GROUP 3: THE CONTRACT OF PLEDGE, MORTGAGE, AND AGENCY

ELEAH KIM PAMPLONA

What is pledge and mortgage?

Pledge is an agreement made between pledgor and pledgee and most significantly it talks
about the property that must be hand over as a financial guarantee for paying the debt or for
the purpose of securing the fulfilment of a principal obligation with the understanding that
when the obligation is extinguished or fulfilled, the thing delivered shall be returned to the
pledgor. In contrast, mortgage is an agreement between the mortgagor and mortgagee that
gives the right to take your property if you fail to repay the money you’ve borrowed plus
interest. Pledge is constituted on movables like cars, jewelleries and documents while,
mortgage is constituted on immovables like land and building.

Note: The contract of Pledge, Mortgage and Agency are under the article 2085-2123.
2085- provides the following requisites that are essential to the contract of pledge and
mortgage.

PROVISIONS COMMON TO PLEDGE AND MORTGAGE

● Common requisites of pledge and mortgage
1. That they be constituted to secure the fulfilment of a principal obligation.
Note: Pledge and mortgage cannot exist without the existence of a principal obligation.
Example, si Chelsey ay nanghiram sa akin nang 50 thousand then our agreement is
kailangan mabayaran nya yung utang within 12 months but in order to secure the
fulfilment of a principal obligation gi pledged or mortgaged ni Chelsey ang iyang
property worth 50 thousand that if ever hindi ako mabayaran ni Chelsey after 12
months, the thing pledged or mortgaged will be mine in a sense of paying her debt.
2. That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged.
Note: (a) Pledgor or mortgagor must be the absolute owner kasi if not magiging void
yan pag hindi yan na’follow, and that would be the reason why yung future property
cannot be pledged or mortgaged. ((b) Third person may pledge or mortgage their
property for the purpose of securing another person’s debt. Like for example, kaibigan
mo si debtor tapos gusto mo syang tulungan makabayad sa utang so, plenedge mo yung
motor mo tapos transfer mo kay creditor. Third person ka at labas ka dyan sa principal
obligation but because kaibigan mo si debtor that’s why plenedge mo yung motor mo so
pwede yan. Therefore, it is not necessary that the debtor is always the pledgor or
mortgagor kasi pwedeng si third person magiging pledgor or mortgagor. However, they
can be held only to the extent of the value of their property.
3. That the person constituting the pledge or mortgage have the free disposal of
the property, and in the absence thereof, that they be legally authorized for the
purpose.
Note: The act of pledging or mortgaging is act of strict ownership involving as it does
the alienation or transmission of real right in property. In alienation you can’t transfer
or sell the property without any restriction, yan yung sinasabi na “you can’t be
alienated.”
● When thing pledge or mortgage may be sold or alienated to pay debt
1. Before maturity
Note: The thing pledged or mortgaged cannot be sold or alienated since payment of the
debt cannot yet be compelled.
2. At maturity
Note: Upon default of the debtor to pay the obligation at maturity, the thing pledged or
mortgaged may be sold or otherwise alienated to pay the creditor. (Art. 2087, it is the
essence of these contracts that when the principal obligation becomes due, the things in
which the pledge or mortgage consist may be alienated for the payment to the creditor).
● Appropriation of the thing pledged or mortgaged
Note: Under Article 2088, it says that the creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose them. Any stipulation to the contrary is null and void.
1. Pactum Commissorium
Concept,
This is a stipulation in a pledge or mortgage which provides for automatic forfeiture,
i.e., that ownership of the thing pledged or mortgaged shall pass to the creditor.
2. Appropriation of property pledge and mortgage
● Indivisibility of pledge and mortgage
1. Indivisibility among heirs of debtor
2. Indivisibility among heirs of creditor
● Promise to constitute pledge or mortgage
- it gives rise only to a personal action between the contracting parties.
Note: Pag nag promise kayo na papasok kayo sa contract of pledge ang mangyayari
lang ay magkakaroon na ng personal action, meaning magkakaroon nang personal
rights.

PLEDGE
KINDS OF PLEDGE
a. Conventional or voluntary
- that which is constituted by the mutual consent of the pledgor and the pledgee.
b. Legal
- which is created by the operation of law.
Conventional Pledge
Requisites,
● That it be constituted to secure the fulfilment of a principal obligation. (Art. 2085)

● That the pledgor be the absolute owner of the thing pledged or mortgaged.

● That the person constituting the pledge has the free disposal of his property, and in the
absence thereof, that he be legally authorized for the purpose.
● That the thing pledged be placed in the possession of the creditor, or of a third person
by common agreement.
Note: in addition to the above requisites, the thing pledged must be delivered to the
creditor or third person by common agreement.
Necessity of actual or physical delivery
Note: without delivery, there is no pledge.
OBJECT OF THE PLEDGE
 ● All movables within the commerce of men which are susceptible of possession. (Art.
2094)
● Incorporeal rights evidence by negotiable instruments, bills of lading, shares of
stocks, bonds, warehouse receipts and similar documents.
FORM OF PLEDGE
1. Between parties
2. As regards third person

JENNEYVEB ESCREBANO

EXTINGUISHMENT OF PLEDGE
Pledge may be extinguished directly or indirectly.

1) Indirectly cause -When the principal obligation secured by the pledge is

extinguished, the pledge, being merely an accessory contract, is likewise
extinguished.
2) Direct causes -Pledge may be extinguished directly as follows:
a. Return by the pledgee of the thing pledged to the pledgor or owner.
1) Any stimulation that the pledge is not extinguished by the return of the thing is void.
2) Prima facie presumption that pledgee returned the thing pledged.
b. Renunciation or abandonment in writing by the pledgee of the pledge.
c. Sale of the thing pledged
1.) Formalities of the sale
2.) Who may bid at the public auction
a. The pledgor or owner
b. The pledge
c. Third persons
3.) Required number of bids.
-All bids shall offer to pay the purchase price at once.
4.) Effect of sale
5.) Rule when two or more things are pledged
-The pledgee may choose which he will cause to be sold.

LEGAL PLEDGE
Concept
-Legal pledge by operation of the right of a person to retain a thing until he
receives payment of his claim.

Examples of legal pledge

1.) Possessory lien by a possessor in good faith
2.) Possessory lien of worker
3.) Depositary's right of retention

Rules application to legal pledge

1.) The thing may be sold only after demand of the amount for which the thing is retained.
2.) The public auction shall take place within one month after such demand.
3.) If without just grounds, the creditor does not cause the public sale to be held within such
period.
4.) After the payments debt and expenses.

Conventional pledge and legal pledge distinguished on excess of proceeds of sale or

deficiency
1.) Proceeds of sale exceed amount of debt
2.) On recovery of deficiency

Special Laws on pawnshops and similar establishments

-The special laws and regulations concerning them, and subsidiarily by the provisions of
pledge in the Civil Code (Art. 2123)

REAL MORTGAGE
Requisites of real mortgage
Important characteristics of real mortgage:
1.) Accessory
2.) Indivisible
3.) Inseparable
4.) Real right
5.) Real property

Kinds of real mortgage

1.) Conventional or voluntary mortgage
2.) Legal mortgage
3.) Equitable mortgage

Object of real mortgage

1.) Immovables
2.) Alienable real rights in accordance with the laws, imposed on immovables (Art. 2124).

Form of real mortgage

1.) Between the parties
-The real mortgage may be in any form since it is a consensual contact.

2.) As regards third persons

-The real mortgage must be recorded in the Registry of property.

Extent of real mortgage

A contract of real mortgage shall cover the following:
1.) The property mortgage.
2.) Natural accessions.
3.) Improvements.
4.) Growing fruit.
5.) Rents and income not yet received when the obligation becomes due.
6.) Indemnity granted or owing to the proprietor from the insurers of the property mortgaged,
or in virtue of expropriation for public use. (Art. 2127)

Stipulation prohibiting alienation and second mortgage

1.) Alienation -A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void. (Art. 2130)
2.) Second mortgage -The mortgagor, being the owner of the property mortgaged, may
executed a second mortgage thereon, even without the consent of the mortgagee.

CRISTELLE MEA LODOVICE

Foreclosure of real mortgage

1.Foreclosure, concept
Foreclosure is the remedy available to the mortgagee by which he subjects the property
mortgaged to the satisfaction of the obligation secured.

2.Grounds for foreclosure

a. When the principal obligation is not paid when due.
b. When there is any violation of any condition, stipulation or warranty by the mortgagor.

3.Kinds of foreclosure
a. Judicial foreclosure - This is a foreclosure made through the filing a petition in court.
(Rule 68, Rules of Court)
b. Extra-judicial foreclosure- This is made in compliance with the provisions of Act. No.
3135.
4. Effect of sale when there are two or more mortgages
a. On senior mortgagees
b. On junior mortgagees

5. Redemption
a. Concept
A transaction through which the mortgagor, or one claiming in his right, by means
of payment or the performance or the condition, reacquires or buys back the value or
the title which may have under the mortgage, or divests the mortgaged premises of the
lien which the mortgage may have created. (Peralta vs. Dalipe, 46 OG 1331)

b. Kinds of redemption

1. Equity of redemption
2. Right of redemption
REAL MORTGAGE DISTINGUISHED FROM SALE WITH RIGHT TO
REPURCHASE
1. Real mortgage is constituted as security for a principal obligation. Sale with right to
repurchase is not a security for an obligation.
2. There is no transfer of ownership in real mortgage. In sale with right to repurchase,
ownership of the property is transferred upon delivery.
3. In real mortgage, there is generally no transfer of possession. In sale with right to
repurchase, the property is generally transferred to the buyer a retro.
4. A real mortgage is invisible. In sale with right to repurchase, redemption of the property
may be partial.
5. Real mortgage applies only to real property. Sale with right to repurchase applies to both
real and personal property.

CHATTEL MORTGAGE
Requisites of chattel mortgage

1. That it be constituted to secure the fulfilment of a principal of obligation.

2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the constituting the mortgage must have the free disposal of his property, and in
the absence thereof, that he be legally authorized for the purpose. (Art. 2085).
4. That the document in which the mortgage appears be recorded in the Chattel
Mortgage Register. (Art. 2140)

Object of chattel mortgage

1. Those movables susceptible of appropriation which are not included in the list of
immovables in Art. 415.
2. Real property which by any provision of the law is considered as personality.
3. Forces of nature which are brought under control by science.
4. In general, all things which can be transported from place to place without impairment of
the real property to which they are fixed. (Art. 416)
5. Obligations ang actions which have for their object’s movables or demandable sums.
6. Shares of stock of agricultural, commercial and industrial entities, although they may have
real estate. (Art. 417)

Form of chattel mortgage

1. Between the parties
The mortgage must be recorded in the Chattel Mortgage Register of the province
where the mortgagor resides and also of the province where the property is located, if it is
different from the residence of the mortgagor.

2. As regards third persons

An affidavit of good faith must be appended to the Deed of Chattel Mortgage and
recorded there with in the Chattel Mortgage Register. (Act No. 1508)

Distinctions between Pledge, Real Mortgage and Chattel Mortgage

Pledge and real mortgage distinguished
 1. Pledge is constituted on movables. Real Mortgage is constituted on immovables.
2.In pledge, the thing is delivered to the creditor or a third person by common agreement.
In real mortgage, the thing is not required to be delivered to the creditor.
3. A pledge must be in a public instrument showing a description of the thing pledge and
the date of the pledge to bind third persons. A real mortgage must be registered to take effect
against third persons.
4. In pledge (conventional), the deficiency cannot be recovered even if there is a stipulation
to that effect. In real mortgage, the deficiency can be recovered.
5. In pledge (conventional), the excess of the proceeds of sale is retained by the pledgee
unless there is a stipulation that it shall be given to the pledgor. In real mortgage, the excess
of the proceeds of sale belongs to the mortgagor even if there is no stipulation to that effect.
6. In pledge, the pledgee may appropriate the thing pledged if the same is not sold in two
public auctions. In real mortgage, the mortgagee cannot appropriate the thing mortgaged.
Real mortgage and Chattel Mortgage distinguished

1. Real Mortgage is constituted on immovables. Chattel Mortgage is constituted on

immovables.
2. A real mortgage must be registered to bind third persons. A chattel mortgage must be
accompanied by an affidavit of good faith to take effect against third persons.
3. A real mortgage may secure future obligations. A chattel mortgage cannot secure
future obligations.
SITTIE NAJEMAH P. LIDA

AGENCY
Concept, it is a contract whereby a person binds to render some service or to do
something in representation or in behalf of another, with the consent and authority of
the latter.
Importance of agency - Enables a person to perform diverse juridical acts at the same
time by enabling him to be constructively present in many places, which would not be
possible for him to do physically.

Elements of a contracts of agency

1. Consent express or implied, of the parties to establish the relationship.
2. The object is the execution of a juridical act in relation to a third person.
3. The agent acts as representative and not for himself.
4. The agent acts within the scope of his authority. (Eurotech Industrial Technology, Inc. vs.
Cuizon, supra)

Characteristics of Agency
1. Principal - It can stand by itself.
2. Preparatory - It is a means by which other contracts may be entered into.
3. Consensual - It is perfected by mere consent.
4. Onerous - It is presumed to be for a compensation, unless there is proof to the contrary.
5. Nominate - It has a name given to it by law.
6. Bilateral- The parties are bound reciprocally to each other.
7. Commutative - The parties give and receive almost equivalent values, hence, there is real
fulfilment.

"Parties to a contract of agency, capacity of the parties"

1. Principal
2. Agent

"How agency relationship is created "

1. By appointment
2. By ratification
3. By estoppel
4. By necessity
"Kinds of acceptance of agency by the agent"
1. Express- This may be made orally or in writing.
2. Implied - Acceptance by the agent may be implied:
A. His acts which carry out the agency
B. His silence or inaction according to the circumstances.
"Announcement of appointment of an agent”
1. By special information
2. By public advertisement
"Basic principles of agency"
1. The agent must act within the scope of his authority.
2. The agent must act in behalf of his principal.
"Effect if an agent acts within the scope of his authority and in behalf of the principal
(disclosed principal)
1. The act is valid
2. The principal alone liable unless the agent expressly bound himself.
JERRYL MAE GONZAGA

OBLIGATIONS OF THE AGENT

General obligation
1. Good faith and loyalty to his trust, agent's first duty.
2. Obedience to principle's instruction
3. Exercise of reasonable care

Obligation of a person who declines and agency

--> Art.1885 if a person is appointed as an agent but declines the appointment, he is bound to
observe the diligence of a good father of a family in the custody and preservation of the
goods forwarded to him by the owner.

Obligation, is general of a person who accept an agency

--> Art. 1884 the agent is bound by his acceptance to carry out the agency, an is liable for the
damages which, through his non- performance, the principal may suffer.

Specific obligation of an agent

-->Art 1886. To advance the necessary funds if there was a stipulation to the effects, except
when the principal is insolvent.

3 kinds of Commission Agent

1. Commission agent,
Concept, the commission agent is one who buy and sells good or chattels consigned or
delivered to him by his principal, for a compensation known as commission

2. Distinction between a commission agent and a broker.

A Commission agent maintains a relation not only with his principal and the buyer or seller
but also that the property subject matter of the transaction which is place in this position and
at his disposal
A broker is merely an intermediate between the buyer and the seller and has no relation to the
property.
3. Obligation of a commission agent.
Responsible for the goods received by him in the terms and conditions and as described in the
consignment,

JOSIAH DULANG

EXTINGUISHMENT OF AGENCY

MODES OF EXTINGUISHMENT OF AGENCY

1. By Revocation, revocation is the act of cancelling or annulling something.
2. By Withdrawal of the Agent, withdrawal of something.
3. By death, in by death there is no one to be represented if the principal dies. It is the agent
who dies, there is no one to represent the principal. By Civil Interdiction, a person civilly
interdicted in not only in prison. He cannot manage his property or dispose of it by an act or
conveyance inter vivo. By Insanity, the principal cannot give his consent if he is insane. And
or by Insolvency, the Insolvency of the principal modifies or limits his capacity to act.

REVOCATION BY PRINCIPAL

1. Revocations concept - Revocation is refers to the act of the principal of terminating the
agency at will confidence and representation being the foundation of the contract.
2. Who may revoke agency when there are two or more principals
Kinds of Revocation
Express - is when made orally or in writing
Implied - when revocation can be inferred from the act of the principal as in the following.

DEATH OF THE PRINCIPAL

1. When Death of principal does not extinguish the agency

2. Validity of agent's acts without knowledge of the Death of the principal or other cause of
extinguishment of the agency

DEATH OF THE AGENT

1. Effect of the Death of agent on agency

2. Duty of agent's heirs