A stipulation in a contract which provides that the creditor or pledgee will automatically appropriate the thing mortgaged or pledged as security for a principal obligation when the debtor or pledgor did not pay within the stipulated period. This stipulation is void by virtue of Article 2088.
The creditor cannot appropriate the things given by way to pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.
ART. 2088, New Civil Code
2 Elements of Pactum Commissorium
- (1) PLEDGE or MORTGAGE as SECURITY for PRINCIPAL OBLIGATION. that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and
- (2) AUTOMATIC APPROPRIATION if NO PAYMENT in a PERIOD. that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.
English