Pledge. Real Mortgage.

Chattel Mortgage
Atty. Reyaine Mendoza-Clavano
 Common Provisions on Pledge and Mortgage
Essential Requisites common to both Pledge and Mortgage:
• They are constituted to secure fulfillment of the principal obligation.
• The pledgor or mortgagor is the absolute owner of the thing pledge or
mortgage.
• The person constituting the pledge or mortgage have free disposal of the
their property and in the absence thereof, that may be legally authorized for
the purpose (Art. 2085); and
• The when the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment of the creditor.
(Art. 2087)
 Common Provisions on Pledge and Mortgage
• Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property (Art.
2085)
• Any kind of obligation whether pure or conditional, including natural,
voidable and unenforceable obligations may be secured by a contract
of pledge and mortgage. (Art. 2091, 2052)
 Common Provisions on Pledge and Mortgage
Meaning of PACTUM COMMISSORIUM
• It is a stipulation authorizing the creditor to appropriate the things
given by way of pledge and mortgage or to dispose of them.
• It is declared null and void by law. (Art 2088).
• Reason: The amount of the loan is ordinarily much less than the value
of the security.
 Common Provisions on Pledge and Mortgage
Meaning of PACTUM COMMISSORIUM
• Must be automatic without need of further act on the part of the
debtor. Hence, the prohibition does not apply to:
a. Subsequent voluntary act of the debtor of making cession of
the property or;
b. A promise to assign or sell said property in payment of the
debt.
 Common Provisions on Pledge and Mortgage
Rules on the indivisibility of Pledge and Mortgage:
• A pledge or mortgage is indivisible, even though the debt may be divided
among the successors in interest of the debtor or of the creditor;
• Therefore, the debtor’s heirs who has paid of the debt cannot ask for the
proportionate extinguishments of the pledge or mortgage as long as the
debt is not completely satisfied;
• Neither can the creditor’s heirs who received his share of the debt return
the pledge or cancel the mortgage, to the prejudice of the other heirs who
have not been paid;
• The above rules, however, do not apply where there being in several things
given in mortgage or pledge, each of them guarantees only a determinate
portion of the credit. In this case, the debtor shall have a right to the
extinguishments of the pledge or mortgage as the portion of the debt for
each thing is especially answerable is satisfied.
EXAMPLES
 Common Provisions on Pledge and Mortgage
Legal effect of a promise to constitute a pledge or mortgage:
It gives rise only to a personal right binding upon the parties but it
creates no real right in the property. (See Art. 2092).
 PLEDGE
Meaning of Pledge
• It is a contract by virtue of which the debtor delivers to the creditor or
to the third person a movable or instrument evidencing incorporeal
rights for the purpose of securing the fulfillment of a principal
obligations is fulfilled the thing delivered shall be returned with all the
fruits and accessions.
 PLEDGE
Characteristics/Nature as a contract:
• Real
• Accessory
• Unilateral
• Subsidiary contracts because the obligation incurred does not arise
until the fulfillment of the principal obligation that is secured.
common requisites of pledge and mortgage (Art 2085), it is necessary
in order to constitute the contract of pledge, that the thing pledged be
placed in the possession of the creditor, or of a third person by
common agreement. (Art 2093).
 PLEDGE
Cause or Consideration in PLEDGE
• Pledgor - principal obligation
• Debtor (Art 2085) - compensation stipulated for the pledge or the
mere liberality of the pledgor.
 PLEDGE
What are the Kinds of pledge:
• Voluntary or conventional – one which is created by agreement of the
parties; or
• Legal – one which is created by operation of law (Art 2121)
 PLEDGE
Additional requirements in order that pledge shall take effect against third
parties:

a. The description of the thing pledge; and

b. The date of pledge (Art 2076)
 PLEDGE
May thing pledge be alienated?

Yes, provided the pledgee consents to the sale. Ownership passes to

the vendee but subject to the rights of the pledgee. (Art 2097)
 PLEDGE
Enumerate the rights of the Pledgee:
1. To retain the thing in his possession or in that of a third person to whom it has
delivered, until the debt is paid (Art 2099)
2. To be reimbursed for the expenses incurred in its preservation (Art 2099).
3. To compensate (set – off) the fruits, income, dividends or interests earned or
produced by the thing pledged and received with those which are due to him
(Art 2102)
4. To bring the actins which pertain to the owner of the thing pledged in order to
recover if from or defend it against a third person (Art 2103)
5. To sell the thing pledged at the public auction, if without his fault, there is
danger of destruction, impairment or diminution in the value of the thing (Art
2108)
6. To claim a substitute or demand immediate payment, if he is deceived on the
substance or quality of the thing pledged (Art 2109)
 PLEDGE
Enumerate the rights of the Pledgee:
7. To sell the thing pledged at public auction if the obligation secured
is not paid (Art 2112)
8. To bid at the public sale (Art 2114).
9. To collect the amount that become due on a credit pledged before
such credit is redeemed.
10. To choose which one of the several thing pledged shall be sold
(Art 2119) .
 PLEDGE
Obligations of the pledgee:
• To take care of the thing pledge with the diligence of a good father of the family
(Art 2099).
• To answer for its loss or deterioration in the proper case;
• Not to deposit the thing pledge with a third person unless authorized (Art )
• To be responsible for the acts of his agents or employees with respect to the
thing pledged (Art 2100);
• Not to use the thing pledged unless authorized or its preservation so requires
(Art 2104);
• To advise the pledgor, without delay, of any danger to the thing pledged (Art
2107).
• To promptly advise the pledgor or owner in case of sale at public auction of the
result thereof (Art 2116); and
• To return the thing pledged when the principal obligation is paid.
 PLEDGE
Conditions required in an extra – judicial foreclosure sale of the thing
pledged:
• The debt is due and unpaid
• The sale must be at a public auction
• There must be notice to the pledgor and owner, stating the amount
due; and
• The sale must be made with the intervention of a notary public.
 PLEDGE
• The pledgee may appropriate the thing pledged if after the first and
second auctions, the thing is not sold. If the creditor appropriated
the thing, it shall be considered as full payment for his entire claim.
He is thus obliged to give an acquittance for the same (Art. 2115).
• The sale must be made at the public auction with notification to the
debtor and the owner of the thing pledged in a proper case, stating
the amount for which the public sale is to be held.
 PLEDGE
Rules on the proceeds after sale of the thing pledged:
• Price of sale more than the amount due – The debtor is not entitled
to the excess, unless otherwise agreed; and
• Price of sale less tan the amount due – The creditor is not entitled to
recover any deficiency, notwithstanding any stipulation to the
contrary. (Art. 2115) Reason: To compel the creditor to hold an
honest public sale.
 PLEDGE
Rules on the proceeds after sale of the thing pledged:
• The creditor, however, may sue on the principal obligation instead of electing
to sell the thing pledged.
• In pledge by operation of law, after payment of the debt and expense, the
remainder of the price shall be delivered to the obligor (Arts 2121, 2122)
• Under the Chattel Mortgage Law, the mortgagor can also recover the excess
(Act. No. 1506, Sec 14).
 PLEDGE
Rights of the Pledgor:
• To bid and have preference at the foreclosure sale if he should offer the
same terms as the bidder (Art 2113) His offer is not valid however if he is
the only bidder. All bids shall offer to pay the purchase price in cash. If a
bid other than for cash is accepted, the pledgee is deemed to have
received the purchase price in cash, as far as the pledgor or owner is
concerned. (Art. 2114). The sale of the thing pledged extinguishes the
principal obligation, whether or not the proceeds are equal to the amount
of the principal obligation, interest and expenses in proper case; and
• To demand the return of the thing pledged upon the extinction of the
principal obligation. (Art 2085 (1))
• Note: A statement in writing by the pledgee that he renounces or
abandons the pledge is sufficient to exinguish the pledge. For this
purpose, neither the acceptance by the pledgor or owner, nor the return
of the thing pledged is necessary. The pledgee becomes a depositary or
bailee.
 PLEDGE
Rights of the Pledgor:
• To continue to be the owner of the thing pledged, until its sale, unless it is expropriated(Art
2103) ;
• To demand the deposit of the thing pledged should the creditor use it without authority, or
misuse it in any other was (Art 2104);
• To substitute the thing pledged if it is endangered without fault of the pledgee without prejudice
to the pledgee’s right to have the thing sold at public sale (Art 2108).
• To bid and have preference at the foreclosure sale if he should offer the same terms as the
bidder (Art 2113) His offer is not valid however if he is the only bidder. All bids shall offer to pay
the purchase price in cash. If a bid other than for cash is accepted, the pledgee is deemed to
have received the purchase price in cash, as far as the pledgor or owner is concerned. (Art.
2114). The sale of the thing pledged extinguishes the principal obligation, whether or not the
proceeds are equal to the amount of the principal obligation, interest and expenses in proper
case; and
• To demand the return of the thing pledged upon the extinction of the principal obligation. (Art
2085 (1))
• Note: A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to exinguish the pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledged is necessary. The pledgee becomes a depositary or
bailee.
 PLEDGE
Rights of the Pledgor:

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

the pledge is sufficient to exinguish the pledge. For this purpose,
neither the acceptance by the pledgor or owner, nor the return of the
thing pledged is necessary. The pledgee becomes a depositary or
bailee.
 PLEDGE
Obligations of the pledgor:
• To notify the pledgee of any flaw or defect of the thing pledged
known to him; otherwise he answers for damages suffered by the
pledgee (Art 2101);
• To reimburse the pledgee for expenses made for its preservation (Art
2099); and
• To fulfill his principal obligation (Art 2085)
 PLEDGE
Principles in Pledge:
• As a general rule, the pledge extends to the interest and earnings of
the thing pledged, unless there is a stipulation to the contrary. (Art.
2102)
• Unless the pledge is expropriate, the debtor continues to be the
owner thereof. Nevertheless, the creditor may bring actions which
pertains to the owner of the thing pledged in order to recover it from
or defend it against third person. (Art. 2104)
• The creditor cannot use the thing pledged without the consent of the
owner, and if he should do so, or should misuse t he thing in any
other way, the owner may ask the Court that it be JUDICIALLY OR
EXTRA-JUDICIALLY DESPOSITED. However, when the preservation of
the thing pledged requires its use, it must be used by the creditor but
only for that purpose. (Art. 2104)
 PLEDGE
Principles in Pledge:
• The remedy of the pledgor should the thing pledged be in danger of
being lost or impaired through the negligence or willful act of the
pledgee is to require the thing to be deposited with a third person.
(Art. 2106)
• The creditor who is deceived on the substance or quality of the thing
pledged may either (1) claim another thing instead; or demand
immediate payment of the principal obligation (Art. 2109).
 PLEDGE
Remedies should there be reasonable grounds to fear the
destruction or impairment of the thing pledged, without fault of the
pledgee:
• The pledgee is bound to advise the pledgor, without delay or danger
to the thing pledged.
• The pledgor, on the other hand, may demand the return of the thing,
upon offering another in pledge provided the latter is of the same
kinf as the former and not of inferior quality and without prejudice
to the RIGHT OF THE PLEDGEE to cause the sale of the thing pledged
at public sale. The proceeds of the auction sale shall be security for
the principal obligation in the same manner as the thing originally
pledged. (Arts. 2107; 2108). Between the right of the pledgor to
demand the return of the thing pledged and the right of the pledgee
to cause it to be sold at public auction, the latter prevails.
 PLEDGE
Causes for the extinguishments of the pledge:
• Return of the thing pledged by the pledgee to the pledgor or owner,
any stipulation to the contrary being void (Art 2110);
• Renunciation or abandonment executed in writing by the pledgee
even without return of the thing (Art 111)
• Destruction or loss of the thing pledged;
• Extinction of the principal obligation (by payment or sale of the thing
pledged); and
• Other causes of extinguishments or ordinary obligations (Art 1231)
Thank You