Chapter 1 In COM, the debtor retains the beneficial
Provisions common to Pledge and Mortgage
Art. 2085. The following requisites are essential to
the contracts of pledge and mortgage:
1. that they be constituted to secure the
fulfilment of a principal obligation
2. that the pledger or mortgagor be the
absolute owner of the pledge or mortgaged
3. that 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.
Third persons who are not parties to the
principal obligation may secure the latter by pledging
or mortgaging their own property.
Note:
Pledges and mortgages are accessory
contracts. Thus, principal obligation may still be valid
even if the pledge or mortgage is void.
What is Pledge?
Is an accessory, real and unilateral contract by
virtue of which the debtor or a third person delivers to
the creditor or to a 3rd person movable property as
security for the performance of the principal
obligation.
What is a Real Estate Mortgage?
Is a contract embodied in a public instrument
recorded in the Registry of Property, by which the
owner of an immovable directly and immediately
subjects it, whoever the possessor may be, to the
fulfilment of the obligation for whose security it was
constituted.
Note:
-A mortgage is regarded as nothing more than a mere
lien, encumbrance, or security for a debt, and passes no
title or estate to the mortgagee and gives him no right
or claim to the possession of the property.
- The mortgagee only owns the mortgage credit, not
the property itself.
-The mortgage is not valid, as where it is executed
by one who is not the owner of the property, or the
consideration of the contract is simulated or false, the
principal obligation which it guarantees is not thereby
rendered null and void.
Two contractual modes by which personal property
can be used to secure a principal obligation:
1. through a contract of pledge
2. through a chattel mortgage
Debtor retains the beneficial interest in mortgage
interest over the property notwithstanding the
encumbrance, since the mortgage only serves to secure
the fulfilment of the principal obligation.
Art. 2087.
Note:
When the principal obligation becomes due
and the debtor fails to perform his obligation, the
creditor may foreclose on the pledge or mortgage for
the purpose of alienating the property to satisfy his
credit.
Art. 2088. The creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.
Pactum commissorium
-is among the contractual stipulations that are
deemed contrary to law. It is defined “ a stipulation
empowering the creditor to appropriate the thing given
as guaranty for the fulfilment of the obligation…
- intended to protect the obligor, pledger, or mortgagor
against being overreached by his creditor who holds a
pledge or mortgage over the property whose value is
much more than the debt.
-Essence of PC is that the ownership of the security
will pass to the creditor by the mere default of the
debtor.
Art. 2089. A pledge or mortgage is indivisible, even
though the debtor may be divided among the
successors in the interest of the debtor or of the
creditor.
Therefore, the debtor’s heir who has paid a
part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as
the debt is not completely satisfied.
Neither can the creditor’s heir who received
his share of the debt return the pledged or cancel
the mortgage, to the prejudice of the other heir who
have not been paid.
Indivisibility of a pledge or mortgage
-arises only when there is a debt, that is, there
is a debtor-creditor relationship.
Art. 2090. The indivisibility of a P&M is not
affected by the fact that the debtor are not
solidarily liable.
Art. 2091. The COP or M may secure all kinds of
obligations, be they pure or subjective to a
suspensive or resolutory condition.
Art. 2092.
Note:
A promise to constitute a pledge or mortgage
gives rise only to a personal action between the
contracting parties, it does not create a real right in the
property. Consequently, what exists is only a right of
action to compel the fulfilment of the promise as there
is no pledge or mortgage yet.
Chapter 2
Pledge
In a contract of pledge, the creditor is given the right
to retain his debtor’s movable property in his
possession, or in that of a third person to whom it has
been delivered, until the debt is paid.
Note:
A pledge is an accessory contract, and is
necessarily discharged if the principal obligation is
extinguished.
Art. 2094. All movables which are within commerce
may be pledged, provided they are susceptible of
possession.
Art. 2095.
Pledge of incorporeal rights
1. the instrument proving the right pledged shall be
delivered to the creditor
2. if the instrument is negotiable, it must be indorsed.
Art. 2096.
Note:
The thing pledged must be amply and clearly
described and specifically identified. If the pledge does
not appear in a public instrument, it is void against
third persons.
Art. 2097.
Note:
The pledger retains ownership of the thing
pledged. Thus, the pledger has the right to alienate the
thing pledged with the consent of the pledgee.
Art.2098.
Note:
There is no doubt that if the principal
obligation is satisfied, the pledges should be
terminated as well. Art. 2098 provides that the right of
the creditor to retain possession of the pledged item
exists only until the debt is paid.
Art. 2099.
Note:
The pledgee is not liable in case of loss or
deterioration of the thing pledged due to fortuitous
event. However, the pledgee is liable for loss or
deterioration if there is a contrary stipulation or when
the nature of obligation requires the assumption of
risk.
Art. 2100.
GR: the pledgee cannot deposit the thing pledged with
a third person
E: there is a stipulation authorizing the pledgee to do
so.
Note:
The acts of the agents of the pledgee are the
acts of the principal-pledgee by operation of law.
Art. 2101
Note:
The pledger who, knowing the flaws of the
thing object of pledge, does not advise the pledgee of
the same, shall be liable to the latter for the damages
which he may suffer by reason thereof.
 Right of the pledger to ask the thing
pledged be deposited
1. if the creditor uses the thing without authority
2. if the creditor should misuse the thing in any
other way.
 The prescriptive period within which to
demand the return of the thing pledged should
begin to run only after the payment of the loan
and a demand for the thing has been made.

 Note : the reason for the deposit with a 3rd
person is due to the negligence or wilful act of
the pledgee.
Remedy for the pledgor: may demand the return
of the thing upon offering another thing in pledge.
Remedy for the pledgee: the pledgee may cause
the same to be sold at a public safe.
 What if the pledgee is deceived on the
quality of the thing pledged?
1. the pledgee may claim another thing in its stead
2. the pledgee may demand immediate payment for the
principal obligation.
PURPOSE OF NOTICE
Is to sufficiently apprise the debtor and the
pledgor that the thing pledged to secure payment of the
loan will be sold in a public auction and the proceeds
thereof shall be applied to satisfy the debt.
 Note:
The pledger and the pledgee may bid at the public registered. description of the thing
auction. The pledger has a better right if he should pledged and the date of
offer the same terms as the highest bidder. The pledge appear in a
pledgee’s offer shall not be valid if he is the only public instrument.
bidder.

Chapter 3
Mortgage Extent of mortgage
1. natural accessions
Art. 2124. Only the following property may be the 2.improvements
object of a COM 3.growing fruits
1. immovables 4. rents or income not yet received when the obligation
2. alienable real rights in accordance with the laws, becomes due
imposed upon immovable 5. amount of the indemnity granted or owing to the
Nevertheless, movables may be the object of a proprietor from:
chattel mortgage a. the insurers of the property mortgaged
What is mortgage? b. expropriation for public use.
Is a contract in which the debtor guarantees to
the creditor the fulfilment of a principal obligation, What is foreclosure?
subjecting to the faithful compliance therewith a real Is a remedy available to the mortgagee by
property in case of non-fulfillment of said obligation at which he subjects the mortgaged property to the
the time stipulated. satisfaction of the obligation to secure that for which
the mortgage was given.
Kinds of Real Mortgage

1. voluntary or conventional- created by agreement When to foreclose?

between the parties 1. when the principal obligation is not paid
2. legal mortgage- required by law when due
3. equitable mortgage- which reveals an intent to make 2. when the debtor has violated the terms and
the property a security, even if the contract lacks conditions of the mortgage
proper formalities of a real-estate mortgage.
Who can foreclose?
Note: The mortgagee or his assigns
The essence of a COM is that the property has
been set apart from the mass of the property of the Kinds of foreclosure
debtor-mortgagor as security for the fulfilment of his 1. judicial
obligation in case of default of payment. Based on a personal claim against a specific
property of the mortgagor.
Object of mortgage 2. extrajudicial
1. immovables When a mortgagee is given a special power of
2. alienable real rights attorney to sell the mortgaged property by public
auction.

Cause or consideration in mortgage Effect of inadequacy of price in foreclosure sale

Its consideration is the same as that of the
principal contract from which it receives its life, and
without which it cannot exist as an independent
contract.
General rule: when there is a right to redeem,
inadequacy of price is immaterial because the
judgement debtor may reacquire the property easier at
a low price or sell his right to redeem.

Real Mortgage Pledge Exception: when the price is so inadequate as to shock

It is constituted on Constituted on movables the conscience of the court taking into consideration
immovables the peculiar circumstances attendant thereto.
Delivery is not required Property is delivered to
the pledgee or by
common agreement to a
third person
It is not valid against It is not valid as to 3rd
third persons unless it is person unless a
 Chapter 4
Antichresis
What is a contract of antichresis?
The creditor acquires the right to receive the
fruits of an immovable of his debtor, with the
obligation to apply them to the payment of the interest,
if owing, and thereafter to the principal of his credit.
Note:
Antichresis is an accessory contract as it
secures the performance of a principal obligation. It is
also a formal contract as the amount of the principal
and of the interest shall be specified in writing.
Antichresis Real Mortgage
Real property is Debtor usually retains
delivered to the creditor possession of the real
property
The creditor is obliged to The creditor has no such
pay the taxes and obligation
charges upon the estate
unless there is stipulation
to contrary
Rights of an antichretic creditor
1. the right to the fruits of the thing
2. the right to retain the thing until the debt is paid
3. the right to have the thing sold upon non-payment at
maturity.
Measure of application of fruits
The actual market value of the fruits at the
time of the application thereof to the interest and
principal shall be at the measure of such application.
Form of the contract of antichresis
The amount of the principal and of the interst
shall be sbecified in writing, otherwise COA shall be
void.
Note:
Antichresis is an accessory contract. Thus,
even if the antichresis is void, the principal obligation
may still be valid.
Obligations of the antichretic creditor
1. to pay taxes and charges upon the estate, unless
there is stipulation to the contrary.
2. to bear the expenses necessary for the preservation
and repair
3. to apply all the fruits, after receiving them, to the
payment of interest, if owing, and thereafter to the
principal
4. to render an account of the fruits to the debtor.
Obligation of the debtor
To pay totally what he owes the creditor.
Note:
The principle of pactum commissorium is
applicable to contract of antichresis
Remedies of the creditor
1. the creditor may petition the court for the payment
of the debt
2. the creditor may petition the court for the sale of the
real property.
Chapter 5
Chattel mortgage
What is a contract of chattel mortgage?
A contract where a personal property is
recorded in the chattel mortgage register as security for
the performance of an obligation.
Examples of properties subject to chattel mortgage
1. shares of stock in a corporation
2. interest in the business
3. machinery vessel
4. motor vehicles
Validity between parties
The personal property must be recorded in the
chattel mortgage register.
Validity as to third persons
The personal property must be recorded in the
chattel mortgage register and must be accompanied by
an affidavit of good faith.
Venue of registration
1. if he resides in the Philippines
In the office of the register of deeds of the
province in which the mortgagor resides at the time of
making of the CM
2. if he does not reside in the Philippines
The province in which the property is located
3. if the property is situated in the province
different from that in which the mortgagor resides
The mortgagor shall be recorded in both
provinces.
When mortgage must be registered in two chattel
mortgage register?
When the mortgagor resides in one province,
but the property is located in another province. The
registration must be in both, otherwise the chattel
mortgage is void.

Effect of registration
The registration of CM is an effective and
binding notice to other creditor of its existence and
creates a real right or a lien which, being recorded,
follows the chattel wherever it goes.

Chattel mortgage Real mortgage

It is constituted on Constituted on
movables immovable
It cannot guarantee It may guarantee future
future obligations obligation

Chattel mortgage pledge

Delivery is not Delivery is an essential in
essential element in a a contract
contract
In case of foreclosure, In case of foreclosure, the
the excess of the debtor is not entitled to the
amount due goes to excess unless it is
the debtor otherwise agreed upon
In case of foreclosure, In case of foreclosure, the
the creditor is entitled creditor is not entitled to
to recover the recover deficiency
deficiency from the notwithstanding any
debtor, except if the stipulation to the contrary.
chattel mortgage is a
security for the
purchase of personal
property in
instalments.
Affidavit of good faith
It is an oath contract of CM 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.

In the absence of an affidavit of good faith

The CM is still valid between the parties.

Foreclosure of CM
If the mortgagor default in the payment of the secured debt or otherwise fails to comply with the conditions of
the mortgage, the creditor has no right to appropriate to himself the personal property because he is permitted only to
recover his credit from the proceeds of the sale of the property at public auction.

Applications of proceeds of the foreclosure sale

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

Right of mortgagee to recover deficiency

General rule:
The creditor-mortgagee may maintain an action for deficiency as the CM is only given as a security and not as
a payment for the debt in case of failure of payment.

Exception:
Where the CM is constituted as security for purchase of personal property payable in instalments. In case,
there is no deficiency judgement and any contrary stipulation is void.

Note:
As between the first and second mortgagees, the latter can only recover the property from the former by
paying him the mortgage debt. Even when the second mortgagee goes through the formality of extrajudicial
foreclosure, the purchaser acquires no more than the right of redemption from the first mortgagee.