the fulfillment of a principal obligation with the
PLEDGE
(ARTICLES 2085-2123)
PROVISIONS COMMON TO PLEDGE AND MORTGAGE
Art. 2085. The following requisites are essential to t
he 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 thi
ngs 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 docume
nt
evidencing incorporeal rights, for the purpose of se
curing
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 p
rincipal obligation
2. The pledgor be the absolute owner of the thing
pledged
3. That the persons constituting the pledge have t
he 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 th
ing 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 pled
ge or mortgage
2. A pledge or mortgage executed by one who is n
ot the
owner of the property pledged or mortgaged is wit
hout 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.
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
RIGHT OF CREDITOR WHERE DEBTOR FAILS TO
COMPLY WITH HIS OBLIGATION IN PLEDGE
1. If the debtor fails to comply with the obligation at
the time it falls due, the creditor is merely entitled to
move for the sale of thing pledged
2. The creditor cannot appropriate himself without
foreclosure the thing pledged as pledge or under
mortgage nor can he dispose of the same as owner

WHAT IS THE DIFFERENCE BETWEEN FREE DISPOS

AL AND CAPACITY TO DISPOSE?

> FREE DISPOSAL OF THE PROPERTY—property must

not be subject to any claim of a third person PACTUM COMMISSORIUM
> CAPACITY TO DISPOSE—
pledgor or mortgagor has the capacity or authority
>
to make a disposition of the property
Automatic appropriation by the creditor of the thin
g pledged or mortgaged upon the failure of the debtor
to pay the principal obligation
THING PLEDGED OR MORTGAGED MAY BE
ALIENATED
>
> Necessarily implied as an inherent element of TEST IF THERE IS EXISTS PACTUM COMMISSORIUM i
the transaction of the mortgage or pledge s whether or not there is no need for extra step to be
> The only remedy for the pledgee is to have the taken by creditor
security given sold at public auction and the proceeds
of the sale be
applied to the payment of the obligation secured b
y the mortgage or pledge

PLEDGOR OR MORTGAGOR MAY BE A THIRD PERSON

PROHIBITION AGAINST PACTUM COMMISSORIUM
1. Stipulation is null and void—
it is said to be contrary to good morals and public
policy
2. Requisites
a. There should be a pledge, mortgage, antichresis of
property by way of security for the payment of the
principal obligation
b. Stipulation for the automatic appropriation of th
e property in favor of the creditor upon default of the
debtor/pledgor
3. Effect on the security contract—doesn’t affect
substantially
the principal contract of pledge, mortgage or antic
hresis with regard to its validity and efficacy
AGREEMENTS THAT WOULD NOT CONSTITUTE
PACTUM COMMISSORIUM
1. Attorney in fact
2. Option contract. There would be another
contract. There is a risk of the courts to look at it as a
PC.
3. Dacion en pago
4. Assigned shares. Creditor would only have legal
title and pledgor would still have beneficial ownership.
RISK OF LOSS OF PROPERTY
PLEDGED OR MORTGAGED
> Debtor-owner bears the loss of the property
> The principal obligation is not extinguished
upon the loss of the thing pledged or
mortgaged
PLEDGE OR MORTGAGE
INDIVISIBLE, EXCEPTIONS
Art. 2089. A pledge or mortgage is indivisible, even
though the debt may be divided among the
successors in interest of the debtor or of the
creditor.
Therefore, the debtor’s heir who has paid a
part of the debt
cannot ask for the proportionate extinguish
ment of the
pledge or mortgage as long as the debt is n
ot completely satisfied.
Neither can the creditor’s heir who received his
share of the
debt return the pledge or cancel the mortga
ge, to the prejudice of the other heirs who
have not been paid.
From these provisions is expected the case in
which, there being several things given in
mortgage or pledge, each one of them guarantees
only a determinate portion of the credit.
The debtor, in this case, shall have a right
to the extinguishment of the pledge or mortgage
as the portion of
the debt for which each thing is specially answ
erable is satisfied. (1860)
Art. 2090. The indivisibility of
a pledge or mortgage is not
affected by the fact that the debtors are not s
olidarily liable. (n)
PLEDGE OR MORTGAGE
INDIVISIBLE
> Rule applies even if the obligation is joint and
not solidary
> The divisibility of the principal obligation
doesn't affect the indivisibility of the mortgage or
pledge

EXCEPTIONS TO THE RULE OF

INDIVISIBILITY
1. Where each one of several things guarantees
determinate portions of credit
2. Where only a portion of the loan was released
3. Where there was failure of consideration
4. Where there is no debtor-creditor relationship

FORECLOSURE OF MORTGAGE CO
NSTITUTED ON SEVERAL
PROPERTIES
> A mortgage even constituted on several
properties is one
and indivisible, that is, it cannot be divided am
ong the several properties and the mortgagee has
the right to have
the properties either or both, jointly or singly,
sold to satisfy his claim

>
Further, the sale of the mortgaged properties c
annot be set aside in the absence of evidence to
show that a better
price could have been obtained if they were
sold
separately, or the sale of one or some alone w
ould bring sufficient proceeds to satisfy the
mortgage credit