Part Ⅲ Rights In Rem
Chapter 7 Pledge
Section 1 - Pledge of Personal Property
A pledge of personal property is a preferential right of a creditor to receive satisfaction of a claim from the proceeds from sale of personal property the possession of which has been transferred by a debtor or a third party as security for the claim.
The creation of a pledge becomes effective by the transfer 1into the possession of the creditor of the personal property provided as security.
The pledgee may not cause the pledgor or the debtor to possess the pledged property in place of the pledgee.
When a recipient of a pledge is in possession of the personal property and is protected by the provisions concerning possession, the recipient of the pledge acquires the pledge even if the pledgor has no right of disposal over the thing pledged.
Unless otherwise provided by a covenant, a pledge secures the principal claim, interest, default interest, default penalties, cost of preserving the thing pledged, cost of executing the pledge, and damages for any injury arising from a concealed defect in the thing pledged.
The cost of preserving the thing pledged referred to in the preceding paragraph shall be limited to the cost necessary for preventing impairment of the value of the thing pledged.
The pledgee shall keep custody of the thing pledged with the due care of a good administrator.
The pledgee may not use the thing pledged or lease it to others except with the consent of the pledgor, provided that use necessary for the preservation of the thing pledged is not subject to this restriction.
The pledgee may collect profits produced from the thing pledged, unless otherwise provided by a covenant.
A pledgee who has the right to collect profits from the thing pledged shall do so with the same care he would take for his own property and shall render an account of the profits.
The profits as specified in the preceding paragraph shall first be applied to discharge the costs of collecting the profits, then to discharge the interest on the principal claim, and finally to discharge the principal claim.
If appraisal at current value is required before discharge may be made from the profits, the provisions regarding enforcement of pledge rights shall apply mutatis mutandis to the method of appraisal.
For the duration of the pledge, the pledgee may, on his responsibility, sub-pledge the thing pledged to a third party. The pledgee shall be also responsible for any loss caused by force majeure resulting from the sub-pledge.
If the thing pledged is likely to be perishable or there is an obvious depreciation in its value sufficient to prejudice the rights of the pledgee, the pledgee may sell the thing pledged by auction and keep the proceeds from sale in place of the thing pledged.
Under the circumstances referred to in the preceding paragraph, the pledgee shall lodge the proceeds from sale of the thing pledged with a court if the pledgor so requests. The pledgee may enforce its pledge rights against the thing lodged with the court if the pledgee has not received payment upon maturity of the claim.
A pledgee who has not received payment upon maturity of the claim may sell the thing pledged by auction and receive payment from the proceeds of the sale.
The provisions of Article 873-1 apply mutatis mutandis to any stipulation that ownership of the thing pledged will be transferred to the pledgee upon failure to pay the claim upon maturity.
Under the circumstances referred to in the two preceding articles, the pledgee shall notify the pledgor before the sale by auction, unless such notification is impracticable.
The provisions of Article 878 shall apply mutatis mutandis to pledges of personal property.
Upon the extinction of the claim secured by a pledge of personal property, the pledgee shall return the thing pledged to the person entitled to receive it.
A pledge on personal property is extinguished when the pledgee returns the thing pledged to the pledgor or delivers it to the debtor. Upon the return or delivery of the thing pledged, any reservation made in contemplation of continuance of the pledge is void.
A pledge of personal property is extinguished when the pledgee loses possession of the thing pledged and does not within a period of two years thereafter demand its return.
A pledge of personal property is extinguished by the destruction or loss of the thing pledged, unless the pledgor is entitled to receive compensation or other benefits as a result of such loss or destruction.
The pledgee retains a pledge over any right to compensation or other right of claim exercisable by the pledgor as referred to in the preceding paragraph. The seniority of the pledge so retained is the same as that of the original pledge.
If a payment obligor, intentionally or through gross negligence, makes a payment to the pledgor, the payment has no effect against the pledgee.
Under the circumstances referred to in the preceding paragraph, the pledgee may demand that the pledgor deliver the thing given in payment or make a lodgment of the money paid.
The provisions of the preceding four paragraphs apply mutatis mutandis with respect to compensation or other benefits that may be received as a result of damage to a thing pledged.
A debtor or a third party may provide personal property belonging thereto to create a line of credit pledge, for not more than a specified maximum amount, to secure a creditor's unspecified claim within a specific scope against the debtor.
The creation of a pledge referred to in the preceding paragraph shall be done in writing, in addition to transferring the possession of the personal property.
The provisions regarding line of credit mortgages, and of Article 884 through the preceding article, apply mutatis mutandis to line of credit pledges.
A pledgee that has received approval to engage in the business of taking pledges may exercise its rights only against the things pledged. If a pledgor does not redeem the thing pledged within five days after the expiration of the period for redemption, the pledgee obtains ownership of the thing pledged, and the claim that it secures is thereupon extinguished.
The provisions of Articles 889 to 895, Article 899, and Article 899-1 do not apply to pledges referred to in the preceding paragraph.
Section 2 - Pledge of Rights
A pledge of rights is a pledge the subject of which is a transferable claim or other transferable right.
Unless otherwise provided in this section, the provisions concerning pledges of personal property shall apply mutatis mutandis to pledges of rights.
The creation of a pledge of rights shall be made in accordance with the provisions concerning the transfer of such rights, as well as with the provisions of this section.
A pledgor may not, by means of a juristic act, cause a right that is the subject of a pledge to be extinguished or modified without the consent of the pledgee.
If the subject of a pledge is a claim, the pledge shall be created in writing.
If there is any document evidencing a claim referred to in the preceding paragraph, the pledgor is obligated to deliver it.
If a claim that is the subject of a pledge is a pecuniary claim with a maturity earlier than the maturity of the claim it secures, the pledgee may demand that the debtor lodge the payment for the pecuniary claim, and may exercise its pledge against the thing lodged.
If a claim that is the subject of a pledge is a pecuniary claim with a maturity later than the maturity of the claim it secures, then at the maturity of the claim secured by the pledge, the pledgee may demand payment of the amount of the claim secured by the pledge.
If a claim that is the subject of a pledge is a claim for payment by delivery of personal property other than money, then at the maturity of that claim, the pledgee may demand that the debtor deliver the personal property, and the pledgee will hold a pledge over the thing delivered.
If a claim that is the subject of a pledge is a claim for payment by the creation or transfer of rights in rem in real property, then at the maturity of that claim, the pledgee may demand that the debtor create or transfer such rights in rem in the real property in favor of the pledgor, and the pledgee will hold a mortgage on the rights in rem in the real property.
At the time of the creation or transfer of the rights in rem in the property in favor of the pledgor, the mortgage referred to in the preceding paragraph shall be registered together therewith.
When a pledgee has not received payment upon maturity of the claim secured by a pledge, in addition to taking measures under the preceding three articles, the pledgee also may enforce its pledge in accordance with the provisions of Article 893, paragraph 1, or Article 895.
When a claim that is the subject of a pledge may be caused to reach maturity by the exercise of a certain right, the pledgee also may exercise that right when the pledgee has not received satisfaction upon maturity of the claim secured by the pledge.
When a debtor makes a lodgment or a payment in accordance with Article 905, paragraph 1, Article 906, or Article 906-1, the pledgee shall notify the pledgor but need not obtain the consent of the pledgor.
If the subject of a pledge is a claim, and its debtor has been notified of the creation of the pledge, that debtor, when making any payment either to the pledgor or the pledgee, shall first obtain the consent of the other of those parties. In the absence of such consent the debtor shall lodge the thing given as payment.
If the subject of a pledge is a claim, and its debtor, after having been notified of the creation of the pledge, obtains any claim against the pledgor, that debtor may not assert offset of that claim against the claim that is the subject of the pledge.
If the subject of a pledge is securities for which no rights holder is named, the creation of the pledge becomes effective by the delivery of the securities to the pledgee. If the subject is any other type of securities, endorsement is also required to be made.
The endorsement referred to in the preceding paragraph may include a notation as to the purpose for which the pledge is created.
If the subject of a pledge is securities for which no rights holder is named, a negotiable instrument, or any other securities transferred by endorsement, the pledgee may collect payments receivable on such securities even if the claim secured thereby has not matured. If to do so it is necessary to cause the securities to reach maturity, the pledgee shall also have the right to bring about the maturity by giving notice or by other means. And the debtor may make payments only to the pledgee.
The provisions of Article 905, paragraph 1, or Article 906 apply to payments collected pursuant to the preceding paragraph.
The provisions of Article 906-2 and Article 906-3 apply mutatis mutandis to pledges the subject of which is securities.
If the subject of a pledge is securities, the effect of the pledge further extends to attached interest coupons, fixed-payment securities, or any other attached securities, provided they have been delivered to the pledgee.
Unless otherwise stipulated, if attached securities are issued after the creation of the pledge, the pledgee may demand their delivery from the issuer or the pledgor.