PledgeNotes Highlighted

Pledge - (SOFAPD) Security,
Absolute Owner, Free Disposal, Alienation,

Chapter 1 Public Instrument, Delivery
A. Definition
- is an act by virtue of which the debtor delivers to the D. Pledge vs Mortgage
creditor or a third person a movable, or instrument
evidencing incorporeal rights for the purpose of securing Pledge Mortgage
the fulfillment of a principal obligation with the
understanding that when to obligation is fulfilled, the Subject: Movables Subject: Immovables
thing delivered shall be returned with all its fruits.
Cause of CoP Delivery is Necessary Delivery is Not
- principal obligation (if the debtor and pledgor Necessary
is the same)
- compensation stipulated for the pledge or liberality Validity: Not valid Validity: Not valid
of the pledgor (if the pledgor is 3rd person) against 3rd persons against 3rd persons
Characteristics of a contract of Pledge unless a description of unless registered
a. Real perfected upon the delivery to the the thing pledge and the
creditor/pledgee, the thing pledged by the date of the of the pledge
pledgor. appear in a public
b. Accessory it has no independent existence of its instrument
own. Alienation: Alienation:
c. Unilateral it creates an obligation solely on the Pledgor can sell the Mortgagor can sell the
part of the creditor to return the thing upon thing pledged with the property mortgaged
fulfillment of the principal obligation. consent of the pledgee even without consent of
d. Subsidiary obligation to return the thing pledged the mortgagee
does not arise until the fulfillment of the principal
obligation.
Form No form required but must in a public RIGHTS OF PLEDGOR
instrument to be binding to 3rd persons; the PI must 1. Alienation by Pledgor of thing Pledged
indicate the; 1. Description of the thing Pledged and GR pledgor can alienate the thing pledged provided
2. Date of the Pledge (Art. 2096) there is consent of the pledgee. (Art. 2098)
* Such sale is subject to rights of the pledgee and that the
B. Kinds of Pledge pledgee must retain possession during the existence of the
1. Voluntary or Conventional created by pledge to bind 3rd person PI req. must be satisfied
agreement of the parties. 2. Demand Deposit in case of Willful
2. Legal created by operation of law. impairment
a. Article 2104
C. Essential Requirements of Pledge GR Pledgee/creditor cannot use the thing
1. That they be constituted to secure the fulfillment pledged without authority of the pledgor/debtor
of a principal obligation and if pledgee/creditor do so pledgor ca ask that
2. That the pledgor or mortgagor be the absolute the thing be deposited judicially or extra- judicially.
owner of the thing pledged or mortgaged (Future Instances where pledgee can ask the thing to be
property cannot be pledged or mortgaged) deposited:
3. That the persons constituting the pledge or i. If the creditor uses the thing without
mortgage have the free disposal of their authority;
property, and in the absence thereof, that they be ii. If he misuses the thing in any other way;
legally authorized for the purpose. and (Art. 2106)
4. That there be a valid obligation, voidable or iii. If the thing is in danger of being lost or
unenforceable (Article 2086, 2052) impaired because of the negligence or
5. That the thing pledged or mortgaged may be willful act of the pledgee. (Art. 2106)
alienated in case of default in fulfilling the Ratio: Pledge transmits only possession not
principal obligation; and Ownership
6. That the contract is in public instrument b. Article 2105, Article 2107
it is not necessary that the debtor is the 2105 XPN to GR that pledgor can only demand
pledgor (Art. 2085, 3rd par.) return upon payment of the debt Art. 2105 stated
to be valid against 3rd persons a description of that the debtor can substitute the thing pledged if
the thing pledge and the date of the of the the same is in danger of destruction or impairment
pledge appear in a public instrument. the substitute must be of the same kind and
7. Delivery actual possession of the property, quality
transfer of possession (xpn peculiar nature of the
thing pledged)
INONCILLO
2107 right to substitute (pledgor), public Due, Public Auction, Notice, Notary
sale (pledgee) Public
The pledgor can exercise his right for a substitute if
the following is present; 5. Right to Choose if there are several thing
i. If the pledgor has reasonable grounds to Pledged
fear destruction or impairment; Article 2119
ii. No fault on the part of pledgee; The right of choice given to the pledgee as to which of
iii. The pledgor is offering a thing which is of the thing pledged he shall cause to be sold unless
the same kind and quality; and there is a stipulation otherwise.
iv. The pledgee does not choose to exercise his * after sufficient property was sold and it satisfied the
right to a public sale of the thing pledged. debt no more shall be sold
3. Preferred Bidder, Article 2213

GR if the debt is not paid and a public sale takes place
the pledgee and pledgor can bid, if the latter offers the
same terms as the highest bidder the pledgor shall be
preferred. The pledgee is not allowed to acquire the thing
if he is the only bidder.
Ratio: The pledgor is the owner, after all.
RIGHTS OF PLEDGEE
1. Right to Retain Possession by the Pledgee
GR The pledgee has the right to retain possession of the
thing pledged until the debt is paid.
* Extent of such right is only within the fulfillment of the
principal obligation.
* Diligence Required
GR (Art. 2098)
Diligence required good father of a family
Expenses incurred pledgee is entitled to
reimbursement
Deterioration in cases of fortuitous event
pledgee is not liable
2. Apply Fruits to Interest, Principal
3. If deceived on the quality of the thing Pledged

Article 2109 provides 2 remedies;
i. To claim another thing in pledge; and
ii. Demand immediate payment of the
* creditor/pledgee can only choose either not both
4. Public Sale
Requisites: (Art. 2112)
i. The debt is due and unpaid;
ii. The sale must be at a public auction;
iii. There must be notice to the pledgor and
owner, stating the amount due; and
iv. The sale must be made with the intervention
of a notary public.
The sale equates to the extinguishment of the
principal obligation, whether or not the proceeds
of the sale was equal, less or more than the
Proceeds of the Sale Rules
1. Pledgor is not entitled to the excess of the
proceeds of the sale contrary to stipulation
valid
2. Pledgee is not entitled to the deficiency
contrary stipulation - void
XPN Legal Pledge
INONCILLO

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Pledge - (SOFAPD) Security,

Absolute Owner, Free Disposal, Alienation,

3. Preferred Bidder, Article 2213

2. Apply Fruits to Interest, Principal

3. If deceived on the quality of the thing Pledged

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