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Chapter 1 - PROVISIONS COMMON TO PLEDGE AND MORTGAGE

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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b. Indivisibility among heirs of creditor. The creditors heir who received his share of the debt cannot return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid. (Art. 2089) By way of exception, the pledge or mortgage is divisible if several things are given in pledge or mortgage and each one of them guarantees only a determinate portion of the credit. PROBLEM: 1. D borrowed P10,000 from C. The debt is secured by a pledge of Ds ring and bracelet. If D pays C P6,000, can he ask for the return of the ring or the bracelet so as to extinguish partially the pledge? NO. he can ask for the extinguishment of the pledge only after he has paid the obligation in full. 2. In no. 1, if D and C agreed that the ring would secure the amount of P6,000 and the bracelet P4,000, can D ask to extinguish partially the pledge? YES, he can ask for the extinguishment of the pledge constituted on the ring upon his payment of P6,000. 3. D borrowed from C P100,000 secured by a mortgage on Ds two adjoining lots (Lot 1 and Lot 2). D dies leaving E and F as heirs with E inheriting Lot 1 and F Lot 2. If E pays C P50,000, can he ask for the extinguishment of the mortgage on Lot 1? NO. 4. In no. 3, suppose it is C who dies leaving X and Y as heirs of the credit right. If D pays X P50,000, can X cancel the mortgage on Lot 1 to the prejudice of Y? NO. 5. A and B jointly borrowed P20,000 from C. To secure the debt, A pledged his necklace and B his ring. If A pays C P10,000, can he ask for the extinguishment of the pledge on hi necklace? NO. although the debtors are jointly liable, the pledge constituted on the necklace and the ring is indivisible. 8. Obligations that may be secured by pledge or mortgage a. All kinds of obligations, whether pure or subject to a suspensive or resolutory condition (Art. 2091) b. Voidable, unenforceable, or natural obligations (Arts. 2052, 2086) 9. Promise to constitute pledge or mortgage A promise to constitute a pledge or mortgage gives rise only to a personal action between the contracting parties. (Art. 2092) The promise is binding between the parties; hence, the debtor can be compelled by the creditor to fulfill his promise by executing the pledge or mortgage. Until the mortgage has been executed, no real right on the property is created. In the case of pledge, the same shall not be perfected until the delivery of the object of the pledge. Should the debtor fail to comply with his promise to constitute the pledge or mortgage, he loses the benefit of the period. Accordingly, the creditor may demand immediate payment of the debt being secured. (Art. 1198) PROBLEM: D borrowed P20,000 from C. The loan is payable in 12 months. D promised to execute a mortgage on his land within one month to secure the debt. C accepted the promise. In this case, no mortgage has been constituted yet. What are the remedies available to C? C has a right to demand the constitution of the mortgage. Once the mortgage has been constituted, it creates a real right in favor of C. if D does not constitute the mortgage within the one-month period, C may demand immediate payment of the debt. 10. Criminal liability of pledgor or mortgagor The mortgagor or pledgor incurs criminal liability if he defrauds another: a. By offering in pledge or mortgage as unencumbered things he knew were subject to some burden, or b. By misrepresenting himself to be the owner of the things offered in pledge or mortgage.

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Chapter 2 - PLEDGE

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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and T that he was selling the ring at public auction. T opposed the sale claiming that the pledge was not binding on him since he was not the debtor. Is T correct? NO, T is not correct. T was bound by the pledge since it was in a public instrument showing the date of the pledge and a description of the thing pledged. Secondly, the pledged continued even if there was a transfer of ownership to him of the thing pledged from the original pledgor of the ring. 9. Right of retention by pledgee The very purpose of pledge is to secure the payment of a principal obligation. Until such obligation is paid, the creditor has a right to retain the thing in his possession or in that of a third person to whom it has been delivered. (Art. 2098) If the pledgee returns the thing pledged to the pledgor or the owner, he loses his security, i.e., the pledge is extinguished. (Art. 2110) 10. Obligations of creditor under Art. 2099 a. To take care of the thing pledged with the diligence of a good father of a family. b. To be liable for the loss or deterioration of the thing pledged, except if such loss or deterioration is due to fortuitous event. 11. Right of the creditor The creditor has the right to reimbursement of the expenses he has incurred for the preservation of the thing pledged. 12. Obligations of the pledgee under Art. 2100 a. Not to deposit the thing pledged with a third person, unless there was a stipulation authorizing him to do so. b. To be responsible for the acts of his agents or employees with respect to the thing pledged. 13. Obligations of pledgor for flaws in the thing pledged The pledgor shall be liable for damages which the pledgee may suffer by reason of any flaws of the thing pledged which he had knowledge of but did not advise the pledgee of the same. (Art. 1951) PROBLEM: D borrowed P20,000 from C. The debt is secured by a pledge of Ds 32-inch television set. Although D had knowledge of an exposed wire on the cord of the television set, D did not advise C about it. So when C plugged the cord, he was electrocuted and suffered burns. Can C hold D liable for the damages he sustained? YES 14. Extent of pledge a. The thing pledged b. The fruits, income, dividends or interest earned or produced by the thing pledged, unless there is a stipulation excluding them. c. The offspring when the thing pledged is an animal, unless there is a stipulation excluding them. (Art 2102) PROBLEM: D borrowed from C P10,000 which bears interest at 1% a month. The obligation is secured by a pledge of SMC shares of stock owned by D. In addition to delivering to C the stock certificate covering the shares, D also gave C the authority to collect the dividends on the stock. What is the extent of the pledge? If C collects a dividend of P250, how shall it be applied? In this case, the pledge covers not only the shares of stock as evidenced by the stock certificate, but also the dividends accruing to the shares. If in a certain month, C collects a dividend of P250, he shall apply P100 to the interest due and the balance of P150 to the principal. If no interest is due, he shall apply the total dividend of P150 to the principal. 15. Continued ownership by debtor of thing pledged The debtor continues to be the owner of the thing pledged even while it is in the possession of the creditor or a third person. However, he loses such ownership if the thing is expropriated, i.e., such property is taken by the government for public use upon payment of just compensation. The expropriation proceeds shall be a security for the principal obligation in the same manner as the thing originally pledged. (Art. 2108) PROBLEM: D obtained a loan of P50,000 from C. as a security for the debt, D pledged his gold bar. Who is the owner of the thing pledged? If the State, through its power of eminent domain, expropriated all gold in the hands of its citizens to increase its gold reserves, what is the effect of the expropriation?

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D continues to be the owner of the gold bar pledged even while it is in Cs possession. If it was expropriated, Ds ownership of the fold bar he had pledged ceases. However the expropriation proceeds shall be security for his loan obligation to C in the same manner as the gold bar. 16. Right of creditor to bring action regarding thing pledged The creditor may bring the actions which pertain to the owner of the thing pledged in order to recover it from, or defend it against, a third person. (Art. 2103) PROBLEM: D pledged his motorcycle to C to secure his debt of P50,000. Later, the motorcycle was found in the possession of T without knowledge of D and C. What are the remedies available to C? The right of D to bring an action against T to recover the motorcycle may be exercised by C himself. 17. Obligations of the pledgee under Art. 2104 As a general rule, the pledgee cannot use the thing pledged. However, he may use the thing pledged under the following cases: a. When the use of the thing is authorized by the owner. b. When the use of the thing is required for its preservation. However, the thing may be used only for such purpose. 18. Right of the owner if the thing is misused If the creditor was not authorized to use the thing pledged and he uses it, or he was authorized to use the thing but he misuses it, the owner may require the thing be deposited either judicially or extra-judicially. PROBLEM: D obtained a loan of P30,000 from C. To secure the debt, D pledged his motorcycle. a. May C use the motorcycle? YES, if he was authorized by D, or the use of the motorcycle is necessary for its preservation. b. Supposed C was authorized to use the motorcycle, may he use it in racing? NO, motorcycle in racing is already a misuse and not for its preservation, unless D gave his consent for such use. c. What right is available to D if C misuses the motorcycle? D may ask that the motorcycle be deposited with a third person (extrajudicial deposit) or with the court (judicial deposit) 19. Obligations of the debtor under Art. 2105 a. Not to ask the return of the thing pledged against the will of the creditor until he has paid the debt and its interest. b. To pay the debt secured and its interest, with expenses in a proper case. 20. Right of pledgor to have thing deposited with a third person The pledgor may require that the thing pledged be deposited with a third person if it is in danger of being lost or impaired through the negligence or willful act of the pledgee. (Art. 2106) PROBLEM: D borrowed P100,000 from C. The debt is secured by a pledge of D priced horse and is payable in 5 equal monthly installments. When D visited Cs residence to pay his first installment, he saw that the horse was being allowed by C to be exposed to the rain and was in danger of getting sick. What may be the remedies available to D? D may require that the horse be deposited with a third person who can house the horse properly. 21. Rights of parties when thing pledged is in danger of destruction or impairment. a. Pledgor. The pledgor may demand the return of the thing pledged, upon offering another thing of the same kind and not of inferior quality, if there are reasonable grounds to fear the destruction or impairment of the thing pledged, without the fault of the pledgee. (Art. 2107) b. Pledgee. The pledgee may cause the sale of the thing pledged in a public sale, if without his fault, the same is in danger of destruction, impairment, or diminution in value. The proceeds of the auction shall be security for the principal obligation in the same manner as the thing originally pledged. (Art. 2108) This right of the pledgee is superior to the right of the pledgor to demand the return of the thing pledged. (Art. 2107) PROBLEM: D delivered to C 30 bags of cement to secure his debt of P20,000. The cement, however, is in danger of hardening without Cs fault. What may be the remedies available to the parties?

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D may demand the return of the cement pledged upon offering, say, another 30 bags of cement to replace the original. Or C may cause the sale of the 30 bags of cement originally pledged, in which case, the proceeds of the sale shall be the new security for the principal obligation. 22. Pledgees right in case of deception on substance or quality of thing pledged If the creditor is deceived on the substance or quality of the thing pledged, he may either: a. Claim another thing in its stead, or b. Demand immediate payment of the principal obligation. PROBLEM: D obtained an interest-bearing loan of P20,000 from C. The debt is payable after 30 days. To secure the debt, D pledged his ring which he said was embellished with genuine emerald. C agreed to the pledge of the ring believing in Ds statement. Later, C, discovered that the embellishment of the ring was only synthetic emerald. What remedy is available to C? C may require D to give another thing to replace the ring, or demand immediate payment of the loan and its interest. 23. Causes of extinguishment of pledge a. Direct causes. When the pledge is extinguished independently of the principal obligation. 1) Return of the thing pledged by the pledgee to the pledgor or owner. (Art. 2110) 2) Written renunciation or abandonment of the pledge. (Art. 2111) 3) Sale of the thing pledged. (Art. 2115) 4) Appropriation of the thing pledged by the pledgee. (Art. 2112) b. Indirect causes. When the principal obligation secured by the pledge is extinguished, the pledge being merely an accessory contract, is likewise extinguished. Thus, the payment by the debtor of the principal obligation or its Condonation by the creditor will extinguish not only the principal obligation but also any accessory contract including any pledge constituted as security. 24. Return of the thing pledged Pledge being a real contract requires the delivery of the object for its perfection. Thus, the object must remain in the possession of the creditor or a third person by common agreement while the debt it secures remains unpaid. If, while the debt subsists, it is returned by the pledgee to the pledgor or owner, the pledge is extinguished for the reason that its possession by the creditor or third person which is an essential element, is already absent. Any stipulation that the pledge shall subsist even if the thing is returned to the pledgor is VOID. 25. Presumption of return of thing pledged There is prima facie presumption that the thing pledged has been returned by the pledgee so as to extinguish the pledge in the following cases: a. If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner. b. If the thing pledged is in the possession of a third person who has received it from pledgor or owner after the constitution of the pledge. The presumption, however, is disputable and thus may be rebutted by evidence. Thus, there is no such presumption if the thing was delivered by the pledgee to the pledgor in order that the latter may have it re-appraised, or the thing pledged has been temporarily borrowed by the pledgor. 26. Renunciation of the pledge In order for renunciation or abandonment to extinguish the pledge, the same must be in writing. The writing may be a private instrument or a public instrument. As a rule, the acceptance by the debtor of the renunciation is required for the extinguishment of his obligation. However, this is not so in the case of renunciation of the pledge. The pledge is extinguished although the renunciation has not been accepted by the pledgor or owner. Neither will the return of the thing pledged be necessary to extinguish the pledge. Until the return of the thing pledged to the pledgor or owner, the pledgee will be liable as a depositary. 27. Ground for sale of the thing pledged If the credit secured by the pledged is not paid on due date, the creditor may cause the sale of the thing pledged. 28. Formalities of the sale. The sale shall be: a. By public auction;
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b. Through a notary public; and c. With notice to the debtor and the owner of the thing pledged, stating the amount for which the public sale is to be held. (Art. 2112) 29. Appropriation of the thing pledged If the thing pledged is not sold in the first and second public auctions, the creditor may appropriate the thing pledged. In this case, he shall be obliged to give an acquittance for his entire claim. (Art 2112) The sale of the thing pledged or its appropriation will result in the extinguishment not only of the pledge but also of the principal obligation. 30. Who may bid at the public auction a. The pledgor or owner. He shall be preferred if he should offer the same terms as the highest bidder. b. The pledgee. However, his offer shall not be valid if he is the only bidder. (Art. 2113) c. Third persons. 31. Effect if any other bid is accepted. All bids shall offer to pay the purchase price at once. If a bid which does not offer to pay the purchase price at once is accepted, the pledgee is deemed to have received the purchase price, as far as the pledgor or owner is concerned. (Art. 2114) Accordingly, no further recovery can be made from the debtor. 32. Effect of sale The principal obligation shall be extinguished whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. (Art. 2115) a. If the price is more than the amount of the obligation, the debtor shall not be entitled to the excess, unless there is an agreement to that effect. b. If the price is less, the creditor cannot recover the deficiency even if stipulated. (Art. 2115) Any such stipulation is void. PROBLEM: D owes C P10,000. The debt is secured by a pledge of Ds shares of stock which is evidenced by a stock certificate delivered by D to C at the time D received the proceeds. If D defaults and C sells the shares of stock at P9,500, what is its effect? How about if it was sold for P11,000? Ds debt is extinguished. C cannot recover the deficiency of P500. This is true even if there was a stipulation to that effect. If the shares of stock are sold at P11,000. Ds debt is likewise extinguished. The excess of P1,000 belongs to C unless the parties had an agreement that any excess shall be turned over to D. 33. Payment of the principal obligation by third person Any third person who has any right in or to the thing pledged, such as one who pledges his property to secure anothers debt, may satisfy the principal obligation as soon as the latter becomes due and demandable. If he pays the debt, he can demand the reimbursement from the principal debtor what he has paid. Moreover, he shall be subrogated in the creditors right. PROBLEM: On February 1, D borrowed P200,000 from C. The debt which s due on June 1, is secured by a mortgage of Ds lot and the pledge of Ts diamond ring. Who may pay the principal obligation of P200,000? T, the owner of the ring, may himself pay the principal obligation of P200,000 on June 1. If T pays the debt, he shall be entitled to reimbursement from D for the amount he paid. He shall also be entitled to be subrogated in the rights if C, i.e., he can foreclose the mortgage on the lot if D fails to reimburse him on the payment he made to C. 34. Pledgee right to collect credit pledged a. To collect and receive the amount due on the credit if it has become due before it is redeemed. b. To apply the amount collected to the payment of his claim, and deliver the surplus, if there is any, to the pledgor. PROBLEM: M is the maker of a promissory note amounting to P20,000 which is payable to the order of P. The note is due on March 31. P pledges the note to H to secure his debt of P15,000. On March 31, if P had not yet redeemed the note from him, what may H do? H may collect the amount of 20,000 from M. H shall apply the amount of P15,000 to his claim from P, and deliver the surplus of P5,000 to the latter. 35. When two or more things are pledged

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When two or more things have been pledged, the pledgee may choose which he will cause to be sold to satisfy his claim, unless there is a stipulation to the contrary. He may demand the sale of only as many of the things as are necessary for the payment of the debt. This is to ensure that the pledgee will not unjustly enrich himself at the pledgors expense because if the proceeds of the sale of the thing pledged exceed the amount of the debt, the pledgee generally gets the excess, unless there was a stipulation that it shall be turned over to the pledgor. (Art. 2115) PROBLEM: D pledged his ring (valued at P15,000), his wristwatch (valued at P6,000) and his necklace (valued at P4,000) to secure his debt to C amounting to P20,000. D defaulted in the payment of his debt. What may be the remedies available to C? C may cause the sale of only the ring and the wristwatch whose total value of P21,000 is already sufficient to extinguish the debt of P20,000. 36. Rights of a third person who pledges his own movable property to secure the debt of another a. To be indemnified by the debtor if he pays the creditor. The indemnity consists of the following: 1) The total amount of the debt 2) The legal interests thereon from the time the payment was made known to the debtor, even though it did not earn interest for the creditor. 3) The expenses incurred by the pledgor after having notified the debtor that payment had been demanded of him. 4) Damages, if they are due. (Arts. 2066, 2120) b. To be subrogated to all the rights f the creditor against the debtor if he pays the creditor. (Arts. 2067, 2120) The pledgor is considered a third person interested in the fulfillment of the obligation; hence, he is entitled to be subrogated to the creditors rights upon payment. PROBLEM: D obtained a loan of P10,000 from C. The debt is secured by the guarantee of G and the pledge by T of his ring. If T pays C, what is the effect? If T pays C, T steps into the place of C. Thus T can demand the indemnification in number 36.a. above from D. If D cannot pay, T can go after G. c. To be released from liability in the following cases: 1) If the creditor voluntarily accepts immovable or other property in payment of the debt even if the creditor thereafter loses the same by eviction. (Art2. 2077, 2120) PROBLEM: D borrowed P50,000 from C. The debt is secured by a pledge of Ts ring. On due date, C accepted a parcel of land from D in payment of the debt. Is the pledge extinguished? T can demand that he be released from the pledge. T shall be released even if the later, C should lose the lot by eviction in case there is a rightful owner. 2) If an extension of time is granted to the debtor by the creditor without his (pledgors) consent. (Arts. 2079, 2080) 3) If through some act of the creditor, the pledgor cannot be subrogated to the rights, mortgages and preferences of the creditor. (Arts. 2080, 2120) PROBLEM: D owes C P20,000. The debt is secured by the guarantee of G and the pledge by T of his ring. If C cancels Gs guarantee, is T also released from liability? T is released from liability because if T pays C, T ca no longer go after G if D cannot pay the indemnification due to him (T). 37. Concept of legal pledge Legal pledge or pledge by operation of la refers to the right of a person to retain a thing until he receives payment of his claim. Examples of legal pledge: a. Possessory lien by a possessor in good faith PROBLEM: B bought a bicycle from S believing that S was the owner. After obtaining possession of the bicycle, B incurred P1,000 to have it repaired by causing the removal of rust from it and replacing some deteriorating parts. Later O came forward and proved that he was the owner and that S merely deceived B. Decide. B is entitled to retain the bicycle (by way of legal pledge) until O has reimbursed him the amount of P1,000 for the necessary and useful expenses that he had incurred. b. Possessory lien of worker
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PROBLEM: Orlando brought his wristwatch to Roberto for repair. If Orlando will not pay his services, what may Roberto do? Roberto has the right to retain the wristwatch by way of legal pledge until Orlando has paid him for the repair work he has undertaken. c. Depositarys right of retention 38. Rules applicable to legal pledge The provision on conventional pledge on the possession, care and sale of the thing as well as on the termination of pledge shall be applicable to legal pledge except with respect to the sale of the thing as follows: a. The thing may be sold only after demand of the amount for which the thing is retained. b. The public auction shall take place within one month after such demand. c. If without just grounds, the creditor does not cause the public sale to be held within such period, the debtor may require the return of the thing. (Art. 2122) d. After the payment of the debt and expenses, the remainder of the price of sale shall be delivered to the obligor. (Art. 2121) 39. Conventional pledge and legal pledge distinguished on excess of proceeds of sale or deficiency a. Proceeds of sale exceed amount of debt In conventional pledge, the excess belongs to the creditor, unless there is a stipulation that the same shall be turned over to the debtor. In legal pledge, the remainder of the price of sale shall be delivered to the debtor. b. On recovery of deficiency In conventional pledge, the creditor is not entitled to recover deficiency. Any agreement to the contrary is void. In legal pledge, the creditor is entitled to recover the deficiency from the debtor.

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