Pledge (Pawn)

Pawn or pledge is a contract by which goods or chattels are delivered to another to be security to him for money borrowed of him by the bailor. The pawnee must use ordinary diligence in the custody of the pledge which he is not permitted to make use of except when its keep entails expense, as in the case of a horse, and then the pawnee may make reasonable use of it so as to indemnify himself for its keep.

The pawnee may recover his debt by giving notice to the pawner that he will sell the subject of the pledge, or he may sue for his debt, or if he pleases he may adopt both remedies. A pledge differs from a lien in that this only gives the right to retain property, and from a mortgage of personal estate which passes the actual property in the goods to the mortgagee.

Pawnbrokers form a special kind of pawnees, but although transactions dealing with loans above ten pounds are governed by the common law, loans of ten pounds and less are subject to the Pawnbrokers Act, 1872. By this Act every pledge must be redeemed within twelve months from the day of pawning, with seven additional days of grace. If a pledge is not redeemed within that time, and the amount for which it was pledged does not exceed ten shillings,’it becomes the absolute property of the pawnbroker; if it was pledged for above ten shillings, it may be redeemed until actual sale, and such sale must be by public auction, and the surplus after the costs of the sale and the amount of the pledge and interest must be accounted for.

The pawnbroker is made liable for loss in case of fire, against which he may protect himself by insurance, and he may treat the person who produces the pawn-ticket as entitled to redeem the pledge.

I. Notion. Pledge is a contract by which a debtor delivers a movable thing¹ to the creditor as security of his debt. The creditor is called the pledge-holder, and the thing itself handed over is also called the pledge (St. Alphonsus, III, 913).

¹ If a pledge is constituted on an immovable thing, it is called antichresis.

II. Form. The form of the contract is to be drawn from civil law.

III. Rights of the pledge-holder, or creditor. The pledge-holder can retain the pledge until the debtor has paid; and if he is unequal to paying all debts, he has the right that payment be made to him from the thing pledged before the other creditors, according to what is to be said in n. 1012. But he is bound to keep the thing pledged safe and sound.

IV. Obligations of the debtor. The debtor is bound to compensate the pledge-holder for expenses necessary for the preservation of the thing, and likewise useful expenses made with the debtor's consent.

Note. To this belong contracts by which a certain sum of money is lent to one who, for example, has given merchandise or public bonds in pledge.

Forms of Contract.—The chief forms of contract are the following:

(a) gratuitous contracts, which are those that confer advantage on only one of the contractants, or those in which no payment or compensation for his acts or goods is made to one party by the other party. They include unilateral contracts, which produce obligation on one side only (e.g., a promise, gift, testament), and bilateral contracts, which produce obligation on both sides. The bilateral contracts are also known as bailments, or understandings whereby a thing or business is transferred from one person to another in trust, on condition that a return will be made to the owner, They include the following contracts: loans, in which return must be made of the identical things borrowed (commodatum), or of a thing similar in kind (mutuum); deposit, in which a thing must be returned after safekeeping (depositum); an agency, in which one conducts the business of another with the obligation of making returns, either from express contract (mandatum) or from imputed agreement (negotiorum gestio). In commodatum and mutuum the advantage is had by the bailee, in the other three by the bailor;

(b) onerous contracts of certain event, which are those that confer an advantage on both parties, and in which the thing agreed on is certain and definite. They include contracts in which one party transfers ownership to the other (e.g., buying and selling, barter, loan at interest, contracts for annuities, stocks and bonds) or useful dominion (e.g., lease of property, contractor’s agreement, hire of labor), and contracts in which both parties transfer rights to a moral person of which they are the members (partnership);

(c) onerous contracts of uncertain event, which are those that confer advantage on both parties, but in which the thing agreed on is contingent and uncertain. Examples are insurance, wager, gaming contracts, lottery, and stock market speculation;

(d) subsidiary contracts, which are those that are made in order to give security to principal contracts to which they are annexed or for whose sake they are made. Such are guaranty and surety, pledge and pawn, and mortgage.

What is a pledge? - A pledge is a contract by which the debtor gives a movable thing to the creditor or to a third party as insurance of the credit. A movable thing; for if he obliges an immovable thing, according to more recent Law it is a mortgage. C. I. 1878, 1882; C. G. 2071, 2072, 2076; C. H. 1864; C. A. 447, 448, 1358; C. L. 855 ff.; C. B. 1204, 1273. According to Roman Law, although pledge and mortgage are taken for the same thing in a broader sense, as in L. 5 § 1 ff. de Pignor. et Hypoth.; nevertheless in the stricter sense they differ, for pledge signifies a thing so consigned to the creditor that it exists physically in the possession of the creditor; but mortgage signifies a thing not handed over, but only transcribed to the creditor, as is expressly had in L. 9 § 1 ff. de Pignorat. act., where it is said: "Properly we call that a pledge which passes to the creditor; a mortgage when not even possession passes to the creditor." Cf. C. A. 451, 1368. - L. 913; E. M.

What are the rights of the creditor? - 1. The creditor has the right of retaining the pledge until the extinction of the whole debt. C. I. 1878; C. H. 1860, 1866. Hence he can vindicate it, if it has been taken from him, from any possessor. C. H. 1866.

2. He can ask from the judge that the pledge be sold under auction if the debt is not paid, or that it remain with him in payment of the debt, up to the concurrence of the debt, according to the estimation of experts. Any pact which gives to the creditor authority of appropriating the pledge to himself, or of disposing of it, a commissory pact, without the prescribed formalities, is null. C. I. 1884, 1894; C. G. 2078, 2088; C. H. 1858, 1859, 1872; C. A. 461, 1371; C. 7 de Pignor. Yet this law rests on the presumption of fact that the pledge is worth more. Wherefore it ceases in the forum of conscience if the pledge truly is not worth more. L. 775; C. 7 de Pignor.

3. If the thing handed over in pledge is in the possession of the creditor or of a third party chosen by the contracting parties, the creditor has the privilege that from it the debt be paid to him before other creditors. If, however, the thing is worth above 500 lire according to C. I., above 150 francs according to C. G., or if incorporeal rights of credit have been handed over in pledge, whatever they may be, a public or private writing is necessary, with the cession of the credit announced to the debtor, or accepted by him by authentic act, C. I. 1879, 1880-1882; C. G. 1690, 2074-2076. - According to C. H. 1865, in order that a pledge have effect against third parties, a public instrument is necessary. - C. B. 233.

4. The creditor is bound to restore the pledge or mortgage to the debtor who pays the whole capital or debt, but not to one who pays only a part. Hence, if the pledge or mortgage comes by testament, action, or contract to several creditors, and one of these retains it with himself, he cannot restore it to the debtor, although he has received from him the part owed to himself, but he is bound to consign it to the remaining creditors who have not yet been satisfied. Likewise, if the debt comes by testament to several, the heir who pays his part cannot reclaim restitution of the pledge unless the others also have fully satisfied the debt. Indeed, not even after the whole debt has been paid is the creditor bound to restore the pledge, if something else without pledge began to be owed after that pledge had been accepted, which can be demanded before the prior debt has been paid. C. I. 1888, 1889; C. G. 2082, 2083, 2087, 2090; C. H. 1860, 1866; C. A. 469; C. B. 1223.

What are the obligations of the creditor? 1. The creditor must not use the thing entrusted to him, unless with the consent of the debtor, at least reasonably presumed. "But the owner is presumed to consent if no damage follows to him." L. 914, 776; C. A. 459. - But if the creditor abuses the pledge, the debtor can seek its sequestration, C. I. 1887; C. H. 1870, or its restitution, C. G. 2082; C. B. 1217 seq.

2. He must diligently guard the pledge as a good father of a household, otherwise he is held concerning damage. L. 14 de Pign. actio. Since the pledge is given for the security of the creditor, and at the same time for the utility of the debtor, the creditor is held concerning it for light fault. Wherefore the creditor must furnish compensation for loss or detriment of the pledge which happens by his negligence. C. I. 1885; C. G. 1137, 2080; C. H. 1867; C. A. 449, 1369; C. B. 1215; Inst. l. 3, t. 15, § 4.

3. He must compute the fruits received from the pledge toward diminution of the debt, in order to preserve equality. C. I. 1852, 1886; C. G. 1936, 2081; C. H. 1868; C. A. 1372; L. 914.

4. He cannot appropriate the pledge to himself, nor can he sell it by his own authority in payment of the debt. He is bound to render the excess of the price to the debtor. C. I. 1884; C. G. 2078, 2088, 2115; C. H. 1859, 1872; C. A. 461, 464; L. 775, 913; C. B. 1219 ff.; E. M.

What are the rights of the debtor? By force of a pledge contract, or mortgage contract, the debtor remains full owner or proprietor and usufructuary of the thing pledged or mortgaged. C. H. 1868, 1869.

What are the obligations of the debtor? 1. The debtor is bound to hand over to the creditor a suitable pledge. C. H. 1857. Cf. C. A. 456. 2. He must refund to the creditor the expenses necessarily made for its conservation. C. I. 1885; C. H. 1867; C. B. 1216. 3. He cannot reclaim the pledge before he has paid the whole debt, unless the creditor abuses it. For then he can ask that it be placed under sequestration. C. H. 1870, 1871.

938. • Pledge is a contract by which a debtor gives a movable thing to the creditor for insurance of the credit. - Under the name of pledge also comes the thing pledged.

Rules of pledge. - I. On the part of the debtor handing over the pledge. He ought 1. to hand over to the creditor a suitable pledge; 2. to refund to the creditor necessary expenses which shall have been made for the conservation of the thing; 3. not to reclaim the pledge before he has paid the entire debt, unless the creditor abuses it.

II. On the part of the creditor receiving the pledge. He ought 1. not to use the thing entrusted to him except by the consent of the debtor; 2. diligently to guard the pledge; otherwise he is bound concerning damage; 3. to compute fruits received from the pledge toward the diminution of the debt, namely for preserving equality; 4. not to sell the pledge by his own authority for obtaining payment, unless the debtor is in culpable delay and has first been warned. Thus by natural and positive law.

To pledge approaches the contract which is called antichresis. But antichresis is a species of pledge by which the debtor hands over an immovable thing for the use of the creditor until the debt is paid. - St. Lig. n. 916. ¹. - See Cases, n. 1010.

¹ St. Alphonsus, or rather Busembaum (for St. Alphonsus brings forward the mere text of this man on this matter), immediately adds this resolution: This contract, according to Cajetan, Soto, etc. (against certain jurists), seems to be usurious, because the creditor gains something beyond the capital by reason of the mutuum alone, which is usury. But St. Alphonsus adds in a little note within parenthesis (Book 3, n. 916): And it is certain with Palao apud Croix, n. 1115. Nevertheless (ibid.) he holds as ratified the things which Busembaum then adds (Resol. 2): Yet just titles of gaining fruits from the pledge without diminution of the capital can intervene; as if, for example, the fruits received from the hypothec do not surpass the quantity of the pension which by right of census constituted on the same thing can be exacted with a pact of restoration, as was said above concerning censuses: or if otherwise profit ceases, or damage emerges, while the debt is deferred. Whence they are not easily to be condemned who from Princes, in place of debts, have fields, pastures, offices, etc., in antichresis. See Laym. and Binfeld, On Usuries, Mol., etc., Lessius cap. 137. To these can also be added those things which above, where treating of mutuum, were said concerning profit from credited money received short of injustice.

| | | | --- | --- | | FIRST PART. - On laws in general. 77 | Art. I. On the force of obligation. 91 | | Chap. I. On the nature and properties of law. » | Art. II. On the manner of satisfying the obligation of law. 93 | | Chap. II. On the author of law, or on the legislator. 79 | Art. III. On causes excusing from law. 96 | | Chap. III. On the object and subject of law. 83 | § I. On the nature of those things which deobligate. » | | Art. I. On the object of law. » | § II. On the voluntary placing of deobligating causes. 97 | | Art. II. On the subject of law. 84 | Chap. VI. On interpretation of law and epikeia. 99 | | Chap. IV. On promulgation and acceptance of law. 88 | § I. On interpretation of law. » | | Art. I. On promulgation of law. » | § II. On epikeia. 100 | | Art. II. On acceptance of law. 89 | Chap. VII. On dispensation of law. » | | Chap. V. On the obligation of law. 91 | |

| | | | --- | --- | | FIRST PART. - On contracts in general. 623 | § III. On the civilly dead. 647 | | Chap. I. On the requisites for contracting. 625 | § IV. On the interdicted and prodigals. » | | Art. I. On the matter of a contract. » | Art. III. On the required consent. » | | Art. II. On the subject of a contract. 637 | § I. On the endowments of legitimate consent. » | | § I. On minors. 642 | § II. On vices opposed to consent. 649 | | § II. On wives. 645 | |

606. Accessory or subsidiary contracts are those which essentially suppose a principal contract, to which they accede for its security and execution, and on which they depend in some way according to the axiom: the accessory follows the principal.

There are three principal ones: suretyship, by which an obligation is undertaken by one in place of another; pledge and hypothec, by which an obligation is undertaken in place of another obligation.

607. Suretyship (fidem iubere, to give one's word; cautionnement; borgstelling, borgtocht, a. 2011) is a contract by which one or more take upon themselves another's obligation, if the principal debtor does not pay. It can be undertaken gratuitously; something can also be accepted for it, so much the more as the danger that the debtor will not pay is greater; indeed, even if there is no danger or trouble, because to take such an obligation upon oneself is estimable by price.

It is a contract which essentially depends altogether on another; whence the surety (la caution) obliges himself only subsidiarily, indeed conditionally, for the case in which the debtor does not satisfy.

Hence:

1. The obligation of the surety depends on the obligation of the principal debtor, and therefore does not exist unless this itself is valid (a. 2012);

2. He is not obligated to more than the principal; and therefore, if the latter's obligation ceases, the surety is freed (a. 2013);

3. He is not held to pay the debt unless the principal debtor has first been exhausted before a judge; except if he himself has renounced the benefit of excussion, or constituted himself an equally principal debtor (a. 2021).

No one can be a surety except one who has the free administration of goods sufficient for this; such as a ward, a minor, a religious, and in many regions a wife do not have, at least without the consent of tutor, curator, superior, or husband. Moreover, from our civil law it is required that he dwell in the territory of the royal court (cour d'appel) where the suretyship is to be paid (a. 2018).

He is held toward creditors concerning all obligations of the debtor (a. 2016), but only in his default or inability, and indeed juridically proved (a. 2021), that is, not except after the sentence of a judge. The obligation is real, and therefore passes to heirs (a. 2017).

If the surety pays for the debtor, he by that very fact becomes a creditor and has recourse against him in order to demand back those things which he was forced to pay in his place (a. 2028-2030). The principal debtor is held to keep the surety indemnified, unless the latter paid without forewarning the debtor, and thus was the cause why the debtor either paid a second time, or could not pursue the extinction of the debt (a. 2031); but then the surety has action against the creditor.

The surety can act against the debtor: 1. when he himself is summoned before a judge to pay; 2. when the debtor yields into insolvency or is unequal to paying; 3. when the debtor has bound himself to free him at a certain time; 4. when the time of payment has elapsed; 5. after ten years, if the time of payment was not determined, unless there is question of guardianship and other obligations which cannot be extinguished by lapse of time (a. 2032).

608. Pledge or pawning (nantissement; pandgeving, a. 2071) is a real contract by which the debtor, or another, hands over some thing to the creditor, or to a third party, for the security of the debt; so that payment can be sought from it before other creditors, if the debtor does not pay. If this thing is movable, it is called a pledge (gage; onderpand); if immovable, antichresis¹, which is given in writing (verpanding).

¹ German Code a. 1213: for antichresis, no distinction is made between a movable and an immovable thing.

The debtor is held toward the creditor to hand over a suitable pledge, to refund necessary expenses which were made for the conservation of the thing, and not to demand it back before he has paid the whole debt, unless the creditor abuses it.

The creditor must guard the pledge diligently, otherwise he is held to repair damage; he must count fruits received from it toward diminution of the debt; nor can he, except with the consent of the debtor or judge, use the pledged thing, nor sell it to obtain payment, unless the debtor is in culpable delay and has first been warned (a. 2073-2091).

609. Hypothec (grondpand, kusting) is a contract by which an immovable thing,² remaining with the debtor, is obligated to the creditor for the security of the debt. Consequently the word also designates the immovable thing obligated, and the right of demanding the debt from it; it is a real right, in the thing, and indivisible, so that if the debtor has neglected to pay, the creditor can satisfy himself from all the obligated things and from each part of them, by whomever they may be held (Belgian law 16 Dec. 1851, a. 41).

² An exception is made for maritime hypothec, by which ships with their instruments and goods can be hypothecated (Commercial Code and Maritime Insurance, a. 37); by Italian law (a. 1967), titles of obligations of the State are also subjected to hypothec.

It differs from pledge in this: that the pledge is handed over, but the hypothec is secured only by bare agreement. It is threefold (a. 43-44; C. C., a. 2116):

1. Legal or implicit, which is induced by force of law in favor of communities, wife, son, and minor upon the goods of administrators, husband, father, and tutor (a. 45 and 47);

2. Judicial, which proceeds from the decree of a judge in favor of him who has obtained a sentence against another;³

³ This no longer subsists in Belgium.

3. Conventional, which depends on the mutual will of the contracting parties; to this accedes testamentary hypothec (a. 44), which is established by a testator upon immovable goods specially designated in the testament, for the insurance of legacies which he prescribed to be made (a. 44).

It can be special, namely, when someone obligates a determined thing, for example, such a piece of land; or general, by which someone obligates all goods. Legal and judicial hypothec can embrace all present and future goods, but conventional and testamentary hypothec only present goods.

Hypothec in Belgium is ruled by the law of 16 Dec. 1851, according to which only those are capable of conventional hypothec who are capable of alienating the goods which are subjected to hypothec (a. 73). It cannot be conceded except by an authentic act entered into before a notary, or by a private act acknowledged before a judge or notary (a. 76). Nor is it valid unless in the act constituting it, or in another authentic act, the nature and location of each good subjected to hypothec is specially declared (a. 78), and in the act itself a certain and determined sum is expressed. But if the debt is conditioned, mention of the condition must be made in the inscription (a. 80): for, that a hypothec may have its full force, it must be inscribed in the register with the conservator of hypothecs of the region in which the goods subjected to hypothec are situated (a. 81).

There are two principal effects or privileges of hypothec:

1. The right of preference, by which the creditor has the right of obtaining payment from the goods before merely chirographic creditors, and even before those who took care to have hypothecs inscribed only on the following day;⁴

⁴ Thus by French, Belgian, and other law they take order from the day of inscription; elsewhere from the inscription itself, but Italian law (a. 2008) provides that those who present a document at the same time are placed under one number of inscription.

2. The right of pursuit, by which the creditor can pursue the hypothecated good, into whosever hands it has come (a. 96). Except for legal hypothec, which always endures without being renewed, the inscription of the hypothec must be renewed from civil law before a certain term has elapsed; otherwise the aforesaid privileges would be lost (a. 81-90).

In France the inscription must be renewed within 10 years; in Belgium within 15; in Italy within 30; in Spain within 20; in Germany it does not have to be renewed.

Hypothec is extinguished: 1. by the extinction of the principal debt; 2. by renunciation of the creditor; 3. by prescription; 4. by observation of the formalities and conditions which are prescribed so that goods may be freed from hypothec (purge des hypotheques).

For the holder of a hypothecated good who is not personally obligated can free himself: a) either by paying all inscribed debts; b) or by abandoning the good without any reservation; c) but if he does neither, any creditor can obtain that the good be sold after 30 days from the demand which he must make both to the primitive debtor and to the present holder. Then, however, one means remains, namely, recourse to what they call la purge des hypotheques, by force of which the holder can obtain that he be freed by paying the price of the hypothecated good (a. 97-107; 109 sq.).

610. Transaction (compromis; dading, schikking in der minne, overeenkomst) can be reduced to subsidiary contracts. It is an onerous contract by which a doubtful and uncertain matter is composed between parties, or by which two or more compose a doubtful contestation that has arisen among them, or prevent one about to arise. Thus C. C., art. 2044, according to which it must be made in writing; this, however, is not required for solemnity or validity, but for mere proof.

That someone may enter into this contract, it is necessary that he be able to dispose of the thing about which the contestation turns. But this must be doubtful, because if the right of the other party were certain, it would be unjust to propose to him a transaction by which he would have to renounce that right. Nevertheless it is not required that the contestation has already arisen, but it suffices that it be foreseen; in which case it can be made on account of fear, provided the fear is founded and renders the rights uncertain. Transaction puts an end to contestation, and has no less authority than a definitive sentence of a judge (a. 2052), unless it is discovered that the things alleged were false (a. 2055-2056).

Pledge (pawn, pledge) is a contract by which the debtor gives a movable thing to the creditor for the insurance of the credit. But sometimes by the name of pledge comes the very thing pledged.

Concerning pledge these things must be noted:

I. The debtor handing over a pledge ought 1st. to hand over to the creditor a suitable pledge; 2nd. to refund to the creditor the necessary expenses which were made for the preservation of the thing; 3rd. not to reclaim the pledge before he has paid the entire debt, unless the creditor abuses it.

II. The creditor receiving a pledge ought 1st. not to use the thing entrusted to him, unless by the consent of the debtor; 2nd. diligently to guard the pledge; otherwise he is bound for damage; 3rd. to compute the fruits received from the pledge toward the diminution of the debt, namely for preserving equality; 4th. not to sell the pledge by his own authority for obtaining payment, unless the debtor is in culpable delay and has first been warned. - Cf. St. Alphonsus, nn. 913 et seq. - Kent, Comment., vol. 2, part 5, lect. 40, nn. 577 et seq.

To pledge is joined the contract which is called antichresis. But antichresis is a species of pledge by which the debtor hands over an immovable thing for the use of the creditor until the debt is paid. - Cf. St. Alphonsus, n. 916.

To pledge is also joined that which among us is called a lien, which consists in this, that the legal possessor of some goods can detain them until satisfaction is made for the right which he has against their true owner. Cf. Kent, Comment., vol. 2, lect. 41, nn. 634 et seq.