Short answer. Yes. Article 2112 provides that if the pledged item fails to sell at two successive public auctions held with the proper formalities, the creditor may appropriate it instead, but in that case must give an acquittance for the entire claim. So your loan is treated as fully paid regardless of the item's actual value.
What the law says
The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing pledged.
Civil Code, Article 2112 — Extrajudicial Sale of the Pledge. Read the full provision →
What the law says
If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged.
Civil Code, Article 2112 — Extrajudicial Sale of the Pledge. Read the full provision →
What the law says
In this case he shall be obliged to give an acquittance for his entire claim.
Civil Code, Article 2112 — Extrajudicial Sale of the Pledge. Read the full provision →
The two-auction requirement before appropriation
Article 2112 sets out the process a pledgee must follow before resorting to appropriation. The creditor whose credit has not been satisfied in due time may proceed before a notary public to sell the pledged thing, and that sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged. If the item does not sell at the first auction, the article requires a second one with the same formalities to be held before anything further can happen — a single failed auction is not enough to let the creditor simply keep the item.
What happens once the second auction also fails
Only once the second auction also fails to produce a sale does the article allow the creditor to move to a different remedy. It states that if at the second auction there is no sale either, the creditor may appropriate the thing pledged. That is exactly what happened in your situation: two auctions failed to sell the item, and the pawnshop, as creditor, appropriated it instead of continuing to try to sell it.
Why appropriation forces a full acquittance
Choosing appropriation comes with a specific consequence the article attaches directly to that choice. It states that in this case he shall be obliged to give an acquittance for his entire claim. An acquittance is a release or discharge of the debt, and the article requires it to cover the creditor's entire claim, not merely a portion equal to whatever the item happened to be worth. Appropriating the item after two failed auctions is the trigger for this full-release obligation.
The item's actual value doesn't change this
This means the item's actual market value, and whether it was worth more or less than what you owed, does not change the outcome the article prescribes. Once the creditor appropriates the pledged thing after two failed public auctions conducted with the required formalities, the full claim is treated as satisfied by operation of this article, regardless of whether the value of what the creditor ends up keeping matches the debt exactly.
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.
- Armand O. Raquel-Santos, et al. vs. Court of Appeals, et al, G.R. No. 174986, July 7, 2009 — read the decision on LawPhil →
- Lim Tay vs. Court of Appeals, et al, G.R. No. 126891, August 5, 1998 — read the decision on LawPhil →
- United Planters Sugar Milling Co., Inc. (UPSUMCO) vs. The Honorable Court of Appeals, et al, G.R. No. 126890, April 2, 2009 — read the decision on LawPhil →
- Insular Life Assurance Company, Ltd., et. al. vs. Robert Young, et. al, G.R. No. 140964, January 16, 2002 — read the decision on LawPhil →