PLEDGE 7.
Special Laws apply to pawnshops and
Pledge – a contract by virtue of which the
debtor delivers to the creditor or to a third
person a movable or document evidencing
incorporeal rights for the purpose of
securing the 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. [Art.2085 in relation to 2093]
Provisions Applicable Only to Pledge
1. Transfer of possession to the creditor or
to third person by common agreement is
essential [Art. 2093]
a. Actual delivery is important
b. Constructive 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. All movables within the commerce of
man may be pledged as long as they are
susceptible of possession [Art. 2094]
3. Incorporeal rights may be pledged. The
instruments representing the pledged
rights shall be delivered to the creditor; if
negotiable, they must be indorsed [Art.
2095].
4. Pledge shall take effect against 3rd
persons only if the following appear in a
public instrument:
a. Description of the thing pledged
b. Date of the pledge [Art. 2096].
5. The thing pledged may be alienated by
the pledgor or owner only 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 to have
possession [Art. 2097].
6. Creditor has the right 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 [Art. 2098].
establishments engaged in making loans
secured by pledges. Provisions of the
Civil Code shall apply subsidiarily to
them.
In case of doubt as to whether a transaction
is a pledge or a dation in payment, the
presumption is in favor of pledge, the latter
being the lesser transmission of rights and
interests (Manila Banking Corp. vs.
Teodoro)
Kinds
1. Voluntary or conventional – created by
agreement of parties
2. Legal – created by operation of law
Essential Requirements
Essential requisites common to pledge and
mortgage [Art. 2085]
1. Constituted to secure the fulfillment of a
principal obligation
2. Pledgor or mortgagor must be the
absolute owner of the thing pledged or
mortgaged
3. The persons constituting the pledge or
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. Debtor retains the ownership of the thing
given as a security
6. When the principal obligation becomes
due, the thing pledged or mortgaged may
be alienated for the payment to the
creditor. [Art. 2087]
Obligation of Pledgee
1. The pledgee cannot deposit the thing
pledged with a 3rd person, unless there
is a contrary stipulation [Art. 2100].
2. Is responsible for the acts of his agents
or employees with respect to the thing
pledged [Art. 2100]
3. Has no right to use the thing or to
appropriate its fruits without authority
from the owner [Art. 2104]
4. May cause the public sale of the thing
pledged if, without fault on his part, there
is danger of destruction, impairment or
dimunition in value of the thing. The
proceeds of the auction shall be a
security for the principal obligation [Art.
2108].
Rights of Pledgor
1. Takes responsibility for the flaws of the
thing pledged [Art. 2101 in relation to Art.
1951].
2. Cannot ask for the return of the thing
against the will of the creditor, unless and
until he has paid the debt and its interest,
with expenses in a proper case [Art.
2105].
Yuliongsiu vs. PNB: There is authority
supporting the proposition that the pledgee
can temporarily entrust the physical
possession of the chattels pledged to the
pledgor without invalidating the pledge. In
such a case, the pledgor is regarded as
holding the pledged property merely as
trustee for the pledgee. The type of delivery
will depend upon the nature and the
peculiar circumstances of each case.
PNB vs. Atendido: according to law, a
pledgee cannot become the owner of, nor
appropriate to himself, the thing given in
pledge. If by the contract of pledge the
pledgor continues to be the owner of the
thing pledged during the pendency of the
obligation, it stands to reason that in case of
loss of the property, the loss should be
borne by the pledgor.
3. Subject to the right of the pledgee under
article 2108, pledgor is allowed to
substitute 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 [Art. 2107].
4. May require that the thing be deposited
with a 3rd person, if through the
negligence or willful act of the pledgee
the thing is in danger of being lost or
impaired [Art. 2106].
Perfection – Arts. 2093, 2096
Requisites for perfection
1. The thing pledged is placed in the
possession of the creditor or a third
person [Art. 2093]
2. For the pledge to take effect as against
third persons, a description of the thing
pledged and the date of the pledge
should appear in a public instrument [Art.
2096]
Foreclosure – Arts. 2112, 2115
Requirements in Sale of the Thing Pledged
by Creditor, if Credit is not Paid on Time
(Art. 2112)
1. Debt is due and unpaid
2. Sale must be at a public auction
3. Notice to the pledgor and owner, stating
the amount due
4. Sale must be made with the intervention
of a notary public
5. If at the first auction the thing is not sold,
a second one with the same formalities
shall be held
6. If at the second auction, there is no sale
either, the creditor may appropriate the
thing pledged but he shall give an
acquittance (release) for his entire claim.
Effect of the Sale of the Thing Pledged (Art.
2115)
1. Extinguishes the principal obligation,
whether the proceeds of the sale is more
or less than the amount due.
2. If the price of sale is more than amount
due, the debtor is not entitled to the
excess unless the contrary is provided
3. If the price of sale is less, the creditor is
not entitled to recover the deficiency. A
contrary stipulation is void
 Pledge by Operation of Law – Art. 2121- Right to excess of proceeds of Sale
2122 Excess goes to the
Excess goes to the pledgee/creditor,
Legal Pledges/Pledge by Operation of Law debtor/mortgagor unless otherwise
[Art. 2121] stipulated
1. Necessary expenses shall be refunded to Right to recover deficiency
every possessor, but only a possessor in Creditor/
Creditor/
mortgagee is not
good faith may retain the thing until he mortgagee can
entitled to recover
has been reimbursed recover from the
any deficiency after
2. He who has executed work upon a debtor/mortgagor,
the property is sold,
movable has a right to retain it by way of except if covered
notwithstanding
pledge until he is paid. This is called the by Recto Law
contrary stipulation
mechanic’s lien. [Art. 1731]
3. The agent may retain the things which
are the objects of agency until the Note: The provisions of the Civil Code on
principal effects the reimbursement and pledge, insofar as they are not in conflict
pays the indemnity. This is called the with the Chattel Mortgage Law shall be
agent’s lien. [Art. 1914] applicable to chattel mortgages [Art. 2141]
4. The laborer’s wages shall be a lien on REAL MORTGAGE
the goods manufactured or the work
done. [Art. 1707] Mortgage – a contract whereby the debtor
secures to the creditor the fulfillment of a
Note: principal obligation, specially subjecting to
1. In legal pledges, the remainder of the such security immovable property or real
price of the sale shall be delivered to the rights over immovable property which
obligor. obligation shall be satisfied with the
2. Public auction of legal pledges may only proceeds of the sale of said property or
be executed after demand of the amount rights in case the said obligation is not
for which the thing is retained. It shall complied with at the time stipulated
take place within one month after the Only the ff. property may be the object of a
demand, otherwise the pledger may contract of mortgage (Art. 2124)
demand the return of the thing pledged,
provided s/he is able to show that the 1. Immovable
creditor did not cause the public sale 2. Alienable real rights in accordance with
without justifiable grounds. [Article 2122] the laws, imposed upon immovable

Chattel Mortgage vs. Pledge Note: Nevertheless, movables may be the

object of a chattel mortgage. (Art. 2124)
Chattel Mortgage Pledge
Delivery of Personal Property Kinds of mortgage:
Delivery is required 1. Voluntary – agreed to between the
Not required for the validity of parties or constituted by the will of the
the pledge
owner of the property owner
Registration in the Chattel Mortgage
2. Legal – one required by law to be
Register
Not necessary; executed in favor of certain persons
Necessary for 3. Equitable – one which, although lacks
public document is
validity of the CM the proper formalities, nevertheless
enough to bind 3rd
against 3rd persons reveals the intention of the parties to
persons
 burden real property as a security for an
existing debt & contains nothing
impossible or contrary to law
Characteristics:
- Accessory
- Subsidiary
- Unilateral
- As a general rule, the mortgagor retains
possession of the property. He may
deliver said property to the mortgagee
without altering the nature of the contract
of mortgage
- 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
percentage thereof
- Mortgage creates an encumbrance over
the property, but ownership of the
property is not parted with. It merely
restricts the mortgagor’s jus disponendi
over the property. The mortgagor may
still sell the property, and any stipulation
to the contrary is void [Art. 2130]
- Mortgage extends to the natural
accessions, to the improvements of
growing fruits and the rents or income
NOT YET RECEIVED when the
obligation becomes DUE, including
indemnity from insurance, and/or amount
received from expropriation for public use
[Art. 2127]
o Applies only when the accessions and
accessories subsequently introduced
belongs to the mortgagor.
o To exclude them, there must be an
express stipulation, or the fruits must
be collected before the obligation
becomes due
o Third persons who introduce
improvements upon the mortgaged
property may remove them at any time
Parties:
1. Mortgagor – need not be the debtor;
must be the absolute owner of the thing;
must have free disposal of the property
2. Mortgagee – one who receives the
mortgage
Notes on Real Mortgage:
- A building by itself may be mortgaged
apart from the land on which it is built.
- Future property cannot be the object of
mortgage.
o In order to bring future property within
the coverage of the mortgage, the
mortgagor must execute a mortgage
supplement after the mortgagor
acquires ownership of the properties
or after those properties come into
existence
- A stipulation subjecting to the mortgage
lien improvements which the mortgagor
may subsequently acquire in connection
with real property already mortgaged is
valid.
- A co-owner has the full ownership of his
part & he may mortgage his part except
when personal rights are involved.
- The mortgagor retains possession of the
property mortgaged as security for the
payment of the sum borrowed from the
mortgagee-creditor.
- Mortgagee in possession is not entitled
to reimbursement for the value thereof
upon the redemption of the mortgage.
- A mortgage executed by an authorized
agent who signed in his own name
without indicating that he acted for & on
behalf of his principal binds only the
agent & not the principal.
- In addition to the requisites, it is
indispensable that the document in which
it appears be recorded in the Reigstry of
Property. If the instrument isn’t recorded,
the mortgage is nevertheless binding
between the parties (Art. 2125, par. 1)
o Registration only operates as a notice
of the mortgage to others but neither
adds to its validity nor converts an
 invalid mortgage into a valid one
between the parties.
- If the mortgage is a purely private
document, the creditor may recover the
loan, although the mortgage document
evidencing the loan was non-registrable
being a purely private document.
- A registered mortgage right over property
previously sold is inferior of the buyer’s
unregistered right.
- A registered mortgage is superior to a
contract to sell, subject to any liabilities
the owner may have incurred in favor of
the buyer by mortgaging the property
despite his commitment under the
contract to sell.
- A prior registration of a lien creates a
preference.
- If the mortgage is invalid, the principal
obligation remains valid and the
mortgage deed remains as evidence of a
personal obligation
- The mortgage directly and immediately
subjects the property upon which it is
imposed to the fulfillment of the
obligation for whose security it was
constituted. (Art. 2126)
- The mortgage extends to the natural
accessions, improvements, growing fruits
and rents not yet received when the
obligation becomes due (Art. 2127)
- When a mortgage is made to include
new or future improvements on
registered land, said lien attaches vests
on the date of the recording and
registration of the deed of mortgage.
- A mortgage given to secure future
advancements is a continuing security
and is not discharged by the repayment
of the amount named in the mortgage,
until the full amount of all the loans or
advancements obtained are paid.
- The mortgage credit may be alienated or
assigned to a third person, in whole or in
part, with the formalities required by law.
(Art. 2128)
o The alienation or assignment is valid
even if it is not registered.
o Registration is necessary only to affect
third persons.
- 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. (Art. 2129)
o 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 stipulation forbidding the owner from
alienating the immovable mortgaged
shall be void. (Art. 2130)
o The mortgagor-owner’s sale of the
property doesn’t affect the right of the
registered mortgagee to foreclose on
the same even if its ownership had
been transferred to another person
who is bound by the registered
mortgage.
- Foreclosure must be limited to the
amount mentioned in the mortgage
document.
- Once the proceeds have been applied to
the payment on the obligation, the debtor
cannot anymore be required to pay,
unless there is a deficiency between the
amount of the loan and the foreclosure
sale price, because the obligation has
already been extinguished. (State
Investment House, Inc. vs CA)
Mortgagee in possession – one who has
lawfully acquired actual or construction
possession of the premises mortgaged to
hin, standing upon his rights as mortgagee
& not claiming under another title, for the
purpose of enforcing his security upon such
property or making its income help to pay
his debt.
Doctrine of mortgagee in good faith
- Mortgagee has a right to rely in good
faith on what appears on the certificate of
title of the mortgagor to the property
given as security an in the absence of
anything to excite suspicion, he is under
no obligation to look beyond the
certificate.
- Doctrine doesn’t apply to a situation
where the title is still in the name of the
rightful owner & the mortgagor is a
different person pretending to be the
owner.
- Exception: where purchaser/mortgagee
has knowledge of a defect or lack of title
in the vendor or the mortgagee doesn’t
directly deal with the registered owner
Registration – the ministerial act by which a
deed, contract, or instrument is inscribed in
the records of the Office of the Register of
Deeds and annotated on the back of the
TCT covering the registered land subject of
the deed, contract or instrument.
Effects of mortgage:
- If the mortgagor sells the mortgaged
property, the property remains subject to
the fulfillment of the obligation secured
by it. All subsequent purchasers of the
property must respect the mortgage,
however the mortgage must be
registered or they must know its
existence
- Creates merely on encumbrance
Ownership rights of mortgagor
1. Right to sell – what is divested is only his
full right as owner thereof to dispose of
and sell the property, not the
unconditional power to absolutely sell the
property
2. Right of possession – unless the
mortgage should contain some provision
to that effect
3. Right to mortgage – allowed to take a
second or subsequent mortgage on a
property already mortgaged
Essential requisites common to pledge and
mortgage (Art. 2085)
1. Constituted to secure the fulfillment of a
principal obligation
2. Pledgor or mortgagor must be the
absolute owner of the thing pledged or
mortgaged
3. The persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose
Foreclosure
Foreclosure – the remedy available to the
mortgagee by which he subjects the
mortgaged property to the satisfaction of
the obligation to secure which the mortgage
was given where the mortgagor is in default
in the payment of said obligation.
- In general, an action for foreclosure of a
mortgage is limited to the amount
mentioned in the mortgage, EXCEPT
when the mortgage contract intends to
secure future loans or advancements
- Blanket mortgage/dragnet – mortgage
that subsumes all debts of past or future
origin
- Mortgage may be used as a “continuing
security” which secures future
advancements and is not discharged by
the repayment of the amount in the
mortgage
- Alienation or assignment of mortgage
credit is valid even if it is not registered
Acceleration clause – the stipulation stating
that on the occasion of the mortgagor’s
default, the whole sum remaining unpaid
automatically becomes due and
demandable, is allowed.
Kinds of Foreclosure
1. Judicial
2. Extrajudicial
Judicial Foreclosure (Rule 68, ROC):
a) May be availed of by bringing an action
in the proper court which has jurisdiction
over the area wherein the real or
personal (in case of chattel mortgage)
property involved or a portion thereof is
situated
b) If the court finds the complaint to be well-
founded, it shall order the mortgagor to
pay the amount due with interest and
other charges within a period of not less
than 90 days nor more than 120 days
from the entry of judgment. If the
mortgagor fails to pay at the time
directed, the court, upon motion, shall
order the property to be sold to the
highest bidder at a public auction
c) Upon confirmation of the sale by the
court, it shall operate to divest the rights
of all parties to the action and to vest
their rights to the purchaser subject to
such rights of redemption as may be
allowed by law
d) Before the confirmation, the court retains
control of the proceedings
e) Execution of judgment subject to appeal
but not annulment
f) The foreclosure of the property is
completed only when the sheriff’s
certificate is executed, acknowledged
and recorded
The proceeds of the sale shall be applied to
the payment of the:
a) Costs of the sale
b) Amount due to the mortgagee
c) Claims of junior encumbrancers or
persons holding subsequent mortgages
in the order of their priority
d) Balance, if any shall be paid to the
mortgagor
Nature of Judicial Foreclosure Proceedings
1. Quasi in rem action; hence, jurisdiction
may be acquired through publication
2. Foreclosure is the only result or incident
of the failure to pay the debt
3. Survives death of mortgagor
Extrajudicial foreclosure (Act No. 3135)
1. Applies to mortgages where the authority
to foreclose is granted to the mortgagee
2. Authority is not extinguished by death of
mortgagor or mortgagee. This is an
agency coupled with interest
3. Public sale should be made after proper
notice to the public, otherwise it is a
jurisdictional defect which could render
the sale voidable
4. There is no need to notify the mortgagor,
where there is no contractual stipulation
therefor
Proper notice consists of:
a) Posting notice in 3 public place
and/or
b) Publication in newspaper of general
circulation
5. Surplus proceeds of foreclosure sale
belong to the mortgagor
6. Debtor (who must be a natural person)
has the right to redeem the property sold
within 1yr. from and after the date of
sale
a. If the mortgagee is a bank and the
debtor is a juridical person, then there
is no right of redemption. However, it
may redeem the property BEFORE
the registration of the TCT to the
buyer, which is similar to the equity of
redemption. The TCT must be
registered within THREE MONTHS
after the foreclosure
b. The mortgagor can only legally
transfer the right to redeem and the
use of the property during the period
of redemption
7. Remedy of party aggrieved by
foreclosure is a petition to set aside sale
and the cancellation of writ of
possession. However, if the mortgagee is
a bank, the mortgagor is required to post
a bond equal to the value of the
mortgagee’s claim.
8. Republication of the notice of sale is
necessary for the validity of the
postponed extrajudicial sale
9. In foreclosure of real estate mortgage
under Act 3135, the buyer at auction may
petition the land registration court for a
writ of possession pending the one-year
period of redemption of the foreclosed
property
Nature of power of foreclosure by
extrajudicial sale
1. Conferred for mortgagee’s protection
2. An ancillary stipulation
3. A prerogative of the mortgagee
Note:
- Both should be distinguished from
execution sale governed by Rule 39 of
ROC
- Foreclosure retroacts to the date of
registration of the mortgage
- A stipulation of upset price or the
minimum price at which the property
shall be sold to become operative in the
event of a foreclosure sale at public
auction, is null & void.
Right of mortgagee to recover deficiency
1. Mortgagee is entitled to recover
deficiency
2. If the deficiency is embodied in a
judgment, it is referred to as deficiency
judgment
3. Action for recovery of deficiency may be
filed even during redemption period
4. Action to recover prescribes after 10yrs.
From the time the right of action accrues
Effect of inadequacy of price in foreclosure
sale
1. Where there is right to redeem,
inadequacy of price is immaterial
because the judgment debtor may
redeem the property
a. Exception: Where 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 it is 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.
A suit for the recovery of the deficiency after
the foreclosure of a mortgage is in the
nature of a mortgage action because its
purpose is precisely to enforce the
mortgage contract. [Caltex v. IAC]
Waiver of security by creditor
1. Mortgagee may waive the right to
foreclose his mortgage and maintain a
personal action for recovery of the
indebtedness
2. Mortgagee cannot have both remedies.
This is because he only has one cause of
action, the non-payment of the mortgage
debt
Redemption
1. It is a transaction by which the mortgagor
reacquires the property which may have
passed under the mortgage or divests
the property of the lien which the
mortgage may have created
2. Kinds:
a. Equity of redemption: in judicial
foreclosure of real estate mortgage
under the ROC, it is the right of the
mortgagor to redeem the mortgaged
property by paying the secured debt
within the 120 day period from entry of
judgment or after the foreclosure sale,
but before the sale of the mortgaged
property or confirmation of sale
i. formal offer to redeem preserves
the right of redemption, e.g., by
filing an action to enforce the right
to redeem
 b. Right of redemption: in extrajudicial
foreclosure of real estate mortgage,
the right of the mortgagor to redeem
the property within a certain period
after it was sold for the satisfaction of
the debt
i. For natural persons – one year from
the registration of the TCT
ii. For juridical persons – three
months from the foreclosure
iii. Formal offer to redeem must be
with tender of redemption price to
preserve right of redemption
Note: There is no right of redemption in
pledge and chattel mortgage.
CHATTEL MORTGAGE (Act No. 1508)
Chattel mortgage – 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
[Section 3, Act 1508]
Characteristics
- Accessory
- Formal
- Unilateral
- Excess of the proceeds of the sale goes
to the debtor/mortgagor
- Creditor/mortgagee can recover
deficiency from the debtor/mortgagor
except if covered by the Recto Law
Registration
Period within which registration should be
made
- The law is substantially & sufficiently
complied with where the registration is
made by the mortgagee before the
mortgagor has complied with his principal
obligation and no right of innocent third
persons is prejudiced.
Effect of registration
1. Creates real rights
2. Adds nothing to mortgage
Registration of assignment of mortgage not
required
a) A chattel mortgage may be alienated or
assigned to a third person
b) The debtor is protected if he pays his
creditor without actual knowledge that
the debt has been assigned
c) Affidavit of good faith is required
Affidavit of good faith – 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.”
Effect of absence: Mortgage is vitiated only
as against 3rd persons without notice.
Venue of registration
- If he resides in the Philippines, in the
office of the register of deeds of the
province in which the mortgagor resides
at the time of the making of the chattel
mortgage
- If he does not reside in the Philippines,
in the province in which the property is
situated
- If the property is situated in a province
different from that in which the mortgagor
resides, the mortgage shall be recorded
in both provinces. [Sec. 4, Act 1508]
Notes on Chattel Mortgage
- When a corporation is a party to a chattel
mortgage, the affidavit may be made and
subscribed by a director, trustee, cashier,
treasurer, or manager thereof, or by a
 person authorized to make or receive
such mortgage
- When a partnership is a party, the
affidavit may be made and subscribed by
one member thereof
Validity of Chattel Mortgage (Sec. 4)
Chattel mortgage shall not be valid against
any person except the mortgagor, his
executors or administrators unless:
1. The possession of the property is
delivered to and retained by the
mortgagee or
2. The mortgage is recorded
Formal requisites [Sec. 5]
a) It should substantially comply with the
form prescribed by law
b) It should be signed by the person/s
executing the same in the presence of
two witnesses who shall sign the
mortgage as witnesses to the execution
thereof and
c) Each mortgagor and mortgagee or, in the
absence of the mortgagee, his agent or
attorney, shall make and subscribe an
affidavit in the form prescribed by law,
which affidavit, signed by the parties to
the mortgage and the two witnesses and
the certificate of the oath signed by the
person authorized to administer an oath
shall be appended to such mortgage and
recorded therewith
Description of the property – the mortgaged
property should be described such as to
enable the parties to the mortgage, or any
person, after reasonably inquiry and
investigation, to identify the same
Large cattle as chattel mortgage
- The description shall contain the brands,
class, sex, age, knots or radiated hair or
remolinos or cowlicks and other marks of
ownership as described and set forth in
the certificate of ownership of said
animal/s, together with the number and
place of issue of such certificates of
ownership.
Growing crops as chattel mortgage
- The mortgage may contain an agreement
stipulating that the mortgagor binds
himself properly to tend, care for and
protect the crop while growing, and that
in default of the performance of such
duties, the mortgagee may enter upon
the premises, take all the necessary
measures for the protection of said crop
and retain possession thereof and sell
the same, and from the proceeds of such
sale pay all expenses incurred in caring
for, harvesting, and selling the crop and
the amount of the indebtedness or
obligation secured by the mortgage, and
the surplus, if any, shall be paid to the
mortgagor or those entitled to the same
Property covered by CM
- Only the property described therein and
not like or substituted property thereafter
acquired by the mortgagor and placed in
the same depository as the property
originally mortgaged, anything in the
mortgage to the contrary
notwithstanding. [Sec. 8, Act 1508]
Breaches
Failure of mortgagee to discharge the
mortgage
If the mortgagee, assign, administrator,
executor or either of them,
1. After performance of the condition before
or after the breach thereof, or
2. After tender of the performance of the
condition, at or after the time fixed for the
performance, does not within ten days
after being requested thereto by any
person entitled to redeem, discharge the
mortgage in the manner provided by law,
the person entitled to redeem may
recover of the person whose duty it is to
discharge the same, twenty pesos for his
neglect and all damages occasioned
 thereby in an action in any court having
jurisdiction of the subject-matter thereof.
[Sec. 8]
When the condition of the chattel mortgage
is broken, a mortgagor or person holding a
subsequent mortgage, or a subsequent
attaching creditor may redeem the same by
paying or delivering to the mortgagee the
amount due on such mortgage and the
reasonable costs and expenses incurred by
such breach of condition before the sale
thereof. An attaching creditor who so
redeems shall be subrogated to the rights of
the mortgagee and entitled to foreclose the
mortgage in the same manner that the
mortgagee could foreclose it.
Foreclosure
- The mortgagee, his executor,
administrator or assign may cause the
mortgaged property or any part thereof to
be sold at a public auction by a public
officer
1. After 30 days from the time of
condition broken
2. At a public place in the municipality
where the mortgagor resides, or
where the property is situated
3. Provided at least 10 day-notice of the
time, place, and purpose of such sale
has been posted at 2 or more public
places in such municipality
4. The mortgagee, his executor,
administrator, or assign shall notify
the mortgagor or person holding
under him and the persons holding
subsequent mortgages of the time
and place of sale at least 10 days
previous to the sale:
a. either by notice in writing directed
to him or left at his abode, if within
the municipality, or
b. sent by mail if he does not reside
in such municipality
Disposition of Proceeds
The proceeds of the sale shall be applied to
the payment:
1. first, to the costs and expenses of
mortgage
2. the residue shall be paid to persons
holding subsequent mortgages in their
order
3. the balance, after paying the mortgages,
shall be paid to the mortgagor or person
holding under him on demand
ANTICHRESIS
Antichresis – a contract whereby the
creditor acquires the right to receive the
fruits of an immovable of the debtor, with
the obligation to apply then to the payment
of the interest, if owing, and thereafter to
the principal of the credit. [Art. 2132]
Characteristics
1. accessory
2. formal – must be in a specified form to be
valid [Art. 2134]
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, not to
make the contract binding
3. amount of principal and interest must be
specified in writing [Art. 2134]
4. express agreement that debtor will give
possession of the property to creditor
and that the latter will apply the fruits to
the interest, if any, then to the principal of
his credit.
Note: The obligation to pay interest is not
the essence of the contract of antichresis;
there being nothing in the Code to show
that antichresis is only applicable to
securing the payment of interest-bearing
loans. On the contrary, antichresis is
susceptible of guaranteeing all kinds of
obligations, pure or conditional.
Obligations of Antichretic Creditor
1. To pay taxes and charges on the estate,
including necessary expenses [Art.
2135].
Creditor may avoid said obligation by:
a) compelling the debtor to reacquire
enjoyment of the property
b) by 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 account of the fruits to the
debtor
4. To bear the expenses necessary for 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 a foreclosure of mortgage under
Rule 68 of ROC [Art. 2137]
a. The parties, however, may agree on
an extrajudicial foreclosure in the
same manner as they are allowed in
contracts of mortgage and pledge
[Tavera v. El Hogar Filipino, Inc.]
b. A stipulation authorizing the antichretic
creditor to appropriate the property
upon the non-payment of the debt
within the agreed period is void [Art.
2088]