PROVISIONS COMMON TO PLEDGE AND MORTGAGE (Art 2085-2123)

ESSENTIAL REQUISITES TO CONTRACTS OF PLEDGE AND MORTGAGE:

1. constituted to secure the fulfillment of a principal obligation
2. pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged
3. the persons constituting the pledge or mortgage have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose
4. cannot exist without a valid obligation
5. debtor retains the ownership of the thing given as a security
6. when the principal obligation becomes due, the thing in which the pledge or mortgage consists
may be alienated for the payment to the creditor.

KINDS OF PLEDGE:.
1. Voluntary or conventional- created by agreement of the parties
2. Legal- created by operation of law

CHARACTERISTICS OF PLEDGE:
1. real- perfected by delivery
2. accessory- has no independent existence of its own
3. unilateral- creates obligation solely on the part of the creditor to return the thing subject upon the
fulfillment of the principal obligation
4. subsidiary- obligation incurred does not arise until the fulfillment of the principal
obligation

CAUSE OR CONSIDERATION IN PLEDGE

1. principal obligation – in so far as the pledgor is concerned
2. compensation stipulated for the pledge or mere liberality of the pledgor- if pledgor is not the
debtor
PLEDGE MORTGAGE
Constituted on movables Constituted on
immovables
Property is delivered to Delivery not necessary
the pledgee, or by
common consent to a
3rd person
Not valid against 3rd Not valid against 3rd
persons unless a persons if not registered
description of the thing
pledged and the date of
the pledge appear in a
public instrument
Art. 2088 The creditor cannot appropriate the things given by way of pledge or mortage or dispose of
them of them. Any stipulation to the contrary is null and void.

PROHIBITION AGAINST PACTUM

COMMISSORIUM
1. stipulation is null and void - stipulation where thing or mortgaged shall automatically become
the property of the creditor in the event of nonpayment of the debt within the term fixed
2. Requisites of pactum commissorium:

a. there should be a pledge or mortgage

b. there should be a stipulation for an automatic appropriation by the creditor of the property
in the event of nonpayment

ART. 2089 PLEDGE IS INDIVIBSIBLE

1. pledge or mortgage is indivisible. Even if the debtors are not solidarily liable (art. 2090)

EXCEPTIONS to the rule of indivisibility:

a. where each one of several things guarantees determinate portion of
credit
b. where only portion of loan was released
c. where there was failure of consideration

ART. 2091 contract of pledge or mortgage may secure all kinds of obligation, be they pure or
subject to a suspensive or resolutory condition

ART. 2092 a promise to constitute pledge or mortgage creates no real right, only a personal right
biding upon the parties, only right of action to compel the fulfillment of the promise but there is no
pledge or mortgage yet

* under RPC, estafa is committed by a person who, pretending to be the owner of any real
property, shall convey, sell, encumber or mortgage the same knowing that the real property is
encumbered shall dispose of the same as unencumbered. It is essential that fraud or deceit be
practiced upon the vendee at the time of the sale.

PLEDGE: A contract by virtue of which the debtor delivers to the creditor or to a third person a movable
or document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal
obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be
returned with all its fruits and accessions.

ART. 2093
PROVISIONS APPLICABLE ONLY TO PLEDGE
 1. transfer of possession to the creditor or to third person by common agreement is
essential in pledge
- ACTUAL DELIVERY is important
-CONSTRUCTIVE delivery or symbolic delivery of the key to the warehouse is sufficient to
show that the depositary appointed by common consent of the parties was legally placed in
possession

ART. 2094 & ART. 2095 SUBJECT MATTER OF PLEDGE

1. All movables provided they are:

a. Within the commerce of men
b. Susceptible of possession
2. Incorporeal rights provided they are
a. Delivered
b. Indorsed
*if it is only a blank document of title then mere delivery is sufficient

ART. 2096 FORM

 It must be in a public instrument to be valid against third persons

CONTENT:
(1) The description of the thing pledged
(2) Date of the pledge

ART. 2097 RIGHT OF PLEDGOR TO ALIENATE PROPERTY

G/R: yes, he can provided:

 The pledgee consented

 The pledgee shall continue in possession

ART. 2098 WHEN CAN THE PLEDGOR DEMAND THE RETURN OF THE THING

The pledgor can demand the return of the thing pledged if and only if:

 The debt is already paid

*otherwise, the creditor shall continue in possession

ART. 2099, 2100, 2101 OBLIGATION AND RIGHTS OF PLEDGEE

OBLIGATION
 To take care of the thing pledged with the diligence of a good father of a family
 Liable for loss or deterioration
 Obligation NOT to deposit the thing pledged to another
 Responsible for employees acts


RIGHT
 For reimbursement of the expenses made for its preservation

ART. 2102 RIGHT OF PLEDGEE TO COMPENSATE EARNINGS OF PLEDGE WITH DEBT

G/R: the pledgee has a right to use the thing pledged or to appropriate the fruits thereof with the authority
of the owner

RULE:

(1) Payment of interest

(2) Prinicipal

ART. 2103 RIGHT OF PLEDGEE AGAINST THIRD PERSONS

He is authorized to bring such actions as pertain to the owner on order to


recover it or defend it against claims of other persons
ART. 2104 OBLIGATION OF PLEDGEE NOT TO USE THE THING PLEDGED

G/R : He has no right to make use if it unless permitted by owner

BUT IF :

1. Creditor uses the thing without authority

2. Misused
3. The thing is in danger of being lost or impaired because of negligence or willful act of the
pledgee

 Pledgor has the right to ask the thing pledged be deposited judicially or
extrajudicially

ART. 2105 WHEN CAN THE DEBTOR ASK THE RETURN OF THE THING PLEDGED

 G/R: if the debt is already paid

ART. 2106 RIGHT OF PLEDGOR TO ASK FOR DEPOSIT OF THING PLEDGED

 the thing pledged is in danger of being lost or impaired

ART. 2107 & 2108 “ IF THE THING IS IN DANGER OF DESTRUCTION

A. RIGHT OF PLEDGOR TO SUBSTITUTE THE THING PLEDGED (ART. 2107)

1. the pledgor has reasonable grounds for fear the destruction or impairment of the thing
pledged
2. there is no fault on the part of the pledgee
3. the pledgor is offering another thing which is of the same kind and quality
4. the pledgee does not choose to exercise his right to cause the thing pledged to be sold at
public auction

B. RIGHT OF PLEDGEE TO CAUSE SALE (ART. 2108)

 this is superior to ART. 2107

ART. 2109 RIGHT OF CREDITOR OF HE IS DECEIVED ON THE SUBSTANCE OR QUALITY OF THE

THING PLEDGED

1. To claim another thing in pledge

2. To demand immediate payment of the principal obligation
  Alternative

EXTUINGSHMENT OF THE CONTRACT OF PLEDGE

 If the thing pledged is returned by the pledgee to the pledgor or owner, pledge is
extinguished.
 If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor
or owner, there is prima facie presumption that the thing has been returned by the
pledgee. ART. 2110

 If the thing is in the possession of 3rd person who has received it from the pledgor or
owner after the constitution of the pledge, there is prima facie presumption that the thing
has been returned by the pledgee
 Payment of the debt
 Sale of the thing pledged at public auction

 A statement in writing by the pledgee that he renounces or abandons the pledge

is sufficient to extinguish. For this purpose, neither the acceptance by the pledgor
o owner, nor the return of the thing pledged is necessary, the pledgee becoming
a depositary. ART. 2111

FORMALITIES REQUIRED IN SALE BY A CREDITOR IF CREDIT NOT PAID IN DUE TIME:

(ART. 2112)
1. the debt is due and unpaid
2. the sale must be at a public auction
3. there must be notice to the pledgor and owner, stating the amount due, and
4. the sale must be made with the intervention of a notary public

RULES AT PUBLIC SALE

1. pledgor or owner may bid (art. 2113)

2. pledgee may bid
 provided he is not the only bidder
3. all bids must be for cash (art. 2114)

EFFECT OF THE SALE OF THE THING PLEDGED (art. 2115)

1. extinguishes the principal obligation whether the price of the sale is more or less than the amount
due
2. if the price is more than amount due, the debtor is not entitled to the excess unless the contrary
is provided
3. if the price of the sale is less, neither is the creditor entitled to recover the deficiency.
Contrary stipulation is void.

RIGHT OF DEBTOR TO EXCESS

G/R: not entitled to the excess unless:

 there is an agreement to the contrary

RIGHT OF CREDITOR TO RECOVER DEFICIENCY

G/R: CANNOT not withstanding (despite) any stipulation to the contrary

ART. 2116 AFTER THE PUBLIC AUCTION

 the pledgee has to advise the pledgor or owner as to the result of the

sale
ART. 2117 RIGHT OF THIRD PERSON TO SATIFSY THE OBLIGATION

 provided he has any right

 creditor cannot refuse to accept payment

LEGAL PLEDGES
1. Necessary expenses shall be refunded to every possessor, but only possessor in good faith may
retain the thing until he has been reimbursed
‚ Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired and by reason thereof (art
546)
2. He who has executed work upon a movable has a right to retain it by way of pledge until he is
paid. (art 1731)
3. The agent may retain the things which are the objects of agency until the principal effects the
reimbursement and pays the indemnity. (art 1914)
4. The laborer’s wages shall be a lien on the goods manufactured or the work done. (art
1707)

Special Laws apply to pawnshops and establishments which are engaged in making loans secured by
pledges. Provisions of the Civil Code shall apply subsidiarily.

MORTGAGE

REAL MORTGAGE (Arts. 2124-2131)

It is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially
subjecting to such security immovable property or real rights over immovable property in case the
principal obligation is not complied with at the time stipulated.

IMPORTANT POINTS
1. As a general rule, the mortgagor retains possession of the property he may deliver said property
to the mortgagee without altering the nature of the contract of mortgage.
2. It is not an essential requisite that the principal of the credit bears interest, or that the interest as
compensation for the use of the principal and the enjoyment of its fruits be in the form of a
certain percent thereof.

KINDS OF MORTGAGE:
1. voluntary
2. legal
3. equitable – one which, although it lacks the proper formalities of a mortgage shows the intention
of the parties to make the property
as a security for a debt
(provisions governing equitable mortgage - arts 1365, 1450, 1454, 1602, 1603, 1604 and
1607)

ESSENTIAL REQUISITES OF MORTGAGE:

 1. constituted to secure the fulfillment of a principal obligation
2. mortgagor be the absolute owner of the thing pledged or mortgaged
3. the persons constituting the pledge or mortgage have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose
4. cannot exist without a valid obligation
5. when the principal obligation becomes due, the thing in which the pledge or mortgage consists
may be alienated for the payment to the creditor.
6. appears in a public document duly recorded in the Registry of Property to be validly
constituted

LEGAL MORTGAGE: the persons in whose favor the law establishes a mortgage have on other right
than to demand the execution and the recording of the document in which the mortgage is formalized.

INCIDENTS OF REGISTRATION OF MORTGAGE

1. Mortgagee entitled to registration of mortgage as a matter of right
2. Proceedings for registration do not determine validity of mortgage or its effect
3. Registration is without prejudice to better right of third parties
4. Mortgage deed once duly registered forms part of the records for the registration of the property
mortgaged
5. Mortgage by surviving spouse of his/her undivided share of conjugal property can be
registered

EFFECT OF INVALIDITY OF MORTGAGE ON

PRINCIPAL OBLIGATION
1. principal obligation remains valid
2. mortgage deed remains as evidence of a personal obligation

EFFECT OF MORTGAGE
1. creates real rights, a lien inseparable from the property mortgaged, enforceable against the whole
world
2. creates merely an encumbrance

LAWS GOVERNING MORTGAGE

1. New Civil Code
2. PD 1952
3. Revised Administrative Code
4. RA 4882, as regards aliens becoming mortgages

FORECLOSURE OF MORTGAGE: It is the remedy available to the mortgagee by which he subjects the
mortgaged property to the satisfaction of the obligation to secure which the mortgage was given.

KINDS OF FORECLOSURE
1. judicial
2. extrajudicial
Both should be distinguished from execution sale governed by Rule 39 of the Rules of Court.

JUDICIAL FORECLOSURE (governed by Rule 68 of Rules of Court) (B-PACE-PC)

1. May be availed of by bringing an action in the proper court which has jurisdiction over the area
wherein the real property involved or a portion thereof is situated
 2. If the court finds the complaint to be wellfounded, it shall order the mortgagor to pay the amount
due with interest and other charges within a period of not less than 90 days nor more than 120
days from the entry of judgment
3. If the mortgagor fails to pay at time directed, the court, upon motion, shall order the property to be
sold to the highest bidder at a public auction.
4. Upon confirmation of the sale by the court, also upon motion, it shall operate to divest the rights
of all parties to the action and to vest their rights to the purchaser subject to such rights of
redemption as may be allowed by law
5. Before the confirmation, the court retains control of the proceedings; execution on judgment
6. The proceeds of the sale shall be applied to the payment of the:
a. costs of the sale;
b. amount due the mortgagee;
c. claims of junior encumbrancers or persons holding subsequent
mortgages in the order of their priority; and
d. the balance, if any shall be paid to the mortgagor
7. Sheriff’s certificate is executed, acknowledged and recorded to complete the
foreclosure

NATURE OF JUDICIAL FORECLOSURE

PROCEEDINGS
1. quasi in rem action
2. foreclosure is only the result or incident of the failure to pay debt
3. survives death of mortgagor

EXTRAJUDICIAL FORECLOSURE (governed by

Act No, 3135, as amended)
1. express authority to sell is given to the mortgagee.
2. authority is not extinguished by death of mortgagor or mortgagee
3. public sale should be made after proper notice
4. surplus proceeds of foreclosure sale belong to the mortgagor
5. debtor has the right to redeem the property sold within 1 year from and after the date of sale
6. remedy of party aggrieved by foreclosure is a petition to set aside sale and cancellation of writ of
possession.

RIGHT OF MORTGAGEE TO RECOVER

DEFICIENCY
1. Mortgagee is entitled to recover deficiency
2. If the deficiency is embodied in a judgment, it is referred to as deficiency judgment.
3. Action for recovery of deficiency may be filed even during redemption period.
4. Action to recover prescribes after 10 years from the time the right of action accrues

NATURE OF POWER OF FORECLOSURE BY

EXTRAJUDICIAL SALE
1. conferred for mortgagee’s protection
2. an ancillary stipulation
3. a prerogative of the mortgagee
Note: Stipulation of upset price in mortgage contract is void

EFFECT OF INADEQUACY OF PRICE IN

FORECLOSURE SALE
1. Where there is right to redeem
 GR: Inadequacy of price is immaterial because the judgment debtor may redeem the property
Exception: the price is so inadequate as to shock the conscience of the court taking into
consideration the peculiar circumstances
2. Property may be sold for less than its fair market value upon the theory that the lesser the price
the easier for the owner to redeem
3. The value of the mortgaged property has no bearing on the bid price at the public auction,
provided that the public auction was regularly
and honestly conducted

WAIVER OF SECURITY BY CREDITOR

1. Mortgagee may waive right to foreclose his mortgage and maintain a personal action for recovery
of the indebtedness
2. Mortgagee cannot have both remedies
Note: Foreclosure retroacts to the date of registration
of mortgage

STIPULATION OF UPSET PRICE OR TIPO

A stipulation of minimum price at which the property shall be sold to become operative in the event of a
foreclosure sale at public auction is NULL and VOID

REDEMPTION - It is a transaction by which the mortgagor reacquires the property which may have
passed under the mortgage or divests the property of the lien which the mortgage may have created.

KINDS OF REDEMPTION
1. equity of redemption: right of the mortgagor to redeem the mortgaged property after his default
in the performance of the conditions of the mortgage but before the sale of the mortgaged
property or confirmation of sale; applies to judicial foreclosure of real mortgage and chattel
mortgage foreclosure NOTE: redemption of the banking institutions is allowed within 1 year from
confirmation of sale
2. right of redemption: right of the mortgagor to redeem the property within a certain period after it
was sold for the satisfaction of the debt; applies only to extrajudicial foreclosure of real mortgage

ANTICHRESIS (Articles 2132-2139) – A contract whereby the creditor acquires the right to receive the
fruits of an immovable of the debtor, with the obligation to apply then to the payment of the interest, if
owing, and thereafter to the principal of the credit (Art 2132)

CHARACTERISTICS
1. Accessory contract – it secures the performance of a principal obligation
2. formal contract – it must be in a specified form to be valid (Art. 2134)
SPECIAL REQUISITES:
1. it can cover only the fruits of an immovable property
2. delivery of the immovable is necessary for the creditor to receive the fruits and not that the
contract shall be binding
3. amount of principal and interest must be specified in writing
 4. express agreement that debtor will give possession of the property to creditor and that the latter
will apply the fruits to the interest, if any, then to the principal of his credit
5. NOTE: The obligation to pay interest is not of the essence of the contract of antichresis; there
being nothing in the Code to show that antichresis is only applicable to securing the payment of
interest-bearing loans. On the contrary, antichresis is susceptible of guaranteeing all kinds of
obligations, pure or conditional

Antichresis Pledge
Refers to real property Refers to personal
property
Perfected by mere consent Perfected by delivery of the thing pledged

Consensual contract Real contract

Antichresis Real Mortgage
Property is delivered to creditor Debtor usually retains possession of the
property

Creditor acquires only the right to receive the Creditor does not have any right to receive the
fruits of the property, hence, it does not fruits, but the mortgage creates a real right
produce a real right over the property

The creditor, unless there is stipulation to the The creditor has no such obligation
contrary, is obliged to pay the taxes and
charges upon the
estate

It is expressly stipulated that the creditor given There is no such obligation on part of
possession of the property shall apply all the mortgagee
fruits thereof to the payment of interest, if
owing, and thereafter to the principal

Subject matter of both is real property

CHATTEL MORTAGE
ART. 2140 By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as
security for the performance of an obligation. If movable, instead of being recorded, is delivered to the
creditor or a third person, the contract is a pledge and not a chattel mortgage.
It is a contract by virtue of which a personal property is recorded in the Chattel Mortgage Register as
security for the performance of an obligation.
NOTE: If the movable, instead of being recorded is delivered to the creditor, it is pledge and not chattel
mortgage

CHATTEL MORTGAGE PLEDGE

Involves movable Involves movable
property property
Delivery of the personal property is NOT Delivery of the personal property is necessary
necessary
Registration is necessary for validity Registration is NOT
necessary for validity
Procedure: Sec 14 of Act no 1508, as amended Procedure: Art 2112 of Civil Code

If the property is foreclosed, the excess over the If the property is sold, the debtor is not entitled to the
amount due to the excess
goes to the debtor UNLESS it is otherwise agreed or in case of legal
pledge

Creditor is entitled to deficiency from the debtor Creditor is not entitled to recover deficiency
EXCEPT if it is a security for the purchase of notwithstanding any
personal property in installments stipulation to the contrary

LAWS GOVERNING CHATTEL MORTGAGE

1. Chattel Mortgage Law, Act No. 1508, as amended
2. Civil Code
3. Revised Administrative Code
4. Revised Penal Code
5. Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels of domestic ownership

AFFIDAVIT OF GOOD FAITH - An oath in a contract of chattel mortgage wherein the parties "severally
swear that the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof and for no other purposes and that the same is a just and valid obligation and one not entered into
for the purpose of fraud.

EFFECT OF REGISTRATION
1. creates real rights
2. adds nothing to mortgage
Note: Registration of assignment of mortgage is not required

RIGHT OF REDEMPTION
1. when the condition of a chattel mortgage is broken, the ff may redeem:
a. mortgagor;
 b. person holding a subsequent
mortgage;
c. subsequent attaching creditor.
2. an attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and
entitled to foreclose the mortgage in the same manner that the mortgagee could
foreclose it
3. the redemption is made by paying or delivering o the mortgagee the amount due on such
mortgage and the costs and expenses incurred by such breach of
condition before the sale

FORECLOSURE OF CHATTEL MORTGAGE

1. public sale
2. private sale – there is nothing illegal, immoral or against public order in an agreement for the
private sale of the personal properties
covered by chattel mortgage

APPLICATION OF PROCEEDS OF SALE

1. costs and expenses of keeping and sale
2. payment of the obligation
3. claims of persons holding subsequent mortgages in their order
4. balance, if any, shall be paid to the mortgagor, or person holding under him

RIGHT OF MORTGAGEE TO RECOVER

DEFICIENCY
1. where mortgage foreclosed: creditor may maintain action for deficiency although Chattel
Mortgage Law is silent on this point. Reason is chattel mortgage is only given as a security and
not as payment of the debt.
2. where mortgage constituted as security for purchase of personal property payable in
installments: no deficiency judgment can
be asked and any contrary agreement shall be void
3. where mortgaged property subsequently attached and sold: mortgagee is entitle to
deficiency judgment in an action for specific
performance