Additional points if perfect attendance :)

Let's continue.

Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.

Nevertheless, 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. (1869)

Comment: So you as a pledge has a right against a third person.

Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if he
should do so, or should misuse the thing in any other way, the owner may ask that it be judicially or
extrajudicially deposited. When the preservation of the thing pledged requires its use, it must be used
by the creditor but only for that purpose. (1870a)

Can the debtor as for the return?

-No

Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor,
unless and until he has paid the debt and its interest, with expenses in a proper case. (1871)

Right if the pledgor to ask for deposit of thing pledge

Distinguish this from the last article here, the owner can ask for the thing. Ito naman, the pledgor may as
for the deposit of the thing pledge.

Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of being
lost or impaired, the pledgor may require that it be deposited with a third person. (n)
Right of the pledgor to substitute thing pledged

Requisites:

1. If there are reasonable grounds to fear the destruction or impairment of the thing pledged

2. Without the fault of the pledgee, the pledgor may demand the return of the thing

3. The pledgor is offering another thing in pledge of the same kind as the former and not of inferior
quality

4. Without prejudice to the right of the pledgee under the provisions of the following article.

Kung may fault

Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing pledged,
without the fault of the pledgee, the pledgor may demand the return of the thing, upon offering another
thing in pledge, provided the latter is of the same kind as the former and not of inferior quality, and
without prejudice to the right of the pledgee under the provisions of the following article.

The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged. (n)

Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or diminution
in value of the thing pledged, he may cause the same to be sold at a public sale. The proceeds of the
auction shall be a security for the principal obligation in the same manner as the thing originally
pledged. (n)

-Ito, paano nya i-sa-substitute yung plege? yung pera. yung proceeds ng auction yun yong substitute.

Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may either
claim another thing in its stead, or demand immediate payment of the principal obligation. (n)

-Ito yung deception.

So, How pledge is extinguished?

1. By return

2. By renunciation

If by return, the pledge is extinguished. Any stipution to the contrary shall be void. If there is a
stipulation na di sya ma.i.extinguish, void yun.

Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary shall be void.

If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner,
there is a prima facie presumption that the same has been returned by the pledgee. This same
presumption exists if the thing pledged is in the possession of a third person who has received it from
the pledgor or owner after the constitution of the pledge. (n)

You know, pledge is a real contract, perfected by delivery. If subsequent to the perfection of the pledge,
the thing is in the possession of the pledgor or owner, there is a prima facie presumption that the same
has been returned by the pledgee.

So if bumalik yung thing kay owner, the presumption is extinguished na. If nasa ibang person and that
person obtain it from the pledgor there is a presumption na extinguish na yung pledge.

Another case where in the pledge is extinguish is renunciation.

Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient
to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or owner, nor the
return of the thing pledged is necessary, the pledgee becoming a depositary. (n)

-So kapag may statement, please take note that dapat in writing sya. So the statement must be in
writing that the pledgee or the creditor renounces. So take note yung liability ng depositary.
What will happen if the debt remains unpaid?

Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before a
Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and with
notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for
which the public sale is to be held. If at the first auction the thing is not sold, a second one with the
same formalities shall be held; and if at the second auction there is no sale either, the creditor may
appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim.
(1872a)

Question, is an Attorney a notary Public? -No

But a Notary public an Attorney? -Yes

So dapat foreclosure of pledge through notarial sale may public aution. You go to a notary public and si
Notary public. But this has to have a notification to the debtor and owner of the thing pledged. Please
take note that the pledgor can now be the debtor. So dapat inotify yung debtor. Kapag pledgor is not
the debtor, dapat yung pledgor and debtor yung ma notify stating the amount to which the public sale is
to be made.

If unsold, go to the second option to appropriate the thing pledged. This is an exception to the rule in
Pactum Commissorium. Pag sa 2nd public notarial sale, di pa rin sya nabenta.

So absent any requisites (referring to the public auction sale) the sale is void.

Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a better right if
he should offer the same terms as the highest bidder.

The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)

Sp please take note, at the first sale hindi magbi-bid si pledgee kung sya lang kelangan may ibang tao. Si
pledgor naman or the owner can bid and he will have a better right. For example, yung bid price is 1,000
nag-bid sila pareho ng 1000 the owner has the better right.
Again, the law gives preference to the real owner kasi the purpose of the pledge naman is to secure the
obligation. bigyan nga chance yung pledgor to get the thing pledged.

Art. 2114. All bids at the public auction shall offer to pay the purchase price at once. If any other bid is
accepted, the pledgee is deemed to have been received the purchase price, as far as the pledgor or
owner is concerned. (n)

-So normally if may public auction, dapat may cash, bigay mo lahat. Pwede namang installment pero the
effect of installment is that it is as if its in cash so there is an admittance to the entire debt. So yung
buyer wala na syang recourse.

So we have the rule na yung pledgee mag-cho-choose kung ano yung ibebenta nya. Unless there is an
stipulation. So if kaya nga isang thing pledged lang to cover the entire obligation, yun lang yung
ibebenta.

Now, there's a confusion kasi in mortgage, even if it's an extrajudicial foreclosed you need still to file for
an extrajudicial foreclosure. Under Article 2112 even if sa notary public lang it was clarified one case
saying that the foreclosure of pledge is govern by the sale of _____. It's not governed by any law.

Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the
proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a
proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled
to recover the deficiency, notwithstanding any stipulation to the contrary. (n)

-Effect of the sale= Principal obligation is extinguished.

Kung sobra pwede mabalik kung agreed.

Pero kung kulang, wala na even if there is an agreement na kailangan mo pang bayaran.

-So this is to prevent Fluffers.

In this case of Manila Surety vs. Velayo:

(insert digest here)

So please take note that public sale you cannot recover the deficiency. Take note of Art. 2115.

Take note also of the Recto Law.

The case of Spouses Bonifacio vs. Rodriguez:

(Insert digest here)

What's the thing pledged?

-Shares of Stocks

Execution sale is governed by Rule 39 ( ROC).

Public sale, may particular period yan. Bigyan ka ng chance. Kasi kunyare, nung time ng sale wala kang
pera, pag this time nagkaroon ka ng pera, may sentimental value sayo nung lupa pwede mong i.redeem
pwede mo syang bilhin. Ma.coconsolidate lang talaga sya (ownership) upon the expiration of the
redemption period. That is not granted in a public sale of pledge. There is no statutory grant of that.
Granted lang yan sa execution sale of judicial foreclosure that is granted under rule 39 but pertains only
to real property not personal property.

(Talks about Corpo Law)

In the case of Yau Chu vs. CA:

(insert digest here)

There is a peculiar case. Was a time deposit, a security? -No

Ang ginawa ki-nunvert lang sya. In-offset. Pwede daw sya kasi Peso-for-Peso.

But if you are trying to be legally strict about it would be pactum comissorium kasi nga it is essentially a
security.
But sabi ng SC the evils sought to be prevented by Pactum comissorium are not present. (Loan Sharks)

Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the result
thereof. (n)

Can a third person satisfied the obligation? -Of course.

Art. 2117. Any third person who has any right in or to the thing pledged may satisfy the principal
obligation as soon as the latter becomes due and demandable.(n)

Right of Pledgee to collect and receive amount due on credit pledge.

Art. 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee may
collect and receive the amount due. He shall apply the same to the payment of his claim, and deliver the
surplus, should there be any, to the pledgor. (n)

Right of the third person who owns the thing pledge

Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be sold,
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. (n)

Art. 2120. If a third party secures an obligation by pledging his own movable property under the
provisions of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to 2070, and
Articles 2077 to 2081. He is not prejudiced by any waiver of defense by the principal obligor. (n)
Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731, and 1994,
are governed by the foregoing articles on the possession, care and sale of the thing as well as on the
termination of the pledge. However, after payment of the debt and expenses, the remainder of the
price of the sale shall be delivered to the obligor. (n)

Art. 2122. A thing under a pledge by operation of law may be sold only after demand of the amount for
which the thing is retained. The public auction shall take place within one month after such demand. 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. (n)

Now we go to LEGAL PLEDGE.

This is pledge by operation of law.

Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good
faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention,
the person who has defeated him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have acquired by reason thereof.

Article 1707. The laborer's wages shall be a lien on the goods manufactured or the work done.

Article 1731. He who has executed work upon a movable has a right to retain it by way of pledge until he
is paid.

Article 1914. The agent may retain in pledge the things which are the object of the agency until the
principal effects the reimbursement and pays the indemnity set forth in the two preceding articles.

Article 1994. The depositary may retain the thing in pledge until the full payment of what may be due
him by reason of the deposit.

In legal pledge, there is no definite period for the payment of the

principal obligation. The pledgee must, therefore, make a demand for

the payment of the amount due him. Without such demand, he cannot

exercise the right of sale at public auction.

The pledgee must proceed with the sale within one month after

demand, otherwise, the debtor may require him to return the thing

retained.

(Art. 2123. With regard to pawnshops and other establishments, which are engaged in making loans
secured by pledges, the special laws and regulations concerning them shall be observed, and
subsidiarily, the provisions of this Title.)

Let's talk about the Pawnshop regulation act. This is basically a contract of Pledge.

PRESIDENTIAL DECREE No. 114 January 29, 1973

State Policy: It is hereby declared the policy of the State to regulate

the establishment of pawnshops and to place their operation on a sound and stable

basis to derive the optimum advantages from them as an additional source of credit; to

prevent and mitigate, as far as practicable, practices prejudicial to public interest; and to

lay down the minimum requirements and standards under which they may be

established and do business.

We have to define Pawnshop and Property under this law:

"Pawnshop" shall refer to a person or entity engaged in the business of lending money

on personal property delivered as security for loans and shall be synonymous, and may

be used interchangeably, with pawnbroker or pawnbrokerage.

-unlike sa normal plege na may utang. Sa pawnshop bigay ko yung bagay ko saka pa ako magkakautang.
"Property" shall include only such personal property as may actually be delivered to the

control and possession of the pawnshop: Provided, however, That certain specified

chattels such as guns, knives and similar weapons whose reception in pawn is expressly

prohibited by other laws or regulations shall not be included.

Chattels = Personal Property

Now we discuss the salient provisions of PD114:

Section 9. Amount of loan. Pawnshops may grant such amount of loans as may be

agreed upon between the parties: Provided, That the amount of loan shall, in no case,

be less than thirty per cent (30%) of the appraised value of the security offered for the

loan unless the pawner manifests in writing the desire to borrow a lesser amount.

-in usual circumstances, pinapa execute ka ng waiver. 30% is very low. Yung mga appaiser pa di alam
ginagawa nila. (lol)

Section 10. Rates of interest. No pawnshop shall directly or indirectly stipulate, charge,

demand, take or receive any higher rate or greater sum or value for any loan or

forbearance than the rate allowed by the Usury Law for such transactions. It shall be

unlawful for a pawnshop to divide the pawn offered by a pawner in order to collect

greater interest and/or to require the pawner to pay an additional charge as insurance

premium for the safekeeping and conservation of the article pawned.

In addition to interest charges, pawnshops may impose a maximum service charge of

five pesos (P5.00), but in no case to exceed one per cent (1%) of the principal loan.

-Take note di pwede mag charge yung Pawnshop ng insurance charges.

Section 11. Maintenance of records. Every pawnbroker shall keep a memorandum book

in which shall be entered, in ink, at the time of each loan or pledge, an accurate account

and description, in Pilipino or English with corresponding translation in the local dialect of

every pawn, the amount of money loaned thereon, the date of pawning or pledging the

same, the rate of interest to be paid on the loan, and the name and residence of each

pawner, together with a particular description of such pawner, including his or her

nationality, sex, and general appearance, and no pawnbroker or other person shall alter

or erase any entry made in such book. Every person pawning or pledging any article or

thing with a pawnbroker shall sign his name and give his address to said pawnbroker

and such name and address shall be made part of the record heretofore described in

this section: Provided, That a person who is unable to write shall imprint his thumbmark,

and his name shall be written by a competent person, who shall sign his own name as

witness to said thumbmark.

Section 12. Pawn ticket. Every pawnbroker shall, at the time of every such loan or

pledge, deliver to each person pawning or pledging any article or thing a memorandum

or ticket signed by such pawnbroker and containing the substance of the record required

to be kept in such pawnbroker's memorandum book in section eleven hereof, excluding

the description of the person so pawning or pledging such article or thing, and no

compensation of any kind whatsoever shall be received by any pawnbroker for any such

memorandum or ticket.

Section 13. Redemption. The pawner who fails to pay his obligation on the date it falls

due may, within ninety days from the date of maturity of the obligation, redeem the pawn

by payment of the principal of the debt with interest: Provided, however, That for the

purpose of computing interest due after maturity of the obligation, the basis shall be the

sum of the principal of the obligation and interest earned at the time the obligation

matured.