Pledge Mortgage and Antichresis

The provisions common to pledge and

mortgage:
1. Constituted to secure the fulfillment of a
valid principal obligation.
2. Pledgor or mortgagor must be the absolute
owner of the thing pledged or mortgaged.
3. They must have the free disposal of their
property and in the absence thereof, that
they be legally authorized for such purpose.
4. Debtor retains ownership of the thing given
as a security.
5. It cannot exists without a valid obligation.
 Important Points
1. Future property cannot be pledged or
mortgaged.
2. Pledge/mortgage executed by one who is not
the owner of the property pledged or
mortgaged is without legal existence and
registration cannot validate it.
3. Mortgage of a conjugal property by one of
the spouses is valid only as to ½ of the entire
property.
4. In case of property covered by Torrens title, a
mortgagee has the right to rely upon what
appears in the certificate of title and does not
have to inquire further.
5. Pledgor or mortgagor has free disposal of
property.
6. Thing pledged or mortgaged may be
alienated.
7. Creditor not required to sue to enforce his
credit.
8. Pledgor or mortgagor may be a third person.
9. Debtor-owner bears the risk of loss of the
property.
10. Contract of pledge or mortgage may secure
all kinds of obligation, be they pure or subject
to a suspensive or resolutory condition.
11. A promise to constitute pledge or
mortgage creates no real right, only a
personal right binding upon the parties.
Only a right of action to compel the
fulfillment of the promise but there is no
pledge or mortgage yet.
12. Under RPC, estafa is committed by a
person who, pretending to be the owner
of any real property, shall convey, sell,
encumber or mortgage the same knowing
that the real property is encumbered shall
dispose of the same as unencumbered. It is
essential that fraud or deceit be practiced
upon the vendee at the time of the sale.
 Rights of Creditor where debtor
fails to comply with his obligation
1. Creditor is merely entitled to move
for the sale of the thing pledged or
mortgaged with the formalities
required by law in order to collect;
2. Creditor cannot appropriate to
himself the thing nor can he dispose
of the same as owner.
 Pactum commissorium
A stipulation whereby the thing
pledged or mortgaged or subject of
antichresis shall automatically become
the property of the creditor in the
event of non-payment of the debt
within the term fixed. Such stipulation
is NULL and VOID.
❑ Nullity of stipulation does not affect
the validity and efficacy of the principal
contract.
 Requisites of Pactum
Commissorium
1. There should be pledge or
mortgage;
2. There should be a stipulation for an
automatic appropriation by the
creditor of the property in the event
of non-payment.
 Indivisibility
General Rule:
 A pledge, mortgage or antichresis is
indivisible.
Exceptions:
1. Where each one of several things
guarantees determinate portion of the
credit.
2. Where only a portion of the loan was
released.
3. Where there was failure of consideration.
 Pledge
A contract where the debtor delivers
to creditor or third person a movable
or document evidencing incorporeal
right for the purpose of securing
fulfillment of a principal obligation with
the understanding that when the
obligation is fulfilled, the thing delivered
shall be returned with all its fruits and
accessions.
 Special requisites
1. Possession of the thing pledged must be
transferred to the creditor or third person by
common agreement is essential.
o ACTUAL DELIVERY is important
o CONSTRUCTIVE DELIVERY or symbolic delivery
of the key to the warehouse is sufficient to show
that the depositary appointed by common consent
of the parties was legally placed in possession.
2. Only covers movable property and
incorporeal rights evidenced by document of
title. The instruments pledged shall be
delivered to the creditor and if negotiable,
must be indorsed.
3. Description of the thing pledged and the
date must appear in a public instrument to
bind third persons.
4. Thing pledged may be alienated by the
pledgor or owner only if with the consent of
the pledgee. Ownership of the thing pledged
is transmitted to the vendee or transferee as
soon as the pledgee consents to the
alienation, but the latter shall continue in
possession.
5. Contract of pledge gives right to the creditor
to retain the thing in his possession or in
that of a third person to whom it has been
delivered, until the debt is paid.
 Kinds
Conventional:
 By agreement of parties.
Legal:
 By operation of law.
 Characteristics
1. Real – perfected by delivery.
2. Accessory – has no independent
existence of its own.
3. Unilateral – creates obligation solely on
the part of the creditor to return the
thing subject of the pledge upon the
fulfillment of the principal obligation.
4. Subsidiary – obligation incurred does
not arise until the fulfillment of the
principal obligation.
 Cause or Consideration
1. Principal obligation – in so far as the
pledgor is concerned.
2. Compensation stipulated for the
pledge or mere liberality of the
pledgor – if pledgor is not the
debtor.
 Duty/Rights of Creditor
1. Shall take care of the thing pledged with the
diligence of a good father of a family.
2. Has the right to the reimbursement of the
expenses made for its preservation but is also
liable for its loss or deterioration by reason
of fraud, negligence, delay or violation of the
terms of the contract, and not due to
fortuitous event.
3. May bring actions which pertain to the owner
of the thing in order to recover it from, or
defend it against the claim of a third person.
4. Cannot use the thing without the
authority of the owner, and if he should do
so, or misuse the thing, the owner may ask
that it be judicially or extra-judicially
deposited.
5. May use the thing if it is necessary for the
preservation of the thing.
6. May either claim another thing in pledge
or demand immediate payment of the
principal obligation if he is deceived on the
substance or quality of the thing pledged.
 Duty/Rights of Pledgee
1. Cannot deposit the thing pledged with a
third person, unless there is a stipulation
authorizing him to do so.
2. Is responsible for the acts of his agents or
employees with respect to the thing
pledged.
3. Has no right to use the thing pledged or
to appropriate the fruits thereof without
the authority of the owner.
4. May cause the public sale of the thing
pledged if, without fault on his part, there
is a danger of destruction, impairment or
diminution in value of the thing. The
proceeds of the auction shall be the
security for the principal obligation.
 Duty/Rights of Pledgor
1. Has the responsibility for the flaws of the
thing pledged.
2. Cannot ask for the return of the thing which
is in danger of destruction or impairment
without any fault on the part of the pledgee,
with another thing of the same kind and
quality.
3. Is allowed to substitute the thing pledged
which is in danger of destruction or
impairment without any fault on the part of
the pledgee, with another thing of the same
kind and quality.
4. May require that the thing be deposited
with a third person if through the
negligence or willful act of the pledgee, the
thing is in danger of being lost or impaired.
 Extinguishment of Pledge
1. The thing pledged is returned by the
pledgee to the pledgor or owner.
2. A statement in writing by the pledgee that
he renounces or abandons the pledge.
3. If subsequent to the perfection of the
pledge, the thing is in possession of the
pledgor or owner, there is a prima facie
presumption that the thing pledged has
been returned by the pledgee.
4. If the thing is in the possession of a third
person who has received it from the
pledgor or owner after the constitution of
the pledge, there is a prima facie
presumption that the thing has been
returned by the pledgee.
5. Payment of the debt.
6. Sale of the thing pledged at public auction.
 Sale at public auction
1. Debt is due and unpaid.
2. Pledgor/owner is notified stating the
amount due thereon.
3. There is intervention of the notary
public.
 Effects of sale
1. Extinguish the principal obligation even if
the proceeds of the sale does not satisfy
the whole amount of the obligation.
2. If proceeds from the sale exceed the
amount due, the debtor is NOT entitled
to the excess unless the contrary is
provided.
3. If the proceeds of the sale is less than the
amount due, the creditor has no right to
recover the deficiency. Contrary
stipulation is VOID.
 Legal Pledges
1. Necessary expenses shall be refunded to
every possessor, but only possessor in
good faith may retain the thing until he has
been reimbursed.
2. He who has executed work upon a
movable has a right to retain it by way of
pledge until he is paid.
3. The agent may retain the things which are
the objects of agency until the principal
effects the reimbursement and pays the
indemnity.
4. The laborer’s wages shall be lien on the
goods manufactured or the work done.
 Real estate mortgage
 It is a contract whereby the debtor
secures to the creditor the fulfillment
of the principal obligation, specially
subjecting to such security immovable
property or real rights over immovable
property in case the principal
obligation is not fulfilled at the time
stipulated.
 Special requisites
1. Covers only immovable property and
alienable real rights imposed upon
immovables.
2. Must appear in a public instrument.
3. Registration in the registry of
property is necessary to bind third
persons.
 Important Points
1. As a general rule, the mortgagor retains
possession of the property but he may
deliver said property to the mortgagee
without altering the nature of the
contract of mortgage.
2. It is not an essential requisite that the
principal of the credit bears interest, or
that the interest as compensation for the
use of the principal and the enjoyment of
its fruits be in the form of a certain
percent thereof.
 Kinds of Mortgage
1. Voluntary
2. Legal – the persons in whose favor
the law establishes a mortgage have
on other right than to demand the
execution and the recording of the
document in which the mortgage is
formalized.
3. Equitable
 Essential Requisites
1. Constituted to secure the fulfillment
of a principal obligation
2. Mortgagor be the absolute owner of
the thing mortgaged
3. The persons constituting the
mortgage have the free disposal of
their property, and in the absence
thereof, that they be legally
authorized for the purpose.
4. Cannot exist without a valid
obligation.
5. When the principal obligation
becomes due, the thing in which the
mortgage consists may be alienated
for the payment to the creditor.
6. It must appear in a public document
duly recorded in the Registry of
Property to be validly constituted.
 Incidents of Registration
of Mortgage
1. Mortgagee entitled to registration of
mortgage as a matter of right.
2. Proceedings for registration do not
determine validity of mortgage or its
effect.
3. Registration is without prejudice to
better right of third parties.
4. Mortgage deed once duly registered
forms part of the records for the
registration of the property
mortgaged.
5. Mortgage by surviving spouse of
his/her undivided share of conjugal
property can be registered.
 Effect of Mortgage
1. It creates real rights, a lien
inseparable from the property
mortgaged, enforceable against
the whole world.
2. It creates merely an
encumbrance.
 Effect of Invalidity of Mortgage
1. Principal obligation remains valid
2. Mortgage deed remains as
evidence of a personal obligation
 Foreclosure
 It is remedy available to the
mortgagee in which he subjects the
mortgaged property to the
satisfaction of the obligation.
 Kinds of foreclosure
1. Judicial – governed by Rule 68 of the
Rules of Court.
2. Extrajudicial – mortgagee is given a
SPA to sell the mortgage property
(Act No. 3135).
 JUDICIAL EXTRA-JUDICIAL
FORECLOSURE FORECLOSURE
There is court intervention No court intervention

Decisions are appealable Not appealable, it is

immediately executory
There is equity of redemption There is right of
except on banks which provides redemption
for a right of redemption
Period of redemption starts Period to redeem starts
from the finality of the judgment from date of registration of
until order of confirmation certificate of sale
No need for a special power of Special power of attorney
attorney in the contract of in favor of mortgagee is
mortgage needed in the contract
 Retroactive effect
A foreclosure sale retroacts to the date
of registration of the mortgage and that
a person who takes a mortgage in good
faith and for valuable consideration, the
record showing clear title to the
mortgagor, will be protected against
equitable claims on the title in favor of
third persons of which he had no actual
or constructive notice.
 Mortgagee entitled to
recover the deficiency
 If there be a balance due to the
mortgagee after applying the
proceeds of the sale, the mortgagee
is entitled to recover the deficiency.
 The action to recover a deficiency
after foreclosure prescribed after 10
years from the time the right of
action accrues.
 Nature of Judicial Foreclosure
Proceedings
1. Quasi in rem action
2. Foreclosure is only the result or
incident of the failure to pay debt
3. Survives death of mortgagor
 Extra-judicial Foreclosure
❑ Governed by Act No. 3135
1. Express authority to sell is given to the
mortgagee;
2. Authority is not extinguished by death of
the mortgagor or mortgagee;
3. Public sale should be made after proper
notice.
4. Surplus proceeds of foreclosure sale
belong to the mortgagor
5. Debtor has the right to redeem the
property sold within a period of one (1)
year from and after the date of sale.
6. Remedy of party aggrieved by foreclosure
is a petition to set aside sale and
cancellation of writ of possession.
 Effect of Inadequacy of Price
1. Where there is right to redeem.
General Rule:
Inadequacy of price is IMMATERIAL since
the judgment debtor can redeem the
property
Exception:
When the price is so inadequate as to
shock the conscience of the court taking
into consideration the peculiar
circumstances.
2. Property may be sold for less than its
fair market value upon the theory
that the lesser the price the easier
for the owner to redeem.
3. The value of the mortgaged property
has no bearing on the bid price at the
public auction, provided that the
public auction was regularly and
honestly conducted.
 Stipulation of upset price
or “TIPO”

 Stipulationof minimum price at

which the property shall be sold to
become operative in the event of a
foreclosure sale at public auction.
It is NULL and VOID.
 Waiver of Security by Creditor
1. Mortgagee may waive his right
to foreclose the mortgage and
maintain a personal action for
recovery of the indebtedness.
2. Mortgagee cannot have both
remedies.
 Redemption
 Transaction by which the
mortgagor reacquires or buys back
the property which may have
passed under the mortgage or
divests the property of the lien
which the mortgage may have
created.
 Kinds of redemption
1. Equity of redemption
 Right of mortgagor to redeem the
mortgaged property after his default in
the performance of the conditions of
the mortgage but before the sale of the
mortgaged property or confirmation of
sale. Applicable only to judicial
foreclosure of real mortgage and
chattel mortgage foreclosure.
Note:
Redemption of banking institutions is
allowed within one (1) year from
confirmation of sale.
2. Right of redemption
 Right of the mortgagor to redeem the
mortgaged property within one year
from the date of registration of the
certificate of sale. Applicable only to
extra-judicial foreclosure of real
mortgage.
 Period of redemption
1. Extra-judicial
a. Natural person – 1 year from registration of
the certificate of sale with the Registry of
Deeds
b. Juridical person – same rule as natural person
c. Juridical person (mortgagee is bank) – 3
months after foreclosure or before registration
of certificate of foreclosure whichever is
earlier (Sec. 117 of the General Banking Law)
2. Judicial – before confirmation of the sale
by the court.
 Requisites of valid redemption
1. Must be made within the period of
redemption.
2. Payment of the purchase price of the
property plus 1% interest per month together
with the taxes thereon, if any, paid by the
purchaser with the same rate of interest
computed from the date of registration of the
sale, if mortgagee is not a bank. If mortgagee is
a bank, payment of the amount due under the
mortgage deed, interest , cost and expenses.
3. Written notice of the redemption must be
served on the officer who made the sale and a
duplicate filed with the proper Register of
Deeds.
 Antichresis
A contract whereby the creditor
acquires the rights to receive the fruits
of an immovable of the debtor, with
the obligation to apply them to the
payment of interest, if owing, and
thereafter to the principal of his credit.
Characteristics of antichresis
1. Accessory – it secures the
performance of a principal obligation
2. Formal contract - the amount of the
principal and of the interest must
both be in writing otherwise the
contract of antichresis is void.
 Special Requisites
1. It can cover only the fruits of an
immovable property.
2. Delivery of the immovable is
necessary for the creditor to receive
the fruits and not that the contract
shall be binding.
3. The amount of principal and interest
must be specified in writing.
4. Express agreement that debtor will
give possession of the property to
creditor and the latter will apply the
fruits to the interest, if any, then to
the principal of his credit.
5. Antichresis is susceptible of
guaranteeing all kinds of obligations,
pure or conditional.
 ANTICHRESIS REAL ESTATE MORTGAGE
1. Property is delivered to creditor. 1. Debtor usually retains
possession of the property.
2. Creditor acquires only the right 2. Creditor has no right to receive
to receive the fruits of the fruits; but mortgage creates real
property; does not produce a real right against the property.
right unless registered in the
Registry Property.
3. Creditor obliged to pay the taxes 3. Creditor has no such obligation.
and charges upon the estate unless
stipulated otherwise.
4. There is an express stipulation 4. There is no such obligation on
that the creditor shall apply the the part of the mortgage.
fruits to the payment of the
interest, if owing, and thereafter to
the principal of the debt.
 ANTICHRESIS PLEDGE
Refers to real property. Personal property
Consensual Real
Principal and interest must Need not be in writing, oral
be specified in writing, evidence may be allowed to
otherwise contract is void. prove the same.
 Obligation of Antichretic
Creditor
1. To pay taxes and charges on the
estate including necessary expenses,
unless there is a stipulation to the
contrary.
2. To apply all the fruits, after receiving
them, to the payment of interest, if
owing and thereafter to the
principal.
3. To render an accounting of the fruits
to the debtor.
4. To bear the expenses necessary of
its preservation and repair.
Remedies of Creditor in case of
Non-payment of Debt
1. Action for specific performance
2. Petition for the sale of the real
property as in foreclosure of
mortgages under Rule 68 of the
Rules of Court
 Chattel mortgage
 It
is a contract by virtue of which
personal property is recorded in
the chattel mortgage register as a
security for the performance of an
obligation.
 Requisites
General Rule:
1. Covers only movable property.
Exception:
When the parties treat as personalty that which is
according to its nature realty.
2. Registration with the chattel mortgage
register.
3. Description of the property.
4. Accompanied by an Affidavit of Good Faith
to bind third person.
➢The absence of an affidavit of good faith does not
affect the validity of the contract.
 Affidavit of good faith
 It is an oath in a contract of chattel
mortgage 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 one not entered into for
the purpose of fraud.
 CHATTEL MORTGAGE PLEDGE
Delivery is not necessary Delivery is necessary
Registration in the Chattel Mortgage Registration in the registry property
register is necessary for its validity. is not necessary.
Procedure for the sale of the thing Art. 2112 of the code.
given as security is Sec. 14 of Art No.
1508.
If the property is foreclosed the If the property is sold, the debtor is
excess goes to the debtor. not entitled to the excess unless
otherwise agreed.
The creditor is entitled to recover The creditor is not entitled to
the deficiency from the debtor recover the deficiency
except if the chattel mortgage is a notwithstanding any stipulation to
security for the purchase of the contrary.
property in installments.
Possession remains with the DR. Possession is vested in the CR
 Subject matter of chattel mortgage
1. Share of stock in a corporation.
2. Interest in business.
3. Machinery and house of mixed materials treated by
parties as personal property and no innocent third
person will be prejudice thereby.
4. Vessels, the mortgage of which have been recorded
with the Philippine Coast Guard in order to be
effective as to third persons.
5. Motor vehicles, mortgage of which had been
registered both with the Land Transportation
Commission and the Chattel Mortgage Registry in
order to affect third persons.
6. House which is intended to be demolished.
7. Growing crops and large cattle.
Foreclosure of Chattel Mortgage
1. Public sale.
2. Private sale – If there is an express
stipulation in the contract.
Exception:
◦ Fraud or duress.
 Important Notes
1. The mortgagee may, after thirty (30)
days from the time of the default or
from the time the condition is
violated, cause the mortgaged
property to be sold at public auction
by a public officer.
2. The 30-day period to foreclose a
chattel mortgage is the minimum
period after violation of the mortgage
condition for the mortgage.
3. The creditor has least ten (10) days
notice served to the mortgagor.
4. The notice of time, place and purpose
of such sale, is posted.
5. After the sale of the chattel at public
auction, the right of redemption is no
longer available to the mortgagor.
 Right of Mortgagee to
Recover Deficiency
1. Where mortgage foreclosed.
Creditor may maintain an action for
deficiency
2. Where mortgage constituted as
security for purchase of
personal property payable in
installments.
No deficiency judgment can be
asked and any contrary agreement is
void
3. Where mortgaged property
subsequently attached and sold.
Mortgagee is entitled to deficiency
judgment in an action for specific
performance.
Application of Proceeds of Sale
1. Costs and expenses of keeping and
sale
2. Payment of the obligation
3. Claims of persons holding subsequent
mortgages in their order
4. Balance, if any, shall be paid to the
mortgagor, or person holding under
him.
Question No. 1
Allan and Ben entered into a contract of
pledge of Allan’s I-Phone16GB, with a
stipulation that in case of non-payment of
Allan’s loan, Ben shall effect the alienation of
cellphone to answer for the loan. There is an
added stipulation that if the cellphone is sold
less than P25,000.00, the amount of the loan,
Allan shall be liable to Ben for the deficiency.
Is the stipulation valid? Why?
Question No. 2
Dolly borrowed P3,000.00 from Celia. As
security for the payment of the debt, Dolly
pledged to Celia a gold necklace valued at
P5,000.00. It was expressly stipulated in the
contract that if Dolly cannot pay her debt
when it matures, “the debt of P3,000.00 shall
be considered as full payment of the gold
necklace without further action”. Dolly was
unable to pay when the debt matured. Can
Celia now appropriate the gold necklace?
Why?
Question No. 3
Mr. Uy purchased on installment three (3) motor
vehicles, securing the payment of the obligation
with a mortgage over a condominium unit owned
by him. In the contract, there was a stipulation
that if Mr. Uy cannot pay the balance, he should
execute a deed of assignment in favor of the
vendee. He failed to pay, hence, the vendee
demanded that Mr. Uy execute the deed of
assignment. Since he refused, a suit to compel
him to execute the deed was filed. In court, he
interposed the defense of pactum commissorium.
Is the defense proper? Why?
Question No. 4
Gregorio delivered to Harry a thing by way of
pledge with authority to use it. Suppose it was
a van and the pledgee can use it as a service
for his daughters in school, but aside from this,
he used it as a means of transporting tourists
to Baguio where the van met an accident, is
Harry liable for damage? Why?
Question No. 5
To secure a loan of P100,000.00, Adrian pledge
100 shares of stock of ABC Inc. in favor of
Nathaniel. Because Adrian defaulted, Nathaniel
sold at public auction the said shares of stock
delivered to him by Adrian. In the public auction,
the shares were at P150,000.00. It turned out,
however, that after the pledge but before the
auction sale, Adrian executed a bill of sale
transferring the shares to Marcelo. (1) Who
acquires ownership of the shares of stock? (2)
After applying the proceeds of the loan, there is
an excess of P50,000.00, how is the excess
applied? Explain.
Question No. 6
Nenita mortgaged a car to secure the
payment of her obligation to Susan. When
Nenita failed to pay her obligation, Susan filed
a suit in court to recover the amount of the
obligation. What is the effect of the filing of
the complaint with respect to the right of
Susan on the mortgage? Explain.
Question No. 7
In 2000, Guadalupe borrowed P300,000.00 from
Corazon and as security for the loan, the former
conveyed to the latter an unregistered parcel of
land. This conveyance is evidenced by a deed
which the parties call “sangla” or “prenda”. Since
2000, Corazon had been in continuous
possession and enjoyment of the land and that in
2010, the tax declaration was change to her
name. In September 2012, Guadalupe died
survived by her son, Danilo. Subsequently, Danilo
brought an action against Corazon for the
recovery of the land and for an accounting of the
fruits. What kind of contract is this case? Will the
action of Danilo prosper? Why?
Question No. 8
Juanito purchased by installment one (1) Toyota
Avanza from XYZ Financing Co. at P650,000.00.
Juanito paid P100,000.00 as downpayment and to
secure the payment of the unpaid installments, he
executed a chattel mortgage on the car in favor
of the company. This mortgage was duly
registered in the Chattel Mortgage Registry and
with the LTO. Thereafter, Juanito failed to pay
two (2) installments and as such, XYZ Financing
Co foreclosed the car. Is XYZ Financing Co
entitled to a deficiency judgment in the chattel
mortgage contract? Why?
Question No. 9
To secure a debt, Antonio executed a mortgage
on a parcel of registered land in favor of Julian
with Victor acting as one of the two (2) witnesses
to the mortgaged deed. Neither Antonio nor
Julian registered the mortgage. Upon Antonio’s
failure to pay when the debt became due, Julian
sought to foreclose the mortgage. Victor (who in
the meantime bought the land) resisted the
foreclosure, claiming that mortgage, not having
been registered, was ineffective. Further, Victor
could not be prejudiced by the unregistered
mortgage to which he was not a party. Is the
position taken by Victor tenable? Why?