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)