Short answer. Yes, the pledge stands. Article 1438 says that if you allowed another to appear as owner of your personal property so he could deal with it, and you received the sum for which he pledged it, you cannot set up your own title to defeat a pledge he made to a pledgee in good faith and for value.
What the law says
One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.
Civil Code, Article 1438 — Estoppel Regarding Pledged Personalty. Read the full provision →
The estoppel the article creates
Article 1438 provides that One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value. Because you clothed another person with the appearance of ownership, the law will not later let you deny it to the prejudice of someone who reasonably relied on that appearance.
What must be present for it to bind you
The article does not bind you in every case. Several elements must line up. You must have allowed the other to assume apparent ownership, and for the purpose of making a transfer. You must have received the sum for which the pledge was constituted. And the pledgee must have received the property in good faith and for value. If the pledgee knew the truth, or gave nothing of value, or you never received the proceeds, the foundation for estoppel weakens or disappears.
Why the law protects the pledgee
This rule places the loss on the person who made the deception possible rather than on the innocent party who relied on it. Having enabled another to look like the owner and having taken the money, you cannot turn around and assert your hidden title to defeat the pledge. It does not, however, protect a pledgee who acted in bad faith, and it does not reward you if you received nothing. If you are caught in such a situation, focus on what you can prove about the pledgee's knowledge, the value given, and whether the proceeds reached you, since those facts decide it.