article 2092. A promise to constitute a pledge or mortgage  Delivery referred to in this article means actual
o

gives rise only to a personal action between the contracting possession of the property
 Symbolic delivery not sufficient
aC s

parties, without prejudice to the criminal responsibility

2. Constructive:
v i y re

incurred by him who defrauds another, by offering in

 Whether constructive delivery is sufficient to
pledge or mortgage as unencumbered, things which he
validate a pledge would depend on the peculiar
knew were subject to some burden, or by misrepresenting nature of the thing pledged (YiuLiong Sui vs
himself to be the owner of the same. (1862) PNB)
ed d

Promise to constitute pledge or mortgage creates no real right Notes (Clemente)

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 Gives rise only to a personal right binding upon the  Possession needs to be with the Creditor
parties  Otherwise it is Chattel Mortgage
 What exists is only a right of action to compel the
sh is

fulfilment of the promise

 No pledge or mortgage yet
Article 2094. All movables which are within commerce may
Th

Criminal responsibility of pledgor/mortgagor be pledged, provided they are susceptible of possession.

 Estafa is committed by a person who, pretending to be
the owner of a real property, shall convey, sell,
encumber, or mortgage the same knowing that the real
property is encumbered shall dispose of the same as
unencumbered (Art. 316 [1, and 2] )
 It is essential that fraud and deceit be practiced upon the
vendee at the time of sale
General Notes (Clemente)
 There are 2 types of encumbrance: principal and junior
encumbrance
 Junior encumbrance pertain to encumbrance for
subsequent loans
 GR: Inadequacy of proceeds from foreclosure will not
invalidate auction sale
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(1864)
Article 2095. Incorporeal rights, evidenced by negotiable
instruments, bills of lading, shares of stock, bonds,
warehouse receipts and similar documents may also be
pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be
indorsed. (n)
Subject Matter of Pledge
1. Confined and limited to personal property (Art. 416 and
417)
2. Movable must be within commerce of men and
susceptible of possession
3. Incorporeal rights whether negotiable or not may also be
pledged
a. If non-negotiable: must be delivered to the creditor
 b. If negotiable :must be indorsed in favor of the its preservation, and is liable for its loss or deterioration, in
creditor conformity with the provisions of this Code. (1867)

Obligation of Pledgee to Take Due Care of the Thing Pledged

Article 2096. A pledge shall not take effect against third  He has obligation to take care of the thing pledged with
persons if a description of the thing pledged and the date the diligence of a good father of a family (Art. 1163)
of the pledge do not appear in a public instrument. (1865a)  He is entitled to reimbursement of the expenses paid for
its preservation
Public Instrument Necessary to Bind Third Persons
Liability of Pledgee
1. Contents of public instrument
 Must be notarized 1. Not liable: if deterioration or loss due to a fortuitous
 It shall appear in the document the description event
of the thing pledged and the date of the pledge 2. Liable: loss or deterioration by reason of fraud,
 Without which, it cannot bind third persons negligence, delay, or violation of the terms of contract
2. Object of the requirement
Notes (Clemente)
 To forestall fraud
 To affect third persons adversely  Renewal of pledged pawn tickets part of necessary
preservation; The duty to use the diligence of a good
Notes (Clemente)
father of a family in caring for the thing pledged subsists
 as long as the same remains in the power of the pledgee

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Article required for contingence of third persons

e r as
 Must be notarized (Cruz and Serrano vs Chua)

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Article 2097. With the consent of the pledgee, the thing Article 2100. The pledgee cannot deposit the thing pledged

o.
pledged may be alienated by the pledgor or owner, subject
rs e with a third person, unless there is a stipulation authorizing
to the pledge. The ownership of the thing pledged is him to do so.
ou urc
transmitted to the vendee or transferee as soon as the The pledgee is responsible for the acts of his agents or
pledgee consents to the alienation, but the latter shall employees with respect to the thing pledged. (n)
continue in possession. (n)
o

Obligation of Pledgee not to Deposit Thing Pledged with Another

Alienation by the pledgor of the thing pledged
aC s

 GR: He is not authorized to transfer possession to a third

v i y re

 Pledgor may sell the same provided pledgee consents person

 Ownership shall be transferred to the vendee  EXPN: contrary stipulation
 Possession shall continue in possession during the  Reason for prohibition: protection of the owner of the
existence of the pledge thing pledged

ed d

Contemplates transfer or ownership without actual

delivery of thing alienated Responsibility of Pledgee for Acts of His Employees or Agents
ar stu

Notes (Clemente)  Their acts are deemed his

 He is liable for their acts
 Imposition only as to how ownership of the thing pledged
sh is

can be transferred
 Not a curtailment on the right to alienate of the owner
Article 2101. The pledgor has the same responsibility as a
Th

the thing pledged

bailor in commodatum in the case under article 1951. (n)

Responsibility of Pledgee for Flaws of Thing Pledged

Article 2098. The contract of pledge gives a right to the
creditor to retain the thing in his possession or in that of a  See comments in 1951 (Commodatum)
third person to whom it has been delivered, until the debt Notes (Clemente)
is paid. (1866a)
 Pledgor is liable to pledgee in case of hidden
Right of Pledgee to Retain Thing Pledged defect/hidden flaw
 Relate with 1944 for Legal Pledge
 Debtor cannot demand return until debt paid
 Can become a Legal Pledge if pledgee suffers injury
 Right of retention is limited only to the fulfilment of the
principal obligation

Article 2102. If the pledge earns or produces fruits, income,

Article 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
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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)
Right of Pledgee to Compensate Earnings of Pledge with Debt
 Without consent of the owner, pledgee cannot:
a. Use the thing pledged
b. Appropriate fruits thereof
 Pledgee can apply fruits, income, dividends, etc. to:
a. Payment of interest: if owing;
b. Principal of credit: thereafter
 Other things included in the pledge:
a. Interest and earnings of the right
b. In case of animals, their offspring
Article 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)
Right of Pledgor to Demand Thing Pledged
 GR: No demand for return can be made until obligation is
paid together with the interest due and expenses for
necessary preservation
 EXPN: 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
Article 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)

m
Article 2103. Unless the thing pledged is expropriated, the

e r as
debtor continues to be the owner thereof. Right of Pledgor to Ask for Deposit of Thing Pledged (To a Third

co
Person)

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Nevertheless, the creditor may bring the actions which
1. When the thing pledged should be exposed to loss or
pertain to the owner of the thing pledged in order to

o.
impairment through the negligence or wilful act of the
recover it from, or defend it against a third person. (1869)
rs e pledgee
ou urc
Right of Pledgee Against Third Persons 2. If Pledgee should use the thing without authority or
misuse it in any other way
 Authorized to bring such action as pertaining to the
owner in order to recover it or defend it, against third
o

persons Article 2107. If there are reasonable grounds to fear the

aC s

 A real right enforceable against third persons destruction or impairment of the thing pledged, without

v i y re

It is necessary that it is embodied in a public instrument
Article 2104. The creditor cannot use the thing pledged,
ed d
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

without the authority of the owner, and if he should do so, the pledgee under the provisions of the following article.
ar stu

or should misuse the thing in any other way, the owner may
ask that it be judicially or extrajudicially deposited. When The pledgee is bound to advise the pledgor, without delay,
the preservation of the thing pledged requires its use, it of any danger to the thing pledged. (n)
must be used by the creditor but only for that purpose.
Right of Pledgor to Substitute Thing Pledged
sh is

(1870a)
 Art. 2107 provides two remedies:
Th

Obligation of the Pledgee not to use the Thing Pledged
 GR: Pledgee who is in possession of the thing pledged has
no right to make use of it without permission from the
owner
 EXPN: if the thing pledged is of such character that use is
necessary in properly caring for it, then it becomes his
duty to use it so that it will not suffer from disuse
Right of Pledgor to Ask that Thing Pledged be Deposited
1. If the creditor uses the thing without authority
2. If he misuses the thing in any other way
3. If the thing is in danger of being lost or impaired because
of the negligence or wilful act of the pledgee
1. To the Pledgor: The right to demand the thing
pledged upon offering another thing in pledge
2. To the Pledgee: the right to cause the same to be
sold at a public sale
 Requisites for the application of the article are:
1. The pledgor has reasonable grounfs to fear
destruction or impairment of the thing pledged
2. There is no fault on the part of the pledgee
3. 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
4. The pledgee does not choose to exercise his right to
the thing pledged to be sold at public auction

Notes (Clemente)
Article 2108. If, without the fault of the pledgee, there is
 No need for consent of pledgor if purpose of use is for
danger of destruction, impairment, or diminution in value
preservation
of the thing pledged, he may cause the same to be sold at
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 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 the Pledgee to Cause Sale of the Thing Pledged
 Right superior to that given of the pledgor to substitute
the thing pledged
 Sale must be a public sale
 Pledgee shall keep the proceeds of the sale as security for
the fulfilment of the principal obligation (proceeds still
belong to the pledgor)
Article 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)
Right of Pledgee to Demand Substitute or Immediate Payment
m
1. To claim another thing in pledge; or
e r as
2. To demand immediate payment of the principal
co
obligation
eH w
o.
rs e
Article 2110. If the thing pledged is returned by the pledgee
to the pledgor or owner, the pledge is extinguished. Any
ou urc
stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is
o
in the possession of the pledgor or owner, there is a prima
facie presumption that the same has been returned by the
aC s
pledgee. This same presumption exists if the thing pledged
v i y re
is in the possession of a third person who has received it
from the pledgor or owner after the constitution of the
pledge. (n)
ed d
Extinguishment of Pledge by Return of Thing Pledged
ar stu
1. If the object is returned by the pledgee (true
notwithstanding any stipulation that the pledge would
continue although pledgee is no longer in possession
2. By payment of debt
sh is
3. By renunciation or abandonment of pledge
Th
4. Sale of the thing pledged at public auction
Presumption of Extinguishment of Pledge
 By possession of the debtor or owner of the thing
pledged subsequent to the to the perfection of the
pledge
 The pledgee can temporarily entrust the physical
possession of the chattel pledged to the pledgor without
invalidating the pledge; pledgor is merely trustee for the
pledgee
Notes (Clemente)
 Prima Facie Presumption: first impression only
 Rebuttable
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Article 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
 Must be in writing to extinguish the pledge
 Renunciation is not conditioned upon acceptance by the
pledgor or owner no upon the return of the thing pledged
 Principal debt is not affected by waiver of the pledge
 Waiver of the principal obligation carries with it that of
the pledge
Notes (Clemente)
 Deposit to comply with a legal obligation
 Necessary deposit
Article 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 debtor and
the owner of the thing pledged in a proper case, 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 case he shall be obliged to give an
acquittance for his entire claim. (1872a)
Right of Pledgee to Cause Sale of Thing Pledged
 Object of pledge may be alienated for the payment to the
creditor when the principal obligation becomes due
 Article does not require posting of the notice of sale and
publication
 Notification to the pledgor and the owner of the thing
pledged
 Only a notary public can conduct a public auction after
proper notice is sent to the pledgor and owner of the
thing pledged
 Sale is extrajudicial without intervention of the courts
Requisites for Art. 2112 to Apply
1. The debt is due and unpaid
2. The sale must be at public auction
3. There must be notice to the pledgor and owner stating
the amount due; and
4. The sale must be made with the intervention of the
notary public
Right of Pledgee to Appropriate Thing Pledged
 The pledgee may appropriate the thing pledged if after
the first and second auctions, the thing is not sold
(exception to pactum commisorium)
 Appropriation shall be considered full payment for the
entire claim
 Debtor not entitled to excess in case the value of the
thing pledge is more than the principal obligation
 Notes (Clemente)  With agreement: there can be return
 Without agreement: there can be no return
 Different from Legal Pledge (Art. 2124)

Article 2116. After the public auction, the pledgee shall

Article 2113. At the public auction, the pledgor or owner
promptly advise the pledgor or owner of the result thereof.
may bid. He shall, moreover, have a better right if he should
(n)
offer the same terms as the highest bidder.
Obligation of Pledgee to Advise Pledgor or Owner Result of Sale
The pledgee may also bid, but his offer shall not be valid if
he is the only bidder. (n)  Purpose is to enable the pledgor or owner to take steps
for the protection of his rights where he has reasonable
Right of Pledgor and Pledgee to Bid at Public Sale grounds to believe that the sale was not an honest one

 Pledgor shall be preferred if he offers the same terms as

the highest bidder
 Pledgee not allowed to acquire the thing if he is the only Article 2117. Any third person who has any right in or to the
bidder thing pledged may satisfy the principal obligation as soon
as the latter becomes due and demandable. (n)

Right of Third Person to Satisfy Obligation

Article 2114. All bids at the public auction shall offer to pay

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1. GR: Creditor not bound to accept payment or

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the purchase price at once. If any other bid is accepted, the
pledgee is deemed to have been received the purchase performance by a third person who has no interest in the

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price, as far as the pledgor or owner is concerned. (n) fulfilment of the obligation (Art. 1236)

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2. EXPN: Any person who has any right in or to the thing
Bid must be for Cash pledged may pay the debt as soon as it becomes

o.
rs e demandable; creditor cannot refuse payment
 If the pledgee accepts a bid other than for cash, the
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pledgor or owner has the right to consider that the
pledgee has received the purchase price in cash
Article 2118. If a credit which has been pledged becomes
due before it is redeemed, the pledgee may collect and
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receive the amount due. He shall apply the same to the

Article 2115. The sale of the thing pledged shall extinguish
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payment of his claim, and deliver the surplus, should there

the principal obligation, whether or not the proceeds of the
v i y re

be any, to the pledgor. (n)

sale are equal to the amount of the principal obligation,
interest and expenses in a proper case. If the price of the Right of Pledgee to Collect and Receive Amount Due on Credit
sale is more than said amount, the debtor shall not be Pledged
entitled to the excess, unless it is otherwise agreed. If the
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 He has duty to collect if delay would endanger the

price of the sale is less, neither shall the creditor be entitled
ar stu

recovery of credit
to recover the deficiency, notwithstanding any stipulation  In view of his obligation to take care of the thing pledged
to the contrary. (n) with the diligence of a good father of a family
Effect of Sale of Thing Pledged
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 Extinguishes the principal obligation whether the price of Article 2119. If two or more things are pledged, the pledgee
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sale is more or less than the amount due

may choose which he will cause to be sold, unless there is
 If the price of the sale is more than the amount due to
a stipulation to the contrary. He may demand the sale of
the creditor: debtor not entitled to excess; unless
contrary is provided
only as many of the things as are necessary for the payment
 If the price is less: creditor is not entitled to recover of the debt. (n)
deficiency; contrary stipulation is void
Article 2120. If a third party secures an obligation by
Right of Debtor to Excess pledging his own movable property under the provisions of
article 2085 he shall have the same rights as a guarantor
1. GR: Debtor not entitled to excess
under articles 2066 to 2070, and articles 2077 to 2081. He
2. EXPN: contrary stipulation
is not prejudiced by any waiver of defense by the principal
Right of Creditor to Recover Deficiency obligor. (n)

 Creditor not entitled to recover deficiency
 By electing to sell the thing pledged, instead of suing the
prinicipal obligation, the creditor waives any other
remedy and must abide by the results of the sale
Notes (Clemente)
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Right of Pledgee to Choose Which of Several Things Pledged Shall
be Sold
 Can be limited by Stipulation
 After sufficient property has been sold to satisfy the
obligations plus interests and expenses, no more shall be
sold
 Right of Third Person Who Pledged His Property  Pledgee must make a demand for payment of amount
due to him
 The law grants him the same rights as a guarantor
 He cannot be prejudiced by any waiver of defense by the Notes (Clemente)
principal debtor
 Public auction requires notary

Article 2121. Pledges created by operation of law, such as

Article 2123. With regard to pawnshops and other
those referred to in articles 546, 1731, and 1994, are
establishments, which are engaged in making loans
governed by the foregoing articles on the possession, care
secured by pledges, the special laws and regulations
and sale of the thing as well as on the termination of the
concerning them shall be observed, and subsidiarily, the
pledge. However, after payment of the debt and expenses,
provisions of this Title. (1873a)
the remainder of the price of the sale shall be delivered to
the obligor. (n) Rules as to Pawnshops and Other Establishments

Article 2122. A thing under a pledge by operation of law  This Title

may be sold only after demand of the amount for which the  PD No. 114 (REGULATING THE ESTABLISHMENT AND
thing is retained. The public auction shall take place within OPERATION OF PAWNSHOPS)
one month after such demand. If, without just grounds, the
Notes (Clemente)
creditor does not cause the public sale to be held within

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such period, the debtor may require the return of the thing.  Pawn more than a pledge

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(n)  Pawnshops regulated by BSP

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 Pawned value must not be less than 30% of the appraised

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Instances of Pledges by Operation of Law value
 A pawn ticket is public instrument itself

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 Art. 546 rs e
Necessary expenses shall be refunded to every possessor; but only
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the possessor in good faith may retain the thing until he has been
reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good

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faith with the same right of retention, the person who has defeated
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him in the possession having the option of refunding the amount of

v i y re

the expenses or of paying the increase in value which the thing may
have acquired by reason thereof.

 Art. 1731
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He who has executed work upon a movable has a right to retain it

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by way of pledge until he is paid.

 Art. 1914

The agent may retain in pledge the things which are the object of
sh is

the agency until the principal effects the reimbursement and pays
the indemnity set forth in the two preceding articles.
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 Art. 1707

The laborer's wages shall be a lien on the goods manufactured or

the work done.

 Art. 1994

The depositary may retain the thing in pledge until the full payment
of what may be due him by reason of the deposit.

 Art. 2004

The hotel-keeper has a right to retain the things brought into the
hotel by the guest, as a security for credits on account of lodging,
and supplies usually furnished to hotel guests.

Rules in Cases of Pledge by Operation of Law

 Debtor entitled to the remainder of the price of sale after

payment of debt and expenses
 There is no definite period for payment
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