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CHAPTE CHAPTER R 10PROV 10PROVIS ISION IONS S COMMON COMMON TO PLEDGE AND
MORTGAGE
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INTRODUCTION The The Civi Civill Code Code provi provisi sion ons s on mort mortga gage ge subscribe to the Lien Theory under which the mortgage takes only a lien on property. property. The mortgage mortgage is not, not, as a rule rule entitl entitled ed to possession. In pledge, the encumbrance is created upon delivery.
b . Tha t the p le ledger o r mor tg tg ag agor b e the absolute absolute owner of the the thin thing g pled pledge ged d or mortgaged. c. That That the person persons s constitu constitutin ting g the pledge pledge or mort mortga gage ge have have the the free disposal of their their property property and in their absence thereof, thereof, that they be legally authorized to the purpose. The following reuisites applies also on anichresis. o 2. WHO MAY MAY PLEDGE PLEDGE OR MORTGAG MORTGAGE E (O-F-A-S) (O-F-A-S) !. The pledgo pledgorr or mortgago mortgagorr must be the the owner. o In a decided case by the "C, it held that he who is not the owner of the property pledged pledged or mortgaged to guarantee guarantee the fulllment of an obligation, cannot legally constitute constitute such guaranty as may validly bind the property in favor of his creditor and the pledgee pledgee or mortgag mortgagee ee in such such case acquires no right whatsoever in the property pledged or mortgaged 2 #. The The pledgo pledgorr mortg mortgago agorr must must have free disposal of the property to be pledged or mortgaged. $. If the pledg pledgor or or mortgag mortgagor or does not not have have free free dispos disposal al of the prope propert rty y, he must be legally authorized to authorized to do so. %. &e must not sue suerr from from any any inca incapa paci city ty or disqualication provided disqualication provided by law.
PROVISIONS1 Art!"# 2$%&. T'# ""*+, r#/t#/ 0r# #//#+t #//#+t0 0"" t t'# t'# !+tr !+tr0! 0!t/ t/ "#, "#,# # 0+ 3rt,0,#: 1. T'0t t'#4 t'#4 0r# !+/t !+/ttt# tt# t /#!r# /#!r# t'# "5""3#+t 0 r+!0" 6",0t+. 2. T'0t T'0t t'# t'# "#, "#,#r #r r 3rt, 3rt,0, 0,r r 6# t'# t'# 06/"t# *+#r t'# t'+, "#,# r 3rt,0,#. 7. T'0t T'0t t'# t'# #r/ #r/+/ +/ !+/t +/ttt tt+, +, t'# t'# "# "#,# ,# r 3rt 3rt,0 ,0,# ,# '08# '08# t'# t'# r## r## //0" t'#r r#rt4 0+ + t'#r 06/#+!# 06/#+!# t'#r# t'#r#99 t'0t t'0t t'#4 6# "#,0"" "#,0""4 4 0t'r# t t'# r/#. T'r T'r #r/ #r/+ +/ / *' *' 0r# 0r# +t +t 0rt 0rt# #/ / t t'# t'# r+!0" 6",0t+ 304 /#!r# t'# "0tt#r 64
1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. A ND ND
A. ACCOMODATION MORTGAGE o The debtor himself or a third person 'who is not a party to the obligation( ma mortgage or pledge his property to secure the obligation of the debtor. It is not reuired reuired that that the third person person benet beneted ed from the principal contract. o )n accommodation mortgagor is not himself a recipient to a loan.
REQUISITE S C OM OMMON TO PLEDGE MORTGAGE: (S-A-F) a. That they are constituted to secure the fulllment of a principal obligation.
1Article 2052. A guaranty cannot exist without
a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or unenforceable contract. t may also guarantee a natural obligation.
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In a decided case by the "C, it was held that it is not necessary that the accommodation mortgagor be appraised beforehand of the entire amount of the loan nor it should be determined before the execution of the S! in favor of the debtor ". *specially true when the words used by the parties indicate that the mortgage serves a continuing security for credit obtained as well as future loan availments. •
7. COMMON FEATURES PLEDGE MORTGAGE R#0" S#!rt4 +hen the principal obligation becomes due, o the things in which the pledge or mortgage consists may be alienated for the payment of the creditor C+/#r0t+ o The consideration is the principal obligation o ebtor- the consideration of his obligation to pay is the eistence of debt o The consideration for the accessory contract and the principal obligation is the same. o In the case of #entral $an% v #!, it was held that the fact that the mortgagor eecuted the real estate mortgage no consideration was present because the bank had not yet released the loan, does not make he real estate mortgage void for lack of consideration. The consideration in a mortgage may be either a prior or subseuent matter. +hen the consideration is subseuent to the mortgage, the
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mortgage can take e/ect only when the debt secured by it is created as a binding contract to pay. +hen there is partial failure of consideration, the mortgage becomes unenforceable only up to the etent of such failure. The mortgage cannot be enforced more than the actual sum due. R#0" R,'t 0eal right is the power belonging to the o person over a specic thing without a denite passive sub1ect against whom such right may be eercised. o 2ledge or mortgage is a real right of security. A!!#//r4 o The principal obligation may be valid and binding even if the pledge or mortgage is not binding. o The mortgage or pledge is not binding when the principal obligation is void. o The pledge or mortgage are mere incidents to the debt. "eparated from the d eb t the mortgage has no determinative value. o The transfer of debt carries with it the mortgage. The purchaser of note secured by a chattel mortgage may act as the mortgagee3s agent and to do whatever he could have done to enforce the mortgage. o +hatever discharges the debt discharges the mortgage unless there be an agreement to the contrary. o If by special agreement the assignment of
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debt is not accompanied by the assignment of the mortgage, the mortgage is etinguished. C)"*4 $arach &otors v 'steva( The mortgage-creditor assigned the debts evidenced by promissory note to a $rd party. The transfer does not include the transfer of the mortgage. 5nder the agreement, the mortgagee retained the mortgage while the third party received the promissory notes. "ubseuently, the third party sued the debtor based on the notes and the mortgagee foreclosed the property. 05LI674 The Court ruled that the foreclosure proceeding was nulled. The mortgage ceased to eist because there was no debt in which it could be attached 8CT0I6*4 Ther e ca n be no separation of the notes and the mortgage. +hile the third party can sue upon the notes, it is not allowed that there can be both the foreclosure and a suit on notes. ;. SECURED O
1. SECURITY ONLY o The delivery of the thing pledged does not amount to payment. o The ling of an action for replevin preparatory to foreclosure does not amount to an action for specic performance. 2. PACTUM COMMISSORIUM A. REQUISITES ! . There should be p rop erty p led ged or mortgage by way of security as payment of the principal obligation. #. There should be stipulation for automatic appropriation by the creditor of thing given as security in case of non-payment of the principal within the stipulated period. o )greement whereby the creditor automatically becomes the owner of the things given by way of pledge or mortgage, or dispose of them in case of non-payment without the need of foreclosure proceedings or public auction. 65LL )6 98I o The debtor may waive the security and le an o action for specic performance< 80 if he wants to rely on the security, proceed to foreclosure or have the property sold for the payment of the debt. o There can be no pactum commissorium if there is no pledge or mortgage. <. PROMISE TO TRANSFER
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) promise of the mortgagor-debtor to transfer a property in favor of creditor in case of nonpayment does not automatically amount to pactum commissorium In !goncillo v )avier, the "upreme Court held that the stipulation that the stipulation of the party that the debtor-mortgagor will transfer his property in the event of non-payment does not constitute pactum commissorium. The "C construed the provision is simply an undertaking that if the debt is not paid in money it shall be paid in another specic way by transfer of property at a valuation. It must be taken into consideration that the transfer creates no real right. &owever, between the parties it is perfectly binding until prevented by a creation of superior rights in favor of $rd persons. •
C. E>TINGUISHMENT There is no pactum commissorium if the principal obligation is etinguished by way of novation, dacion en pago or cession o 0)TI84 These are acts or transactions that are agreed upon not at the time the mortgage was constituted but only thereafter. D. AUTHORITY TO SELL o )n authority to sell ad the appointment of mortgage as attorney-in-fact to sell and dispose of land does not constitute pactum commissorium. In 'l *ogar +ilipino v aredes, the "C o ruled that the law does not prohibit a stipulation whereby the creditor is authorized in case of non payment within the stipulated period to sell the thing mortgage at a public auction or to ad1udicate the same to himself in case of
failure of said sale, nor there is any reason whatever to prevent it. "aid right of the creditor-mortgagee is epressly stated in )rticle !=>#% "tipulation that confers a power of sale upon the mortgage or foreclose the same etra1udicial is valid. 0)TI84 It is not in contravention with public order, public policy or good morals because the debtor epressly agrees upon such manner of making payment. •
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Art!"# 2$%?. A "#,# r 3rt,0,# / +8/6"#9 #8#+ t',' t'# #6t 304 6# 8# 03+, t'# /!!#//r/ + +t#r#/t t'# #6tr r t'# !r#tr. T'#r#r# t'# #6tr@/ '#r *' '0/ 0 0 0rt t'# #6t !0++t 0/ r t'# rrt+0t# #Bt+,/'3#+t t'# "#,# r 3rt,0,# 0/ "+, 0/ t'# #6t / +t !3"#t#"4 /0t/5#. N#t'#r !0+ t'# !r#tr@/ '#r *' '0/ r#!#8# '/ /'0r# t'# #6t r#tr+ t'# "#,# r !0+!#" t'# 3rt,0,#9 t t'# r#!# t'# t'#r '#r/ *' '08# +t 6##+ 0. + Article 1%2. Fr3 t'#/# r8/+/ / #B#!t# t'# !0/# + *'!'9 t'#r# 6#+, /#8#r0" t'+,/ ,8#+ + 3rt,0,# r "#,#9 #0!' +# t'#3 ,0r0+t##/ +"4 0 #t#r3+0t# rrt+ + t'# !r#t.
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;. The rule on indivisibility does not apply when each of the several things given in mortgage guarantees only a determinate portion of the credit. >. The indivisibility is present even if the debtors a re 1ointly liable. =. If the creditor dies , an heir cannot etinguish the pledge or mortgage to the pre1udice of the other heirs. The rule of indivisibility of a mortgage which respect to the heirs applies only when there are several heirs:
Art!"# 2$?1. T'# !+tr0!t "#,# r 3rt,0,# 304 /#!r# 0"" +/ 6",0t+/9 6# t'#4 r# r /6#!t t 0 r#/"tr4 r //#+/8# !+t+. Art!"# 2$?2. A r3/# t !+/tt t# 0 "#,# r 3rt,0,# ,8#/ r/# +"4 t 0 #r/+0" 0!t+ 6#t*##+ t'# !+tr0!t+, 0rt#/9 *t't r#!# t t'# !r3+0" r#/+/6"t4 +!rr# 64 '3 *' #r0/ 0+t'#r 6 #r+ + "# # r 3rt 0 # 0/
1. INDVISI
1. PROMISE TO PLEDGE OR MORTGAGE o The contract of pledge or mortgage involves a consensual contract to mortgage or pledge. o The mortgagee acuires no real right of encumbrance until the mortgage or pledge is validly constituted, o The prospective mortgagee has a right le an action for specic performance against the one who promised to constitute the contract. 2. ESTAFA
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)rticle #?@# recognized the criminal responsibility that one may incur if he defrauds another by o/ering in pledge or mortgage as unencumbered, things he knew were sub1ect to some burden or by misrepresenting himself to be the owner of the same.
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CASE DOCTRINE: In $ v &allorca( o !. The debtor-mortgagor mortgaged a parcel of land to 2 Aank as a security for a loan. #. The mortgage was duly recorded $. "ubseuently without the knowledge of 2 Aank the debtor mortgagor sold a portion of and to 2B. %. 0egister of eeds released a new title making 2 Aank and 2B co-owners. 2 Aank3s mortgage lien was recorded. :. The debtor-mortgagor failed to pay his loan. ;. 2 Aank foreclosed the mortgage and was able to buy the land. >. 2B sued bank to enforce her right against the property. =. 2B refused to surrender her title contending that she has undivided interest over the portion of the land and the same was not a/ected by the foreclosure and subseuent sale to 2 Aank. &*L4 2B3s argument is 68T correct. o "ale or transfer cannot a/ect or release a mortgage. ) purchaser is necessarily bound to acknowledg e and r esp ec t the encumbrance to which it is sub1ected the purchased thing and which is at
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disposal of the creditor in order that he may recover the amount of credit therefrom. The mortgage subsist even if there is change in the ownership. The last transferee is 1ust as much of a debtor as the rst one and this independent of whether the transferee knows or not the person of the mortgagee. ) mortgage lien is inseperable form the property mortgaged. )ll subseuent purchasers must respect the mortgage whether the transfer to them be with or without the consent of the mortgagee. )nother reason why 2B3s contention is not correct is that because pledge or mortgage is indivisible.
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1. DEFINITION )n 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 fulllment of which, the thing pledged, with all its accessories and accessions, shall be returned to the debtor or the third person. )n accessory contract by virtue of which personal property delivered to the creditor as security for a principal obligation with the agreement that the pledged property can be sold at a public auction in case of non-payment to answer for the unpaid obligation or the pledged property shall be returned by pledgeecreditor in case the principal obligation is fully paid. The creditor is given a right to retain his debtor3s movable property in his possession or in that of a third person to whom it has been delivered. The creditor does not become the owner of the thing pledged. &e is nothing more than a creditor with real right over the thing in his possession as a pledge, which he can dispose of through a notary at a public sale.
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CONTRACT OF PLEDGE Art!"# 2$?7. I+ 0t+ t t'# r#/t#/ r#/!r6# 64 Art!"# 2$%&9 t / +#!#//0r49 + r#r t !+/ttt# t'# !+tr0!t "#,#9 t'0t t'# t'+, "#,# 6# "0!# + t'# //#//+ t'# !r#tr9 r 0 t'r #r/+ 64 !33+ 0,r##3#+t. Art!"# 2$?;. A"" 3806"#/9 *'!' 0r# *t'+ !33#r!# 30+9 304 6# "#,#9 r8# t'#4 0r# //!#t6"# //#//+. Art!"# 2$?&. I+!rr#0" r,'t/9 #8#+!# 64 +#,t06"# +/tr3#+t/9 6""/ "0+,9 /'0r#/ /t!/9 6+/9 *0r#'/# r#!#t/ 0+ /3"0r !3#+t/ 304 0"/ 6# "#,#. T'# +/tr3#+t r8+, t'# r,'t t "#,# /'0"" 6# #"8#r# t t'# !r#tr9 0+ +#,t06"#9 3/t 6# +r/#.
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Article 20%5, 4he following reuisites are essential to the contracts of pledge and mortgage64hat they are constituted to secure the ful7llment of a principal obligation. 2. 4hat the pledger or mortgagor be the absolute owner of the thing pledged or mortgaged. '. 4hat the persons constituting the pledge or mortgage have the free disposal of their property and in their absence thereof, that they be legally authori8ed to the purpose. 4hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.
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2. REQUISITES (S-A-F-P-E) a. The pledge must be constituted to secure the fulllment of a principal obligation. b. The pledgor must be the absolute owner of the thing o Ay way of eception the real owner may be estopped even if the person who delivered the thing by way of pledge was not the real owner under the circumstance mentioned in )rticle !%=$.>
Article 1+'%. *ne who has allowed another to assume apparent ownership of personal property for the purpose of ma/ing any transfer of it, cannot if he received, the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledge who received the same in good faith and for value.
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c. The pledgor must have free disposal of the property. d. The thing pledged should be placed in the possession of the creditor or of a third person, by common agreement e. To ta ke eecr against third persons, the description of the thing and the date of the pledge must appear in a public instrument. A. DELIVERY The contract of pledge is one of the % real contracts in the 6CC 'commodatum, mutuum, deposituum(. o 6o pledge is validly constituted if there is no delivery. o The delivery implied in )rticle #?@$ is a change in the actual possession of the property pledged and that a mere symbolic delivery is not su/icient o 5ntil there is delivery, the pledgee acuires no real right of property in the thing. 2ledge is merely a lien< and possession is indispensible in the right of a lien. o In $eita v -anzon, the animals in uestion were in the possession of a third person not specied in the contract before the alleged pledge was entered into. The thing pledged remained with them until eecution was levied. The "C ruled that there is no actual delivery of the alleged pledgee themselves. There is no reality no change in possession. &ence, the pledge was not e/ective. o In 'l $anco 'spanol v eterson the pledgee took possession of the goods pledged through a depository and a special agent appointed by it, each of whom had a duplicate key to the warehouse where the goods are stored, and that the pledgee took the proceeds of the goods sold. o
The Court ruled that the fact that the goods are continued to be in the warehouse the pledgor reviously rented does not a/ect the validity of the pledged. The pledgor could no longer dispose if the thing pledged and the pledgee is the only one authorized to do so through the depositary. The symbolical transfer of the keys to where the goods were stored were su/icient to show that the depositary appointed by the common consent of the parties were legally placed in the possession of the goods. This is a deposit to a third person as contemplated by )rticle #?@$. The pledgee assumed control over the goods because he already controlled the place where the goods were stored. $. CHARACTERISTICS (A-R-R-U-S) !. )ccessory Contract o Aeing an accessory contract of security, there is no transfer of ownership. In ntergrated /ealty #orporation and /aul o Santos v $, the "C ruled that a transfer of property by the debtor to a creditor, even if su/icient on its face to make an absolute conveyance, should be treated as pledge if the debt continues in eistence and is not discharged by the transfer and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that e/ect in such a transaction if they are also commonly used in pledges or mortgages and therefore do not unualiedly indicate a transfer of absolute ownership, in the absence of clear and
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unambiguous language or other circumstances ecluding an intent to pledge. #.. 0eal 0ight $. 0eal security contract %. 0eal Contract o 2erfected by mere delivery :. 5nilateral o 5pon the perfection of the contract with the delivery of the thing, it is only the creditor who has the obligation to return the thing. ;. "ubsidiary The thing pledged will answer for the principal o obligation only upon the default of the principal debtor.
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)rticle !$;: of the 6CC provides that if # parties agree upon the pledge of personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. In this case, the instrument does not epress the true intention that it is a contract of pledge.
;. INDS !. C869*6TI86)L 80 98L56T)0 2L*7*" o Those agreed upon by the parties #. ). L*7)L 8ftentimes referred to as right of redemption. o A. 82*0T)I86 8D L)+ o )rticle %:; o )rticle ;!# o )rticle !>?> o )rticle !>$! o )rticle !@!% o )rticle !@@% o )rticle #??%
&. SU<ECT MATTER 8nly personal or movables contemplated in )rticle %!;= and %!>@ of the 6CC may be pledged provided that they are susceptible of actual delivery and possession. In the very nature of things, a pledge is conned and limited to personal property and it cannot be etended to real p roperty.
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The )ssignment of "hares of "tocks cannot be considered as proof of pledge if the eplicit terms of the deed denominated as E"tock )ssignment "eparate from CerticateF epressly states that the owners of the share sold, assigned and transferred unto another the stocks involved Efor and in consideration of the obligation undertakenF by the other party. The said )ssignment will be considered a sale since there is a complete and unconditional divestiture of the incorporeal property consisting of stocks. C. NEGOTIA
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. FORMALITIES Dor the contract to a/ect third persons, apart from being in a public instrument 'date and description of the thing pledged(, possession of the thing pledged must be in addition delivered to the pledgee.
)rticle #?@; is a rule of substantive law, prescribing a condition without which the eecution of a pledge contract cannot a/ect third persons adversely. 0)TI84 )nswers the necessity for not disturbing the relationship or the status of the ownership of things with hidden or simulated contracts of pledge. +ithout this warranty, a debtor in bad faith from the moment he sees his movable property in danger of eecution may attempt to withdraw from the same by way of criminal actions, fraudulent alterations in his possession by means of feigned contract of this nature. In the absence of an epress provision by law, the contract of pledge may be constituted n whatever form and will be valid and will produce its natural and legal conseuences with respect to third parties. &owever, if the date and the description of the thing pledged is not indicated, it will be valid as far as $ rd persons are concerned. The pledge is not binding on the vendor if the reuired formalities are not complied with. +ithout the formalities the third p arty will have a rig ht as a preferred creditor and in levying 1udgment against the goods that were supposed to be pledged. Conseuently, the pledgor in the absence of the formality, could not lawfully assert any right as a pledgee. The intent to constitute a pledge may appear not only in the written document but also in a separate agreement. o
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Art!"# 2$?=. Wt' t'# !+/#+t t'# "#,##9 t'# t'+, "#,# 304 6# 0"#+0t# 64 t'# "#,r r *+#r /6#!t t t'# "#,#. T'# *+#r/' t'# t'+, "#,# / tr0+/3tt# t t'# 8#+## r tr0+/#r## 0/ /+ 0/ t'#
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1. ALIENATION OF THE THING The pledgor remains the owner of the thing. &ence, the pledgor retains the right to sell or transfer the property. The pledge follows the ownership< unless the pledge is etinguished, the sale of the thing pledge will not by itself etinguish the pledge. 2. DELIVERY TO TRANSFEREE o
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If the thing to be sold is pledged, the seller cannot make actual delivery of the thing because the pledgee is in possession thereof. Thus, there can only be constructive delivery of he thing which becomes e/ective upon the consent of the pledgee to hold possession of the thing for the transferee.
7. SU
1. POSSESSION o The pledgee is a lawful and rightful possessor of the personal property pledged. a. The pledger cannot alienate the thing pledged before the obligation becomes due unless there is consent on the part of the pledgee- ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledgee consents to the alienation, but the latter shall continue in possession. b. The creditor-pledgee shall take care of the thing pledged with the diligence of a good father of a family< he has a right to the reimbursement of the epenses made for its preservation, and is liable for its loss and deterioration c. The pledgee cannot deposit the thing pledged with a third person unless there is a stipulation authorizing him to do so d. The creditor-pledgee may bring the actions which pertain to the owner of the thing pledged in order to recover it or defend it to third persons e. The pledgor has the same responsibility as a bailor in commodatum in the case under )rticle !@:!!? A. INCORPOREAL RIGHTS Incorporeal rights, evidenced by o negotiable instruments, bills of lading, shares of stocks, bonds, warehouse receipts and similar documents may also be pledged. The instrument proving the right to pledged shall be delivered to the
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creditor, and indorsed.
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If the thing pledged shall earn fruits, income, dividends, or interests, the creditor shall4 '!( Compensate what he receives with those which are owing to him '#( If none are owing to him, or insofar as the amount may eceed that which is due should be applied to the principal. '$( 5nless otherwise stipulated, the pledge shall etend to the interest and earnings of the right pledged. In case of pledge of animals, their o/spring shall pertain to the pledgor or owner of animals pledged, but shall be sub1ect to pledge, if there is no stipulation to the contrary. 2. HIDDEN DEFECTS The pledgor who knowing the Haws of the thing pledged, does not advise the pledgee of the same, shall be liable for the latter for the damages which he may su/er by reason thereof. 0*5I"IT*" !. There is a hidden defect in the thing pledged 2. The pledgor is aware of the hidden defect 7. The pledgee is not aware of the hidden defect ;. The pledgor did not notify the pledgee of the hidden defect &. The pledgee su/ered damages by reason thereof.
)rticle #!!: provides that the sale of the thing pledged etinguishes the obligation whether or not the proceeds of the sale are eual to the amount of the principal obligation. In that case, the creditor-pledgee does not have the right to recover the deciency.
Art!"# 21$&
! 1. RETURN OF THE THING The debtor cannot demand for the o return of the thing if the principal obligation has not been fully paid. o If the thing is returned before the payment of the obligation, the same will be etinguished. 2. PRESCRIPTION o The right to recover the thing from the pledgee will rise only upon payment of the loan secured by the pledge.
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Therefore the prescriptive period within which to demand the return of the thing pledged should begin to run only after the payment of the loan and demand for the thing has been made, because it is only then that the debtor acuires a cause of
Art!"# 21$-21$?
action for the return of the thing pledged.
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1. DEPOSIT The pledgor has the right to ask that the o thing be deposited in the following cases4 '!( If the pledgee uses the thing pledged without authority of the owner '#( If the creditor misuses the thing pledged '$( '$( If through the negligence or willfull act of the pledgee, the thing pledged is in the danger of being lost or impaired. 2. RETURN
'#( The danger of destruction or impairment was without the fault of the pledgee '$( The pledgor must o/er another thing in pledge, provided the latter is of the same kind as the former and not of inferior uality '%( The eercise of the right is without pre1udice to the right of the pledgee to sell the thing at public auction under )rticle #!?@. It is important that the creditor is o aware of the true nature of the substance and uality of the thing pledged so that the creditor will have the correct estimation of the value of his security REMEDIES If the creditor was deceived as to the substance and uality of the thing pledged has has the alternate remedies of4 '!( The creditor may claim another thing in pledged (2) The creditor may demand immediate payment of the obligation.
Art!"# 211$-2111
1. E>TINGUISHMENT 70856" D80 *GTI675I"&B*6T o '!( 0eturn of the thing pledged o The return of the thing pledged will not a/ect the principal obligation. )s an
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accessory contract the return will not a/ect the principal obligation. (2) "tatement in writing that the creditor renounces or abandon the pledge. (7) Dull payment or compensation of the principal obligation A. NOVATION11 6ovation is a ground for the o etinguishment of an obligation. &owever, the novation must be established by su/icient proof. <. ACQUISITIVE PRESCRIPTION )rticle !!$# provides that the ownership o of movab les p rescrib es thro ug h uninterrupted possession for % years in good faith o The ownership of personal property presecribes through uninterrupted possession for = years in good faith o The provision on prescription does not apply in the things plesged because what is reuired is the possession of the thing as an owner., public peaceful and uninterrupted. C. CONDONATION12 OR REMMISSION17 The condonation of the principal o obligation by the creditor etinguishes the accessory contract like pledge. o 0emmission or condomation may pertain to pledge only. )rticle !#>% provides that it is presumed o that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor,
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is found in the p ossession of the debtor, or of a third person who owns the thing.
Art!"# 2112-211?
1. NATURE OF E>TRAUDICIAL SALE The pledgee may sell the pledged property if o the obligations it secure is not paid. The creditor, in a contract of real security like o pled ge canno t ap pr opri ate wi thout foreclosure the things given by way of pledge. o )ny stipulation to the contrary constitutes pactum commissorium which is void. o The public auction will result in the etinguishment of the obligation. 2. REQUISITES: '!( The credit has not been satised in due time '#( The sale must be at a public auction before a notary o The procedure in the foreclosure of pledge before a notary public does not
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reuire the submission of a petition for etra 1udicial foreclosure before the *ecution Judge of the appropriate 0TC through the Clerk of CourtK*-8/icio "heriri/. ) sheri/ who does the foreclosure shall be guilty of gravely abusing his authority. The foreclosure of a pledge occurs etra1udicially without the intervention of the courts. '$( There must be notication to the debtor and the owner of the thing in the proper case o 6otice must be sent before every auction date but notice after the auction sale does not make the same void. '%( The notice must state the amount for which the public sale is to be held ':( )ll bids at the public auction shall o/er to pay the purchase price at once ';( The pledgee must notify the pledgor of the results of the bidding.
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In order that the consignation could have the e/ect of etinguishing the pledge contracts, such amounts should cover not only the principal amount but also the interest due.
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7. NO RIGHT OF REDEMPTION o There is no right of redemption after the thing pledged is sold in an etra1udicial sale. The rights of ownership vested unto the purchaser a re no t entangled in any suspensive condition that is implicit in redemption •
;. EQUITY OF REDEMPTION o The payment or consignation of the amount due will stop the sale. o "ince, the obligation is etinguished, there is no need to proceed with the sale.
&. NO REQUIREMENT OF SALE SEPARATELY o It is the pledgee3s right to choose which of the items should be sold at the auction when two or more things are pledged. The law does not prohibit the things sub1ect o to the pledge be sold at one auction sale or be it bought in a single occasion. &owever this ruled does not apply in the / cases4 '!( ) bidder epressed the desire to bid on a determinate number or portion of the pledged shares. 6ot all of the pledge contracts are not etinguished if the bidder will choose to buy only a specic share. There is a need to determine what shares will satisfy the obligation '#( 8ne or some owners of the thing pledged shares participated in the auction, bidding only on their respective pledge shares. •
;. PLEDFOR CAN
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'!( They may acuire the thing pledged again in a price lower than what is originally due. '#( The creditor would not be able to recover the deciency due from them The pledgee can only bid in the condition that he is not the only bidder..
>. PLEDGEE@S RIGHT TO APPROPRIATE The pledgee has the right to appropriate after o second unsuccessful sale. In this case, he shall be obliged to give an acuittance for his entire claim =. NO RECOVERY OF DEFICIENCY '!( If the price of the sale is less, neither shall the creditor may be entitled to recover the deciency, notwithstanding any stipulation to the contrary 0)TI84 Ay choosing foreclosure rather than o suing on the principal obligation, the creditor has waived any other remedy. '#( If the price of sale is more than the amount of the obligation, the debtor shall not be entitled to the ecess, unless it is otherwise agreed. The pledgee shall be entitled to the ecess. The eception is in legal pledge because after the payment of the debt and epenses, the remainder of the price of the sale shall be delivered to the obligor. o The application of )rticle #!!: is not a/ected by the fact that the pledge is not the principal agreement Art!"# 212$
1. RIGHTS OF A THIRD PARTY PLEDGOR o The pledgor whose property was sold for the debt of the debtor must be indemnied by the debtor4 '!( The total amount of the debt '#( The legal interest thereon from the time the payment was made known to the debtor '$( The epenses incurred by the pledgor after having notied the debtor that payment has been demanded from him '%( amages, if they are due.
Art!"# 2121-22
1. PLEDGE ?> o )rticle !>$! o )rticle !@!% o )rticle !@@% o )rticle #??%
2. MECHANICS LIEN )rticle !>$! provides that a mechanic can o legally retain by way of pledge the movable upon which it eecuted his work. o The mechanic has lien until he has been paid his charges. The lien entitles him to sole custody of the car. 7. SALE IN LEGAL PLEDGE
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) thing under a pledge by operation of law may be sold if the / are complied with4 '!( The creditor must demand the amount for which the thing is retained '#( The public auction shall take place one month after such demand If the creditor does not cause the public sale within one month from demand, the debtor may reuire the return of the thing
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LAW ON PAWNSHOP Art!"# 2127 1. 1. 1. 1. 1. LAW ON PAWNSHOPS o 7overned by 2 !!% or the 2awnshop 0egulation )ct. o The regulations regarding pawnshops is primarily the 2 0egulations of the Banual of 0egulations for 6on- Aank Dinancial Institutions. ) pawnshop enters into a contact of pledge o with the pawner or borrower. 2. DEFINITION OF TERMS 2)+6"&82- ) person or entity engaged in o the business of lending money on personal property delivered as a security for loans and shall be synonymous and may be used interchangeably with pawnbroker or pawnbrokerage. 2)+6*0- refers to the borrower from a o pawnshop
2)+6**- pawnshop or pawnbroker 2)+6-the personal property delivered by the pawner to the pawnee as a security of the loan 2)+6 TIC*T- is the pawnbrokers3 receipt for a pawn. It is not a security or evidence of indebtness 2roof of contract of pledge )t the time of every loan or pledge, the pawnshop is reuired to deliver to each person pawning signed by the pawnbroker containing4 i. The amount of the loan . T'# 0t# t'# "0+ *0/ ,r0+t# . R0t# +t#r#/t 8. T'# +03# 0+ r#/#+!# t'# 0*+##. Dailure to issue will sub1ect the paynshop to penalties under "ection !=!%
7. IMPORTANT REGULATIONS
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