Donna pledged a set of diamond ring and earrings to Jane for P200,000.00 She was made to sign an agreement that if she cannot pay her debt within six months, Jane could immediately appropriate the jewelry for herself. After six months, Donna failed to pay. Jane then displayed the earrings and ring set in her jewelry shop located in a mall. A buyer, Juana, bought the jewelry set for P300,000.00.
a) Was the agreement which Donna signed with Jane valid? Explain with legal basis. (2%)
b) Can Donna redeem the jewelry set from Juana by paying the amount she owed Jane to Juana? Explain with legal basis. (2%)
c) Give an example of a pledge created by operation of law. (2%)
Suggested answer only. Not an official answer and not legal advice.
(a) The agreement was void, (b) Donna cannot redeem the jewelry from Juana, and (c) a mechanic's lien is a legal pledge. Under Article 2088 of the Civil Code, pactum commissorium authorizing automatic appropriation upon default is void. Under
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Quick check
Under Article 2088 of the Civil Code, what is the legal effect of a stipulation allowing a pledgee to automatically appropriate pledged property upon default?
A clause authorizing automatic appropriation of pledged property upon default is void as a pactum commissorium under Article 2088.
Under Article 1505(3) of the Civil Code, what is the effect of purchasing pledged goods in good faith at a merchant's store?
Buying goods in good faith at a merchant's store vests valid title in the purchaser, barring recovery by the true owner.
Which of the following is an example of a pledge created by operation of law under Article 1731 of the Civil Code?
Article 1731 establishes a legal pledge in favor of a worker who retains a repaired movable until paid.
Why is Jane prohibited from keeping Donna's pledged diamond jewelry immediately upon Donna's failure to pay within six months?
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Can Donna recover her pledged jewelry from Juana after Juana bought it from Jane's mall jewelry shop in good faith?
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Learn more about these topics
1. Pactum Commissorium Prohibition
Under Article 2088 of the Civil Code, a creditor cannot appropriate the things given by way of pledge or mortgage, nor dispose of them. Any stipulation to the contrary is known as pactum commissorium and is null and void ab initio. The prohibition against pactum commissorium seeks to protect the debtor against fraud and unconscionable exploitation by greedy creditors when the value of the pledged property exceeds the underlying debt. Upon default of the principal obligation, the pledgee must proceed to sell the pledged item at a public auction to satisfy the claim.
2. Merchant Store Protection
Under Article 1505(3) of the Civil Code, an innocent purchaser for value who buys personal property in good faith at a merchant's store, market, or fair acquires valid title to the goods. Even if the seller or pledgee had no legal authority or ownership to sell the personal property, the true owner cannot recover the property from the innocent purchaser who bought it at a merchant's store. This rule protects commercial transactions, meaning the original pledgor cannot redeem or reclaim the pledged jewelry from an innocent buyer.
3. Legal Pledge Creation
Under Article 1731 of the Civil Code, any person who has executed work upon a movable has a right to retain it by way of pledge until he is paid. This possessory lien created by operation of law is known as a legal pledge. Unlike conventional pledges created by voluntary contract between debtor and creditor, legal pledges arise directly from statutory mandate to secure payment for labor or services rendered. The holder of a legal pledge enjoys the statutory right of retention and sale at public auction.