PLEDGE

REAL MORTGAGE
CHATTEL MORTGAGE
ANTICHRESIS

BUSINESS LAW 4
GROUP 6
ALYSSA ANURAN
ANNA DIANA CAMPOSANO
HIBA CALAMATA
JEAH NILLO JUGO
KAEZA CAMILLE ECLEVIA ELBO
MOBIUS STRIP
ALDRIN FRANK VALDEZ
PLEDGE
(ARTICLES 2085-2123)
PLEDGE

• Meaning of Pledge

 It is a contract by virtue of which the debtor delivers to the creditor or

to the third person a movable or instrument evidencing incorporeal
rights for the purpose of securing the fulfillment of a principal
obligations is fulfilled the thing delivered shall be returned with all the
fruits and accessions.
PLEDGE

• Characteristics/Nature as a contract:

 Real
 Accessory
 Unilateral
 Subsidiary contracts because the obligation incurred does not arise
until the fulfillment of the principal obligation that is secured.
 In addition to the common requisites of pledge and mortgage (Art
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. (Art 2093).
PLEDGE

• Cause or Consideration in PLEDGE

 Insofar as the pledgor is concerned, it is the principal obligation.

But if he is the debtor (Art 2085), the cause is the compensation
stipulated for the pledge or the mere liberality of the pledgor.
PLEDGE

• What are the Kinds of pledge:

 Voluntary or conventional – one which is created by agreement of the

parties; or
 Legal – one which is created by operation of law (Art 2121)
PLEDGE

• Additional requirements in order that pledge shall

take effect against third parties:

 The description of the thing pledge; and

 The date of pledge (Art 2076)
PLEDGE

• Rights of the Pledgee;

 To retain the thing in his possession or in that of a third person to whom it has
delivered, until the debt is paid (Art 2099).
 To be reimbursed for the expenses incurred in its preservation (Art 2099).
 To compensate (set – off) the fruits, income, dividends or interests earned or
produced by the thing pledged and received with those which are due to him (Art
2102).
 To bring the actins which pertain to the owner of the thing pledged in order to
recover if from or defend it against a third person (Art 2103).
 To sell the thing pledged at the public auction, if without his fault, there is danger
of destruction, impairment or diminution in the value of the thing (Art 2108).
 To claim a substitute or demand immediate payment, if he is deceived on the
substance or quality of the thing pledged (Art 2109)
 To sell the thing pledged at public auction if the obligation secured is not paid
(Art 2112).
 To bid at the public sale (Art 2114).
 To collect the amount that become due on a credit pledged before such credit is
redeemed.
 To choose which one of the several thing pledged shall be sold (Art 2119) .
PLEDGE

• Obligations of the pledgee:

 To take care of the thing pledge with the diligence of a good father of
the family (Art 2099).
 To answer for its loss or deterioration in the proper case;
 Not to deposit the thing pledge with a third person unless authorized
(Art )
 To be responsible for the acts of his agents or employees with respect to
the thing pledged (Art 2100);
 Not to use the thing pledged unless authorized or its preservation so
requires (Art 2104);
 To advise the pledgor, without delay, of any danger to the thing pledged
(Art 2107).
 To promptly advise the pledgor or owner in case of sale at public
auction of the result thereof (Art 2116); and
 To return the thing pledged when the principal obligation is paid.
PLEDGE

• Conditions required in an extra – judicial

foreclosure sale of the thing pledged:

 The debt is due and unpaid

 The sale must be at a public auction
 There must be notice to the pledgor and owner, stating the amount due;
and
 The sale must be made with the intervention of a notary public.

• Note: The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold. If the creditor
appropriated the thing, it shall be considered as full payment for his entire claim. He is thus obliged to give an acquittance for the
same (Art. 2115). The sale must be made at the public auction with notification to the debtor and the owner of the thing pledged in a
proper case, stating the amount for which the public sale is to be held.
PLEDGE

• Rules on the proceeds after sale of the thing

pledged:

 Price of sale more than the amount due – The debtor is not entitled to
the excess, unless otherwise agreed; and
 Price of sale less tan the amount due – The creditor is not entitled to
recover any deficiency, notwithstanding any stipulation to the contrary.
(Art. 2115) Reason: To compel the creditor to hold an honest public
sale.

• Note:
– The creditor, however, may sue on the principal obligation instead of electing to sell the thing pledged.
– In pledge by operation of law, after payment of the debt and expense, the remainder of the price shall be delivered to the
obligor (Arts 2121, 2122)
– Under the Chattel Mortgage Law, the mortgagor can also recover the excess (Act. No. 1506, Sec 14).
PLEDGE

• Instances of Legal Pledges or Pledges by

Operation of Law:
 Possessor in good faith – for necessary and useful expenses incurred over the thing (Art 546);
 Usufructuary – for taxes and extraordinary expenses (Art 612) ;
 Bailee – For damages suffered by reason of the flaws in the thing loaned. (Arts 1944, 1951);
 Agent – for expenses advance and damages caused by the agency (Art 1914);
 Depositary – for the payment of what may be due him by reason of the deposit (Art 1994); and
 Hotel Keeper – for credits for lodging and supplies furnished (Art 2004); and
 Independent contractor – he who has executed work upon a movable has a right to retain it by
way of pledge until he is paid. (Art 1731, see also Art 1701).

In case of pledge by operation of law, the proceeds shall be applied to the debt and expenses,
the remainder of the price of the sale shall be delivered to the obligor. (Art. 2121).
The thing under pledge by operation of law may be sold only after demand of the amount for which
the thing is retained. The public auction shall take place within o ne month after such demand. If,
without just grounds, the creditor does not cause the public sale to be held within such period, the debtor
may require the return of thing. (Art. 2122)
PLEDGE

• Obligations of the pledgor:

 To notify the pledgee of any flaw or defect of the thing pledged known
to him; otherwise he answers for damages suffered by the pledgee (Art
2101);
 To reimburse the pledgee for expenses made for its preservation (Art
2099); and
 To fulfill his principal obligation (Art 2085)
PLEDGE

• Principles in Pledge:
 As a general rule, the pledge extends to the interest and earnings of the thing
pledged, unless there is a stipulation to the contrary. (Art. 2102)
 Unless the pledge is expropriate, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring actions which pertains to the owner of the
thing pledged in order to recover it from or defend it against third person. (Art.
2104)
 The creditor cannot use the thing pledged without the consent of the owner, and
if he should do so, or should misuse t he thing in any other way, the owner may
ask the Court that it be JUDICIALLY OR EXTRA-JUDICIALLY DESPOSITED.
However, when the preservation of the thing pledged requires its use, it must be
used by the creditor but only for that purpose. (Art. 2104)
 The remedy of the pledgor should the thing pledgedd be in danger of being lost
or impaired through the negligence or willful act of the pledgee is to require the
thing to be deposited with a third person. (Art. 2106)
 The creditor who is deceived on the substance or quality of the thing pledged
may either (1) claim another thing instead; or demand immediate payment of the
principal obligation (Art. 2109).
PLEDGE

• Remedies should there be reasonable grounds to

fear the destruction or impairment of the thing
pledged, without fault of the pledgee:

 The pledgee is bound to advise the pledgor, without delay or danger to the thing
pledged.
 The pledgor, on the other hand, may demand the return of the thing, upon
offering another in pledge provided the latter is of the same kinf as the former
and not of inferior quality and without prejudice to the RIGHT OF THE
PLEDGEE to cause the sale of the thing pledged at public sale. The proceeds of
the auction sale shall be security for the principal obligation in the same manner
as the thing originally pledged. (Arts. 2107; 2108). Between the right of the
pledgor to demand the return of the thing pledged and the right of the pledgee to
cause it to be sold at public auction, the latter prevails.
PLEDGE

• Causes for the extinguishments of the pledge:

 Return of the thing pledged by the pledgee to the pledgor or owner, any
stipulation to the contrary being void (Art 2110);
 Renunciation or abandonment executed in writing by the pledgee even
without return of the thing (Art 111)
 Destruction or loss of the thing pledged;
 Extinction of the principal obligation (by payment or sale of the thing
pledged); and
 Other causes of extinguishments or ordinary obligations (Art 1231)
REAL ESTATE
MORTGAGES
(ARTICLES 2124-2131)
REAL ESTATE MORTGAGES

• Mortgage

 one of the kinds of contracts specially regulated by Philippine law.

 IT IS REGULATED! - the signatories to a mortgage cannot just

decide among themselves what their rights and obligations are in their
mortgage contract.

 SHOULD NOT VIOLATE the regulations set by the Civil Code of the
Philippines or else those terms will be invalid.
REAL ESTATE MORTGAGES

• Who are the parties to a mortgage agreement?

 A MORTGAGOR is the one whose property is offered as security.

(DEBTOR)

 A MORTGAGEE is the one who accepts the security of the property.

(CREDITOR)
REAL ESTATE MORTGAGES

• Article 2126.

 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. (1876)
REAL ESTATE MORTGAGES

• EFFECTS OF MORTGAGE

 Creates a real right

A. If the mortgagor sells the encumbered property, the property

remains subject to the fulfillment of the principal obligation secured
by it
B. The mortgagee has a right to rely in good faith on what appears on the
certificate of title of the mortgagor of the property given as security and
in the absence of anything to excite suspicion, he is under no
obligation to look beyond the certificate
C. Until the action for expropriation has been completed,
ownership over the property remains with the registered owner
D. If a person is the first mortgagee over a property which  was  sold  in  an 
auction  by  the  second mortgagee,  the  only  right  left  to  him  is  to 
collect  his mortgage  credit  from  the  purchaser  there of during the
sale conducted
E. In  a  suit  to  nullify  a  certificate  of  title,  the mortgagee is an
indispensable party
REAL ESTATE MORTGAGES

• Article 2127

 The mortgage extends to the natural accessions, to the

improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession
of the mortgagor, or it passes into the hands of a third
person. (1877)
REAL ESTATE MORTGAGES

• EXTENT OF MORTGAGE

 A REM constituted on an immovable property is not limited to the

property itself but also extends to all its accessions, improvements,
growing fruits, and rents

 To exclude them, it is necessary that there be an express stipulation to

that effect
REAL ESTATE MORTGAGES

• Article   2128

 The   mortgage   credit   may   be   alienated or assigned  to  a  third 

person,  in  whole  or  in  part,  with  the formalities required by law.
(1878)
REAL ESTATE MORTGAGES

• Article  2129

 The  creditor  may  claim  from  a  third  person  in possession  of

the  mortgaged property, the payment of the part of the credit secured
by the property which said third person  possesses,  in  the  terms  and 
with  the  formalities which the law establishes. (1879) 
REAL ESTATE MORTGAGES

• RIGHT OF CREDITOR AGAINST

TRANSFEREE OF MORTGAGED
PROPERTY

 The fact that the mortgagor has transferred the mortgaged property to a
third person doesn't relieve him from his obligation to pay the debt to the
mortgage creditor in the absence of Novation

 A recorded REM is merely an accessory contract

 The creditor may only demand from any possessor the payment only of
the part of the credit secured by said property

 Necessary that there be prior demand for payment be made on the

debtor and the latter failed to pay
REAL ESTATE MORTGAGES

• Article   2130

 A   stipulation   forbidding   the   owner   from alienating the

immovable mortgaged shall be void. (n)
REAL ESTATE MORTGAGES

• STIPULATION  FORBIDDING 
ALIENATION  OF  MORTGAGED
PROPERTY

 Such   stipulation   would   be   contrary   to   public   good inasmuch 

as  the  transmission  of  property  should  not  be unduly impeded
 
REAL ESTATE MORTGAGES

• CAN  MORTGAGEE  PROHIBIT 

ENCUMBERANCES  WITHOUT PRIOR
CONSENT?

 Yes, regulation is not the same as prohibition

 The mortgagee may even add a standard.  This is for good measure on
the part of the mortgagee which is allowed by law. 
 
REAL ESTATE MORTGAGES

• IN THE  FIRST PLACE, WHY WOULD YOU 

BE  CONCERNED WITH  THE 
DISPOSITION  OF  THE  PROPERTY  IF 
YOU  ARE THE MORTGAGEE?

 You don't want the property to be in the hands of someone who is

litigious 
 As  a  means  of  monitoring  the  financial  condition  of  the
mortgagor
 
REAL ESTATE MORTGAGES

• Article   2131

 The   form,   extent   and   consequences   of   a mortgage,  both  as 

to  its  constitution,  modification  and extinguishment, and as to other
matters not included in this Chapter,   shall   be   governed   by   the  
provisions   of   the Mortgage Law and of the Land Registration
Law. (1880a) 

 
CHATTEL
MORTGAGE
(ARTICLES 2140-2141)
CHATTEL MORTGAGE

• Article   2140

 By  a  chattel  mortgage,  personal  property  is recorded in the Chattel

Mortgage Register as a security for the performance of an obligation. If
the movable, instead of being  recorded,  is  delivered  to  the  creditor 
or  a  third person, the contract is a pledge and not a chattel mortgage.
 
CHATTEL MORTGAGE

• CHATTEL MORTGAGE

 Contract  by  virtue  of  which  personal  property  is  recorded in  the 
Chattel  Mortgage  Register  as  security  for  the performance of an
obligation
 
CHATTEL MORTGAGE

• CHARACTERISTICS CHATTEL
MORTGAGE

 accessory
 unilateral
 formal contract
 if the chattel mortgage (or real mortgage) is not recorded, the
mortgagee acquires the right to demand registration of the contract.
(Art 2125)
CHATTEL MORTGAGE

• Laws principally governing chattel mortgages:

 Chattel Mortgage Law (Act No. 1508)

 Civil Code
 Revised Administrative Code; and
 Revised Penal Code
CHATTEL MORTGAGE

• WHAT MAKES IT DIFFERENT FROM A

PLEDGE?

 Delivery of the personal property to the mortgagee  is not necessary

 The registration in the Register is required by law
 Procedure for the sale of the thing is different
 If  the  property  is  foreclosed  and  there  is  excess,  the amount goes
to the debtor
 If  there  is  deficiency,  the  creditor  may  recover  the deficiency
CHATTEL MORTGAGE

• WHEN DO YOU DO A Chattel Mortgage OR

PLEDGE?

 When  property  needs  to  be  retained  by  the  debtor,  then opt for a
chattel mortgage
CHATTEL MORTGAGE

• Article   2141

 The provisions of this Code on pledge, insofar as they are not in

conflict with the Chattel Mortgage Law shall be applicable to chattel
mortgages. (n)
 
CHATTEL MORTGAGE

• LAWS GOVERNING CHATTEL

MORTGAGE

 Chattel mortgage law, Act 1508

 Civil Code provisions
 Revised Administrative Code
 Revised Penal Code
CHATTEL MORTGAGE

• OFFENSES INVOLVING CHATTEL

MORTGAGE

 Knowingly  removing  personal  property  mortgaged  to  any province

or city other than the one in which it was located at the time  of the
execution  of the mortgage without the written consent
 Selling or pledging personal property already mortgaged or any part
thereof, under the terms  of the Chattel Mortgage Law  without the 
consent  of  the  mortgage  written  on  the  back  of  the mortgage and
duly recorded in the CM Register
CHATTEL MORTGAGE

• REGISTRATION

  Registration shall be done in the Register of Deeds where the

mortgagor resides
 And  when  the  property  is  situated  somewhere  else,  it needs to be
registered also in the Register of Deeds of the area where the property
is situated
 Chattel  mortgage  would  not  be  valid  and  binding  as against third
persons absent any registration
 If what is mortgaged is a car, registration with the LTO is also 
needed.    Absent  this,  again,  it  would  not  be  binding and invalid as
against third persons
CHATTEL MORTGAGE

• FORM  OF CONTRACT AS STATED IN  THE

LAW.  

 Theoretically,  the  mortgagor  may  sign  the  contract  alone but 

practically,  the  mortgagee  must  sign  also  given  that they both need
to sign the affidavit of good faith
CHATTEL MORTGAGE

• AFFIDAVIT OF GOOD FAITH

 

 Part  of  the  chattel  mortgage  contract  wherein  it  is  stated that the
chattel mortgage has been constituted to secure a principal  obligation 
and  not  meant  for  fraud  or  any  ill purpose
 It  is  possible  to  defraud  using  mortgage.    You  can  take away 
property  through  mortgage  from  an  unsecured creditor.
CHATTEL MORTGAGE

• FORMAL REQUIREMENT OF
DESCRIPTION OF PROPERTY 

 Attach   a   description   or   schedule   of   the   properties mortgaged

 There  is  also  the  requirement  of  payment  of  registration fees and
documentary stamp taxes
CHATTEL MORTGAGE

• FORECLOSURE (SIMILAR BUT NOT

IDENTICAL WITH REM) SECTION 14,
CHATTEL MORTGAGE LAW

 There  is  a  30-day  cooling  off  period  before  the  public auction, from the time the condition is
broken
 Notice—at least 10 days notice of the time, day, place, and purpose of such sale has been posted at 2 or
more public places  in  such  municipality.    Personal  notice  or  mail  shall also  be  given  to  the 
mortgagor  or  person  holding  under him and the persons holding subsequent mortgages of the time
and place of sale.
 Sheriff should possess the property as he needs to deliver the same to the winning bidder.  If the
mortgagor refuses to  do  so,  the  mortgagee  can  seek  the  help  of  the  court.  There  could  also  be 
a  stipulation  in  the  contract  as  well.  But if the debtor is not willing and able, the loss is with the
creditor.
 There is a 30-day equity of redemption period (payment of obligation)
 After  foreclosure,  there  could  be  recovery  of  deficiency, but  there  is  Recto  Law  (1484) 
pertaining  to  sale  of personal  property  in  installments  and  there  is  a  Chattel Mortgage  to secure
payment of price.
CHATTEL MORTGAGE

• FORECLOSURE (SIMILAR BUT NOT

IDENTICAL WITH REM) SECTION 14,
CHATTEL MORTGAGE LAW

 There  is  a  30-day  cooling  off  period  before  the  public auction, from the time the condition is
broken
 Notice—at least 10 days notice of the time, day, place, and purpose of such sale has been posted at 2 or
more public places  in  such  municipality.    Personal  notice  or  mail  shall also  be  given  to  the 
mortgagor  or  person  holding  under him and the persons holding subsequent mortgages of the time
and place of sale.
 Sheriff should possess the property as he needs to deliver the same to the winning bidder.  If the
mortgagor refuses to  do  so,  the  mortgagee  can  seek  the  help  of  the  court.  There  could  also  be 
a  stipulation  in  the  contract  as  well.  But if the debtor is not willing and able, the loss is with the
creditor.
 There is a 30-day equity of redemption period (payment of obligation)
 After  foreclosure,  there  could  be  recovery  of  deficiency, but  there  is  Recto  Law  (1484) 
pertaining  to  sale  of personal  property  in  installments  and  there  is  a  Chattel Mortgage  to secure
payment of price.
CHATTEL MORTGAGE

• CHATTEL MORTGAGE ( Act No. 1508, as

amended).

ACT NO. 1508 - AN ACT PROVIDING FOR THE

MORTGAGING OF PERSONAL PROPERTY
AND FOR THE REGISTRATION OF THE
MORTGAGES SO EXECUTED

Section 1. The short title of this Act shall be "The

Chattel Mortgage Law."
CHATTEL MORTGAGE
 Section 1. The short title of this Act shall be "The Chattel Mortgage Law."

 Sec. 2. All personal property shall be subject to mortgage, agreeably to the provisions of this Act, and a mortgage
executed in pursuance thereof shall be termed chattel mortgage.

 Sec. 3. Chattel mortgage defined. — A chattel mortgage is a conditional sale of personal property as security for

the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale
shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. If the condition is
performed according to its terms the mortgage and sale immediately become void, and the mortgagee is thereby divested
of his title.

 Sec. 4. Validity. — A chattel mortgage shall not be valid against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage
is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the
same, or, if he resides without the Philippine Islands, in the province in which the property is situated: Provided, however,
That if the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be
recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the
property is situated, and for the purposes of this Act the city of Manila shall be deemed to be a province.

 Sec. 5. Form. — A chattel mortgage shall be deemed to be sufficient when made substantially in accordance with the
following form, and shall be signed by the person or persons executing the same, in the presence of twowitnesses, who
shall sign the mortgage as witnesses to the execution thereof, and each mortgagor and mortgagee, or, in the absence of the
mortgagee, his agent or attorney, shall make and subscribe an affidavit in substance as hereinafter set forth, which
affidavit, signed by the parties to the mortgage as above stated, and the certificate of the oath signed by the authority
administering the same, shall be appended to such mortgage and recorded therewith.
CHATTEL
MORTGAGE
(ARTICLES 2140-2141)