Provisions Common To Pledge and Mortgage
Provisions Common To Pledge and Mortgage
Provisions Common To Pledge and Mortgage
MORTGAGE
o
o
o
INTRODUCTION
The Civil Code provisions on mortgage
subscribe to the Lien Theory under which the
mortgage takes only a lien on property.
The mortgage is not, as a rule entitled to
possession.
In pledge, the encumbrance is created upon
delivery.
PROVISIONS1
Article 2085. The following requisites are
essential to the contracts of pledge and
mortgage:
1. That they are constituted to secure the
fulfillment of a principal obligation.
2. That the pledger 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 their
absence thereof, that they be legally
authorized to the purpose.
Third persons who are not parties to the
principal obligation may secure the latter by
pledging or mortgaging their own property.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
1.
AND
A. ACCOMODATION MORTGAGE
o The debtor himself or a third person (who is not a
party to the obligation) ma mortgage or pledge his
property to secure the obligation of the debtor. It
is not required that the third person benefited
from the principal contract.
o An accommodation mortgagor is not himself a
recipient to a loan.
REQUISITES
COMMON
TO
PLEDGE
MORTGAGE:
(S-A-F)
a. That they are constituted to secure the
fulfillment of a principal obligation.
CREDIT TRANSACTIONS
MORTGAGE
o
3. COMMON FEATURES
PLEDGE
MORTGAGE
Real Security
o When the principal obligation becomes due,
the things in which the pledge or mortgage
consists may be alienated for the payment of
the creditor
Consideration
o The consideration is the principal obligation
o Debtor- the consideration of his obligation to
pay is the existence of debt
o The consideration for the accessory contract
and the principal obligation is the same.
o In the case of Central Bank v CA, it was held
that the fact that the mortgagor executed the
real estate mortgage no consideration was
present because the bank had not yet
released the loan, does not make he real
estate
mortgage
void
for
lack
of
consideration.
Real Right
o Real right is the power belonging to the
person over a specific thing without a definite
passive subject against whom such right may
be exercised.
o Pledge or mortgage is a real right of security.
Accessory
o The principal obligation may be valid and
binding even if the pledge or mortgage is not
binding.
o The mortgage or pledge is not binding when
the principal obligation is void.
o The pledge or mortgage are mere incidents
to the debt.
Separated from the debt the
mortgage has no determinative
value.
o The transfer of debt carries with it the
mortgage.
The purchaser of note secured by a
chattel mortgage may act as the
mortgagees agent and to do
whatever he could have done to
enforce the mortgage.
o Whatever discharges the debt discharges the
mortgage unless there be an agreement to
the contrary.
o If by special agreement the assignment of
CREDIT TRANSACTIONS
MORTGAGE
debt is not accompanied by the assignment of
the mortgage, the mortgage is extinguished.
CASE: Barach Motors v Esteva: The
mortgage-creditor
assigned
the
debts evidenced by promissory note
to a 3rd party. The transfer does not
include
the
transfer
of
the
mortgage. Under the agreement, the
mortgagee retained the mortgage
while the third party received the
promissory notes. Subsequently, the
third party sued the debtor based on
the notes and the mortgagee
foreclosed the property.
RULING:
The Court ruled that the
foreclosure proceeding was
nulled.
The mortgage ceased to exist
because there was no debt in
which it could be attached
DOCTRINE: There can be no
separation of the notes and the
mortgage. While the third party can
sue upon the notes, it is not allowed
that there can be both the
foreclosure and a suit on notes.
4. SECURED OBLIGATIONS
1. Valid
2. Voidable
3. Unenforceable
4. Natural
5. Pure
6. Conditional
Article 2087. It is also of essence of these
contracts when the principal obligation
becomes due, the things in which the pledge
or mortgage consists may be alienated for the
payment to the creditor.
Article 2088. The creditor cannot appropriate
the things given by way of pledge or mortgage
1. SECURITY ONLY
o The delivery of the thing pledged does not
amount to payment.
o The filing of an action for replevin preparatory to
foreclosure does not amount to an action for
specific performance.
2. PACTUM COMMISSORIUM
A. REQUISITES
1. There should be property pledged or
mortgage by way of security as payment of
the principal obligation.
2. There should be stipulation for automatic
appropriation by the creditor of thing given
as security in case of non-payment of the
principal within the stipulated period.
o Agreement whereby the creditor automatically
becomes the owner of the things given by way of
pledge or mortgage, or dispose of them in case of
non-payment without the need of foreclosure
proceedings or public auction.
o NULL AND VOID
o The debtor may waive the security and file an
action for specific performance; OR if he wants
to rely on the security, proceed to foreclosure or
have the property sold for the payment of the
debt.
o There can be no pactum commissorium if there is
no pledge or mortgage.
B. PROMISE TO TRANSFER
CREDIT TRANSACTIONS
MORTGAGE
o
C. EXTINGUISHMENT
o There is no pactum commissorium if the
principal obligation is extinguished by way of
novation, dacion en pago or cession
o RATIO: These are acts or transactions that are
agreed upon not at the time the mortgage was
constituted but only thereafter.
D. AUTHORITY TO SELL
o An authority to sell ad the appointment of
mortgage as attorney-in-fact to sell and
dispose of land does not constitute
pactum commissorium.
o In El Hogar Filipino v Paredes, the SC
ruled that the law does not prohibit a
stipulation whereby the creditor is
authorized in case of non payment within
the stipulated period to sell the thing
mortgage at a public auction or to
adjudicate the same to himself in case of
CREDIT TRANSACTIONS
MORTGAGE
CREDIT TRANSACTIONS
MORTGAGE
o
Article
2092
recognized
the
criminal
responsibility that one may incur if he defrauds
another by offering in pledge or mortgage as
unencumbered, things he knew were subject to
some burden or by misrepresenting himself to be
the owner of the same.
CASE DOCTRINE:
o In PNB v Mallorca:
1. The debtor-mortgagor mortgaged a parcel of
land to P Bank as a security for a loan.
2. The mortgage was duly recorded
3. Subsequently without the knowledge of P Bank
the debtor mortgagor sold a portion of and to
PM.
4. Register of Deeds released a new title making P
Bank and PM co-owners. P Banks mortgage lien
was recorded.
5. The debtor-mortgagor failed to pay his loan.
6. P Bank foreclosed the mortgage and was able to
buy the land.
7. PM sued bank to enforce her right against the
property.
8. PM refused to surrender her title contending
that she has undivided interest over the portion
of the land and the same was not affected by the
foreclosure and subsequent sale to P Bank.
o HELD: PMs argument is NOT correct.
Sale or transfer cannot affect or
release a mortgage.
A purchaser is necessarily bound to
acknowledge
and
respect
the
encumbrance to which it is subjected
the purchased thing and which is at
CREDIT TRANSACTIONS
MORTGAGE
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
CONTRACT OF
1. DEFINITION
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
accessories and accessions, shall be returned to the
debtor or the third person.
An accessory contract by virtue of which personal
property delivered to the creditor as security for a
principal obligation with the agreement that the
pledged property can be sold at a public auction in case
of non-payment to answer for the unpaid obligation or
the pledged property shall be returned by pledgeecreditor in case the principal obligation is fully paid.
The creditor is given a right to retain his debtors
movable property in his possession or in that of a third
person to whom it has been delivered.
The creditor does not become the owner of the thing
pledged. He is nothing more than a creditor with real
right over the thing in his possession as a pledge, which
he can dispose of through a notary at a public sale.
CONTRACT OF PLEDGE
Article 2093. In addition to the requisites
prescribed by Article 2085, it is necessary,
in order to constitute the contract of
pledge, that the thing pledged be placed in
the possession of the creditor, or of a third
person by common agreement.
Article 2094. All movables, which are
within commerce of man, may be pledged,
provided
they
are
susceptible
of
possession.
Article 2095. Incorporeal rights, evidenced
by negotiable instruments, bills of lading,
shares of stocks, bonds, warehouse receipts
and similar documents may also be
pledged. The instrument proving the right
to pledged shall be delivered to the
creditor, and if negotiable, must be
indorsed.
6
o
o
2. REQUISITES (S-A-F-P-E)
a. The pledge must be constituted to secure the
fulfillment of a principal obligation.
b. The pledgor must be the absolute owner of the thing
o By way of exception the real owner may be
estopped even if the person who delivered the
thing by way of pledge was not the real owner
under the circumstance mentioned in Article
1483.7
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
c. The pledgor must have free disposal of the property.
d. The thing pledged should be placed in the possession
of the creditor or of a third person, by common
agreement
e. To take effecr against third persons, the description of
the thing and the date of the pledge must appear in a
public instrument.
A. DELIVERY
The contract of pledge is one of the 4 real
contracts in the NCC (commodatum, mutuum,
deposituum).
o No pledge is validly constituted if there is no
delivery.
o The delivery implied in Article 2093 is a change
in the actual possession of the property pledged
and that a mere symbolic delivery is not
sufficient
o Until there is delivery, the pledgee acquires no
real right of property in the thing.
Pledge is merely a lien; and possession
is indispensible in the right of a lien.
o In Beita v Ganzon, the animals in question were
in the possession of a third person not specified
in the contract before the alleged pledge was
entered into. The thing pledged remained with
them until execution was levied. The SC ruled
that there is no actual delivery of the alleged
pledgee themselves. There is no reality no
change in possession. Hence, the pledge was
not effective.
o In El Banco Espanol v Peterson the pledgee
took possession of the goods pledged through a
depository and a special agent appointed by it,
each of whom had a duplicate key to the
warehouse where the goods are stored, and
that the pledgee took the proceeds of the goods
sold.
o
CONTRACT OF
3. CHARACTERISTICS (A-R-R-U-S)
1. Accessory Contract
o Being an accessory contract of security, there
is no transfer of ownership.
o In Intergrated Realty Corporation and Raul
Santos v PNB, the SC ruled that a transfer of
property by the debtor to a creditor, even if
sufficient on its face to make an absolute
conveyance, should be treated as pledge if
the debt continues in existence and is not
discharged by the transfer and that
accordingly, the use of the terms ordinarily
importing conveyance, of absolute ownership
will not be given that effect in such a
transaction if they are also commonly used in
pledges or mortgages and therefore do not
unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
CONTRACT OF
unambiguous
language
or
other
circumstances excluding an intent to pledge.
2.. Real Right
3. Real security contract
4. Real Contract
o Perfected by mere delivery
5. Unilateral
o Upon the perfection of the contract with the
delivery of the thing, it is only the creditor who
has the obligation to return the thing.
6. Subsidiary
o The thing pledged will answer for the principal
obligation only upon the default of the principal
debtor.
A. BANK ASSIGNMENTS
o In Victoria Yau Chu v CA, the SC held that
the assignment of deposit by way of
security is in the nature of pledge. A
public auction is no longer necessary to
satisfy the obligation because the
collateral is money
All that had to be done is to
convert the time deposits into cash
was to present them to the bank
for encashment after due notice to
the debtor.
B. SHARES OF STOCKS
o Shares of stocks and Deed of Assignment
of shares of stocks may be pledged to
secure an obligation.
o The pledgor or mortgagor shall have the
right to attend and vote at the meeting of
the stockholders, unless the mortgagee or
pledgee is expressly given by the pledgor
or mortgagor such right in writing which
is recorded on the appropriate corporate
books.
o The right to vote and attend the
stockholders meeting is the one required
to be recorded in the corporate books.
5. SUBJECT MATTER
Only personal or movables contemplated in
Article 4168 and 4179 of the NCC may be
pledged provided that they are susceptible of
actual delivery and possession.
In the very nature of things, a pledge is
confined and limited to personal property and
it cannot be extended to real property.
8
9
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
The Assignment of Shares of Stocks
cannot be considered as proof of pledge if
the
explicit
terms
of
the
deed
denominated
as
Stock
Assignment
Separate from Certificate expressly
states that the owners of the share sold,
assigned and transferred unto another the
stocks involved for and in consideration
of the obligation undertaken by the other
party.
The said Assignment will be
considered a sale since there is a
complete
and
unconditional
divestiture of the incorporeal
property consisting of stocks.
C. NEGOTIABLE INSTRUMENTS
o The pledgee can be a holder for value up
to the extent of his lien.
o Pledgee is entitled to apply the proceeds
up to the extent of the lien and he is
obliged to apply the proceeds up to the
extent of his debt and he is obligated to
account the surplus to the pledgor.
o If the instrument is negotiable, the
instrument must be indorsed and
delivered to the creditor.
D. AFTER INCURRED OBLIGATIONS
o GR: Only current obligations are secured
by the pledge
o XPN: After incurred obligations may be
secured
provided
that
they
are
deliberately described.
CONTRACT OF
6. FORMALITIES
For the contract to affect third persons, apart
from being in a public instrument (date and
description of the thing pledged), possession
of the thing pledged must be in addition
delivered to the pledgee.
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
CONTRACT OF
1. POSSESSION
o The pledgee is a lawful and rightful
possessor of the personal property
pledged.
a. The pledger cannot alienate the thing
pledged before the obligation becomes due
unless there is consent on the part 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.
b. The creditor-pledgee shall take care of the
thing pledged with the diligence of a good
father of a family; he has a right to the
reimbursement of the expenses made for its
preservation, and is liable for its loss and
deterioration
c. The pledgee cannot deposit the thing pledged
with a third person unless there is a
stipulation authorizing him to do so
d. The creditor-pledgee may bring the actions
which pertain to the owner of the thing
pledged in order to recover it or defend it to
third persons
e. The pledgor has the same responsibility as a
bailor in commodatum in the case under
Article 195110
A. INCORPOREAL RIGHTS
o Incorporeal
rights,
evidenced
by
negotiable instruments, bills of lading,
shares of stocks, bonds, warehouse
receipts and similar documents may also
be pledged. The instrument proving the
right to pledged shall be delivered to the
10 Article 1951
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
B. FRUITS
o
creditor, and
indorsed.
if
negotiable,
CONTRACT OF
must
be
Article 2105
1
1. RETURN OF THE THING
o The debtor cannot demand for the
return of the thing if the principal
obligation has not been fully paid.
o If the thing is returned before the
payment of the obligation, the same
will be extinguished.
2. PRESCRIPTION
o The right to recover the thing from the
pledgee will rise only upon payment of the
loan secured by the pledge.
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
o
CONTRACT OF
Article 2106-2109
1. DEPOSIT
o The pledgor has the right to ask that the
thing be deposited in the following cases:
(1) If the pledgee uses the thing pledged
without authority of the owner
(2) If the creditor misuses the thing pledged
(3) (3) If through the negligence or willfull
act of the pledgee, the thing pledged is in
the danger of being lost or impaired.
Article 2110-2111
1. EXTINGUISHMENT
o GROUNDS FOR EXTINGUISHMENT
(1) Return of the thing pledged
o The return of the thing pledged will not
affect the principal obligation. As an
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
accessory contract the return will not
affect the principal obligation.
(2) Statement in writing that the creditor
renounces or abandon the pledge.
(3) Full payment or compensation of the
principal obligation
A. NOVATION11
o Novation
is
a
ground
for
the
extinguishment of an obligation. However,
the novation must be established by
sufficient proof.
B. ACQUISITIVE PRESCRIPTION
o Article 1132 provides that the ownership
of
movables
prescribes
through
uninterrupted possession for 4 years in
good faith
o The ownership of personal property
presecribes
through
uninterrupted
possession for 8 years in good faith
o The provision on prescription does not
apply in the things plesged because what
is required is the possession of the thing
as an owner., public peaceful and
uninterrupted.
C. CONDONATION12 OR REMMISSION13
o The
condonation
of
the
principal
obligation by the creditor extinguishes the
accessory contract like pledge.
o Remmission or condomation may pertain
to pledge only.
o Article 1274 provides that it is presumed
that the accessory obligation of pledge
has been remitted when the thing
pledged, after its delivery to the creditor,
CONTRACT OF
is found in the possession of the debtor, or
of a third person who owns the thing.
Article 2112-2119
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
(3)
(4)
(5)
(6)
3. NO RIGHT OF REDEMPTION
o There is no right of redemption after the
thing pledged is sold in an extrajudicial
sale.
The rights of ownership vested
unto the purchaser are not
entangled
in
any
suspensive
condition that is implicit in
redemption
4. EQUITY OF REDEMPTION
o The payment or consignation of the
amount due will stop the sale.
o Since, the obligation is extinguished,
there is no need to proceed with the sale.
CONTRACT OF
o
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
CONTRACT OF
1. RIGHTS OF A THIRD PARTY PLEDGOR
o The pledgor whose property was sold for the
debt of the debtor must be indemnified by the
debtor:
(1) The total amount of the debt
(2) The legal interest thereon from the time the
payment was made known to the debtor
(3) The expenses incurred by the pledgor after
having notified the debtor that payment has
been demanded from him
(4) Damages, if they are due.
Article 2121-22
1.
o
o
o
o
o
o
o
2. MECHANICS LIEN
o Article 1731 provides that a mechanic can
legally retain by way of pledge the movable
upon which it executed his work.
o The mechanic has lien until he has been paid
his charges. The lien entitles him to sole
custody of the car.
3. SALE IN LEGAL PLEDGE
CREDIT TRANSACTIONSCHAPTER 11
PLEDGE
o
CONTRACT OF
o
o
o
LAW ON PAWNSHOP
Article 2123
1.
1.
1.
1.
1.
LAW ON PAWNSHOPS
o Governed by PD 114 or the Pawnshop
Regulation Act.
o The regulations regarding pawnshops is
primarily the P Regulations of the Manual of
Regulations
for
NonBank
Financial
Institutions.
o A pawnshop enters into a contact of pledge
with the pawner or borrower.
2. DEFINITION OF TERMS
o PAWNSHOP- A person or entity engaged in
the business of lending money on personal
property delivered as a security for loans and
shall be synonymous and may be used
interchangeably
with
pawnbroker
or
pawnbrokerage.
o PAWNER- refers to the borrower from a
pawnshop
3. IMPORTANT REGULATIONS
14