Module 12

A. Pledge
1) D, pledgor/ debtor, and C, pledgee/creditor. When D failed to pay, it was agreed that the
thing pledged shall already become the property of C. Is the agreement valid?

No, the agreement is not valid since the automatic appropriation of the property to the
pledgee/creditor for failure to pay the loan is a pactum commissorium, which is null and void by
law. Article 2088 of the Civil Code of the Philippines prohibits pactum commissorium and
provides that “[t]he 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.”

In the case at bar, it was agreed by D and C that the thing pledged shall already become the
property of C when D failed to pay. Thus, such an agreement allows ownership of the security to
pass to the creditor by mere default of the debtor. Under the law, a creditor cannot appropriate
the thing given by way of pledge and any stipulation allowing such is null and void. The
agreement is not valid for being against public policy

B. REAL ESTATE MORTGAGE

(1) Distinguish equity of redemption and right of redemption

Equity of Redemption refers to the right of the mortgagor to redeem the property mortgaged by
him after he defaulted on the performance of the conditions of the mortgage but before the sale
of the mortgaged property or before the confirmation of sale while Right of Redemption refers to
the right of the mortgagor to redeem the property mortgaged within one year from the date of
the registration of the certificate of sale. As to its applicability, Equity of Redemption is
applicable on judicial foreclosure of real estate and chattel mortgage foreclosure while Right of
Redemption is applicable only in extrajudicial foreclosure. As to when to exercise it, Equity of
Redemption should be exercised within 90-120 days from the date of the service of the order of
foreclosure or even thereafter but before the order or confirmation of the sale while Right of
Redemption should be exercised within 1 year from the date of registration of the certificate of
sale.

C. ANTICHRESIS
(1) D,debtor,and C, creditor, under the written agreement of antichresis, the indebtedness
in the amount of P100,000 shall be satisfied from the harvest of the land given as
security. Suppose for whatever reason no harvest can be applied to D's obligation,
what remedy does C have?

C may petition the court for the payment of the debt or he may petition the court to foreclose
the property for the sale of the real property. These remedies are provided under Art. 2137
of the Civil Code of the Philippines which provides that “the creditor may petition the court for
the payment of the debt or the sale of the real property. In this case, the Rules of Court
on the foreclosure of mortgages shall apply.” Thus, C can file an action for specific performance
against D to pay the P100,000 debt or C may file a petition in court for the public sale of the land
in order to satisfy the indebtedness of D to him.

D. CHATTEL MORTGAGE
(1) In the event the chattel mortgage is foreclosed, how shall the proceeds of the sale be
applied?

Sec. 14 of Act No. 1508 or T he Chattel Mortgage Law provides for the application 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; and
4. The balance, if any, shall be paid to the mortgagor or person holding under him