PLEDGE

Art. 2093. In addition to the requisites Art. 2109. If the creditor is deceived on the
prescribed in Article 2085, it is necessary, substance or quality of the thing pledged,
in order to constitute the contract of he may either claim another thing in its
pledge, that the thing pledged be placed in stead, or demand immediate payment of
the possession of the creditor, or of a third the principal obligation. (n)
person by common agreement. (1863)
Art. 2110. If the thing pledged is returned
Art. 2094. All movables which are within by the pledgee to the pledgor or owner,
commerce may be pledged, provided they the pledge is extinguished. Any
are susceptible of possession. (1864) stipulation to the contrary shall be void.

Art. 2095. Incorporeal rights, evidenced by If subsequent to the perfection of the

negotiable instruments, bills of lading, pledge, the thing is in the possession of the
shares of stock, bonds, warehouse receipts pledgor or owner, there is a prima facie
and similar documents may also be presumption that the same has been
pledged. The instrument proving the right returned by the pledgee. This same
pledged shall be delivered to the creditor, presumption exists if the thing pledged is
and if negotiable, must be indorsed. (n) in the possession of a third person who
has received it from the pledgor or owner
Art. 2096. A pledge shall not take effect after the constitution of the pledge
against third persons if a description of the
thing pledged and the date of the pledge Art. 2111. A statement in writing by the
do not appear in a public instrument. pledgee that he renounces or abandons the
(1865a) pledge is sufficient to extinguish the
pledge. For this purpose, neither the
Art. 2097. With the consent of the pledgee, acceptance by the pledgor or owner, nor
the thing pledged may be alienated by the the return of the thing pledged is
pledgor or owner, subject to the pledge. necessary, the pledgee becoming a
The ownership of the thing pledged is depositary. (n)
transmitted to the vendee or transferee as
soon as the pledgee consents to the Art. 2112. The creditor to whom the credit
alienation, but the latter shall continue in has not been satisfied in due time, may
possession. (n) proceed before a Notary Public to the sale
of the thing pledged. This sale shall be
Art. 2098. The contract of pledge gives a made at a public auction, and with
right to the creditor to retain the thing in notification to the debtor and the owner of
his possession or in that of a third person the thing pledged in a proper case, stating
to whom it has been delivered, until the the amount for which the public sale is to
debt is paid. (1866a) be held. If at the first auction the thing is
not sold, a second one with the same
Art. 2099. The creditor shall take care of
formalities shall be held; and if at the
the thing pledged with the diligence of a
second auction there is no sale either, the
good father of a family; he has a right to
creditor may appropriate the thing
the reimbursement of the expenses made
pledged. In this case he shall be obliged to
for its preservation, and is liable for its loss
give an acquittance for his entire claim.
or deterioration, in conformity with the
(1872a)
provisions of this Code. (1867)
Art. 2113. At the public auction, the
Art. 2100. The pledgee cannot deposit the
pledgor or owner may bid. He shall,
thing pledged with a third person, unless
moreover, have a better right if he should
there is a stipulation authorizing him to do
offer the same terms as the highest bidder.
so.

1 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm

 The pledgee is responsible for the acts of The pledgee may also bid, but his offer
his agents or employees with respect to the shall not be valid if he is the only bidder.
thing pledged. (n) (n)

Art. 2101. The pledgor has the same Art. 2114. All bids at the public auction
responsibility as a bailor in commodatum shall offer to pay the purchase price at
in the case under Article 1951. (n) once. If any other bid is accepted, the
pledgee is deemed to have been received
Art. 2102. If the pledge earns or produces the purchase price, as far as the pledgor or
fruits, income, dividends, or interests, the owner is concerned. (n)
creditor shall compensate what he receives
with those which are owing him; but if Art. 2115. The sale of the thing pledged
none are owing him, or insofar as the shall extinguish the principal obligation,
amount may exceed that which is due, he whether or not the proceeds of the sale are
shall apply it to the principal. Unless there equal to the amount of the principal
is a stipulation to the contrary, the pledge obligation, interest and expenses in a
shall extend to the interest and earnings of proper case. If the price of the sale is more
the right pledged. than said amount, the debtor shall not be
entitled to the excess, unless it is otherwise
In case of a pledge of animals, their agreed. If the price of the sale is less,
offspring shall pertain to the pledgor or neither shall the creditor be entitled to
owner of animals pledged, but shall be recover the deficiency, notwithstanding
subject to the pledge, if there is no any stipulation to the contrary. (n)
stipulation to the contrary. (1868a)
Art. 2116. After the public auction, the
Art. 2103. Unless the thing pledged is pledgee shall promptly advise the pledgor
expropriated, the debtor continues to be or owner of the result thereof. (n)
the owner thereof.
Art. 2117. Any third person who has any
Nevertheless, the creditor may bring the right in or to the thing pledged may satisfy
actions which pertain to the owner of the the principal obligation as soon as the
thing pledged in order to recover it from, latter becomes due and demandable.(n)
or defend it against a third person. (1869)
Art. 2118. If a credit which has been
Art. 2104. The creditor cannot use the pledged becomes due before it is
thing pledged, without the authority of the redeemed, the pledgee may collect and
owner, and if he should do so, or should receive the amount due. He shall apply the
misuse the thing in any other way, the same to the payment of his claim, and
owner may ask that it be judicially or deliver the surplus, should there be any, to
extrajudicially deposited. When the the pledgor. (n)
preservation of the thing pledged requires
its use, it must be used by the creditor but Art. 2119. If two or more things are
only for that purpose. (1870a) pledged, the pledgee may choose which he
will cause to be sold, unless there is a
Art. 2105. The debtor cannot ask for the stipulation to the contrary. He may
return of the thing pledged against the will demand the sale of only as many of the
of the creditor, unless and until he has things as are necessary for the payment of
paid the debt and its interest, with the debt. (n)
expenses in a proper case. (1871)
Art. 2120. If a third party secures an
Art. 2106. If through the negligence or obligation by pledging his own movable
wilful act of the pledgee, the thing pledged property under the provisions of Article
is in danger of being lost or impaired, the 2085 he shall have the same rights as a
pledgor may require that it be deposited guarantor under Articles 2066 to 2070, and
with a third person. (n) Articles 2077 to 2081. He is not prejudiced
2 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
 Art. 2107. If there are reasonable grounds by any waiver of defense by the principal
to fear the destruction or impairment of obligor. (n)
the thing pledged, without the fault of the
pledgee, the pledgor may demand the Art. 2121. Pledges created by operation of
return of the thing, upon offering another law, such as those referred to in Articles
thing in pledge, provided the latter is of 546, 1731, and 1994, are governed by the
the same kind as the former and not of foregoing articles on the possession, care
inferior quality, and without prejudice to and sale of the thing as well as on the
the right of the pledgee under the termination of the pledge. However, after
provisions of the following article. payment of the debt and expenses, the
remainder of the price of the sale shall be
The pledgee is bound to advise the delivered to the obligor. (n)
pledgor, without delay, of any danger to
the thing pledged. (n) Art. 2122. A thing under a pledge by
operation of law may be sold only after
Art. 2108. If, without the fault of the demand of the amount for which the thing
pledgee, there is danger of destruction, is retained. The public auction shall take
impairment, or diminution in value of the place within one month after such
thing pledged, he may cause the same to demand. If, without just grounds, the
be sold at a public sale. The proceeds of creditor does not cause the public sale to
the auction shall be a security for the be held within such period, the debtor
principal obligation in the same manner as may require the return of the thing. (n)
the thing originally pledged. (n)
Art. 2123. With regard to pawnshops and
other establishments, which are engaged
in making loans secured by pledges, the
special laws and regulations concerning
them shall be observed, and subsidiarily,
the provisions of this Title. 

Concept

 It is 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 shall be returned with all its fruits and
accessions.
 A contract of pledge is perfected when the thing pledged is placed in the actual
possession or delivered to the pledgee or a third person designated by the parties
by common consent. If it is not complied with, the pledge is void.

How does it work?

 A borrows P10,000 from B. A delivers his cellular phone to B as pledge to secure

the payment of the loan.
 B continues to have possession over the cellular phone until A pays P10,000.
 If A cannot pay, B can sell the phone at the auction and apply the proceeds to the
loan.

What is the effect when possession or delivery was not made?

3 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm

  Unless the movable given as a security by way of pledge be delivered to and
placed in the possession of the creditor or of a third person designate by common
agreement, the creditor acquires no right to the property because pledge is
merely a lien and possession is indispensable to the right of a lien.

Essential Requisites

 constituted to secure the fulfillment of a principal obligation

 pledgor is the absolute owner of the thing (Cavite vs. Lim)
 pledgor has the free disposal of his property or is legally authorized to do so
 the property must be placed in the possession of the creditor (Art. 2093)
o Delivery is essential for validity.
 the description of the thing and the date of the pledge must be made in a public
instrument to bind third persons (Art. 2096)
o RATIONALE: To forestall fraud because a debtor may attempt to conceal
his property from his creditors when he sees it in danger of execution by
simulating a pledge thereof with an accomplice.
 A contract of pledge not appearing in a public instrument does not affect its
validity. It is valid between the parties.

Requisites to bind third persons:

 The pledge must be in a public instrument where the description of the thing
pledged and statement of date when the pledge was executed must appear.

Double pledge

 A double pledge is when the same thing or property subject of a first pledge will
be the subject of another pledge.
 A property already pledged cannot be pledged again while the first pledge is still
subsisting.
 RATIONALE: Delivery is essential for validity. One cannot deliver a thing twice.

Parties

 PLEDGOR- the debtor or a third person who pledges the subject matter to secure
the loan of the debtor. (Art. 2083, 2nd par)
 PLEDGEE- creditor
 A pledge executed before a person becomes the owner of the thing is VOID.

Subject Matter

 All movable which are within the commerce of man provided they are
susceptible of possession. (Art. 2094)
 Incorporeal rights, evidence by negotiable instruments, bills of lading, shares of
stocks, bonds, warehouse receipts and similar documents. The instrument must
be delivered to the pledgee and properly indorsed. (Art. 2095)
 Future property cannot be pledged.
 A co-owner may pledge his portion of the thing.

Kinds of Pledge
4 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
  Conventional- by agreement of parties
 Legal- by operation of law

Nature (Art. 2089)

 General Rule: Indivisible

o Debtor who pays the part of the debt cannot ask for proportionate
extinguishment of the pledge.
o A pledge his car (P500,000) and his necklace (P100,000) to secure his
P600,000 debt. A pays P400,000.
o He cannot say that his car should be released since he has paid part of the
loan.
o The pledge over the car and the necklace is indivisible.
 Exception: Where several things are given in pledge and each thing guarantees
only a determinate portion of the debt.

PLEDGEE

 Obligations
o To appropriate fruits, income, dividends or interest of the thing with those
which are owing him, and if none, to apply to it to the principal. (Art.
2102)
o To take care of the thing with diligence of a good father of a family,
subject to his right to be reimbursed by the pledgor. (Art. 2099)
 Pledgee is liable for the loss or deterioration of the thing by reason
of fraud, negligence, delay or violation of the terms of the contract.
o Cannot deposit the thing with a third person and is bound by his agents’
acts. (Art. 2100)
o General Rule: Pledgee cannot deposit the thing pledged to a 3rd person.
o Exception: Unless there is stipulation to the contract.
 Pledgee is liable for the loss or deterioration of the thing pledged
caused by the acts or negligence of the agents or employees of the
pledgee.
o General Rule: Pledgee cannot use the thing pledged without authority.
o Exception: If the pledgor had given him authority to use it or if the use of
the thing is necessary for its preservation but only for that purpose.
o To return the thing pledged to the pledgor when the principal obligation
is fulfilled or satisfied it.
 Rights
o To use the things if necessary for its preservation. (Art. 2104)
o To retain possession of the things until the fulfillment of the obligation.
(Art. 2098)
o To be reimbursed for the expenses made for the preservation of the thing
pledged. (Art. 2099)
o He may file actions to recover it from or defend it against 3 rd persons. (Art.
2103)
o In case of fear of destruction or impairment without his fault, he may
cause the sale of the thing pledged in a public auction. (Art. 2108)
5 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
 o Under Art. 2109, if he is deceived as to the substance or quality of the
thing, he may ask for replacement or demand immediate payment.
 Can the pledgee cause the sale of the thing pledged in public auction where
the obligation is not yet due?
o Yes, if without the fault of the pledge, there is danger of destruction,
impairment or diminution in value of the thing pledged.

PLEDGOR, Rights and Obligations

 May dispose of the thing, with the consent of the pledgee and with the thing still
subject to the pledge and in the possession of the pledgee. (Art. 2097)
 Must advise the pledgee of hidden flaws of the thing, otherwise, he shall be
liable for damages. (Art. 2101)
 In case of unauthorized use or misuse by pledgee, he may ask for the judicial or
extrajudicial deposit of the thing. (Art. 2104)
 Right to substitute thing pledged.

Loss or impairment

 If through the negligence or willful act of the pledgee, the thing pledged is in
danger of being lost or impaired, the pledgor may require that it be deposited
with a third person. (Art. 2106)
 If without the fault of the pledgee, the pledgor may demand the return of the
thing and offer a replacement. However, this right is inferior to the right of the
pledgee to sell the thing at auction. (Art. 2107)

Extinguishment of Pledge

 If the thing pledged is returned by pledgee to the pledgor (Art. 2110):

o If after the perfection of the pledgee, the thing is in possession of the
pledgor or owner, there is a prima facie presumption that the same has
been returned by the pledgee. This same presumption exists if the thing
pledged is in the possession of a third person who has received it from the
pledgor or owner after the constitution of the pledge.
 A statement in writing by the pledgee that he renounces or abandons his pledge
is sufficient to extinguish it (Art. 2111). The pledgor does not even have to accept
the renunciation. The thing pledged does not have to be returned to the owner to
extinguish the pledge.
o Effect: The pledgee becomes a mere depositary.

If the debtor defaults..

 This means that the obligation is due and unpaid.

 The thing will be sold at a public auction with notice to the pledgor and owner
stating the amount for which the sale is to be held.
 Sale must be conducted by a notary public.
 After the sale, pledgee must advise the pledgor of the results.

Public Auction
6 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
  Pledgor may bid and if he offers the same terms as highest bidder, he is
preferred. (Art. 2113)
 Pledgee may bid out but not if he is the only bidder. (Art. 2113, 2nf par)
o RATIONALE: It may lead to a circumvention of the rule against automatic
appropriation.
 All bids shall offer to pay the purchase price at once. (Art. 2114)
 In case of deficiency, the pledgee cannot collect the balance from the pledgor.
(Art. 2115)
 In case of excess, the debtor is not entitled to the excess unless the contrary us
provided. (Art. 2115)

Can the creditor appropriate the thing to himself in case of non-payment?

 No, the creditor cannot appropriate the thing pledged to himself or dispose of
them. Any stipulation to the contrary is void. (Art. 2088)
 Such stipulation is called PACTUM COMMISSORIUM. Elements:
o There should be a pledge, mortgage or antichresis of property by way of
security for the payment of the principal obligation.
o There should be stipulation for an automatic appropriation by the creditor
of the property in the event of non-payment of the obligation.
o Stipulation that the thing shall be considered in full payment of the debt
without further actions.
 Exception to PACTUM COMMISSORIUM:
o After 2 auction sales and there are no bidders, pledgee may appropriate
the thing to himself BUT he must give an aquittance of the entire claim.
(Art. 2112)

7 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm

 MORTGAGE

Art. 2124. Only the following property Art. 2128. The mortgage credit may be
may be the object of a contract of alienated or assigned to a third person, in
mortgage: whole or in part, with the formalities
required by law. (1878)
(1) Immovables;
Art. 2129. The creditor may claim from a
(2) Alienable real rights in accordance with third person in possession of the
the laws, imposed upon immovables. mortgaged property, the payment of the
part of the credit secured by the property
Nevertheless, movables may be the object
which said third person possesses, in the
of a chattel mortgage. (1874a)
terms and with the formalities which the
Art. 2125. In addition to the requisites law establishes. (1879)
stated in Article 2085, it is indispensable,
Art. 2130. A stipulation forbidding the
in order that a mortgage may be validly
owner from alienating the immovable
constituted, that the document in which it
mortgaged shall be void. (n)
appears be recorded in the Registry of
Property. If the instrument is not recorded, Art. 2131. The form, extent and
the mortgage is nevertheless binding consequences of a mortgage, both as to its
between the parties. constitution, modification and
extinguishment, and as to other matters
The persons in whose favor the law
not included in this Chapter, shall be
establishes a mortgage have no other right
governed by the provisions of the
than to demand the execution and the
Mortgage Law and of the Land
recording of the document in which the
Registration Law. (1880a)
mortgage is formalized. (1875a)
Art. 2140. By a chattel mortgage, personal
Art. 2126. The mortgage directly and
property is recorded in the Chattel
immediately subjects the property upon
Mortgage Register as a security for the
which it is imposed, whoever the
performance of an obligation. If the
possessor may be, to the fulfillment of the
movable, instead of being recorded, is
obligation for whose security it was
delivered to the creditor or a third person,
constituted. (1876)
the contract is a pledge and not a chattel
Art. 2127. The mortgage extends to the mortgage. (n)
natural accessions, to the improvements,
Art. 2141. The provisions of this Code on
growing fruits, and the rents or income not
pledge, insofar as they are not in conflict
yet received when the obligation becomes
with the Chattel Mortgage Law shall be
due, and to the amount of the indemnity
applicable to chattel mortgages. 
granted or owing to the proprietor from
the insurers of the property mortgaged, or
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. (1877)

CHATTEL MORTGAGE

Concept

8 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm

  Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. If the
movable, instead of being recorded, is delivered to the creditor or a third person,
the contract is a pledge and not a chattel mortgage.

Characteristics:

 It is a formal contract because it must be embodied in a public instrument and

recorded in the Chattel Mortgage Register.
 It is an accessory contract because its existence depends upon an existing valid
principal obligation.
 It is a unilateral contract because the obligation is only on the part of the creditor
to free the chattel from encumbrance upon payment of the principal obligation.
 It creates a real right or a lien which is being recorded and follows the chattel
wherever it goes.

Essential Requisites:

 constituted to secure the fulfillment of a principal obligation

 mortgagor is the absolute owner of the thing (Cavite vs. Lim)
 mortgagor has the free disposal of his property or is legally authorized to do so
 The chattel mortgage must be recorded in the chattel mortgage register,
otherwise, the mortgage is void.
o However, if the same is not recorded, the mortgage is still nevertheless
binding between the parties. But the person in whose favor the law
establishes a mortgage has no other right than to demand the execution
and the recording of the document.

Effect of Registration

 Binding notice to other creditors of its existence and creates real right or a lien
which follows the chattel whenever it goes.
 It gives the mortgagee symbolical possession.

Mortgage of Motor Vehicle

 Under the Revised Motor Vehicle Law, when the subject matter of a chattel
mortgage is a vehicle, the CM must not only be registered with the CM registry,
it must also be registered with the LTO or LTFRB, in cases of public utility
vehicles in order to bind third persons.

Subject Matter

 Always personal or movable property

 Covers only property described in the CM and not like or substituted property
thereafter acquired by the mortgagor and placed in the same depositary as the
property originally mortgaged.
 Description of the property must be such to enable the parties to identify the
same after a reasonable investigation and inquiry.

Affidavit of Good Faith

9 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
  An oath in a 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 not one entered into for the purpose of fraud.
 Absence will not affect the validity of the mortgage between the parties but will
only vitiates the mortgage as to 3rd persons without notice like creditors and
subsequent encumbrancers.

REAL MORTGAGE

Concept

 A contract whereby the debtor secures to creditor the fulfillment of a principal

obligation, specially subjecting to such security immovable property or real
rights over immovable property. This obligation shall be satisfied with the
proceeds of the sale of said property or rights in case said obligation is not
complied with at the time stipulated.

Essential Requisites:

 constituted to secure the fulfillment of a principal obligation

 mortgagor is the absolute owner of the thing (Cavite vs. Lim)
 mortgagor has the free disposal of his property or is legally authorized to do so

Characteristics

 A real right
o It is enforceable against third person if registered or third persons who
have knowledge.
 An accessory contract
o If the principal contract is void, mortgage is also void. But the invalidity of
the mortgage will not affect the validity of the principal contract.
 Inseparable
o Mortgage adheres to the property regardless of who its owners may
subsequently be.
 Indivisible
 Real Property
o A mortgage can also be mortgaged.
 Limitation on ownership
o Mortgage encumbers but does not end ownership. It gives the creditor
only the right to foreclose and not to own.

Subject Matter

 Immovables
 Alienable real rights in accordance with the laws imposed upon immovable.
 Future property cannot be the object of a contract of mortgage.
 Requirement that mortgage be in writing is only for convenience.
 Requirement that mortgage be in a public instrument is also only for
convenience.
10 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
  Requirement that mortgage be registered is also for convenience. Registration is
only to affect third persons. Registration only operates as a notice of the
mortgage to others but does not add to the validity of the mortgage or convert an
invalid mortgage into a valid one. It is merely ministerial.
 General Rule: A mortgage liability is usually limited to the amount mentioned in
the contract.
 Exception: Dragnet Clause or Blanket Mortgage Clause. It is a clause which
allows a mortgage to subsume all debts of future and even past origin. The
amounts named as consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if from the four corners of
the instrument, the intent to secure future and other indebtedness can be
gathered. The stipulation is valid and binding between the parties.

Is mortgage required to be in writing in order to be valid?

 Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable,

in order that a mortgage may be validly constituted, that the document in which
it appears be recorded in the Registry of Property. If the instrument is not
recorded, the mortgage is nevertheless binding between the parties.

The persons in whose favor the law establishes a mortgage have no other right
than to demand the execution and the recording of the document in which the
mortgage is formalized.

Effects of Mortgage

 Creates merely an encumbrance- it does not involve transfer, cession or

conveyance of property but only constitutes a lien.
 The mortgage credit may be alienated or assigned to a 3 rd person in whole or in
part. (Art. 2128)
 A stipulation forbidding the owner from alienating the subject matter shall be
void. (Art. 2130)

Effects of an invalid mortgage

 The principal obligation subsists.

 What is lost is merely the right to foreclose.
 The mortgage deed remains as evidence of personal obligation of the debtor.

Kinds of foreclosure

 Judicial Foreclosure- an ordinary action for foreclosure under Rule 68.

o To redeem the property, mortgagor must redeem the property within 90-
120 days from the date of the service of the order of foreclosure or even
thereafter but before the confirmation of the said sale. (EQUITY OF
REDEMPTION)
 Extrajudicial Foreclosure- mortgagee is given a special power of attorney to sell
the mortgaged property by public auction.
o Mortgagor must redeem the property within 1 year from the date of
registration of the certificate of sale.
11 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm
 Chattel Mortgage Pledge
Delivery Delivery is not necessary. Delivery is necessary.
Registration Registration in the CM Not necessary
Registry is necessary for its
validity.
Excess If the property is The debtor is not entitled to
foreclosed, the excess goes the excess unless otherwise
to the debtor. agreed.
Recovery of deficiency The creditor is entitled to The creditor is not entitled
recover the deficiency from to recover deficiency
the debtor except if the notwithstanding any
chattel mortgage is a stipulation to the contrary.
security for the purchase of
property in installments.
Possession Possession remains with Possession is vested in the
the debtor creditor
Contract Formal Contract Real Contract
Recording in a public Must be recorded in a Must be in a public
instrument public instrument to bind instrument containing
third persons description of the thing
pledged and the date
thereof to bind third
persons

Pledge Real Mortgage

Real Contract
Subject matter is personal property.
Possession of the thing is vested in the
creditor.
Pledgee has the right to receive the fruits
of the thing pledged, with the obligation of
applying the same to the interest of the
debt, if owing, and the balance, if any, to
the principal.
Sale is always extrajudicial.
Description of the thing and the date of the
pledge must be in a public instrument,
otherwise, it is not valid as to third
persons.
Not a real right.
Consensual Contract
Subject matter is real property.
Possession of the thing mortgaged remains
with the debtor,
Mortgagee does not possess such right.
Sale may be judicial or extrajudicial.
Must be registered, otherwise, it is not
valid against third persons although
binding between the parties.
Real right and real property by itself.

12 LAW 104 (2nd sem- 2016-2017) 12:00pm- 3:OOpm