NEGO FINALS
Article 2088. The creditor cannot appropriate
B. Pledge, Mortgage and Antichresis
1. Common Provisions of Pledge and Mortgage
CHAPTER 1
Provisions Common to Pledge and Mortgage
Article 2085. The following requisites are
essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
(2) That the pledgor 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 the absence thereof, that they
be legally authorized for the purpose.
Third persons who are not parties to the
principal obligation may secure the latter by
pledging or mortgaging their own property.
(1857)
Article 2086. The provisions of article 2052 are
applicable to a pledge or mortgage. (n)
Article 2087. It is also of the essence of these
contracts that when the principal obligation
becomes due, the things in which the pledge or
mortgage consists may be alienated for the
payment to the creditor. (1858)
the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the
contrary is null and void. (1859a)
Article 2089. A pledge or mortgage is
indivisible, even though the debt may be
divided among the successors in interest of the
debtor or of the creditor.
Therefore, the debtor's heir who has paid a
part of the debt cannot ask for the
proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely
satisfied.
Neither can the creditor's heir who received his
share of the debt return the pledge or cancel
the mortgage, to the prejudice of the other
heirs who have not been paid.
From these provisions is excepted the case in
which, there being several things given in
mortgage or pledge, each one of them
guarantees only a determinate portion of the
credit.
The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as
the portion of the debt for which each thing is
specially answerable is satisfied. (1860)
Article 2090. The indivisibility of a pledge or
mortgage is not affected by the fact that the
debtors are not solidarily liable. (n)
Article 2091. The contract of pledge or
mortgage may secure all kinds of obligations,
be they pure or subject to a suspensive or
resolutory condition. (1861)
Article 2092. A promise to constitute a pledge
or mortgage gives rise only to a personal action
between the contracting parties, without
prejudice to the criminal responsibility incurred
by him who defrauds another, by offering in
pledge or mortgage as unencumbered, things
which he knew were subject to some burden,
or by misrepresenting himself to be the owner
of the same. (1862)
2. Pledge (2093 to 2123)
● Definition
- A type of security interest in
which a lender takes possession
of personal property as security
for an obligation.
- 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
● As distinguished from Real Estate
Mortgage
a. Pledge is constituted on movables
(Art 2094), while mortgage on
immovables (Art 2124);
b. In pledge, the property is
delivered to the pledgee, or by
common consent to third person
(Art 2093), while in mortgage,
delivery is not necessary; and
c. Pledge is not valid against third
persons unless a description of
the thing pledged and the date of
the pledge appear on a public
instrument (Art 2096), while
mortgage is not valid against third
persons if not registered even if
embodied in a public instrument.
(Art 2125).
- Note: Both are extinguished by
the fulfillment of the principal
obligation and by the destruction
of the property pledged or
mortgaged.
● Requisites of a valid pledge
1. It be constituted to secure the
fulfillment of a principal
obligation
2. The pledgor be the absolute
owner of the thing pledged
3. That the persons constituting
the pledge have the free
disposal of the property and in
the absence thereof, that they
be legally authorized for the
purpose
4. The pledge is perfected by the
delivery of the thing pledged
5. When the principal obligation
becomes due, the things, which
the pledge consists, may be
alienated for the payment of the
creditor.
● Sale and recovery of deficiencies
- Under the new law, the secured
creditor, whether a mortgagee or
 pledgee, shall account to the
grantor for any surplus, and,
unless otherwise agreed, the
debtor is liable for any deficiency.
CHAPTER 2
Pledge
Article 2093. In addition to the requisites
prescribed in 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. (1863)
Article 2094. All movables which are within
commerce may be pledged, provided they are
susceptible of possession. (1864)
Article 2095. Incorporeal rights, evidenced by
negotiable instruments, bills of lading, shares
of stock, bonds, warehouse receipts and similar
documents may also be pledged. The
instrument proving the right pledged shall be
delivered to the creditor, and if negotiable,
must be indorsed. (n)
Article 2096. A pledge shall not take effect
against third persons if a description of the
thing pledged and the date of the pledge do
not appear in a public instrument. (1865a)
Article 2097. With the consent of the pledgee,
the thing pledged may be alienated by the
pledgor or owner, subject to the pledge. The
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. (n)
Article 2098. The contract of pledge gives a
right to the creditor 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.
(1866a)
Article 2099. The creditor 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 or
deterioration, in conformity with the provisions
of this Code. (1867)
Article 2100. The pledgee cannot deposit the
thing pledged with a third person, unless there
is a stipulation authorizing him to do so.
The pledgee is responsible for the acts of his
agents or employees with respect to the thing
pledged. (n)
Article 2101. The pledgor has the same
responsibility as a bailor in commodatum in the
case under article 1951. (n)
Article 2102. If the pledge earns or produces
fruits, income, dividends, or interests, the
creditor shall compensate what he receives
with those which are owing him; but if none
are owing him, or insofar as the amount may
exceed that which is due, he shall apply it to
the principal. Unless there is a stipulation to
the contrary, the pledge shall extend to the
interest and earnings of the right pledged.
In case of a pledge of animals, their offspring
shall pertain to the pledgor or owner of animals
pledged, but shall be subject to the pledge, if
there is no stipulation to the contrary. (1868a)
Article 2103. Unless the thing pledged is
expropriated, the debtor continues to be the
owner thereof.
Nevertheless, the creditor may bring the
actions which pertain to the owner of the thing
pledged in order to recover it from, or defend it
against a third person. (1869)
Article 2104. The creditor cannot use the thing
pledged, without the authority of the owner,
and if he should do so, or should misuse the
thing in any other way, the owner may ask that
it be judicially or extrajudicially deposited.
When the preservation of the thing pledged
requires its use, it must be used by the creditor
but only for that purpose. (1870a)
Article 2105. The debtor cannot ask for the
return of the thing pledged against the will of
the creditor, unless and until he has paid the
debt and its interest, with expenses in a proper
case. (1871)
Article 2106. If through the negligence or wilful
act of the pledgee, the thing pledged is in
danger of being lost or impaired, the pledgor
may require that it be deposited with a third
person. (n)
Article 2107. If there are reasonable grounds to
fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the
pledgor may demand the return of the thing,
upon offering another thing in pledge, provided
the latter is of the same kind as the former and
not of inferior quality, and without prejudice to
the right of the pledgee under the provisions of
the following article.
The pledgee is bound to advise the pledgor,
without delay, of any danger to the thing
pledged. (n)
Article 2108. If, without the fault of the
pledgee, there is danger of destruction,
impairment, or diminution in value of the thing
pledged, he may cause the same to be sold at a
public sale. The proceeds of the auction shall
be a security for the principal obligation in the
same manner as the thing originally pledged.
(n)
Article 2109. If the creditor is deceived on the
substance or quality of the thing pledged, he
may either claim another thing in its stead, or
demand immediate payment of the principal
obligation. (n)
Article 2110. If the thing pledged is returned by
the pledgee to the pledgor or owner, the
pledge is extinguished. Any stipulation to the
contrary shall be void.
If subsequent to the perfection of the pledge,
the thing is in the possession of the pledgor or
owner, there is a prima facie presumption that
the same has been returned by the pledgee.
This same presumption exists if the thing
pledged is in the possession of a third person
who has received it from the pledgor or owner
after the constitution of the pledge. (n)
Article 2111. A statement in writing by the
pledgee that he renounces or abandons the
pledge is sufficient to extinguish the pledge. For
this purpose, neither the acceptance by the
pledgor or owner, nor the return of the thing
pledged is necessary, the pledgee becoming a
depositary. (n)
Article 2112. The creditor to whom the credit
has not been satisfied in due time, may
proceed before a Notary Public to the sale of
the thing pledged. This sale shall be made at a
public auction, and 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. If at the first auction
the thing is not sold, a second one with the
same formalities shall be held; and if at the
second auction there is no sale either, the
creditor may appropriate the thing pledged. In
this case he shall be obliged to give an
acquittance for his entire claim. (1872a)
Article 2113. At the public auction, the pledgor
or owner may bid. He shall, moreover, have a
better right if he should offer the same terms
as the highest bidder.
The pledgee may also bid, but his offer shall not
be valid if he is the only bidder. (n)
Article 2114. All bids at the public auction shall
offer to pay the purchase price at once. If any
other bid is accepted, the pledgee is deemed to
have been received the purchase price, as far
as the pledgor or owner is concerned. (n)
Article 2115. The sale of the thing pledged shall
extinguish the principal obligation, whether or
not the proceeds of the sale are equal to the
amount of the principal obligation, interest and
expenses in a proper case. If the price of the
sale is more than said amount, the debtor shall
not be entitled to the excess, unless it is
otherwise agreed. If the price of the sale is less,
neither shall the creditor be entitled to recover
the deficiency, notwithstanding any stipulation
to the contrary. (n)
Article 2116. After the public auction, the
pledgee shall promptly advise the pledgor or
owner of the result thereof. (n)
Article 2117. Any third person who has any
right in or to the thing pledged may satisfy the
principal obligation as soon as the latter
becomes due and demandable. (n)
Article 2118. If a credit which has been pledged
becomes due before it is redeemed, the
pledgee may collect and receive the amount
due. He shall apply the same to the payment of
his claim, and deliver the surplus, should there
be any, to the pledgor. (n)
Article 2119. If two or more things are pledged,
the pledgee may choose which he will cause to
be sold, unless there is a stipulation to the
contrary. He may demand the sale of only as
many of the things as are necessary for the
payment of the debt. (n)
Article 2120. If a third party secures an
obligation by pledging his own movable
property under the provisions of article 2085
he shall have the same rights as a guarantor
under articles 2066 to 2070, and articles 2077
to 2081. He is not prejudiced by any waiver of
defense by the principal obligor. (n)
Article 2121. Pledges created by operation of
law, such as those referred to in articles 546,
1731, and 1994, are governed by the foregoing
articles on the possession, care and sale of the
thing as well as on the termination of the
pledge. However, after payment of the debt
and expenses, the remainder of the price of the
sale shall be delivered to the obligor. (n)
Article 2122. A thing under a 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 one 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
the thing. (n)
Article 2123. With regard to pawnshops and
other establishments, which are engaged in
making loans secured by pledges, the special
laws and regulations concerning them shall be
observed, and subsidiarily, the provisions of
this Title. (1873a)
3. Real Estate Mortgage
● Defined
- Mortgage otherwise known as
Real Estate mortgage or Real
Mortgage is a contract whereby
the debtor secures to the creditor
the fulfillment of the principal
obligation, especially subjecting
to such security immovable
property or real rights over
immovable property in case the
principal obligation is not
complied with at the time
stipulated
● Kinds
a. Voluntary – one which is agreed
to between the parties or
constituted by the will of the
owner of the property on which it
is created (Art 138, Spanish
Mortgage Law)
b. Legal – one required by law to be
executed on favor of certain
persons (Art 2125, par 2; see also
Arts 2082, 2083)
c. Equitable – one which, although it
lacks the proper formalities of a
mortgage, show the intention of
the parties to make the property
as a security for a debt.
● Characteristics
a. Real
b. Accessory
c. Unilateral; and
d. Subsidiary contract
● Requisites of a valid mortgage
1. A mortgage is an accessory
contract to a principal obligation.
In order to exist, a mortgage must
be constituted to secure the
fulfillment of that principal
obligation;
2. The mortgagor must be the
absolute owner of the thing
pledged or mortgaged;
3. The persons constituting the
mortgage must have the free
disposal of his property, or be
legally authorized for the
purpose.
● Foreclosure
- Foreclosure is a remedy available
to the mortgagee by which he
subject the mortgaged property
to the satisfaction of the
obligation to secure which the
mortgage was given through the
sale of the property at public
auction and the application of the
proceeds to the payment of his
claims.
○ Kinds
■ Judicial - A mortgage may
be foreclosed judicially by
bringing an action for that
purpose in the Regional
Trial Court of the province
or city the real property is
located or any part thereof
lies
■ Extrajudicial - A mortgage
may be foreclosed
extra-judicially where
there is inserted in the
contract a clause giving the
mortgagee the prior upon
default of the debtor to
foreclose the mortgage by
an extra-judicial sale of the
mortgaged property (Sec
1, Art No. 3155 as
amended by Act no 4148)
○ Equity of Redemption - the right
of the mortgagor to redeem the
mortgaged property after his
default in the performance of the
conditions of the mortgage but
before the sale of the mortgaged
property. In judicial foreclosure,
the mortgagor may exercise his
equity of redemption before and
not after the sale is confirmed by
the court
○ Right of Redemption - the right
of the mortgagor to redeem the
mortgaged property with a
certain period after is was sold for
the satisfaction of the mortgaged
debt. In all cases of extra –
judicial sale, the mortgagor may
redeem the property at any time
within the term of one year from
and after the date of the
registration of the sale. In judicial
foreclosure, the general rule is
that the mortgagor cannot
exercise his right of redemption
after the sale is confirmed by an
order of the Court
CHAPTER 3
Mortgage
Article 2124. Only the following property may
be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the
laws, imposed upon immovables.
Nevertheless, movables may be the object of a
chattel mortgage. (1874a)
Article 2125. In addition to the requisites
stated in article 2085, it is indispensable, in
order that a mortgage may be validly
constituted, that the document in which it
appears be recorded in the Registry of
Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the
parties.
The persons in whose favor the law establishes
a mortgage have no other right than to demand
the execution and the recording of the
document in which the mortgage is formalized.
(1875a)
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)
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)
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)
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)
Article 2130. A stipulation forbidding the
owner from alienating the immovable
mortgaged shall be void. (n)
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)
4. Personal Property and Security Act of 2018
(R.A. 11057)
● Security Interest
- a property right in collateral that
secures payment or other
performance of an obligation,
regardless of whether the parties
have denominated it as a security
interest, and regardless of the
type of asset, the status of the
grantor or secured creditor, or the
nature of the secured obligation;
including the right of a buyer of
accounts receivable and a lessor
under an operating lease for not
less than one (1) year
● Security Contract
● Collateral
● Perfection of Security Interest
● Priority of Security Interest
● Registry
● Enforcement of Security Interest

5. Antichresis
● Defined
- By the contract of antichresis, the
creditor acquires the right to
receive the fruits of an
immovable of his debtor with the
obligation to apply them to the
payment of the interest, if owing,
and thereafter to the principal of
his credit. (Art. 2132)
- It is also known as a 'mortgage in
possession" It entailed the lawfu I
acquisition by the mortgage of
the possession, actually or
constructively, of the premises
mortgaged, with creditor standing
upon the rights merely as a
mortgagee and not as an owner,
for the purpose of securing the
security upon such property and
allowing its income to pay for the
debt.
● Characteristics
1. Accessory Contract
2. Formal one
3. Indivisible (Art. 2139 in relation to
Arts. 2089 & 2090}
4. It can secure all kinds of
obligations, pure, or subject to
suspensive or resolutory
condition. ( Art. 2139 in relation
to Art. 2091)
● Requisites
1. It is an accessory contract to
secure the performance of a
principal contract.
2. It must be in writing and must
specify the amount of the
principal and the interest payable,
otherwise the contract of
antichresis is void. ( Art. 2134)
3. The creditor is entitled to the
fruits of an immovable property
of the debtor.
4. The creditor must apply the fruits
gathered to the payment of
interest and the balance to the
principal.
● Rights and Obligations of the
Antichretic creditor
1. In the absence of any contrary
stipulation, creditor shall pay the
taxes and other charges on the
immovable. He becomes liable to
pay the debtor damages if he fails
to pay such taxes and charges.
2. He shall bear the expenses
necessary for its preservation and
repair.
- He is however entitled to recover
the above expenses by deducting
the same from the fruits
obtained.
CHAPTER 4
Antichresis
Article 2132. By the contract of antichresis the
creditor acquires the right to receive the fruits
of an immovable of his debtor, with the
obligation to apply them to the payment of the
interest, if owing, and thereafter to the
principal of his credit. (1881)
Article 2133. The actual market value of the
fruits at the time of the application thereof to
the interest and principal shall be the measure
of such application. (n)
Article 2134. The amount of the principal and
of the interest shall be specified in writing;
otherwise, the contract of antichresis shall be
void. (n)
Article 2135. The creditor, unless there is a
stipulation to the contrary, is obliged to pay the
taxes and charges upon the estate.
He is also bound to bear the expenses
necessary for its preservation and repair.
Article 2138. The contracting parties may
stipulate that the interest upon the debt be
compensated with the fruits of the property
which is the object of the antichresis, provided
that if the value of the fruits should exceed the
amount of interest allowed by the laws against
usury, the excess shall be applied to the
principal. (1885a)
Article 2139. The last paragraph of article 2085,
and articles 2089 to 2091 are applicable to this
contract. (1886a)

The sums spent for the purposes stated in this

article shall be deducted from the fruits. (1882)

Article 2136. The debtor cannot reacquire the

enjoyment of the immovable without first
having totally paid what he owes the creditor.

But the latter, in order to exempt himself from

the obligations imposed upon him by the
preceding article, may always compel the
debtor to enter again upon the enjoyment of
the property, except when there is a stipulation
to the contrary. (1883)

Article 2137. The creditor does not acquire the

ownership of the real estate for non-payment
of the debt within the period agreed upon.

Every stipulation to the contrary shall be void.

But the creditor may petition the court for the
payment of the debt or the sale of the real
property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply. (1884a)