Legalese (2009 Week 13)


Pledge – a pledge is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable property or a document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation (such as payment of a loan by the debtor), with the understanding that when the obligation is fulfilled, the thing delivered shall be returned to the debtor.   [See: Comments and Cases on Credit Transactions [2006], p. 309]


ARTICLE 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third party by common agreement.  (Civil Code)


Article 2093 requires that the creditor (or his representative) obtain possession of the thing pledged.  It has been held that delivery of the keys to the warehouse where the pledged goods were stored constituted delivery.


D borrowed money from C.  As security, D executed a contract of pledge over his vessels which were not actually delivered to C but remained in D’s possession.  It was agreed that D “shall hold said property subject to the order of the Pledgee.”  D defaulted.  D contended that the pledge was not effective.  Is D correct? [See: Comments and Cases on Credit Transactions [2006], p. 337-338, citing Yuliongsi vs. Philippine National Bank, 22 SCRA 585 (1968)]