Nego finals

Pledge – an accessory, real, unilateral contract by virtue of which the debtor delivers to the creditor or
to a third person a movable property as a security for the performance of the principal obligation,
upon fulfillment of which the thing is pledged, will all its accessions and accessories, shall be returned to
the debtor or the third person.

Subject Matter – Movable

Characteristics:

- Constitute to secure fulfillment of a principal obligation

- Pledgor must be the absolute owner of the thing pledged
- Pledgor must have free disposal of the property
- Thing pledge should be placed in possession of the creditor (there is a delivery here, it is a real
contract)
- The description of the thing pledged and the date of the pledge must appear in public
instrument

How does contract of pledge work?

- It’s much liked a mortgage that if there is a failure to pay the principal obligation, the thing
subject of the pledge can be sold extrajudicially at auction, so that the proceeds of the sale of
the thing subject to a pledge can now be applied to the principal obligation

Pledge is not valid if there is no delivery. (It is a real contract, it is perfected upon delivery)

Much like a mortgage, a pledge is a security that if there is a failure to fulfill the principal obligation, let’s
say to pay the loan of 1 million pesos, the thing subject to a pledge may be sold extrajudicially at auction
to the highest bidder so that at the end the proceeds of the sale can be applied to the principal
obligation

How different pledge to mortgage?

The subj matter of a pledge is a movable property while in real estate mortgage the subj is an
immovable property. As a rule, a pledge is always in a public instrument.

While in mortgage, as a rule, it may not be in a public instrument BUT for the purposes of registration it
is a public instrument. Again, a mortgage in writing binds the parties, but for there to be a third person
to be prejudice so that it may also apply to a third person it’s in a public instrument and registered with
the registry of deeds.

In contract of pledge, there is no right of redemption.

What is the right of redemption?

After the sale, the former owner of the thing subject to a pledge, the debtor, will not be able to buy back
the thing subject to a pledge even if he has the money to do so.

While in mortgage, generally, there is the right of redemption, subject to the rules on whether it is
judicial foreclosure or extrajudicial foreclosure. But generally, in mortgage the right of redemption is
given while in pledge there is no right of redemption.

Chattel Mortgage

Art. 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.

Insofar as real estate mortgage is concern, there need not be delivery. Insofar as chattel mortgage is
concern, there need not be delivery. It is not necessary for the thing subject to mortgage to be delivered
for there to be a valid mortgage. Whereas for a pledge, there needs to be delivery on the thing subject to
a pledge before it can be called a pledge.

What is the common subj matter of chattel mortgage?

- Car loan, wherein you apply for a loan in a bank or financing company and they finance and they
allow you to have a loan and you get to buy a car. You shall also execute a deed of chattel
mortgage in favor of the bank. (You are the mortgagor; the bank is the mortgagee) If I fail to pay
a certain number of amortizations, they have the right to foreclose the mortgage and have
action of replevin over your car.
- It can also be any other property (jewelry, etc.)

Formalities of a Chattel Mortgage

- Signed by the person executing it in the presence of 2 witnesses

- Witnesses shall sign such in the document
- Each mortgagor and mortgagee shall sign the affidavit in good faith
- Affidavit of good faith and certificate of oath signed by the administering authority shall be
appended to the mortgage and recorded

What if I was able to pay the loan to my car, what should I do now?

- Request for a cancellation of a mortgage so that the car may now be transferred in your name.
1:15:00