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1. Common requisites of pledge and mortgage a. That they be constituted to secure the fulfillment of a principal obligation. b. That the pledgor or mortgagor be the absolute owner of the thing pledged and mortgaged. Ownership at the time pledge or mortgage is constituted. A pledge or mortgaged constituted on future property is VOID. Third persons may pledge or mortgage their property. It is not required for the validity of a pledge or mortgage that the debtor be the owner of the thing pledged or mortgaged. Third persons may mortgage their property to secure another persons debt. However, they can be held liable only to the extent of the value of their property. With respect to mortgage, they may be held liable for any deficiency in case of foreclosure if they expressly agreed to assume the principal obligation. c. That the persons constituting the pledge or mortgage have the free disposal of the property, and in the absence thereof, that they be legally authorized for the purpose. (Art. 2085) 2. Consideration for pledge and mortgage Pledge and mortgage are accessory contracts whose existence is dependent upon a principal obligation. Thus, their consideration is the same as the consideration of the principal obligation that they secure. 3. Necessity of a valid principal obligation Pledge and mortgage, being accessory contract, cannot exist without a valid principal obligation. However, they may be constituted to secure the performance of a voidable or unenforceable contract, as well as a natural obligation. (Art. 2052) 4. When thing pledged or mortgaged may be sold or alienated to pay debt a. Before maturity GENERAL RULE: The thing pledged or mortgaged cannot be sold or alienated since payment of the debt cannot yet be compelled. EXCEPTION: If the pledgor or mortgagor fails to fulfill certain conditions, such a violation would make the debt due and entitle the pledgee or mortgagee to have the thing sold through the formalities required by law. b. At maturity Upon default of the debtor to pay the obligation at maturity, the thing pledged or mortgaged may be sold or otherwise alienated to pay the creditor. (Art. 2087) 5. Concept of pactum commissorium This is a stipulation in a pledge or mortgage which provides for automatic forfeiture, i.e., that ownership of the thing pledged or mortgaged shall pass to the creditor by the mere default of the debtor. This stipulation is VOID for being contrary to morals and public policy. The stipulation, however, that the pledge or mortgagee may purchase the thing pledged or mortgaged at its current price if the debt is not pad on time is valid. 6. Appropriation of property pledged or mortgaged a. Pledge Appropriation in pledge is allowed only if the thing pledged is not sold at two public auctions. The pledgee is required in this case to give an acquittance for his entire claim. (Art. 2112) b. Mortgage In no case is appropriation of the property mortgaged allowed. 7. Indivisibility of pledge and mortgage 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. (Art. 2089) This rule applies even if the debtors are not solidarily liable. (Art. 2090) a. Indivisibility among heirs of debtor. The debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. (Art. 2089)
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1. Concept of pledge A pledge is a contract whereby personal property is delivered to the creditor or a third person as a security for the performance of an obligation. (Art. 2140) 2. Parties to a contract of pledge a. Pledgor. The party who delivers a movable property to another to secure his debt or that of another person. b. Pledgee. The party who receives a movable property from another to secure the latters debt or that of another. 3. Characteristics of pledge a. Accessory. It cannot exist without a principal obligation. b. Indivisible. It creates a lien on the whole or all of the properties pledged, which lien continues until the obligation it secures has been fully paid. c. Real. The thing pledged is required to be delivered to the creditor or a third person for its perfection. d. Nominate. It has a designated name under the law. e. Unilateral. It creates an obligation solely on the part of the creditor to return the thing pledged upon satisfaction of the principal obligation secured. 4. Kinds of pledge a. Conventional or voluntary. That which is constituted by the mutual consent of the pledgor and the pledgee. b. Legal. That which is created by operation of law. (Arts. 546, 1731 and 1994) 5. Requisites of conventional pledge a. That it be constituted to secure the fulfillment of a principal obligation. (Art. 2085) b. That the pledgor be the absolute owner of the thing pledged. (Art. 2085) c. That the person constituting the pledge has the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose. (Art. 2085) d. That the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (Art. 2093) 6. Object of the pledge a. All movables within commerce which are susceptible of possession. (Art. 2094) b. Incorporeal rights evidenced by a negotiable instruments, bills of lading, shares of stocks, bonds, warehouse receipts and similar documents. The instruments proving the right pledged shall be delivered to the creditor and if negotiable must be endorsed. (Art. 2095) 7. Form of pledge a. Between parties. The pledge may be in any form, i.e., oral or in writing whether public or private, as in fact the mere delivery of the object is sufficient to bind the parties. b. As regards third persons. To take effect against third persons, the pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge. (Art. 2096) PROBLEM: D obtained a loan of P5,000 from C. The debt is secured by Ds diamond ring which D delivered to C. No instrument was executed by D and C either for the loan or the pledge. Later, D sold his diamond ring to T. Who has a better right to the diamond ring, T or C? T has a better right than C. Since the pledge was entered into orally, and not in public instrument showing the date of the pledge and a description of the thing pledged, the same in not binding on T. 8. Right of pledgor to alienate the thing pledged The pledgor may alienate the thing pledged even while it is in the possession of the creditor or a third person, with the consent of the pledgee. The ownership of the thing pledged shall be transmitted to the vendee or transferee as soon as the pledgee consents to the alienation, but the latter (or a third person designated) shall continue in possession. This means that the pledge continues to be a security even if there is change in the ownership of the thing pledged. PROBLEM: D delivered his necklace to C to secure his debt of P5,000. The pledge is in public instrument showing the date of the pledge and a description of the thing pledged. Later, D donated the necklace to T with Cs consent. On due date, D defaulted in his payment of the loan. As a result, C notified the debtor
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