Pledge

The following requisites are essential to the 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 morgaging their own property.
Essential Requirements of Pledge and Mortgage

1. Constituted to secure fulfillment of a principal obligation

2. Pledgor or mortgagor is absolute owner

3. Pledgor or mortgagor has free disposal of property or has legal

authority

4. Thing pledged or mortgaged may be alienated*

 The creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.
Right of Creditor to Appropriate Thing
Pledged or Mortgage

• 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 the thing pledged
with the formalities required by law, in order to collect the amount of
his claim from the proceeds
• The creditor cannot appropriate to himself the thing held as pledge or
under mortgage, nor can he dispose of the same as owner. The reason
for the prohibition is that the amount of the loan is ordinarily much
less than the real value of the thing pledged or mortgaged
What is Pledge?
• It is a contract by virtue of which the debtor delivers to creditor or to a
third person a movable, or instrument evidencing corporeal rights, for
the purpose of securing the fulfillment of a principal obligation with the
understanding that when the obligation is fulfilled the thing delivered
shall be returned with all its fruits and accessories.
Characteristics of Pledge

• Real contract
• Accessory contract
• Unilateral contract
• Subsidiary contract
• Indivisible*
Kinds of Pledge

1. Voluntary or conventional

2. Legal
 Pledge Mortgage

• Constituted on movables • Constituted on

immovables

• Property is delivered to
the pledgee, or by • Delivery is not necessary
common consent to a
third person
 Pledge Mortgage

• Not valid against third • Not valid against third

persons unless a persons if not registered
description of the thing
pledged and the date of
the pledge appear on a
public instrument*
Rights of the pledgee
• To retain the thing;
• To be reimbursed for the expenses incurred in its preservation.
• To compensate the fruits, income, dividends or interest earned by the
thing pledged and received with those which are due to him;
• To bring the actions which pertains to the owner of the thing pledged in
order to recover it from, or defend it against a third person;
• To sell the thing pledged at public auction;**
• To claim a substitute or demand immediate payment;
• To bid at the public sale
• To collect the amount that becomes due.
• To choose which one of several things pledged shall be sold.
Obligations of the pledgee
• To take care of the thing pledged with the diligence of a good father of a
family.
• To answer for its loss or deterioration.
• Not to deposit the thing pledged with a third person unless authorized.
• To be responsible for the acts of his agents or employees.
• Not to use the thing pledged unless authorized or its preservation so
requires.