Security transaction-Pledge | Transcriptions Law

PLEDGE

under the law a contract of pledge is

constituted from the moment the debtor or in

this case is now known as the pledgor

delivers to a creditor or a third person who

will be known as the pledgee either

immovable or an instrument evidencing

incorporeal rights for the purpose of

securing the fulfillment of a principal

obligation with the understanding that upon

the fulfillment of such principal obligation,

the thing itself together with its fruits and

accessions will be returned.

Characteristics of this Contract of Pledge

1. It's a real contract because it is

perfected upon the delivery of the

thing.

2. Unilateral contract because it creates

an obligation on the part of the

creditor or the pledgee to return the

thing after fulfillment of the

principal obligation.

3. A subsidiary contract because the

obligation of the creditor to return

the thing only arises after the

principal obligation has been

fulfilled by the pledgor.

4. An accessory contract- meaning it

cannot exist without the existence of

a principal obligation now the cause

for the debtor or the pledgor is the

principal obligation itself while the

cause for the pledgee or creditor or

third person is either pure liberality

because pledge may be gratuitous or

it may be compensation in case of an

onerous contract of pledge.

Remember: a contract of pledge itself is

indivisible even if there are several debtors

or several creditors however, the principal

obligation itself may be divisible. There are

two contracts the principal obligation which

is usually a loan and the contract of pledge

itself.

The principal obligation may be divisible

into parts but the pledge itself cannot

divisible.

What is the implication shown?

if the principal obligation is divisible,

pledges may be obtained to secure the

fulfillment of definite portions of the

principal obligation and in case a portion of

the principal obligation is fulfilled then the

pledge corresponding to that part may be

extinguished. Those are two different things

- principal obligation and the pledge itself.

Remember: that a pledge cannot be

constituted if the thing has already have

been subject to a previous pledge meaning

you cannot have a double-pledge. Law

prohibits double pledges that said a pledge

may be constituted to secure all kinds of

obligation whether pure or conditional and

Q: What is the object of a pledge?

A: it is either a movable which is an

incorporeal right evidenced by an instrument

such as a security, a share of stock,

promissory note etc. The contract of pledge

with regard to its form is subject also to the

general rules of contracts in order to be

binding against third persons. The

description of the thing as well as the date of

Constitution of the pledge must appear in a

public document.

Requisites of a pledge

1. In pledge by its very nature it is

intended to secure the fulfillment of

a principal obligation okay it's an

accessory contract which cannot

exist without a principal obligation

to secure.

2. The pledgor must be the absolute

owner and the law takes is further

because the pledgor or the debtor

does not lose ownership, he retains

such ownership until the plege is

extinguished in other words the

pledgor may alienate or transfer

ownership to anyone else subject to

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PLEDGE

under the law a contract of pledge is constituted from the moment the debtor or in this case is now known as the pledgor delivers to a creditor or a third person who will be known as the pledgee either immovable or an instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that upon the fulfillment of such principal obligation, the thing itself together with its fruits and accessions will be returned. Characteristics of this Contract of Pledge

It's a real contract because it is perfected upon the delivery of the thing.
Unilateral contract because it creates an obligation on the part of the creditor or the pledgee to return the thing after fulfillment of the principal obligation.
A subsidiary contract because the obligation of the creditor to return the thing only arises after the principal obligation has been fulfilled by the pledgor.
An accessory contract- meaning it cannot exist without the existence of a principal obligation now the cause for the debtor or the pledgor is the principal obligation itself while the cause for the pledgee or creditor or third person is either pure liberality because pledge may be gratuitous or it may be compensation in case of an onerous contract of pledge. Remember: a contract of pledge itself is indivisible even if there are several debtors or several creditors however, the principal obligation itself may be divisible. There are two contracts the principal obligation which is usually a loan and the contract of pledge itself.

The principal obligation may be divisible into parts but the pledge itself cannot divisible. What is the implication shown? if the principal obligation is divisible, pledges may be obtained to secure the fulfillment of definite portions of the principal obligation and in case a portion of the principal obligation is fulfilled then the pledge corresponding to that part may be extinguished. Those are two different things

principal obligation and the pledge itself. Remember: that a pledge cannot be constituted if the thing has already have been subject to a previous pledge meaning you cannot have a double-pledge. Law prohibits double pledges that said a pledge may be constituted to secure all kinds of obligation whether pure or conditional and Q: What is the object of a pledge? A: it is either a movable which is an incorporeal right evidenced by an instrument such as a security, a share of stock, promissory note etc. The contract of pledge with regard to its form is subject also to the general rules of contracts in order to be binding against third persons. The description of the thing as well as the date of Constitution of the pledge must appear in a public document. Requisites of a pledge
1. In pledge by its very nature it is intended to secure the fulfillment of a principal obligation okay it's an accessory contract which cannot exist without a principal obligation to secure.
2. The pledgor must be the absolute owner and the law takes is further because the pledgor or the debtor does not lose ownership, he retains such ownership until the plege is extinguished in other words the pledgor may alienate or transfer ownership to anyone else subject to

the consent given by the pledgee or creditor. Remember: ownership is essential. The pledgor must be the absolute owner despite the fact that the thing pledged will remain in the possession of the pledgee or creditor and such pledgee has the right to retain the thing until the death or the principal obligation is paid or satisfied. Likewise, pledgee has the right to bring an action to recover or defend the thing against third persons.

The pledgor must have the free disposal or must at least be legally authorized to pledge the thing
when the principal obligation is due the same may be alienated for payment. This is a necessary consequence of the nature of a pledge that it be a security for the fulfillment of a principal obligation. This thing may be alienated through a public auction following the formalities provided by law
The thing must be in the possession of the pledge. The alienation of the thing to satisfy the principal obligation One very important thing is the concept of pactum - it is in prohibition imposed by law that the parties are prohibited from incorporating a stipulation saying that the thing subject of the pledge will automatically become the property of the creditor or pledgee upon non-payment of the debt at maturity (P). In this case only the stipulation is void the pledge itself is still valid. Remedy in case of non-payment: Public auction. The creditor or the pledgee may sell the thing at public auction in case of course the debt is due and demandable already and there must be intervention by a notary public. At this public auction, the bid must be for the full purchase price because if the creditor or pledgee accepts a lower price, then for

purposes of the pledgor it will be considered as having extinguished the principal obligation and the pledge is likewise extinguish. Rules in involved in a public auction In a public auction in case the thing is sold then it will involve total amount due, the interest and the expenses for preservation of the thing. If the pledgee accepts the amount then that shall be considered as payment of the purchase price over the thing. Q: what if in the public auction no sale is had? A: The remedy of the creditor or the pledgee is to have a second public auction with the same formalities meaning that there is still intervention by the notary. Q: what if in the second public auction the thing is still not sold A: then that is the only time that the law allows the creditor or pledgee to appropriate the thing to let him become the owner of the thing to satisfy the debt of the debtor or pledgor. Let’s say that this time a public auction takes place but the proceeds realized at the sale of the thing is less than the purchase price Q: is the creditor entitled to recover the deficiency? A: that law says no because if the creditor accepts the amount then he is deemed to have waived his right over the efficiency. Q: what if the thing is sold for more than its value? A: Then that creditor is entitled to keep it and the debtor is not allowed to claim the excess Q: In the case of a public auction may the pledgor or owner bid? A: yes, the pledgor owner or debtor may be a bidder at the public auction and in case he offers the same term as the highest bidder he will be preferred. This is to safeguard the original rights of ownership of the pledgor or original owner over the thing.

The pledgee may likewise object to the alienation or transfer of the ownership over the thing. The right of the pledgor earlier to transfer the thing because he retains ownership is subject to the consent of the pledgee who may object to the transfer of the thing.
Q: what if movable or the instrument in evidencing incorporeal rights earns fruits or interests? A: then the pledgee may apply those fruits and interest first to the interest earned by the principal obligation and second to the principal obligation itself
He can bring actions to recover or defend the thing itself against third persons
Pledgee may retain the thing until full payment of the purchase price. This is the essence of the contract of pledge.
Pledgee may collect any amount due on the instrument evidencing incorporeal right in case it is an evidence of credit. In case what was pledged was an instrument of credit, and it earns credit and interests then it is the right of the pledgee to collect the same.
Pledgee may demand either replacement or immediate payment of the obligation if he was deceived as to the substance or quality of the thing.
He is entitled to be reimbursed for the expenses for the preservation of the thing
In case of non-payment the pledgee he may sell the thing at public auction subject to the formalities required by law and there's another instance when the pledgee may sell the thing in public auction and this is this is the inferior right to the right of the pledgor mentioned earlier. Here

incase the pledgee has reasonable grounds to fear destruction or impairment of the thing pledged without any fault on the part of the pledgee, he may sell the thing at public auction. Q: Supposing there are several things pledged to secure the fulfillment of the principal obligation who has the right of choice? A: it is the pledgee who has the right to choose which among several things constituted as pledge shall be sold but the limitation here is that the pledgee can only select as many things as will properly cover the debt, he cannot choose more, only enough to cover the debt this right may be withheld by express stipulation of the parties if the party so agree then this right may be denied to the pledgee.

The pledgee he has the right to bid at the public auction except if he is the only bidder.
pledgee also has the right to retain the excess of the sale in case the thing is sold at public auction the creditor is entitled to the excess and obligor or the debtor, the pledgor cannot claim the excess of the proceeds for which the thing was sold at public auction.
pledgee may appropriate the thing after the failure of the second public auction. Obligations of the pledgee
To take care of the thing with ordinary diligence meaning the diligence of a good father of a family. The law likewise makes the pledgee liable for loss or deterioration of the thing while in his possession.
pledgee must not use the thing except if he is authorized or if necessary to preserve the thing and

in case he is authorized to use the thing he must not misuse the thing.

pledgee must not deposit the thing with a third person this is not an absolute rule as the parties may by stipulation allow the pledgee to deposit the thing with a third person likewise the pledgee in case he has agents and employees will be responsible for their fault or negligence in case of loss damage or deterioration to the thing caused by the fault or negligence of said agents or employees Q: what if there is danger of destruction of impairment of the thing A: then the pledgee has the duty to advise the pledgor of such danger likewise the pledgee must also advise the pledge or of the result of the public action if it is a success or if it is a failure he must inform the pledgor and the final obligation is that the pledgee must return the thing to the pledgor in case of full payment and the due date and there is no delay.

Concept of extinguishment same with all the other special contracts, a pledge is extinguished by any of the modes of extinguishment of obligations provided in the Civil Code such as payment, performance compensation, condonation etc. There are some other special modes of extinguishment of a pledge

If the thing subject of the pledge is returned to the pledgor in case the thing is in the possession of the pledgor there arises a presumption that it was voluntarily delivered by the pledgee to the pledgor and that the pledge is now extinguished. 2. If there is an express statement of renunciation or abandonment of the pledge by the pledgee then the pledge will be extinguished. For this instance in the previous one that is mentioned where the thing is return to the pledgor it is only the pledge that is extinguished, the principal obligation which is a separate contract remember may or may not be extinguished more likely than not it will subsist because it is only the pledge which is extinguished. The instances mentioned earlier apply only to the extinguishment of the pledge and not to the principal obligation because the rule is the accessory follows the principal if it is the principal that is extinguished then the accessory will also be extinguished but the converse is not true no it's not correct if the accessoryextinguish the principle will still subsist 3. If the thing pledged is sold at public auction 4. In case of appropriation by the pledgee after failure of the second public auction. Principle of legal pledge Legal pledges a pledge created by operation of law and you have to have a legal basis on certain articles in order for you to conclude that a pledge has been constituted by operation of law  one instance is when in case of repair of a movable the person who conducted the repairs may keep that thing he repaired in pledge until he is fully paid Q: may the pledgee sell the thing at public auction to satisfy the obligation right away? A: no, first the pledgee must make a demand on the pledgor for payment of the

Security transaction-Pledge, Transcriptions of Law

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PLEDGE