The Civil Code of the Philippines (Republic Act No.
386) governs the contract
of pledge, which is a type of real security over movable property. Here are
the key concepts and provisions related to pledge:
1. Nature of a Pledge (Articles 2093-2098):
Definition: A pledge is a contract wherein one party (the debtor)
delivers a movable property to another (the creditor) to secure the
performance of an obligation. The creditor acquires the right to retain
the pledged object until the debt is paid.
Delivery: The delivery of the pledged object is essential. Without the
actual delivery, there is no valid pledge.
Ownership: The debtor retains ownership of the pledged object, while
the creditor has possession as security.
2. Obligations of the Pledgee (Articles 2099-2105):
Possession: The creditor (pledgee) must take care of the pledged
item as a diligent person. Any damage caused by negligence makes
the creditor liable.
Use: The creditor cannot use the pledged property unless agreed upon
or if its preservation requires use.
Return: Once the obligation is fulfilled, the pledgee must return the
pledged object to the debtor (pledgor).
Proceeds: Any increase or income from the pledged item belongs to
the debtor, but if the pledgee receives these, they must be applied to
the obligation.
3. Rights of the Pledgee (Articles 2106-2115):
Retention: The creditor can retain the pledged object until the debt
and other costs (e.g., expenses for the preservation of the thing) are
paid.
Sale in case of default: If the debtor defaults on the obligation, the
creditor has the right to sell the pledged property through a public
sale, following specific procedures.
Right to be compensated: After the sale, the creditor can keep the
proceeds to the extent of the obligation, and any surplus must be
returned to the debtor.
4. Extinguishment of Pledge (Articles 2117-2123):
A pledge is extinguished when the obligation it secures is fulfilled, the
pledged item is returned, or when the item is sold.
If the debt is not paid upon maturity, the creditor may sell the pledged
property to satisfy the debt, following due process.
5. Special Provisions:
Article 2112: A stipulation allowing the creditor to appropriate the
pledged property without the need for public sale (referred to as a
"pactum commissorium") is prohibited and null under the law. This
ensures fairness in recovering the debt without unjust enrichment of
the creditor.
Summary of Key Points:
Delivery of the pledged item is necessary for the validity of the
pledge.
Possession of the pledged property remains with the creditor,
while ownership stays with the debtor.
The creditor must care for the pledged property and is liable for
damages if negligent.
If the debtor defaults, the creditor has the right to sell the pledged
item after following due process.
A pactum commissorium (automatic ownership transfer upon
default) is prohibited.
Once the obligation is paid or satisfied, the creditor must return the
pledged property to the debtor.
This structure of pledge in the Civil Code ensures that both the creditor and
debtor's rights are balanced and protected.
