PLEDGE (ARTICLES 2085-2123)

Category: Obligations and Contracts

PLEDGE

(ARTICLES 2085-2123)

PROVISIONS COMMON TO PLEDGE AND MORTGAGE

Art.  2085.  The  following  requisites  are  essential  to  the contracts of pledge and mortgage:

(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;

(3)   That   the   persons   constituting   the   pledge   or mortgage  have  the  free  disposal  of  their  property,  and  in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)

Art. 2086. The provisions of Article 2052 are applicable to a pledge or mortgage. (n)

Art. 2087. It is also of  the essence  of these contracts that when  the  principal  obligation  becomes  due,  the  things  in which the pledge or mortgage consists may be alienated for the payment to the creditor. (1858)

PLEDGE

>     Contract  by  virtue  of  which  the  debtor  delivers  to  the creditor  or  to  a  third  person  a  movable,  or  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

KINDS OF PLEDGE

1.   Voluntary or conventional
2.   Legal

REQUISITES TO A CONTRACT OF PLEDGE

1.   It  be  constituted  to  secure  the  fulfillment  of  a  principal obligation
2.   The pledgor be the absolute owner of the thing pledged
3.   That  the  persons  constituting  the  pledge  have  the  free disposal  of  the  property  and  in  the  absence  thereof,  that they be legally authorized for the purpose
4.   The  pledge  is  perfected  by  the  delivery  of  the  thing pledged
5.   When  the  principal  obligation  becomes  due,  the  things, which  the  pledge  consists,  may  be  alienated  for  the payment of the creditor.

CHARACTERISTICS OF A CONTRACT OF PLEDGE

1.   Real  contract—perfected  by  the  delivery  of  the  things pledged  by  the  debtor  who  is  called  the  pledgor  to  the creditor who is called by the pledgee, or to a third person by common agreement
2.   Accessory contract
3.   Unilateral contract
4.   Subsidiary contract

WHAT IS THE CAUSE OR CONSIDERATION IN PLEDGE?

>     Pledge is an accessory contract
>     Its cause is the principal obligation

CONSTITUTED TO SECURE THE FULFILLMENT OF THE PRINCIPAL OBLIGATION

CONSTITUTED BY THE ABSOLUTE OWNER

1.   Future  property  cannot  be  the  subject  of  a  pledge  or mortgage
2.   A  pledge  or  mortgage  executed  by  one  who  is  not  the owner  of  the  property  pledged  or  mortgaged  is  without legal existence and registration cannot validate it
3.   Share  in  a  co-ownership—shall  be  limited  to  the  portion which  may  be  alienated  by  him  in  the  division  upon  the termination of the co-ownership

What   is   the    absolute    owner?      It   means unencumbered  property.    The  absolute  owner  has  legal and beneficial ownership.  In the earlier example, P is the legal owner and S is the beneficial owner.  This being the case, neither of them can pledge the property.

WHAT  IS  THE  DIFFERENCE  BETWEEN  FREE  DISPOSAL  AND CAPACITY TO DISPOSE?

>     FREE DISPOSAL OF THE PROPERTY—property must not be subject to any claim of a third person
>     CAPACITY  TO  DISPOSE—pledgor  or  mortgagor  has  the capacity or authority to make a disposition of the property

THING PLEDGED OR MORTGAGED MAY BE ALIENATED

>     Necessarily   implied   as   an   inherent   element   of   the transaction of the mortgage or pledge
>     The  only  remedy  for  the  pledgee  is  to  have  the  security given sold at public auction and the proceeds of the sale be applied  to  the  payment  of  the  obligation  secured  by  the mortgage or pledge

PLEDGOR OR MORTGAGOR MAY BE A THIRD PERSON

1.   Accommodation pledge or mortgage
2.   Duty of mortgagee to make proper inquiry
3.   Where  mortgage  is  gratuitous—same  should  be  strictly construed
4.   Liability for deficiency—pledgor not liable for any deficiency should the property be not sufficient to cover the debt