Professional Documents
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Addendum To Sec Trans
Addendum To Sec Trans
PLEDGE (definition) - 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.
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. when the principal obligation becomes due, the thing in which the pledge or
mortgage consists may be alienated for the payment to the creditor.
third persons not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property
but may be constituted to secure fulfillment of a voidable or unenforceable
or natural obligation
in case of pledge, the thing pledged must be delivered to the creditor or to
a third person by common agreement
in case of mortgage, as a general rule, the mortagagor retains he
possession of the property mortgaged
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
Important Points:
1. future property cannot be pledged or mortgaged
2. pledge or mortgage executed by one who is not the owner of the property
pledged or mortgaged is without legal existence and registration cannot validate
it.
3. mortgage of a conjugal property by one of the spouses is valid only as to of the
entire property
4. in case of property covered by Torrens title a mortgagee has the right to rely
upon what appears in the certificate of title and does not have to inquire further.
5. pledgor or mortgagor has free disposal of property
6. thing pledged or mortgaged may be alienated.
7. creditor not required to sue to enforce his credit
8. pledgor or mortgagor may be third person
PLEDGE
Constituted on movables
Property is delivered to the pledgee, or by
common consent to a 3rd person
Not valid against 3rd persons unless a
description of the thing pledged and the
date of the pledge appear in a public
instrument
MORTGAGE
Constituted on immovables
Delivery not necessay
Not valid against 3rd persons if not
registered
5. contract of pledge or mortgage may secure all kinds of obligation, be they pure or
subject to a suspensive or resolutory condition
6. 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
7. 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.
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.
2. all movables within commerce of men may be pledged as long as susceptible of
possession
3. incorporeal right, evidenced by:
a. negotiable instruments;
b. bills of lading;
c. shares of stock;
d. bonds;
e. warehouse receipts ;and
f. similar documents
may be pledged. The instruments pledged shall be delivered to the creditor
and if negotiable, must be indorsed.
4. pledge shall take effect against 3rd persons only if the ff appears in a public
instrument:
a. description of the thing pledged
b. date of the pledge
5. thing pledged may be alienated by the pledgor or owner only if with the consent
of the pledgee. Ownership of the thing pledged is transmitted to the vendee or
transferee as soon as the pledgee consents to the alienation, butt he latter shall
continue in possession
6. contract of pledge gives right to the creditor to retain the thing in his possession
or in that of a third person to whim it has been delivered, until the debt is paid
7. creditor :
a. shall take care of the thing pledged with the diligence of a good father of a
family.
b. has the right to the reimbursement of the expenses made for its
preservation is liable for its loss or deterioration by reason of fraud,
negligence, delay or violation of the terms of the contract, and not due to
fortuitous event
c. may bring the actions which pertain to the owner of the thing in order to
recover it from, or defend it against a 3rd person
d. cannot use the thing without the authority of the owner, and if he should
do so, or misuse the thing, the owner may ask that it be judicially or
extrajudicially deposited.
e. may use the thing if it is necessary for the preservation of the thing
f. may either claim another thing in pledge or demand immediate payment
of the principal obligation if he is deceived on the substance or quality of
the thing.
8. pledgee:
a. cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so
b. is responsible for the acts of his agents or employees with respect to the
thing pledged
c. has no right to use the thing or to appropriate the fruits without the
authority of the owner can apply the fruits, income , dividends or interest
earned or produced by the thing pledged to the payment of the interest,
and thereafter to the principal of his credit. Unless there is stipulation to
the contrary, the interest and earnings of the right pledged and in case of
animals, their offsprings are included in the pledge.
d. may cause public sale of the thing pledged if, without fault on his part,
there is danger of destruction, impairment or dimunition in value of the
thing. The proceeds of the auction shall be a security for the principal
obligation.
9. pledgor :
a. has the responsibility for flaws of the thing pledged.
b. cannot ask for the return of the thing against the will of the creditor, unless
and until he has paid the debt and its interest, with expenses in a proper
case
c. is allowed to substitute the thing which is in danger of destruction or
impairment without any fault on the part of the pledgee, with another thing
of the same kind and quality
d. may require that the thing be deposited with a 3 rd person if through the
negligence or wilfull act of the pledgee the thing is in danger of being lost
or impaired
Extinguishment of Pledge
If the thing pledged is returned by the pledgee to the pledgor or owner, pledge is
extinguished
A statement in writing by the pledgee that he renounces or abandons the pledge
is sufficient to extinguish. For t his purpose, neither the acceptance by the
pledgor o owner, nor the return of the thing pledged is necessary, the pledgee
becoming a depositary.
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
If the thing is in the possession of 3 rd 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.
Formalities required Sale by a Creditor if credit not paid in due time:
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 the th
The pledgee may appropriate the thing if after the first and second
auctions, the thing is not sold.
At the public auction, the pledgor or owner may bid.
Pledgor or owner shall have a better right if he should offer the same
terms as the highest bidder
Pledgee may also bid, but his offer shall not be valid if he is the only
bidder. All bids at the public auction shall ofer to pay the purchase price at
once. BIDS MUST BE FOR CASH. If any other bid is accepted, the
pledgee is deemed to have received the purchase price, as far as the
pledgor or owner is concerned.
After public auction, the pledgee shall promptly advise the pledgor or owner of the
result.
Any third person who has any right in the thing may satisfy the principal obligation as
soon as the latter becomes due and demandable
The right of choice given to the pledgee as to which of the things pledged he shall
cause to be sold is limited only by stipulation. After sufficient property has been sold
to satisfy the obligation plus interest and expenses, no more shall be sold.
A 3rd person who is not a party to the principal obligation may secure the latter by
pledging his own property. He has the same as a guarantor and he cannot be
prejudiced by any waiver of defense by the principal obligor
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 I n 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 laborers wages shall be a lien on the goods manufactured or the work done
(art 1707)
Special Laws apply to pawnshops and establishment which are engaged in making
loans secured by pledges. Provisions of the Civil Code shall apply subsidiarily.
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.
Objects of Real Mortgage
1. immovables
2. alienable real rights in accordance with the laws, imposed upon immovables
* future property cannot be object of mortgage
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 Mortagage:
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. 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. 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
Extent of Mortgage
a. the natural accessions
b. to the improvements,
c. growing fruits
d. the rents or income not yet received when the obligation becomes due,
e. to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property,
f.
in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of
a third person.
Important Points:
1. Stipulation in mortgage contract including after-acquired properties is valid.
2. Attachment of lien is retroactive
3. Stipulation is necessary for mortgage to secure future advancements
4. Mortgage is a continuing security until the full amount of advances are paid.
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 mortgagees 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
a. GR: Inadequacy of price is immaterial because the judgment debtor may
redeem the property
b. 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 theindebetness.
2. Mortgagee cannot have both remedies
Note: Foreclosure retroacts to the date of registration of mortgage
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
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.
Equity of Redemption
1. exercised before confirmation of sale
2. second mortgagee acquires only the equity of redemption vested in the
mortgagor
3. taking physical possession not necessary for levy
4. can be levied upon by means of writ of execution
PLEDGE
Involves movable property
Delivery of the personal property is
necessary
Registration is NOT necessary for validity
Procedure: Art 2112 of Civil Code
c. those credits which enjoy preference in relation to specific real property or real
rights, exclude all others to the extent of the value of the immovable or real right
to which the preference refers.
d. if there are 2 or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro rata, after the payment of the taxes and
assessment of the taxes and assessments upon the immovable property or real
right.
e. the excess, if any, after the payment of the credits which enjoy preference with
respect to specific property, real or personal, shall be added to the free property
which the debtor may have, for the payment of other credits.
f. those credits which do not enjoy any preference with respect to specific property,
and those which enjoy preference, as to the amount not paid, shall be satisfied
according to the following rules:
- order established by Art 2244
- common credits referred to in Art 2245 shall be paid pro rata regardless of
dates.