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Article 2085 to 2123 - Lecture notes 3

Law (Rizal Technological University)

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Article 2085. The following requisites are essential Elements of Pactum Commissorium
to the contracts of pledge and mortgage: There should be a pledge, mortgage, or
1) That they be constituted to secure the antichresis of property by way of security for
fulfillment of a principal obligation; the payment of the principal obligation
2) That the pledgor or mortgagor be the absolute There should be stipulation for an automatic
owner of the thing pledged or mortgaged; appropriation by the creditor of the property in
3) That the persons constituting the pledge or the event of non-payment of the obligation
mortgage have the free disposal of their
property, and in the absence thereof, that they PACTUM DACION EN PAGO
be legally authorized for the purpose. COMMISSORIUM
 There is the original  There is a simple
Third persons who are not parties to the principal contract of pledge, obligation of a
obligation may secure the latter by pledging or mortgage or loan
mortgaging their own property. antichresis  No automatic
 Upon non-payment, transfer
Article 2086. The provisions of article 2052 are property is deemed
pledge applicable to a pledge or mortgage. automatically
transferred to the
Article 2052. A guaranty cannot exist without a creditor
valid obligation
ARTICLE 2089. A pledge or mortgage is
Nevertheless, a guaranty may be constituted to indivisible, even though the debt may be divided
guarantee the performance of a voidable or an among the successors in interest of the debtor or
unenforceable contract. It may also guarantee a of the creditor.
natural obligation.
Therefore, the debtor's heir who has paid a
Article 2087. It is also of the essence of these part of the debt cannot ask for the proportionate
contracts that when the principal obligation extinguishment of the pledge or mortgage as long
becomes due, the things in which the pledge or as the debt is not completely satisfied.
mortgage consists may be alienated for the
payment to the creditor. Neither can the creditor's heir who received
his share of the debt return the pledge or cancel
PACTUM COMMISSORIUM the mortgage, to the prejudice of the other heirs
Article 2088. The creditor cannot appropriate the who have not been paid.
things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is From these provisions is expected the case
null and void. in which, there being several things given in
mortgage or pledge, each one of them guarantees
PACTUM COMMISSORIUM only a determinate portion of the credit.
(PACTO COMISORIO)
The automatic appropriation by the creditor of the The debtor in this case, shall have a right to
thing pledged or mortgaged upon failure of the the extinguishment of the pledge or mortgage as
debtor to pay his debt within the period agreed the portion on the debt for which each thing is
upon by virtue of authority or right previously given specially answerable satisfied.
to the creditor
ARTICLE 2090. The indivisibility of a pledge or
mortgage is not affected by the fact that the
debtors are not solidarily liable.

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QUESTION:
Essential requisites:
Rosario obtained a loan of P100,000.00 from the property must be placed in the possession of
Jennifer, and pledged her diamond ring. The the creditor (for validity)
contract signed by the parties stipulated upon the description of the thing and the date of the
failure of Rosario to redeem the ring on due date, pledge must be in a public instrument to bind 3rd
Jennifer may immediately sell the ring and persons (to bind 3rd persons)
appropriate the entire proceeds thereof for herself
as full payment of the loan. Is the contract valid? ARTICLE 2093. In addition to the requisites
prescribed in article 2085, it is necessary, in order
Article 2091. The contract of pledge or mortgage to constitute the contract of pledge, that the thing
may secure all kinds of obligations, be they pure or pledged be placed in the possession of the creditor,
subject to a incorporeal or of a third person by common agreement.
or resolutory condition.
Subject matter:
ARTICLE 2092. A promise to constitute a pledge or ARTICLE 2094. All movables which are within the
mortgage gives rise only to a personal action commerce of man provided they are susceptible of
between the contracting parties, without prejudice possession
to the criminal responsibility incurred by him who
defrauds another, by offering in pledge or mortgage ARTICLE 2095. Incorporeal rights, evidenced by
as unencumbered, things which he knew were negotiable instruments, bills of lading, shares of
subject to some burden, or by misrepresenting stocks, bonds, warehouse receipts and similar
himself to be the owner of the same documents. The instrument must be delivered to
the pledgee and properly indorsed
PLEDGE
It is a contract by virtue of which the debtor ARTICLE 2095. Incorporeal rights, evidenced by
delivers to the creditor or to a third person a negotiable instruments, bills of lading, shares of
movable or document evidencing incorporeal stocks, bonds, warehouse receipts and similar
rights for the purpose of securing the fulfillment of documents may also be pledged. The proving the
a principal obligation with the understanding that right pledged shall be delivered to the creditor and
when the obligation is fulfilled the thing shall be if negotiable, must be indorsed
returned with all its fruits and accessions
Article 2096. A pledge shall not take effect against
Parties: third persons if a description of the thing pledged
 PLEDGOR - the debtor or a third person who and the date of the pledge do not appear in a
pledges the subject matter to secure the loan of public instrument.
the debtor; he must be the owner and must
have free disposal of the property or at least ARTICLE 2097. With the consent of the pledgee, the
must be authorized to dispose thing pledged may be alienated by the pledgor or
 PLEDGEE - creditor owner, subject to the pledge. The ownership of the
thing pledged is transmitted to the vendee or
Characteristics of PLEDGE: transferee as soon as the pledgee consents to the
 It is a REAL CONTRACT alienation, but the latter shall continue in
 It is an ACCESSORY CONTRACT possession.
 It is a UNILATERAL CONTRACT
 It is a SUBSIDIARY CONTRACT ARTICLE 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.

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Article 2104. The creditor cannot use the thing

ARTICLE 2099. The creditor shall take care of the pledged, without the authority of the owner, and if
thing pledged with the diligence of a good father of he should do so, or should misuse the thing in any
a family; he has a right to the reimbursement of the other way, the owner may ask that it be judicially or
expenses made for its preservation, and is liable for extrajudicially deposited. When the preservation of
its loss or deterioration, in conformity with the the thing pledged requires its use, it must be used
provisions of this Code. by the creditor but only for that purpose.

ARTICLE 2100. The pledgee cannot deposit the Article 2105. The debtor cannot ask for the return
thing pledged with a third person, unless there is a of the thing pledged against the will of the creditor,
stipulation authorizing him to do so. unless and until he has paid the debt and its
interest, with expenses in a proper case.
The pledgee is responsible for the acts of his agents
or employees with respect to the thing pledged Article 2106. If through the negligence or wilful act
of the pledgee, the thing pledged is in danger of
ARTICLE 2101. The pledgor has the same being lost or impaired, the pledgor may require
responsibility as a bailor in commodatum in the that it be deposited with a third person.
case under article 1951.
Article 2107. If there are reasonable grounds to fear
Article 1951. The bailor who, knowing the flaws of the destruction or impairment of the thing
the thing loaned, does not advise the bailee of the pledged, without the fault of the pledgee, the
same, shall be liable to the latter for the damages pledgor may demand the return of the thing, upon
which he may suffer by reason thereof. offering another thing in pledge, provided the latter
is of the same kind as the former and not of inferior
ARTICLE 2102. If the pledge earns or produces quality, and without prejudice to the right of the
fruits, income, dividends, or interests, the creditor pledgee under the provisions of the following
shall compensate what he receives with those article.
which are owing him; but if none are owing him, or
insofar as the amount may exceed that which is The pledgee is bound to advise the pledgor,
due, he shall apply it to the principal. Unless there without delay, of any danger to the thing pledged.
is a stipulation to the contrary, the pledge shall
extend to the interest and earnings of the right Article 2108. If, without the fault of the pledgee,
pledged. there is danger of destruction, impairment, or
diminution in value of the thing pledged, he may
In case of a pledge of animals, their offspring shall cause the same to be sold at a public sale. The
pertain to the pledgor or owner of animals proceeds of the auction shall be a security for the
pledged, but shall be subject to the pledge, if there principal obligation in the same manner as the
is no stipulation to the contrary. thing originally pledged.

Article 2103. Unless the thing pledged is Article 2109. If the creditor is deceived on the
expropriated, the debtor continues to be the owner substance or quality of the thing pledged, he may
thereof. either claim another thing in its stead, or demand
immediate payment of the principal obligation. (n)
Nevertheless, the creditor may bring the actions
which pertain to the owner of the thing pledged in ARTICLE 21 10. If the thing pledged is returned by
order to recover it from, or defend it against a third the pledgee to the pledgor or owner, the pledge is
person. extinguished. Any stipulation to the contrary shall
be void.

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If subsequent to the perfection of the pledge, the  All bids shall offer to pay the purchase price at
thing is in the possession of the pledgor or owner, once
there is a prima facie presumption that the same  After public auction, pledgee shall promptly
has been returned by the pledgee. This same advise the pledgor or owner of the result
presumption exists if the thing pledged is in the thereof
possession of a third person who has received it  In case of deficiency, pledgee CANNOT collect
from the pledgor or owner after the constitution of the balance
the pledge.  In case of excess, debtor is not entitled to the
excess unless the contrary is provided
Article 2111. A statement in writing by the pledgee
that he renounces or abandons the pledge is ARTICLE 2115. The sale of the thing pledged shall
sufficient to extinguish the pledge. For this extinguish the principal obligation, whether or not
purpose, neither the acceptance by the pledgor or the proceeds of the sale are equal to the amount of
owner, nor the return of the thing pledged is the principal obligation, interest and expenses in a
necessary, the pledgee becoming a depositary. proper case. If the price of the sale is more than
said amount, the debtor shall not be entitled to the
Debtor defaults: excess, unless it is otherwise agreed. If the price of
ARTICLE 2112. The creditor to whom the credit has the sale is less, neither shall the creditor be entitled
not been satisfied in due time, may proceed before to recover the deficiency, notwithstanding any
a Notary Public to the sale of the thing pledged. stipulation to the contrary.
This sale shall be made at a public auction, and
with notification to the debtor and the owner of Article 2116. After the public auction, the pledgee
the thing pledged in a proper case, stating the shall promptly advise the pledgor or owner of the
amount for which the public sale is to be herd. If at result thereof.
the first auction the thing is not sold, a second one
with the same formalities shall be held; and if at ARTICLE 2117. Any third person who has any right
the second auction there is no sale either, the in or to the thing pledged may satisfy the principal
creditor may appropriate the thing pledged. In this obligation as soon as the latter becomes due and
case he shall be obliged to give an acquittance for demandable.
his entire claim.
ARTICLE 2118. If a credit which has been pledged
Article 2113. At the public auction, the pledgor or becomes due before it is redeemed, the pledgee
owner may bid. He shall, moreover, have a better may collect and receive the amount due. He shall
fight if he should offer the same terms as the apply the same to the payment of his claim, and
highest bidder. deliver the surplus, should there be any, to the
pledgor.
The pledgee may also bid, but his offer shall not be
valid if he is the only bidder. (n) ARTICLE 2119. If two or more things are pledged,
the pledgee may choose which he will cause to be
Article 2114. All bids at the public auction shall sold, unless there is a stipulation to the contrary.
offer to pay the purchase price at once. If any other He may demand the sale of only as many of the
bid is accepted, the pledgee is deemed to have things as are necessary for the payment of the
been received the purchase price, as far as the debt.
pledgor or owner is concerned.
ARTICLE 2120. If a third party secures an obligation
Public Auction: by pledging his own movable property under the
 Pledgor may bid. If he offers the same terms as provisions of article 2085, he shall have the same
highest bidder, he is preferred rights as a guarantor under articles 2066 to 2070,
 Pledgee may bid but not if he is the only bidder

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and articles 2077 to 2081. He is not prejudiced by

any waiver of defense by the principal obligor.

Article 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.

LEGAL PLEDGES
 Article 546 - right of possessor in good faith to
refund of necessary expenses before he returns
the thing
 Article 1707 - lien on goods manufactured or
work done by laborer until his wages are paid
 Article 1731 - right to retain by a worker who
executed work on a movable
 Article 1914 - right of an agent to retain the
thing until he is reimbursed advances and
damages
 Article 1994 — right of retention of a
depositary until he is paid his fees

ARTICLE 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.

Article 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.

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