PLEDGE, MORTGAGE

AND ANTICHRESIS
PROVISIONS COMMON TO
PLEDGE AND MORTGAGE
 ARTICLE 2085
The following requisites are essential to the
contracts of pledge and mortgage:
(1)That they be constituted to secure the
fulfillment of a principal obligation;
(2)That the pledgor or mortgagor be the absolute
owner of the thing pledged 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.
 PLEDGE
An accessory, real and unilateral contract
by virtue of which the debtor or a third
person delivers to the creditor or to a
third person movable property as
security for the performance of the
principal obligation, upon fulfillment of
which the thing pledged, with all its
accessions and accessories, shall be
returned to the debtor or to the third
person.
 REAL ESTATE MORTGAGE
• According to the Civil Code, is a contract embodied in a
public instrument recorded in the Registry of Property,
by which the owner of an immovable (or an alienable
real right imposed upon immovables) directly and
immediately subjects it, whoever the possessor may be,
to the fulfillment of the obligation for whose security it
was constituted.
• "It is a contract in which the debtor guarantees to the
creditor the fulfillment of a principal obligation,
subjecting for the faithful compliance therewith a real
property in case of non-fulfillment of said obligation at
the time stipulated.
DOCTRINE OF “THE MORTGAGEE IN GOOD FAITH
A foreclosure sale, though essentially a "forced sale," is still
a sale in accordance with Art. 1458 of the Civil Code, under
which the mortgagor in default, the forced seller, becomes obliged
to transfer the ownership of the thing sold to the highest bidder
who, in turn, is obliged to pay therefore the bid price in money or
its equivalent. Being a sale, the rule that the seller must be the
owner of the thing sold also applies in a foreclosure sale. This is
the reason Art. 2085 of the Civil Code, in providing for the
essential requisites of the contract of mortgage and pledge,
requires, among other things, that the mortgagor or pledgor be the
absolute owner of the thing pledged or mortgaged, in anticipation
of a possible foreclosure sale should the mortgagor default in the
payment of the loan.
 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

A pledge would require the pledgor to surrender

possession of the thing pledged, i.e., the membership
share, to the pledgee in order that the contract of
pledge may be constituted.
 Debtor retains BENEFICIAL
INTEREST in mortgage
In a contract of mortgage, the debtor retains
beneficial interest over the property notwithstanding
the encumbrance, since the mortgage only serves to
secure the fulfillment of the principal obligation.
Indeed, even if the debtor defaults, this fact does not
operate to vest in the creditor the ownership of the
property; the creditor must still resort to foreclosure
proceedings. Thus, a mortgaged property may still be
levied upon by the sheriff to satisfy the judgment
debtor's obligations
Is the declaration of a title as null
and void a ground for nullifying the
mortgage right of a mortgagee in
good faith?

The subsequent declaration of a title as

null and void is not a ground for nullifying the
mortgage right of a mortgagee in good faith.
 FILING OF COLLECTION SUIT
BARRED THE FORECLOSURE OF
THE CHATTEL MORTGAGE

"A mortgagee who files a suit for collection

abandons the remedy of foreclosure of the chattel
mortgage constituted over the personal property as
security for the debt or value of the promissory
note which he seeks to recover in the said
collection suit."
WHAT IS PACTUM COMMISSORIUM?
A stipulation empowering the preditor to appropriate
the thing given as guaranty for the fulfillment of the
obligation in the event the obligor fails to live up to his
undertakings, without further formality, such as foreclosure
proceedings, and a public sale.
The prohibition against a pacto commissorio is
intended to protect the obligor, pledgor, or mortgagor
against being overreached by his creditor who holds a
pledge or mortgage over property whose value is much
more than the debt.
 ELEMENTS OF PACTUM
COMMISSORIUM

1. That there should be a pledge or mortgage wherein a

property is pledged or mortgaged by way of security
for the payment of the principal obligation; and
2. That there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
 INDIVISIBILITY OF A PLEDGE OR
MORTGAGE

From the wording of the law, indivisibility

arises only when there is a debt, that is, there is a
debtor-creditor relationship.
The indivisibility of a pledge or mortgage is not
affected by the fact that the debtors are not solidarily
liable (Article 2090).
 KINDS OF OBLIGATIONS (Article
2091)
Pure obligation
An obligation whose performance does not depend
upon a future or uncertain event or upon a past event
unknown to the parties and which is demandable at once.
There is nothing to exempt the obligor from compliance
therewith.
Conditional Obligation
An obligation where the acquisition of rights, as well
as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which
constitutes the condition.
 SUBJECT TO:
Suspensive Condition
The fulfillment of the condition results in the acquisition of
rights Jurisprudence teaches us that when a contract is subject to a
suspensive condition.
Jurispudence teaches us that when a contract is subject to a
suspensive condition, its birth or effectivity can take place only if and
whe the event which constitutes the condition happens or is fulfilled,
and if the suspensive condition does not take place, the parties would
stand as if the conditional obligation has never existed.
Resolutory Condition
The fulfillment of the condition results in extinguishment of
rights arising out of the obligation.
 CONTRACT OF PLEDGE (Article
2093)
For the contract to be valid, it is necessary that:
1. the pledge is constituted to secure the fulfillment of a
principal obligation;
2. the pledgor be the absolute owner of the thing pledged;
and
3. the person constituting the pledge has the free disposal
of his property,and in the absence thereof, that he be
legally authorized for the purpose.
 Pledge of Incorporeal
rights (Article 2095)

1. The instrument proving the right pledged

shall be delivered to the creditor.
2. If the instrument is negotiable, it must be
indorsed.
 Right of Pledgor to ask the thing
pledged be deposited (Article 2104)

1. If the creditor uses the thing without

authority; and
2. If the creditor should misuse the
thing in any other way.
 PRESCRIPTIVE PERIOD TO DEMAND
RETURN OF THE THING (Article 2105)

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.
 Article 2108. If, without the fault of the pledgee, there is
danger, destruction, impairment, or diminution in value of
the thing pledged, may cause the same to be sold at a public
sale. The proceeds of the auction shall be a security for the
principal obligation in the same manner as the thing
originally pledged.
Remedy for the pledgor
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 sale.
Note: In the two above articles, the pledgee is without fault.
What if the pledgee is deceived on
the quality of the thing pledged?
(Article 2109)

1. The pledgee may claim another thing in

its stead; or
2. The pledgee may demand immediate
payment of the principal obligation.
 PURPOSE OF NOTICE

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.
DEFICIENCY CLAIM IN CHATTEL
MORTGAGE VS. PLEDGE
The effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under
Article 2115. Whereas, in pledge, the sale of the thing
pledged extinguishes the entire principal obligation, such
that the pledgor may no longer recover proceeds of the
sale in excess of the amount of the principal obligation,
Section 14 of the Chattel Mortgage Law expressly entitles
the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs.
Rules as to the proceeds of sale

1.If the price of the sale is MORE THAN said

amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed.
2.If the price of the sale is LESS, neither shall
the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to
the contrary.
DEFICIENCY CLAIM IN CHATTEL
MORTGAGE VS. PLEDGE
The effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under
Article 2115. Whereas, in pledge, the sale of the thing
pledged extinguishes the entire principal obligation, such
that the pledgor may no longer recover proceeds of the
sale in excess of the amount of the principal obligation,
Section 14 of the Chattel Mortgage Law expressly entitles
the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs.
PAWN VS. PAWNEE VS.
PAWNER

• PAWN – The property or thing pledged

• PAWNEE – The creditor or pledgee
• PAWNER – The debtor or pledgor
 MORTGAGE

Article 2124. Only the following property may

be the object of a contract of mortgage:
1.) Immovables
2.) Alienable real rights in accordance with the laws,
imposed upon immovables.
Nevertheless, movables may be the object of a
chattel mortgage.
 MORTGAGE

It is a contract in which debtor

guarantees to the creditor the fulfillment of
a principal obligation, subjecting for the
faithful compliance therewith a real
property in case of non-fulfillment of said
obligation at the time stipulated.
 KINDS OF REAL MORTGAGE
1. Voluntary or Conventional
2. Legal Mortgage
3. Equitable Mortgage

OBJECT OF MORTGAGE

1.Immovables
2.Alienable real rights
Cause or Consideration in
Mortgage

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.
 REAL MORTGAGE PLEDGE
• It is constituted on • It is constituted on
immovables movables
• Delivery is not required • Property is delivered to
the pledge or by common
agreement to a third
person.
• It is not valid against third • It is not valid as to third
persons unless it is person unless a description
registered. of the thing pledged and
the date of pledge appear
in a public instrument.
 EFFECTS OF MORTGAGE
1. It creates a real right. The mortgage directly and
immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it
was constituted.
2. It creates an encumbrance. A mortgage is merely a
security for a debt and an encumbrance upon the
property. It does not extinguish the title of the
debtor who remains the owner.
 EXTENT OF MORTGAGE (Article
2127)
1. Natural accessions;
2. Improvements;
3. Growing fruits;
4. Rents or income not yet received when the
obligation becomes due; and
5. Amount of the indemnity granted or owing to
the proprietor from:
a. The insurers of the property mortgaged
b. Expropriation for public use
 FORECLOSURE

It is the remedy available to the mortgagee

by which he subjects the mortgaged property to
the satisfaction of the obligation to secure that
for which the mortgage was given.
 WHEN TO FORECLOSE

1. When the principal obligation is not paid when

due; and
2. When the debtor has violated the terms and
conditions of the mortgage contract.

WHO CAN FORECLOSE

The mortgagee or his assigns.
 KINDS OF FORECLOSURE
1. Judicial
–The ordinary action for foreclosure (Rule 68: Rules
of Court)
–It is based on personal claim against a specific
property of the mortgator
–Mortgagee: given the right to claim for deficiency.
2. Extrajudicial
–A mortgagee is granted special power of attorney
under Act No. 3135 to sell the mortgaged property
through public auction.
–A deficiency claim is allowed.
 Effect of inadequacy of price in
foreclosure sale

General Rule: When there is a right to redeem,

inadequacy of price is immaterial because the
judgment debtor may reacquire the property easier
at a low price.
Exception: When the price is so inadequate as to
shock the conscience of the court taking into
consideration the peculiar circumstances attendant
thereto.
CONTRACT OF ANTICHRESIS
(Article 2132)

By the 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.
 Antichresis
• Real property is delivered to
the creditor
• Creditors only acquire the
right to receive the fruits of
the property.
• The creditor must cover the
estate's taxes and charges
unless specified otherwise in
the agreement.
• The creditor who acquires the
property must use all its
proceeds for the payment of
any outstanding interest and
principal.
Real Mortgage
• Debtor usually retains
possession of the real property
• Creditor does not have any
right to receive the fruits.
• The creditor has no such
obligation.
• There is no such obligation of
the mortgagee.
 RIGHTS OF ANTICHRETIC
CREDITOR

1. The right to the fruits of the thing;

2. The right to retain the thing until the debt
is paid; and
3. The right to have the thing sold upon non-
payment at maturity.
 Measure of application of fruits
(Article 2133)
The actual market value of the fruits at the
time of application to the interest and principal
shall be the measure of such application.

Form of the contract of

antichresis (Article 2134)
The amount of principal and interest shall
be specified in writing; otherwise, the
contract shall be void.
 Obligations of the Antichretic
Creditor (Article 2135)
1. To pay the taxes and charges upon the estate,
unless there is a stipulation to the contrary;
2. To bear the expenses necessary for
preservation and repair;
3. To apply all the fruits, after receiving them, to
the payment of interest, if owing, and
thereafter to the principal; and
4. To render an account of the fruits to the debtor.
 OBLIGATION OF THE DEBTOR
Article 2136. The debtor cannot reacquire the
enjoyment of the immovable without first
having totally paid what he owes the creditor.
But the latter, in order to exempt himself
from the obligations imposed upon him by the
preceding article, may always compel the debtor
to enter again upon the enjoyment of the
property, except when there is a stipulation to
the contrary.
 REMEDIES OF THE CREDITOR
(Article 2137)

1. The creditor may petition the court for the

payment of the debt; or
2. The creditor may petition the court for the sale
of the real property.
 CONTRACT OF CHATTEL
MORTGAGE (Article 2140)
A contract where a personal property is recorded in
the Chattel Mortgage Register as a security for the
performance of an obligation.
Ex. of properties subject to chattel mortgage
1.Shares of stock in a corporation
2.Interest in the business
3.Machinery Vessels
4.Motor Vehicles
 Chattel Mortgage Real Mortgage
It is constituted on movables. It is constituted on immovable.
It cannot guarantee future obligations. It may guarantee future
obligations.

Chattel Mortgage Pledge

Delivery is not an essential element
of the contract.
Incase of foreclosure, the excess of
the amount due goes to the debtor.
In case of foreclosure, the creditor is
entitled to recover the deficiency
from the debtor, except if the chattel
mortgage is a security for the
purchase of personal property in
installments.
Delivery is an essential element of
the contract.
In case of foreclosure, the debtor is
not entitled to the excess unless it is
otherwise agreed upon.
In case if foreclosure, the creditor is
not entitled to recover deficiency
notwithstanding any stipulation to
the contrary.
 FORECLOSURE OF CHATTEL
MORTGAGE
If the mortgagor defaults 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 reviver his credit
from the proceeds of the sale of the property at a
public auction.
RIGHT OF MORTGAGEE TO RECOVER
DEFICIENCY
GENERAL RULE:
The creditor-mortgagee may maintain an action for
deficiency as the chattel mortgage is only given as a
security and not as a payment for the debt in case of
failure of payment.
EXCEPTION:
Where the chattel mortgage is constituted as a security
for purchase of personal property payable in
installments. In this case, there is no deficiency
judgment and any contrary stipulation is void.
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