RAIA
PLEDGE (Jurado)
Articles 2085-2123
PLEDGE
 An accessory, real and unilateral
contract by virtue of which the
debtor or a third person delivers
to the creditor or to a third person
movable property as security for
the performance of the principal
obligation, upon the fulfillment
of which the thing pledged, with
all its accessions and accessories
shall be returned to the debtor or
to the third person.
ESSENTIAL REQUISITES OF PLEDGE
1. Constituted to secure the
performance of a principal
obligation;
2. Pledgor must be the absolute
owner of the thing pledged;
3. Pledgor should have free disposal
of the thing pledged, and in the
absence thereof, he should be
legally authorized for the
purpose;
4. When the principal obligation
becomes due, the thing pledged
may be alienated for the payment
of such obligation;
5. The thing pledged must be placed
in the possession of the creditor or
of a third person by common
agreement. (See Arts. 2085, 2087,
2093)
ABSOLUTE OWNER
 Full ownership, or a kind of
ownership which includes all the
rights of an owner;
 One who possesses title to the
property and at the same time has
the right to the use of the same;
right to the fruits; and the right to
dispose such property.
 The creditor cannot appropriate the
things given by way of pledge or
mortgage or dispose of them.
 It is a well established doctrine that
the mortgagee does not become the
owner of the property mortgage
because the ownership remains with
the mortgagor.
PACTUM COMMISSORIUM
 A pact or agreement in a contract
of pledge, mortgage or antichresis
by virtue of which, if the debtor
cannot fulfill his obligation, the
creditor can appropriate or
dispose of the thing given by way
of pledge, mortgage or antichresis.
 Generally, such kind of agreement
is prohibited by law and is
therefore void (Art. 2088) except
in case of a contract of pledge. It is
prohibited because the amount of
loan is ordinarily less than the
real value of the thing pledged or
mortgaged.
 But in a contract of pledge, the
validity of this agreement depends
on the fulfillment of the following
conditions:
o The debtor cannot pay his
obligation;
o If the thing is not sold after
the first and second
auctions. In which case, the
creditor shall be obliged to
give an acquittance for his
entire claim.
 The Supreme Court interpreted
Art. 2088 prohibition to refer
only to those cases where upon
failure of redemption, the
ownership of the thing pledged or
mortgaged automatically passes to
the creditor.
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 A thing pledged may be alienated
by the pledgor or owner with the
consent of the pledgee. In which
case, the ownership of the thing
pledged is transmitted to the
vendee or transferee as soon as the
pledgee consents to the alienation.
However, the pledgee retains
possession. (Article 2097)
REMEDY OF A CREDITOR IF THE
DEBTOR IS UNABLE TO COMPLY WITH
HIS OBLIGATION WHEN IT BECOMES
DUE AND DEMANDABE
 Creditor may proceed before a
Notary Public to the sale of the
thing pledged which shall be
made at a public auction.
 Creditor must notify debtor and
owner of the thing pledged. He
must state the amount for which
the public sale is to be held.
 If at the first auction, thing
pledged is not sold, a second
auction with the same formalities
shall be held.
 If at the second auction, thing
pledged is still not sold, the
creditor may appropriate the
thing pledged. In this case, he
shall be obliged to give an
acquittance for his entire claim.
(Article 2112)
EFFECTS OF SALE OF THE THING
PLEDGED
 Extinguish the principal
obligation—whether or not the
proceeds are equal to the amount
of the principal obligation,
interest and expenses in a proper
case.
 If the price of the sale is more
than said amount, the debtor
shall not be entitled to the excess,
unless there is a contrary
stipulation.
 If the price of the sale is less,
neither shall the creditor be
entitled to recover deficiency
notwithstanding any stipulation
to the contrary. (Art. 2115)
 By electing to sell the articles
pledged, the creditor waived any
other remedy and must abide by
the result of the sale.
EXAMPLES OF PLEDGES BY
OPERATION OF LAW
 A possessor in good faith
exercising his right of retention
for necessary and useful expenses.
(Art. 546)
 A usufructuary exercising his
right of retention for taxes paid on
the capital and for extraordinary
expenses. (Art. 612)
 A person exercising his right of
retention over a movable for his
fee or compensation for the work
executed on the movable—
mechanic’s lien. (Art. 1731)
 An agent exercising his right of
retention for advances made of
necessary expenses for the
execution of the agency and for
damages which the execution of
the agency may have caused him.
(Arts. 1912, 1913, 1914)
 A bailee exercising his right of
retention. (Art. 1944)
 A depositary exercising his right
of retention for necessary
expenses/fortuitous damages as the
case may be. (Art. 1994)
 A hotel-keeper exercising his
right of retention over things
brought to the hotel by a guest as
security for credits on account of
board and lodging. (Art. 2004)
EFFECT OF INABILITY TO PAY BY
PLEDGOR OR DEBTOR IN LEGAL
PEDGES
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 The creditor has the remedy to

have the retained thing sold at a
public auction. However, he must
first demand payment of the
amount for which the thing is
retained.
 Public auction shall take place
within one month after such
demand.
 If without just cause, the creditor
does not cause the public sale to
be held within such period, the
debtor may require the return of
the thing. (Art. 2122)

AMORTIZATION
 Is paying off an amount owed over
time by making planned,
incremental payments of
principal and interest

FORECLOSURE
 A process in which a creditor seizes
a property of his debtor in case the
latter fails to fulfill his obligation.