Araullo University College of Law

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Cabanatuan City, Nueva Ecija
3100

A report on:
PLEDGE
(Articles 2085 2123, NCC)

By:
[Member Name]
[Member Name]
[Member Name]
LAW 019:
Credit Transactions

Salting, Victor
(Articles 2085 2099)
I.
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Provisions Common to Pledge and Mortgage

Pledge, mortgage (Article 2124), chattel mortgage (Article 2140), and antichresis
(Article 2132): species of contracts intended to secure the performance of a principal
and pre-existing obligation

Art. 2085.
Par. 1: Requisites of Common to Pledge and Mortgage
1. That they be constituted to secure the fulfillment of a principal
obligation.
1.1.
1.2.

They are accessory contracts

Cannot exist without a valid obligation

2. That the pledgor or mortgagor be the absolute owner of the thing

pledged or mortgaged;
2.1.

Contract must be constituted either by: (1) The absolute owner; or (2) a
person legally authorized to mortgage or pledge the property
GR: Pledge or mortgage constituted by an impostor is void and
the pledgee or mortgagee in such a case acquires no right
whatsoever in the property.
XPN: Mortgagee in good faith with respect to property
covered by a Torrens Certificate of title.1
(To preserve the confidence of the people on the Torrens Title)
The above exception does not apply to banks and other
institutions whose business are affected with public interest and
are required to exercised higher standard of diligence.

2.2.

Foreclosure Sale, though forced, is still a sale. The rule that the seller must be
the owner of the thing sold applies in a foreclosure sale.

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.
3.1 Act of pledging or mortgaging is an act of strict ownership

Par. 2: Pledgor or Mortgagor may be a third person

1 xxx Whenever the phrase innocent purchaser for value or an equivalent phrase
occurs in this Decree, it shall include an innocent lessee, mortgagee, or other
encumbrancer for value. [Section 32, PD 1529; Agcaoili, Property Registration
Decree and Related Laws (2015)].

Mortgagee or pledgee has duty to make proper inquiry or else he is guilty of

negligence

Art. 2086
Art. 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guarantee may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may
also guarantee natural obligation.

Art. 2087
-

The thing pledge or mortgaged may be alienated: the essence of pledge because
they are constituted to secure the fulfillment of a principal obligation.

Art. 2088
-

Creditor cannot appropriate or dispose the thing pledged or mortgaged

When the mortgagor fails to pay the obligation, mortgagee must foreclose the
mortgage

Pactum Commissorium, prohibited

Stipulation whereby the thing pledged, or mortgaged, or under antichresis shall
automatically become the property of the debtor in case of non-payment of the
debt within the term fixed
Requisites:
(a) There should be a pledge, mortgage, or antichreesis of property by way of security
for the principal obligation; and
(b) There should be a stipulation for an automatic appropriation of the property in the
event of non-payment of the obligation within the stipulated period.
-

Only the stipulation or prohibition is void. The security contract remains valid.
Risk of loss of property pledged or mortgaged: Belongs to debtor-owner

Art. 2089
GR: 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.
XPN: Cases in which, there being several things given in
mortgage or pledge, each one of them guarantees only a
determinate portion of the credit.
Effects of GR:
- Debtors heir who paid part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt in not completely
satisfied
- The creditors heir who received his share of the debt cannot return the pledge or
cancel the mortgage as long as the debt is not completely satisfied
Effect of XPN:

Other
1.
2.
3.

The debtor shall have the right to the extinguishment of the pledge or mortgage as
to the portion of the debt for which each thing is specially answerable is satisfied.
XPNs:
Only portion of the loan is released
Failure of consideration
No debtor-creditor relationship

NB: Art. 2090 provides that the indivisibility of a pledge or mortgage is not affected by the
fact that the debtors are not solidary liable.
-

Pledge or mortgage may secure all kinds of obligation (i.e., pure or conditional), as
provided in Article 2091

Pledge v. Mortgage
(1) Pledge is constituted on movables (Art. 2094), while mortgage, on immovable (Art.
2124)
(2) In Pledge, delivery is necessary, while in mortgage delivery is not necessary
(3) Pledge is not valid against third persons unless it appears in a public instrument,
while mortgage is not valid against third persons if not registered; and
(4) The pledgor can sell the thing pledged with the consent of the pledgee, while the
mortgagor can sell the property mortgaged even without the consent of the
mortgagee.

II.

Pledge

Definition:

A Contract:
Kinds:
1. Voluntary or conventional created by agreement of the parties
2. Legal created by operation of law
Characteristics
1. Real Contract
- Perfected by the delivery of the thing pledge
Article 2093
- Provides an additional requisite to those provided in Article 2085.
- It is necessary that the thing pledge be placed in the possession of the Creditor or of
a third person by common agreement.
GR: Constructive Delivery is not sufficient. There should be
actual possession of the property pledged.
XPN: The case of Yuliongsui vs. Phil. National Bank.
Whether symbolic delivery is sufficient depends on the nature
of the thing pledged.
NB: Article 2092:

A promise to constitute a pledge or mortgage gives rise only to a personal action

between the contracting parties, without prejudice to the criminal prosecution
incurred by him who defrauds another, by offering in pledge or mortgage as
unencumbered, things which he knew were subject to some burden, or by
misrepresenting himself to be the owner of the same. (Criminal offense referred to is
estafa.)

Delivery is sufficient to constitute the real contract of pledge between the parties.
However, as far as third persons are concerned, this is not sufficient to affect them.
To make it effective against third persons, the pledge should appear in public
instrument which contain a description of the thing pledged and the date of the
pledge. (Art. 2096)

2. Accessory contract
- Cannot exists on its own
- Its validity depends on the validity of the principal obligation
3. Unilateral
- Obligation is on the part of the creditor to return the property pledged with all
its fruits and accessions upon the fulfillment of the principal obligation
4. Subsidiary Obligation
- Obligation incurred will not arise until the principal obligation is fulfilled
NB: In case of doubt whether a transaction is one of pledge or dation in payment, it is
presumed as the former because it involves lesser transmission of rights and interest.

Debtor delivers to the creditor or to a third person a movable or document

evidencing incorporeal rights:
Article 2094 provides that all movables may be the object of pledge provided it is
1. Within the commerce of men; and
2. Susceptible of possession
Article 2095 deals with incorporeal rights:
- They may be evidenced by negotiable instruments, bills of lading, shares of stock,
bonds, warehouse receipts and similar documents
- To constitute the pledge, such instrument shall be delivered to the creditor, and in
case of a negotiable instrument, it must be indorsed

To secure the fulfillment of the Principal Obligation:

Article 2098
- Under this provision, the creditor is given the right to retain the thing in his
possession or in that of a third person to whom it was delivered, until the debt is
paid
- This possession constitutes pledgees security

When the principal obligation is fulfilled, the thing delivered shall be returned with
all its fruits and accessions.

Alienation by the Pledgor of Thing Pledged

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Since there is no transfer of owner in the contract of pledge, the pledgor may still
alienate the thing pledged provided such alienation was with the consent of the
pledgee.
Ownership is transferred to the vendee or transferee as soon as the pledgee
consents to the alienation. The pledgee, however, shall continue in possession.

Obligation and Right of Creditor

-

Take care of the thing with the diligence of a good father of a family
To be reimbursed of the expenses made for the preservation of the thing
To be liable for the loss or deterioration of the thing in case he is guilty of fraud,
negligence, delay, or violation of the terms of the contract.