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.