Short answer. Yes. Article 2118 lets the pledgee do exactly that. If a pledged credit falls due before it is redeemed, the pledgee may collect and receive the amount due, apply it to the payment of his own claim, and deliver any surplus to the pledgor. What exceeds his claim is yours.
What the law says
If a credit which has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due.
Civil Code, Article 2118 — Pledged Credit Falling Due. Read the full provision →
What the law says
He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor.
Civil Code, Article 2118 — Pledged Credit Falling Due. Read the full provision →
You can pledge a credit, not just a thing
A pledge is not limited to tangible objects; a credit — a debt that a third person owes to you — can itself be pledged as security. You assign your right to collect that receivable to your creditor as backing for what you owe him. Ordinarily you would redeem the pledge by paying your own debt, then take your credit back to collect yourself. But timing does not always cooperate: the credit you pledged may fall due before you have redeemed it, so the money on it becomes collectable while it is still standing as security. Article 2118 governs exactly that sequence.
When the pledged credit matures first
The article addresses the maturing of the pledged credit head-on. If a credit which has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due. So your creditor, holding your receivable as security, is entitled to step in and collect it from the person who owes it when it falls due, even though you have not yet paid off your own obligation to him. This prevents the value of the security from being lost while everyone waits — an uncollected credit can lapse or become harder to recover — and it lets the money the credit yields be brought in at the moment it is available.
Apply to the claim, return the surplus
What the pledgee may do with the money he collects is tightly defined. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor. He is not entitled to keep the whole amount he collects. He takes only enough to satisfy what you owe him — his claim — and whatever is left over is yours and must be handed back to you. The pledged credit secures his debt; it does not transfer to him any value beyond that debt. If the receivable he collects is larger than what you owe, the excess belongs to you, the pledgor, and he holds it for your account.
What this means in practice
In practice this means a pledged credit that matures is applied like a payment: it reduces or clears your debt to the pledgee, and any balance comes back to you. So the figures that matter are the amount of the credit collected and the amount of your own obligation, because the difference is your surplus. If your creditor collected on a receivable you had pledged, you are entitled to an accounting — how much he received and how much he applied to your debt — and to the return of anything over. Keep the record of what was owed to you and what you owed him, since those two numbers determine what should come back.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Citibank, N.A. (Formerly First National City Bank) vs. Modesta R. Sabeniano, G.R. No. 156132, October 12, 2006 — read the decision on LawPhil →