 Common, essential requisites to the contracts of pledge, real estate mortgage, and chattel

mortgage (4)
[KEY: SOFA]
1. That they be constituted to SECURE fulfillment of a principal obligation

2. That the pledgor or mortgagor be the OWNER of the thing pledged/mortgaged (at the time it is
constituted)

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 that purpose.

4. That when the principal obligation becomes due, the things in which the pledge or mortgage
consists may be ALIENATED for the payment of the creditor.

 (T/F) The pledge and mortgage may secure all kinds of obligations, whether pure or
conditional, natural, rescissible, voidable, or unenforceable.
True. So long as the principal obligation is VALID, the accessory contract of pledge and mortgage
may be constituted.

 When is the pledgor or mortgagor required to be the owner of the thing pledged or mortgaged
for the validity of contracts of pledge, real estate mortgage, chattel mortgage?
At the time the contract of pledge or mortgage is constituted.

"The pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged at the time
it is constituted. A pledge or mortgage constituted on future property is void."

 (T/F) A pledge or mortgage constituted on future property is void.

True.
 May third persons pledge or mortgage their property?
Yes. It is not required for the validity of a pledge or mortgage that the debtor be the owner of the thing
pledged or mortgaged. Third persons may pledge or mortgage their property to secure another
person's debt. However, they can be held liable only to the extent of the value of their property. With
respect to mortgage, they may be held liable for any deficiency in case of foreclosure if they expressly
agreed to assume the principal obligation.
 D borrowed 1M from C. G, a third person, mortgaged his land to secure the fulfillment of D's
loan. Is the contract of mortgage valid?
Yes, third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.
 Explain pactum commissorium.
A stipulation in a pledge or mortgage which provides for automatic forfeiture (ie. that ownership of the
thing pledged or mortgaged shall pass to the creditor by mere default of the debtor).

This stipulation is void for being contrary to morals and public policy. The creditor is allowed only to
move for the sale of the thing pledged or mortgaged after the principal obligation becomes due, in
order to collect the amount of his claims from the proceeds.
 D borrowed 10,000 from C. To secure fulfillment of the loan, D pledged his laptop. The
contract of pledge provides that the creditor-pledgee may appropriate the laptop upon failure of
the debtor-pledgor to pay the loan. D failed to pay the loan. May C take ownership of the
laptop?
C does not become the automatic owner of the laptop upon D's failure to pay the loan because this
provision is considered pactum commissorium.
 D borrowed 20,000 from C. To secure the fulfillment of the loan, D mortgaged a land owned by
his ailing father.

What is the status of the contract of mortgage? The contract of loan?

The contract of mortgage is null and void because the mortgagor (D) is not the owner of the property
mortgaged at the time it is constituted.

The contract of loan remains to be valid.

 ABC borrowed 2,000,000 from BPI. ABC is under receivership. To secure fulfillment of the
loan, ABC mortgaged its administrative building.

What is the status of the contract of mortgage?

Null and void, because ABC (mortgagor), under receivership, has no free disposal of the thing.
 May the thing pledged or mortgaged be sold or alienated to pay the debt before maturity?
Generally no. Pending maturity, the payment of the debt cannot yet be compelled.

Instances where the thing pledged or mortgaged may be sold/alienated to pay the principal obligation:
-- Failure to fulfill certain conditions and such violation would make the debt due and demandable
-- Debtor loses right to make use of period
-- Acceleration clause
-- Upon default AT MATURITY
 T/F) A contract of pledge/mortgage/antichresis is INDIVISIBLE, regardless whether the
principal contract is joint or solidary.
True.
 D borrowed 10,000 from C and pledged his ring and watch with 4000 and 6000 value
respectively. After several days, D pays 4000 to C.

May D compel C to return the ring because 4000 of the loan is already paid?
No. D cannot demand the release of the ring because a contract of pledge is indivisible.
  D borrowed from C 100,000 secured by a mortgage on D's two lots (lot 1 and lot 2). D dies
leaving E and F as heirs with E inheriting lot 1 and F inheriting lot 2. F pays 50,000 of the loan.

May F ask for extinguishment of the mortgage on lot 2?

No. The debtor's heir who has paid part of the debt cannot ask for the proportionate extinguishment
of the pledge or mortgage as long as the debt is not completely satisfied.

 D borrowed from C 100,000 secured by a mortgage on D's two lots (lot 1 and lot 2). C dies
leaving X and Y as heirs. D pays X 50,000.

May X cancel the mortgage?

No. Cancelling the mortgage would be to the prejudice of Y.
 D borrowed 10,000 from C and pledged his ring and watch with 4000 and 6000 value
respectively. After several days, D pays 4000 to C. They agreed that 4000 will be secured by
the ring, and 6000 will be secured by the watch.

D pays 4000 to C. May D compel C to return the ring?

Yes, the contract of pledge on the ring is extinguished.
 A contract by virtue of which the debtor delivers to the creditor or to a third person a movable,
or instrument 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.
Contract of pledge.
 T/F) The contract of pledge is consensual.
False. Real contract. ACTUAL (not constructive) delivery must be effected for its validity. Without
delivery, the pledge is void.
 What is the nature of a contract to constitute a pledge?
Consensual.
 What is the legal effect of a promise or contract to constitute a pledge?
Perfected by mere consent and gives rise only to a personal action between the contracting parties.
 (T/F) Real or immovable properties and rights thereon may become the objects of a contract of
pledge.
False. Only movables within the commerce of men susceptible of possession, and incorporeal rights.
 What is the form of the contract of pledge to bind the contracting parties?
Any form; delivery of the object is sufficient to bind the parties.
 What is the form of the contract of pledge to bind third persons?
Public instrument showing a description of the thing pledged and the date of pledge.
 Extent of pledge (3)
1. The thing pledged
2. The fruits, income, dividends, interests earned or produced by the thing pledged, unless there is
stipulation excluding them
3. The offspring, when the thing pledged is an animal, unless there is a stipulation excluding them
--
 May the debtor-pledgor alienate the thing pledged without the consent of the pledgee?
No.
 In case the thing pledged is alienated by the debtor-pledgor to third person, what is the effect
of the consent of the pledgee to the alienation?
The ownership of the thing pledged is transferred to the buyer, but the creditor-pledgee retains
possession of the thing.
 What is the remedy of the pledgor-debtor if the pledgee-creditor uses the thing pledged without
the authority of the owner, or should misuse the thing in any other way?
To ask that the item be judicially or extra-judicially deposited
 What is the remedy of the pledgor-owner if the thing pledged is in danger of being lost or
impaired through the negligent or willful act of the pledgee?
To require that it be deposited with a third person.
 What is the remedy of the pledgor-owner if there are reasonable grounds to fear the
destruction or impairment of the thing pledged, without the fault of the pledgee?
To ask for the return of the thing, upon offering another thing in pledge, provided the latter is of the
same kind as the former and not of inferior quality.
 (T/F) If there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the pledgee-creditor may cause the sale of the thing
pledged at a public sale, and the proceeds of the auction shall be a security for the principal
obligation in the same manner as the thing originally pledged.
True.
 (T/F) The debtor-pledgor is obliged to warrant the thing pledged for its quality and
merchantability.
False.
 (T/F) When the pledgor sells the thing pledged with the consent of the pledgee, the ownership
is transmitted to the buyer upon delivery.
False. Ownership is transmitted as soon as the pledgee consents to the alienation.
 (T/F) The creditor-pledgee is obliged to deposit the thing pledged with a third person.
False.
  Grace obtained a loan from Jojo in the amount of 1M, with Mar serving as guarantor. Rody
pledged his cellphone to secure the debt of Grace. If Rody pays the 1M loan of Grace, may
Rody collect from Mar?
Yes, if Grace cannot pay. Rody is considered a third person interested in the fulfillment of the
obligation, and is legally subrogated into the shoes of Jojo as creditor.
 If two or more things are pledged, who has the right to choose which thing will be sold in
absence of stipulation?
Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be sold,
unless there is a stipulation to the contrary. He may demand the sale of only as many of the things as
are necessary for the payment of the debt.

 (T/F) The extinguishment of the principal obligation extinguishes the pledge. This is an
example of an indirect extinguishment of pledge.
True.
 Which two direct modes of extinguishment of the contract of pledge impliedly extinguishes the
principal obligation?
1. Sale of the thing pledged in case of default by the debtor.
2. Appropriation of the thing pledged in case the thing pledged is not sold in the first and second
auctions.
 D owes C 5000. The debt is secured by a pledge of G's watch. If G pays C, is G subrogated
into the rights of creditor?
Yes.
 (T/F) Any stipulation that the pledge is not extinguished by the return of the thing is void.
True.
 (T/F) A stipulation for the recovery of deficiency in case proceeds from the sale of the thing
pledged is less than the amount of obligation is VOID.
True.
 When is there prima facie assumption that the pledgee returned the thing pledged? (2)
1. If the thing pledged is found in the possession of the pledgor/owner
2. If the thing pledged is in the possession of a third person who has received it from the
pledgor/owner.
 In case the cause or consideration of the contract of pledge is not stipulated, what is its cause?
The consideration of the principal obligation or contract of loan.
 Is the acceptance of the pledgor/owner required for a pledgee's renunciation in writing of the
pledge to extinguish the pledge?
No.
  Is actual return of the thing required for a pledgee's renunciation in writing of the pledge to
extinguish the pledge?
No. The pledgee becomes a depositary upon renunciation if in the meantime, the thing pledged is not
yet returned to the owner.
 Requisites for sale of thing pledged (3)
1. Public auction
2. Notary public
3. With notice to debtor and owner of thing pledged, stating the amount for which the public sale is to
be held.
 Who may bid at the public auction of the thing pledged (3)?
1. The pledgor/owner - to be preferred if he should offer the same terms as the highest bidder

2. The pledgee - not valid if he is the only bidder

3. Third persons
 (T/F) In sale at public auction of the thing pledged, the principal obligation shall be
extinguished whether or not the proceeds of the sale are equal to the amount of the principal
obligation, interest, and expenses in a proper case.
True.
 (T/F) If the proceeds of the sale of the thing pledged is more than the amount of the obligation,
the creditor-pledgee shall be entitled to the excess unless there is agreement to the contrary.
True.
 (T/F) If the proceeds of the sale of the thing pledged is less than the amount of the obligation,
the creditor-pledgee may not recover deficiency, even if stipulated.
True.
 DLSU pledged its notes receivable from a parent to a factor on January 1, 2016, with
remaining term of 30 days or maturity date of January 31, 2016. The face value of the notes
receivable is 1,000,000 with a maturity value of 1,200,000. The notes receivable is pledged for
a note payable of 1,100,000 inclusive of interest. If the factor -pledgee collects the 1,200,000
from the parent on January 31, 2016, who shall be entitled for the excess of 100,000?
DLSU, the pledgor-debtor
 It is a type of pledge which refers to the right of a person to retain a thing until he receives
payment of his claim.
Legal pledge or pledge by operation of law.
 (T/F) In legal pledge as opposed to conventional pledge, in case there is deficiency in the
public sale, the pledgee-creditor may recover from the pledgor. Likewise, if the proceeds from
the sale are in excess, the remainder shall be delivered to the debtor.
True.
  (T/F) It is required that the document in which the mortgage appears be recorded in the
Registry of Property for the validity of a real mortgage.
False. This is necessary to bind third persons, but not for the validity of the real mortgage itself which
may be entered into in any form.
 It is one which although lacks certain formality, form or words or other requisites provided by
statute, shows the intention of the parties to charge the real property as a security for a debt
and contains nothing contrary to law.
Equitable mortgage
 (T/F) The real mortgage may be in any form to be valid since it is a consensual contract.
True.
 (T/F) The real mortgage must be in a public instrument for the convenience of the parties but
not for its validity.
True.
 (T/F) The real mortgage must be registered in the Registry of Property to bind third persons.
True.

 (T/F) A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void.
True.
 (T/F) The mortgagor, being the owner of the property mortgaged, may execute a second
mortgage thereon, even without the consent of the mortgagee.
True.
 (T/F) A stipulation wherein the mortgagor must get the consent of the mortgagee before
subsequently mortgaging the property is valid if the property is registered under the Torrens
System. Such stipulation may be disregarded if the property was originally registered under the
Spanish Mortgage Law.
True.
 A type of foreclosure made through the filing of a petition in court.
Judicial foreclosure.
 May the judgment debtor still redeem the property already foreclosed and sold in public
auction?
Yes, though the mortgagor failed to exercise his equity of redemption, he still has his right of
redemption which he may exercise even after the foreclosure sale so long as it is prior to the court's
confirmation of the sale.
 What is the period for the exercise of equity of redemption in case of judicial foreclosure?
Within a period of not less than 90 days nor more than 120 days from the entry of judgment.
 What is the period for exercise of right of redemption in case of judicial/extrajudicial foreclosure
made by banks?
Within one year after the sale of the real estate.
 Foreclosure made in compliance with Act No. 3135 and available when there is a stipulation in
the mortgage contract that the mortgage may be foreclosed or when such foreclosure sale is
made under a special power of attorney inserted in the contract.
Extrajudicial foreclosure.
 What is the period of the exercise of right of redemption by the debtor-mortgagor in cases of
extrajudicial foreclosure?
One year from the date of registration of the sale.
 Notwithstanding Act 3135, the General Banking Laws provide that juridical persons whose
property is being sold pursuant to an extrajudicial foreclosure by banks shall have the right of
redemption to be exercised within _________.
3 months after the foreclosure and sale but not after the registration of the certificate of foreclosure
sale with the applicable Register of Deeds.
 Proper order on how the proceeds of sale from judicial or extrajudicial foreclosure shall be
distributed:
1. Cost of sale
2. Claim of persons foreclosing the mortgage
3. Claims of junior encumberances in order of their priority
4. Mortgagor or his agent
 Who bears the excess/deficiency of the proceeds of the sale from judicial/extrajudicial
foreclosure of real estate mortgage?
The mortgagor, in absence of stipulation to the contrary.
 (T/F) For chattel mortgage to be valid, it must be recorded in the Chattel Mortgage Register.
True.
 (T/F) Only personal property may be the object of a chattel mortgage.
True.
 (T/F) As a general rule, the chattel mortgage must be registered in the Chattel Mortgage
Register of the province where the mortgagee resides.
False. Where the MORTGAGOR resides.
 The proper order on distribution of proceeds from foreclosure of chattel mortgage
1. Cost of sale
2. Claim of person foreclosing the mortgage
3. Claims of junior encumberances in order of priority
4. Mortgagor or his agent
  Who bears the excess/deficiency of the proceeds of the sale from judicial/extrajudicial
foreclosure of chattel mortgage?
Mortgagor. Exception: Recto Law
 In a contract of antichresis, what shall be the basis of measurement of the fruits in its
application to the interest and principal of the loan?
The actual market value of the fruits at the time of the application.
 (T/F) The contract of antichresis is a formal contract perfected by the execution of the written
instrument containing the antichretic agreement together with the amount of the principal and
interest of the loan.
True.
 Who shall be liable to pay the real property taxes and expenses necessary for the repair and
preservation of the real property used as collateral in contract of antichresis?
Antichretic creditor, in the absence of stipulation to the contrary.