PLEDGE

PLEDGE AND
AND
MORTGAGE
MORTGAGE
CHAPTER 1
PRESENTED BY: NGO, LOUISE
 SIMILARITIES BETWEEN
PLEDGE AND MORTGAGE
RIGHT OF CREDITOR WHEN OBLIGATION IS
DUE
PLEDGE

What happens in a public sale

If at the first auction sale, the thing is not sold

A second auction with the same formalities shall be held
If there's still no sale
Creditor may appropriate the thing pledged
Creditor shall give the debtor an acquitance for his entire claim
The thing shall be considered as full payment for the entire debt
All bids at the public auction shall offer to pay the purchase price at once
If the pledgee would accept a bid other than cash
As regards the owner, pledgee has received the purchase price in cash
 ESSENTIAL REQUISITES
A. They are contituted to secure the FULFILLMENT of a principal

indicates that the cintracts are merely accessory contracts

depends upon a principal obligation for their existence

B. Pledgor or mortgagor are the ABSOLUTE OWNER of the thing

pledged and mortgaged
Must absolutely own the property pledged or mortgaged
Otherwise, it is considered NULL and VOID
FUTURE properties cannot be pledged or mortgaged
Pledgor and mortgagor need NOT be the PRINCIPAL debtor
 ESSENTIAL REQUISITES
C. Persons constituting the pledge or mortgage have the FREE
DISPOSAL of their property or has legal authority
To make possible the transfer of OWNERSHIP to anyone who purchases
the thing pledged or mortgaged at the public sale or foreclosure of the
mortgage
When the principal obligation falls due or remains unpaid
the act of pledging or mortgaging involves the alienation or transmission
of right on the property, which is necessarily an act of strict ownership
NOTE: THIRD PERSONS who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property
 PRINCIPAL OBLIGATION SECURED
Principal obligation secured by a pledge or mortgage may
be a VOIDABLE, UNENFORCEABLE, or a NATURAL OBLIGATION

Secures ALL kinds of obligations

whether they are pure or subject to a suspensive or resolutory condition

a reiteration of the accessory nature of the contract of pledge or
mortgage
ALIENATION OF THING PLEDGED OR
MORTGAGED
PLEDGED
Owner may alienate the thing pledged, with the CONSENT of the pledgee
Ownership transfers to the vendee, but pledgee shall CONTINUE in
possession
MORTGAGED
Mortgage credit may be assigned by the mortgagee to a third
person, in whole or in part, with formalities required by law
Valid if against parties of the contract even if not registered
Registration is required so that it shall take effect against
third persons
Alienation is a right of the mortgagor
Any stipulation forbidding the owner from alienating the immovable
mortgaged is NULL and VOID
ALIENATION OF THING PLEDGED OR
MORTGAGED
RIGHT OF PLEDGEE OR MORTGAGEE

When the principal obligation becomes DUE and UNPAID

Creditor may alienate the thing pledged or mortgaged and APPLY
the proceeds of such sale to the payment of the obligation
Alienation may consist in the public sale of the pledge or foreclosure
of mortgaged
Any stipulation in the contract of pledge or mortgage which provides
for AUTOMATIC OWNERSHIP by the creditor when the principal
obligation becomes due
Known as "pacto comisorio"
Becomes NULL and VOID
 PACTO COMISORIO

DEFINITION: A stipulation in a contract of pledge or mortgage that the

creditor shall appropriate the thing pledged or mortgaged as
PAYMENT of the obligation if it falls due.
Such stipulation is NULL and VOID
Acts that cannot be stipulated
Authorizing the creditor to apprpriate the thing pledged or mortgaged
Appropriation = automatic ownership
Which is contrary to the public policy
Thing mortgaged or pledged if principal obligation falls is sold at a
public sale to get the best possible price thereof
Authorizing the creditor to dispose of the thing pledged or mortgaged
 PACTO COMISORIO

NOTE: When debtor chooses to assign the property pledged to the

creditor in payment of the obligation
it is NOT PACTO COMISORIO
Can I mortgagee sell the thing mortgaged during the
existence of the principal obligation?
NO, because this amounts to an act of disposition, notwithstanding any
stipulation to that effect
stipulation is NULL and VOID
Mortgagor can sell the property mortgaged
Stipulation prohibiting this is NULL and VOID
 PLEDGE OR MORTGAGE IS INDIVISIBLE
Even if the debt may be divided among the successors in interest of the
debtor or of the creditor
Indivisibility: So long as the entire debt is paid, the creditor can't release a
proportionate part of the pledge or mortgage
The debtor's heirs who have 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
Also applies to the creditor's heir
EXCEPTION: There being several things given in mortgage or pledge and each
one of them guarantees only a determinate portion of the credit
The debtor shall have the right to the extinguishment of the
pledge or mortgage as the portion of the debt for which each
thing is especially answerable is satisfied
 INDIVISIBILITY APPLIES EVEN IF THE
OBLIGATION IS JOINT AND NOT SOLIDARY
This is not affected by the fact that
the debtors are not solidarily liable

PROMISE TO CONSTITUTE PLEDGE OR

MORTGAGE CREATES A PERSONAL RIGHT
If accepted by the creditor, gives rise ony to a
personal right to compel the fulfillment of the
promise without creating a pledge or
mortgage
CRIMINAL RESPONSIBILITY OF PLEDGOR OR
MORTGAGOR
Pledgor and mortgagor shall be criminally
liable for the following acts:

1. By offerring in pledge or mortgage as unencumbered, things

which he knew were subject to some burden
2. By misrepresenting himself to be the owner of the thing
pledged or mortgaged
DIFFERENCES BETWEEN
PLEDGE AND MORTGAGE
 AS TO THE SUBJECT MATTER
PLEDGE
Limited to movable or personal property which are within the
commerce of man
May include incorporeal rights, evidenced by negotiable
instruments, bills of lading, shares of stock, bonds, warehouse
receipts, and similar documents
Instrument proving the right pledged shall be delivered to the
creditor and if negotiable, must be indorsed
MORTGAGE

Chattel Real Estate 

Same as pledge Immovables
Alienable Real rights over immovables
 MANNER OF CONSTITUTION
PLEDGE

The thing pledged be placed in possession of the creditor, or

of a third person by common agreement
DELIVERY: actual or physical not symbolic
is a special type of bailment which involves the possession of
the pledged property by the creditor or by a third person by
common agreement between pledgor and the creditor
 MANNER OF CONSTITUTION
MORTGAGE
Chattel
Object is not transferred to the
possession of the creditor or mortgagee
it is recorded in the Chattel Mortgage
register as security for performance of
an obligation
IF MOTOR VEHICLE- must be registered
in both chattel mortgage registry and
the Bureau of land transportation
Real Estate 
To be validly constituted, it is
indispensible that the document in
which it appears be recorded in the
Registry of Properties
The deed of mortgage must be in a
public document
Mortgage is valid even if NOT
recorded in the Registry f Property,
provided it is in WRITING
TO BE EFFECTIVE AGAINST THIRD PERSONS
PLEDGE
Description of the thing and the date must appear in a public
document
must be delivered
MORTGAGE
Chattel Real Estate
Deed must be in a public document and Must appear in a public document
registered with the Chattel Mortgage and registered with the Registry of
Registry with an Affidavit of Good Faith Property of the province or city
appended and recorded where the real property is located
Absence of the Affidavit does not
invalidate the mortgage
 EXTENT OF SECURITY
PLEDGE

Extends to the interest and earnings of the right pledged,

unless there is stipulation to the contrary
If it earns or produces fruit, income, dividends or interest
the creditor shall compensate what he receives with those
which owe him
but if none owe him or if the amount exceeds what is due
he shall apply it to the principal
If pledge of animals
the offspring shall pertain to the owner of the animals
pledged
Unless stipulated
 EXTENT OF SECURITY
MORTGAGE

Chattel
Covers only the property described therein and not like substituted property
acquired by the mortgagor
A stipulation extending its scope and effect to after-acquired property is VALID
where the after-acquired property is in renewal of, or in substitution for, goods
on hand when mortgage was executed, or is purchased with the proceeds of
sale
Refers to "rolling stocks"
 EXTENT OF SECURITY
MORTGAGE

Real Estate
Not limited to the immovable mortgaged
Extends to the following
the natural accessions, the improvements, growing fruits, and rents or
income not yet received when obligation becomes due
to the amount of indemnity granted or owing to the proprietor from the
insurers of the property mortgaged
All objects permanently attached to the mortgaged land or building
Even if placed after execution it is included
 EXTENT OF SECURITY
MORTGAGE

Real Estate
Fruits gathered of the land should not be applied to the payment of the principal
obligationUnless stipulated
Unless stipulated
Cretes a real right which attaches to the property and not to the mortgagee
Any person who comes into the possession of the property mortgaged is bound
and subject to the provisions of the Land Registration Laws
RIGHT OF CREDITOR WHEN OBLIGATION IS
DUE
PLEDGE
The creditor to whomthe credit has not been satisfied in due time, may proceed
before a Notary Public for the sale of the thing
Sale must be made at a public auction
Notice must be given to the pledgor and owner of the amount which the
public sale was held
What happens in a public sale?
Both the pledgor and the pledgee may bid
Pledgor's bid shall be perferred if he offers the same terms as the highest
bidder
Pledgee's bid shall NOT be valid, if he is the only bidder
RIGHT OF CREDITOR WHEN OBLIGATION IS
DUE
MORTGAGE

Chattel
Upon default of the mortgagor, the right of the mortgagee is to
foreclose it
A public auction sale by a public officer at a public place in the
municipality, after notice to the mortgagor of the time, place and
purpose of sale
Municipality is where the mortgagor resides or where the
property is situated
Creditor-mortgage may bid as well
RIGHT OF CREDITOR WHEN OBLIGATION IS
DUE
MORTGAGE

Real Estate
The right of the mortgagee is also to foreclose the mortgage
Foreclosure may either be made judicially or extrajudicially
Extrajudicially happens only where there is a stipulation
upon the default of the debtor
Judicially happens by bring an action for that purpose in
the Regional Trial Court
In the absence of stipulation this is the default
APPLICATION OF THE PROCEEDS
PLEDGE

the sale of the thing extinguishes the principal obligation

Whether or not the proceeds of the sale are equal to the
amount of the principal obligation, interest, and expenses
of the auction sale
If the price of the sale is MORE than the amount due
Excess belongs to the creditor
Debtor will be entitled to the excess if stipulated
If the price of the sale is LESS than the amount due
creditor cannot recover the deficiency even if stipulated
 APPLICATION OF THE PROCEEDS
MORTGAGE
Chattel
Proceeds would be apply to the payment if the following
i. Costs and expenses of holding the sale
ii. Payment of the principal obligation
iii. Claims of persons holding subsequent mortgages 
iv. The balance, if any, shall be paid to the mortgagor or the person
holding under him
v. If mortgage is LESS
1. Creditor is entitled to recover the defeciency from the debtor
2. EXCEPT: forclosure of the mortgage in installment sale of personal
property
 REDEMPTION
PLEDGE

Any person who has any right in or to the thing may satisfy the
principal obligation as soon as the latter becomes DUE and
DEMANDABLE
Third Person who pledges his personal properties to secure an
obligation, may redeem the thing by paying off the creditor of
the debtor's indebtedness 
Only if the debtor fails to do so
To prevent the public sale
 REDEMPTION
MORTGAGE

Chattel
When the condition of a mortgage is broken, the following may redeem
i. the mortgagor
ii. a person holding a subsequent mortgage
iii. subsequent attaching creditor
An attaching creditor who so redeems shall be subrogated to the rights of the
mortgagee and entitled to foreclosure the mortgage
The redemption is made by paying or delivering to the mortgagee the amount
due
Known as the CHATTEL MORTGAGE LAW
 REDEMPTION
MORTGAGE
Real Estate
2 Kinds of Redemption
Equity of Redemption
right of the mortgagor to redeem the mortgaged property after his
default in the performance of the condition but before the sale of the
property
Mortgagor can at any time AFTER the debt has become due, but
BEFORE the extrajudicial foreclosure of the mortgage, pay the
creditor of the amount indebtedness, interest and other expenses
incurred
Judicial foreclosure
mortgagor may exercise his equity of redemption before
confirmation of the sale by the court
 REDEMPTION
MORTGAGE

Real Estate
2 Kinds of Redemption
Right of Redemption
right of the mortgagor to redeem the property within a certain period
after it was sold for the satisfaction of the mortgaged debt
Extrajudicial Foreclosure
mortgagor may redeem the property at any time within the term of
one year from and after the date of the registration of the sale
Judicial Foreclosure
mortgagor can no longer exercise his right of redemption after the
judicial confirmation of the sale
 LAWS APPLICABLE

PLEDGE
Governed by Articles 2085 to 2123 of the New Civil Code
MORTGAGE
Governed by
the Chattel Mortgage Law Act No. 1508
the Civil Code provisions as long as they don't conflict
with the Chattel Mortgage Law
Revised Administratice Code
Article 319 of the Revised Penal Code
RIGHTS OF PLEDGEE
 PLEDGEE

1. The creditor shall take care of the thing with DILIGENCE OF A

GOOD FATHER OF A FAMILY.
a. Pledgor
i. Has the right to the reimbursement of the expenses made for its
perservation
ii. is liable for its loss or deterioration
b. Pledgee
i. is not liable if the thing should be lost due to theft, provided that e
exercised due diligence
 PLEDGEE

2. The pledgee CANNOT deposit the thing with a third person

a. Unless there's a stipulation authorizing him to do so

b. Pledgee is resposible for the acts of his agents or employees with respect
to the thing
3. The pledgee cannot use the thing, without the authority of the
owner
a. He can only use it if its perservation requires its use BUT only for that
purpose
 PLEDGEE

4. The pledgee is bound to advise the pledgor, without delay, of

any danger to the thing

5. The pledgee may bring the actions which pertain to the owner of
the thing in order to recover it from, or defend it against third
person

6. If two or more things are pledged, the pledgee may choose

which he will cause to be sold

a. Unless stipulated
b. He may demand the sale of only as many of the things as are necessary for
the payment of the debt
 PLEDGEE

7. In case of public auction, pledgee shall advice the pledgor of the

result

8. If credit which was pledged becomes due and demandable

before it is redeemed, the pledgee may collect and receive the
amount due

a. He shall apply the same to the payment of his claim and deliver the surplus
to the pledgor if theres any
 PLEDGEE

9. If the creditor is deceived on the substance of the thing, he may

choose between:
a. Claiming another thing in its stead from the pledgor
b. Demanding the immediate payment of the principal obligation
RIGHTS OF PLEDGOR
 PLEDGEE

1. Unless the thing pledged is expropriated, the debtor continues

to be the owner

2. The pledgor may as that the thing be judicially or extrajudicially

deposited, should the creditor use the thing pledged without his
authority

3. The debtor can't ask for the return of the thing pledged against
the will of the creditor

a. Unless he has paid the debt and its interest, with expenses
 PLEDGEE

4. The pledgor may require that the thing be deposited with a third
person
a. If through the negligence or willful act of the pledgee, the thing pledged is in
danger of being lost or impaired
5. The pledgee has prior right to cause the thing to be sold at
public sale
a. If there are reasonable grounds to fear the destruction or impairment or
dimunutionin value of the thing, WITHOUT the fault of pledgee
b. Proceeds of auction shall be applied to the principal obligation
c. If pledgee didn't exercise this right, pledgor may ask for the return of the
thing
d. Pledgee may offer another thing as long as its the same kind and its quality
is not inferior
EXTINGUISHMENT OF
PLEDGE
 WAYS TO EXTINGUISH
PLEDGE

1. The return of the thing to the owner

a. Any stipulation to the contrary is VOID
b. Connected to the Article 1274 of the Civil Code
i. Establishes the presumption that the accessory obligation has been
remmitted when the thing is found in the possession of the debtor who
owns the thing
2. A statement in writing by the pledgee that he renounces or
abandons the pledge
a. Neither the acceptance not the return of the thing is necessary