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.
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
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
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)
