PLEDGE MORTGAGE AGENCY notes SORIANO jkycpa

1. Pledge and mortgages are accessory contracts and therefore, the principal obligation they secure
must be valid.

2. Requisites of pledge and mortgage are: (a) the pledgor and mortgagor must be the absolute owner of
the thing pledged or mortgaged at the moment the pledge or mortgage is constituted. (b) The thing
must be free from claims and encumbrances.

3. Third person may pledged 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 unless they expressly agreed to
assume the principal obligation.

4. The thing pledged or mortgaged may be sold or alienated if the debtor fails to pay at maturity or if the
debt becomes due and demandable before maturity because the debtor fails to fulfill certain conditions
(breach)

5. Pactum commissorium is an automatic forfeiture of the thing pledged or mortgaged by mere default
of the debtor. The creditor appropriates the thing and becomes the new owner. This stipulation is
invalid being contrary to morals and public policy. However, the stipulation that the debtor may bid at
the public sale of the thing pledged or mortgaged or may purchase it at its current price if the debt is not
paid on time is valid.

6. What invalidates pactum commissorium stipulation is the transfer of ownership. The creditor is
allowed only to sale the thing pledged or mortgaged in order to collect the amount of his claim from the
sale proceeds. However, in pledge the creditor may appropriate the thing pledged if after his sale
attempts, the pledged thing was still not sold at two public auctions.

7. The thing pledged or mortgaged is indivisible, thus the creditor or debtor or their heirs cannot ask for
proportionate extinguishment of the thing pledged or mortgaged as long as the entire debt is not
completely satisfied. However, if there are several things pledged or mortgaged and the debtor and
creditor agreed that each thing would secure a portion of debt, proportionate extinguishment is
allowed.

8. The pledge extends to fruits of the thing pledged and creditor may apply it to those other things (e.g.
interest) which the debtor owes the creditor. If the fruit exceeds it, he shall apply the excess to the
principal. Stipulation excluding the fruit is valid. In effect, the pledgor own the fruits as much as it owns
the thing pledged.

9. The pledgor or debtor may only alienate the thing pledged with the consent of the pledgee. The
ownership of the thing pledged will transfer to the buyer or transferee but the pledgee shall remain in
possession of the thing pledged.
PLEDGE MORTGAGE AGENCY notes SORIANO jkycpa

10. The creditor has the right to sell the thing pledged at a public sale or convert it to monetary amount
even before maturity of the principal obligation if there is a danger of impairment in value or
destruction of the thing.

11. The rights of the third person/pledgor include subrogation should he pay the creditor.

12. Pledge may be extinguished by delivery to the pledgor, renunciation by writing and by sale.
Renunciation by writing is perfected even without the consent of the pledgor or the delivery of the
object.

13. In pledge, once the thing pledged is appropriated or sold, the principal obligation is extinguished
even if the proceeds of the sale is not sufficient to cover the entire claim. If the price is less, the creditor
cannot recover the deficiency even if stipulated. (conventional pledge in the nature of dacion en pago.)
For this reason, any excess shall pertain to the creditor to be fair unless there is a stipulation to the
contrary. However, in legal pledge the creditor can recover the deficiency and the excess goes to the
debtor.

14. Both real and chattel mortgage must be registered to be binding against third persons. In chattel
mortgage, it also requires that an affidavit of good faith be appended to the deed of chattel mortgage to
be binding against third person. In pledge, it must be in public instrument stating the description of the
thing pledged to be binding against third persons.

15. Real, chattel mortgage and antichresis can recover deficiency in foreclosure sale (chattel cannot
recover deficiency in the case of installment sale) and the excess sale proceeds pertain to the
mortgagor.

16. In pledge, appropriation is possible if the thing pledged is not sold in two public auctions, while in
mortgages, in no case is appropriation possible.

17. Antichresis is a formal written contract that allows the creditor to apply the fruits of an immovable
of his debtor to the interest and principal amount owing to him. As a consequence, the creditor has the
obligation to pay the taxes and charges upon the immovable and the expenses necessary for its
preservation. However, the creditor may also apply the fruits of the immovable to the said expenses he
incurred. The actual market value of the fruits at the time of application shall be the measure of such
application.

AGENCY

1. The purpose of agency is to extend the personality of the principal enabling him to be constructively
present in many places at the same time. The actual absence of the principal is converted into his legal
or juridical presence.
PLEDGE MORTGAGE AGENCY notes SORIANO jkycpa

2. While the principal must be legally capacitated, the agent may not be legally capacitated in entering
into contracts since the agent is merely an extension of the principal. The agent, however needs to
possess some mental capacity.

3. Agency may be expressed or implied. General or specific. Specific agency requires special power of
attorney for the performance of some specific or special acts or strict dominion acts.

4. If the agent acts in excess or without authority, the contract cannot be enforced against the principal
regardless of whether the agent discloses the principal or not. If he acts within the authority conferred
but did not disclose the principal, still the principal cannot be held liable unless the contract entered into
by the agent involves the thing of the principal in which case, the contract will be valid between the
principal and the third person.

5. The contract entered into by the agent will be valid between the principal and the third party if the
agent acted within the authority of the principal regardless of whether he discloses his principal or not
as long as the object of the contract involves the thing of the principal.

6. The insolvency of the principal results in the extinguishment of agency.

7. An agent may act as a lender to the principal but never be a borrower of the principal without the
latter’s consent.

8. If the principal is silent as to whether an agent can appoint a substitute or not, the agent may appoint
one but he must be responsible for the substitute‘s actions. The agent is also responsible if the principal
authorizes him and he appoints an incompetent and insolvent substitute (the principal did not designate
as to who the agent shall appoint; in this case, the agent is at fault).

9. The agent is not responsible for substitute’s actions if the principal is the one who designates as to
who the agent shall appoint (agent doesn’t have control).

10. If the agent is prohibited from appointing a substitute, all the acts of the substitute shall be void.

11. If the principal is silent as to the liability of the agents he appointed, the latter’s liability shall be joint
if they are all at fault (they will equally share in the loss). If only one was at fault, he alone bears the
burden. If the principal indicated that their liability is solidary, each one can be held liable for the full
amount of loss (no sharing in the loss) even if they are all at fault. However, an agent cannot be held
liable at all if his fellow agent/s that caused the loss acted beyond their authority.

12. Commission agent differs from a broker in that it receives commission only if there is a successful
completion of a sale, while broker receives commission merely by bringing the buyer and the seller
together even if no sale is eventually made.

13. Any acts by the agent after the extinguishment of agency even if he has no actual knowledge of the
extinguishment of the agency is valid with respect to third person who may have contracted. This
presupposes that the agent had knowledge of the principal’s death.
PLEDGE MORTGAGE AGENCY notes SORIANO jkycpa