USE OF THE THING PLEDGED (Art.

2104)

Obligation of pledgee not to use the thing pledged

General Rule: The pledgee is obligated to not use the thing pledged without
the permission of the owner. It is in consequence of the fact that the pledgor in
parting with his property is merely transmitting the possession not ownership.

Exception: If the character of the thing pledged requires use, pledgee has the
duty to use it in order that it will not suffer from disuse. If profits are derived from
the use of the property, the pledgee must account therefor to the pledgor, and
apply the net proceeds of such use to the payment of his claim.

Right of the pledgor to ask thaht thing pledged be deposited

The owner may ask that the thing pledged be deposited judicially or extra
judicially:

1.) If the creditor uses the thing without authority;

2.) If he misuses the thing in any other way; or
3.) If the thing is in danger of being lost or impaired because of the negligence of
willful act of the pledgee. (Art. 2106)

RIGHT TO RETURN THE THING PLEDGED (Art. 2105)

Right of the pledgor to demand return of thing pledged

Pledgor cannot ask for its return until said obligation is fully paid including
interest due thereon and expenses incurred for its preservation. Exception: The
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. (Art. 2107)

RULES APPLICABLE WHEN THE THING PLEDGED IS IN DANGER OF

DESTRUCTION OR IMPAIRMENT (Art. 2106 2108)

Right of the pledgor to ask for the deposit of thing pledged (Art. 2106)

If the thing should be exposed to loss or impairment through the negligence

or willful act of the pledgee, the pledgor may demand that it be deposited with a
third person. Reason: The pledgee has the duty to preserve the thing pledged with
the diligence of a good father of a family.

Right of pledgor to substitute thing pledged (Art. 2107)

The following are the requisites for the application of Article 2107:
 1.) The pledgor has reasonable grounds to fear the destruction or impairment of
the thing pledged;
2.) There is no fault on the part of the pledgee;
3.) The pledgor 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 cause the thing pledged
to be sold at public auction.

Right of pledgee to cause sale of thing pledged

The pledgees right to have the thing pledged sold at public sale granted
under the above article is superior to that given to the pledgor to substitute the
thing pledged under Article 2107. The law says the pledgor is given the right
without prejudice to the right of the pledgee.

CREDITOR IS DECEIVED AS TO THE SUBSTANCE OR QUALITY OF THE THING

PLEDGED (Art. 2109)

Right of pledgee to demand substitute or immediate payment

This article grants two remedies to the pledgee, in case he is deceived as to the
substance or quality of the thing pledged:

1.) to claim another thing in pledge; and

2.) to demand immediate payment of the principal obligation.

The remedies are alternative, that is, he is privileged to choose only one and not
both.

RETURN OF THE THING PLEDGED EXTINGUISHES PLEDGE (Art. 2110)

Extinguishment of pledge by return of thing pledged

The pledge is extinguished if the object is returned by the pledgee, and this is
true notwithstanding any stipulation that the pledge would continue although the
pledgee is no longer in possession. The pledge is also extinguished by payment of
the debt (see Art. 2105.), by renunciation or abandonment of the pledge (Art.
2111.), and by the sale of the thing pledged at public auction. (see Art. 2115.)

Presumption of extinguishment of pledge

The possession by the debtor or owner of the thing pledged subsequent to

the perfection of the pledge gives rise to a prima facie presumption that the thing
has been returned and, therefore, that the pledge has been extinguished. The
presumption may be rebutted by evidence to the contrary.
RENUNCIATION OR ABANDONMENT OF PLEDGE (Art. 2111)

Extinguishment of pledge by renunciation or abandonment

Under Article 2111, renunciation or abandonment must be in writing to

extinguish the pledge, and such renunciation is not conditioned upon the
acceptance by the pledgor or owner nor upon the return of the thing pledged. The
waiver transforms the pledgee into a depositary with the rights and obligations of
one. The principal debt, however, is not affected by the waiver of the pledge. But
the waiver of the principal obligation carries with it that of the pledge.

Under this article, the thing pledged remains in the possession of the
pledgee. Hence, the waiver must be in writing.

PROVISIONS RELATED TO PUBLIC AUCTION (Art. 2112-2114)

Right of pledgee to cause sale of thing pledged

The formalities required for such sale under the above article are as follows:

1.)The debt is due and unpaid;

2.)The sale must be at a 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 a notary public

Article 2112 does not require posting of the notice of sale and publication. Notifi
cation to the pledgor and the owner of the thing pledged is suffi cient. Only a notary
public can conduct a public auction after proper notice is sent to the pledgor and
owner of the thing pledged. The sale is actually extrajudicial in character without
intervention by the courts.

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. This is an exception to the prohibition against pacto
commisorio. If the creditor appropriates the thing, it shall be considered as full
payment for his entire claim. He is thus obliged to give an acquittance for the same.
The debtor is not entitled to the excess in case the value of the thing pledged is
more than the principal obligation. (Art. 2115.)

Right of pledgor and pledgee to bid at public sale

If the debt is not paid and a public sale takes place, both the pledgor and the
pledgee may bid. The pledgor shall be preferred if he offers the same terms as the
highest bidder, the rule is just considering that all the things belong to him.
Bid must be for cash

All bids, including that of the pledgor, must be for cash. If the pledgee accepts a bid
other than for cash, the pledgor or owner has the right to consider that the pledgee
has received the purchase price in cash.