LESSON 5: PROVISIONS COMMON TO PLEDGE AND MORTGAGE

 ESSENTIAL REQUISITES OF PLEDGE AND MORTGAGE: (PRENDA)

- The following requisites are essential to the contracts of pledge and mortgage (Art. 2085):
1. That they be constituted to secure the fulfillment of a principal obligation.
- There can be pledge/mortgage or prenda if there is a principal obligation (loan)
2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged.
- Ang nag prenda must be the absolute owner of the thing
- CONTRACT OF PLEDGE: pledgor (debtor/nag prenda); pledgee (creditor/tumanggap)
- MORTGAGE: Mortgagor (debtor/nag prenda); Mortgagee (creditor/tumanggap)
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.
- Example: ikaw ang owner ng lupa tapos na prenda na, bawal mo na iprenda ulit (wala kanang free disposal)
unless gi payagan ka
- You and I entered into a loan, you asked your mother to prenda the relo. Pwede ito kahit hindi siya part
ng loan
- 3rd persons can be mortgagors and pledgers for as long as the requirements are met (it is necessary that
the 3rd person is the owner of the thing and he has the free disposal of that property)
4. 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. (Art. 2087)
- Alienate: to move for the sale of the thing in order to collect the amount of claim from the proceeds.
- If the principal obligation is already due and you have no means to extinguish the obligation, pwede i-
alienate ang thing (the creditor can take the thing and sell it in public auction, the means will be used to
pay for the loan)

 PROHIBITION AGAINST PACTUM COMMISSORIUM: (Pactum Commissorium I Pacto Comisorio I Pacta

Commissoria)
- The creditor cannot APPROPRIATE the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void. (Art. 2088)
- Appropriate: the creditor will automatically be the owner of the thing or property
- A stipulation whereby the thing pledged or mortgaged shall automatically become the property of the
creditor in the event of non-payment of the debt (automatic appropriation.) This is forbidden by law.

 INDIVISIBILITY OF PLEDGE AND MORTGAGE:

1. 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. (Art. 2089)
- Example: creditor or debtor is namatay then maraming heirs, ang isa nag bayad ng utang pero ang iba is
hindi pa. Therefore, di parin ma extinguish ang pledge or mortgage kasi INDIVISIBLE NGA
2. 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.
- Bawal partial extinguishment
3. 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.
- Ex. Isa sa mga heirs kay sabi niya ayaw niya na maningil, dapat mag hintay siya na lahat is mag waive bago
ma extinguish.
 4. From these provisions is expected 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 especially answerable
is satisfied.
5. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. (Art.
2090)

 ALL KINDS OF OBLIGATIONS CAN BE SECURED BY PLEDGE OR MORTGAGE:

- The contract of pledge or mortgage may secure all kinds of obligations, be they pure or subject to a
suspensive or resolutory condition. (Art. 2091)
- Example: you and I agree that you will sing in my birthday. To secure na you will perform, I prenda mo
saakin ang cellphone mo. Pwede ito

 IF ONLY A PROMISE, IT IS A PERSONAL RIGHT.

- 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. (Art. 2092)
- Yung gi promisan can demand doon sa nag promise na ituloy ang pledge or mortgage. Personal lang yun
sakanilang dalawa
 In Pledge, the date and the description of the thing must be in a public instrument to be valid against third
persons. (Art. 2096)
- Naka notarize dapat so that 3rd persons may recognize the pledge
 Mortgage must be registered in the Registry of Property to be valid against third persons. (Art. 2125)
- Para maging valid sa 3rd persons, dapat I register sa register of deeds

IMPORTANT:

- Under the Revised Penal Code (Art. 316), Estafa is committed by a person who, pretending to be the owner
of any real property, shall convey, sell, encumber or mortgage, or knowing that the real property is
encumbered shall dispose of the same as unencumbered.
- ESTAFA: Panloloko
- Example: sabi mo clean title yung lupa or walang encumbrances, pero hindi pala then you are liable for
estafa
- Example: nag atik atik ka benta ng thing na hindi sayo
LESSON 6: PLEDGE
 PLEDGE
- Pledge is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable
(Art. 2094) or document evidencing incorporeal rights over movables (Art. 2095) 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.
- Actual transfer of possession is essential in pledge. (murag kanang sa pawnshop gud)
- However, there is NO transfer of ownership in pledge.
- Required jud na ideliver ang thing sa pledge pero walay transfer of ownership
 PARTIES
a) Pledgor (Debtor, Obligor, Passive Subject)
b) Pledgee (Creditor, Obligee, Active Subject)
 SUBJECT MATTER
a) Movables or personal property
b) Incorporeal rights, evidenced by negotiable instruments (checks), bills of lading (goods loaded in a boat), shares
of stock, bonds, warehouse receipts and similar documents
- Intangible/invisible rights (not real body)
 EFFICIENT CAUSE
- The security of the principal obligation (murag collateral sa imuhang utang)

IMPORTANT:

- 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 (Art. 2096).
- Pledge will not take effect sa mga 3rd persons basta hindi naka notario
- May pledge parin kahit hindi naka notario pero yun lang not bound ang 3 rd persons
 CHARACTERISTICS
a) Real Contract — it is perfected by the delivery of the thing pledged by the debtor who is called the pledgor to the
creditor who is the pledgee, or to a third person by common agreement.
b) Accessory Contract — its existence is dependent upon the principal contract. (walang pledge kung walang principal
contract example utang; it cannot stand alone)
c) Unilateral Contract — it creates an obligation solely on the part of the creditor to return the thing subject thereof
upon the fulfillment of the principal obligation. (unilateral because only the pledgor has the obligation to deliver)
d) Subsidiary Contract — the obligation incurred does not arise until the fulfillment of the principal obligation to
which it is secured. (Stand by lang siya; yung principal obligation talaga ang main obligation, subsidiary lang ang
pledge)
 ESSENTIAL ELEMENTS OF PLEDGE (1-3 is common elements between pledge and mortgage)
1. It is constituted to secure the fulfillment of a principal obligation.
2. The pledgor is the absolute owner of the thing pledged.
3. The person constituting the pledge has the free disposal of their property, or in the absence thereof, that he be
legally authorized for the purpose.
4. The thing pledged must be delivered to the creditor or to a third person by common agreement.
- Pwede siya I deliver sa 3rd person basta nag agree ang parties
 PROVISIONS APPLICABLE ONLY TO PLEDGE
1. The pledgor retains his ownership of the thing pledged. He may, therefore, sell the same provided the pledgee
consents to the sale. As soon as the pledgee gives his consent, the ownership of the thing pledged is transferred
to the vendee subject to the rights of the pledgee, namely, that the thing sold may be alienated to satisfy the
obligation (Art. 2112) and that the pledgee must continue in possession during the existence of the pledge. (Art.
2093 and 2098).
- Pwede niya ibenta with the consent of the pledgee
- Dapat yung binentahan niya is alam nan aka pledge yung gina benta niya at siya ang bagong pledgor
2. The possession of the pledgee constitutes his security. Hence, the debtor cannot demand for its return until the
debt secured by it is paid. (Art. 2105) But the right of retention is limited only to the fulfillment of the principal
obligation for which the pledge was created. (Art. 2098).
- Di maka demand ang pledgor na ireturn ang thing hanggang sa hindi pa fully paid
- Kapag na paid na, dapat dili na siya I-retain ang thing and dapat ibalik na ang thing kahit pa may other
agreement pa kasi yung thing na yun is para lang sa specific principal obligation.
3. The pledgee has the obligation to take care of the thing pledged with the diligence of a good father of the family.
He is entitled to reimbursement of the expenses incurred for its preservation and he is liable for loss or
deterioration by reason of fraud, negligence, delay or violation of the terms of the contract. (Art. 1174 and 1170)
- Pag nakagastos si pledgee sa pag take care ng thing, pwede siya maka demand ng reimbursement kay
pledgor basta walang dolo, culpa, mora.
4. The pledgee is not authorized to transfer possession of the thing pledged to a third person, unless otherwise
stipulated (Art. 2100).
- Hawak lang ni pledgee ang thing and wala siyang right to transfer it sa iba unless may permission ni pledgor
which is the true owner
5. The pledgee has no right to use the thing pledged or to appropriate the fruits thereof without the authority of the
owner (Art. 2104 and 1977).
- Bawal gamitin ni pledgee ang thing unless nag bigay ng permission si pledgor
- Pag nag produce ng fruits ang thing, then res perit domino (kay owner parin mapunta ang fruits)
6. When the preservation of the thing pledged requires its use, it must be used by the creditor but only for that
purpose (Art 2104).
- Example: kung ang gi pledge is car tapos kailangan mana I warm up or gamitin ginagmay, pwede gamitin
ni pledgee kahit walang permission ni pledgor
- Ang gasoline na magamit is pwede ipa reimburse kay pledgor (necessary to preserve the thing pledged)
7. The pledgee can apply the fruits, income, dividends, or interest, if owing and thereafter to the principal of his
credit (Art. 2132), unless otherwise stipulated.
- Kung utang, pwede niya iconsider na payment yung fruits, income, dividends and interest (kung walang
agreement)
- Kung nag agree na dapat kay pledgor mapunta, then di pwede ito i-apply
8. The pledgor may ask that the thing pledged be deposited judicially (sa court) or extrajudicially (other persons), if:
a) The creditor uses the thing without authority.
b) He misuses the thing in any other way.
c) The thing is in danger of being lost or impaired because of the negligence or willful act of the pledgee.
9. The pledgor cannot ask for the return of the thing pledged until the principal obligation is fully paid including
interest due thereon and expenses incurred for its preservation (Art. 2099).
- Dapat mabayaran lahat bago ibalik ang thing
- Mga dapat bayaran niya ang: principal obligation, interest, necessary useful expenses
10. However, the pledgor is allowed to substitute the thing pledged which is in danger of destruction or impairment
with another thing of the same kind and quality (Art. 2107).
- Pwede niya i-substitute ni pledgor ang thing ng the same kind basta nakikita niya na pasira na
 11. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is extinguished. (Art. 2110)
- Binalik ang thing is binalik na ni pledgor, the pledge is extinguished. Pero nandyan parin ang principal
obligation. Bawal mag sabi si pledgee na kahit nabalik na kay meron paring prenda.
a) Any stipulation to the contrary shall be void.
b) If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner
(ninakaw), there is a prima facie presumption (rebuttable) that the same has been returned by the
pledgee.
c) 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.
12. When the thing pledged is later found in the hands of the pledgor or the owner, only the accessory obligation of
pledge is presumed remitted, not the principal obligation itself (Art. 1274).
13. 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. (Art. 2117)
- Any person na may right sa thing, even if di siya ang owner, may pay the principal obligation to get the
thing
14. If a credit (receivables) 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. (Art. 2118)
- Incorporeal rights can be pledged
- Ex. Naka pledge ang check then nag due na, pwede siya I collect ni pledgee para sa principal contract then
ibigay ang sobra kay pledgor.

 RIGHTS OF THE PLEDGEE (gi prendahan)

1. To retain the thing pledged as security for the principal obligation (Art. 2098)
2. To compensate earnings of the thing pledged with the principal debt (Art. 2102)
3. To cause the public sale of the thing pledged if it is in the danger of destruction, impairment or diminution, there
being no fault on the part of the pledgee (Art. 2108)
- Pwede ipa public auction ni pledgee ang thing na naga deteroriate naturally para di magbaba ang value
ng security
4. To demand substitute or immediate payment if he is deceived on the substance or quality of the thing pledged
(Art 2109)
5. To cause the thing pledged to be sold at public auction when the credit has not been satisfied in due time (Art.
2112)
- dili makabayad si debtor/pledgor so ipa public auction ang thing then the proceeds will be payed to the
pledgee
6. To choose which one of the several things pledged shall be sold at public auction (Art. 2119)
7. To appropriate the thing pledged after two failed auctions (Art. 2112)
8. To bid at the public auction (Art. 2113)

 OBLIGATIONS OF THE PLEDGEE (GI PRENDAHAN, MAY HAWAK SA THING)

1. To take care of the thing with the diligence of a good father of the family (Art. 2099)
2. Not to deposit the thing pledged with a third person if not authorized (Art. 2100)
3. Not to use the thing pledged if not authorized (Art 2104)
4. To advise the pledgor or owner of the result of the public auction (Art. 2116)

 RIGHTS OF THE PLEDGOR (NAG PLEDGE)

1. As the owner, to bring action to defend or recover the thing pledged from third persons (Art. 2103)
2. To ask that the thing pledged be deposited judicially or extrajudicially, if the pledgee misuses the thing pledged
(Art. 2104)
 3. To demand the return of the thing pledged after fulfillment of the principal obligation (Art. 2105)
4. To ask that the thing pledged be deposited with a third person, if through the negligence or willful act of the
pledgee, the thing pledged is in the danger of being lost or impaired (Art. 2106)
5. To substitute the thing pledged, if there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee (Art. 2107)
6. To bid at the public auction (Art. 2113)
7. To receive the excess, if stipulated (Art. 2115)

 OBLIGATIONS OF THE PLEDGOR

1. To deliver the thing subject of the pledge to the pledgee (Art. 2093)
2. To advise the pledgee about the flaws of the thing pledged (Art. 2101 and 1951)

 RIGHTS OF THIRD PERSONS WHO HAVE ANY RIGHT ON THE THING PLEDGED
1. To satisfy the principal obligation (Art. 2117)

 EXTINGUISHMENT
1. By the fulfillment of the principal obligation (binayaran na ang utang, the pledge is extinguished)
2. By return of the thing pledged (Art. 2110) (meron parin ang principal obligation)
3. By renunciation or abandonment (Art. 2111) (gi balik ni pledgee kasi ayaw niya na ng prenda)

 PUBLIC AUCTION
 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. (Art. 2112)
- 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.
- 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. (for whatever amount, since napasakanya na ang thing
then dapat ma extinguish na entirely ang principal obligation)
 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.
(Art. 2113)
 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. (Art. 2114)
- Pag pwedeng installment, then considered na whole amount an nabayaran. If di nag bayad ng installment then si
pledgee ang liable doon kasi siya ang nag payag.
 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. (Art. 2115)
- 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. (whether kulang or sobra, di na pwede ibalik or habulin si debtor basta PLEDGE)
- If the price of the sale is LESS, neither shall the creditor be entitled to recover the deficiency (basta insufficient
wala silay mahimo kay law ang nag provide nito) NOTWITHSTANDING ANY STIPULATION TO THE CONTRARY (pag
sobra pwede sila mag agree if ibalik or not)
 After the public auction, the pledgee shall promptly advise the pledgor or owner of the result thereof. (Art. 2116)
 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. (Art. 2119)
 LEGAL PLEDGES (based on law)
- These are pledges that are created by operation of law. They are also governed by the rules 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. (Art. 2121)
- Sa conventional pledge, pwede agreehan if ibalik or hindi ang sobra
- In legal pledge, dapat ibalik talaga ang sobra
A. Art. 546 — Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain
the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith
with the same right of retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.
B. Art_ 1731 — He who has executed work upon a movable has a right to retain it by way of pledge until he is paid.
- May pinagawa kang thing or may pina ayos, tapos later on ayaw mo na siya bayaran. Kung sino man gumawa or
nag ayos ng thing has the right to retain until he is paid. Pwede niya din ibenta sa public auction. Ang sobra is ibalik
parin
C. Art. 1994 — the depositary (gi iwanan mo ng mga things mo like example if nag abroad ka) may retain the thing in
pledge (the depositary may consider the thing in his possession just like pledge) until the full payment of what may be
due him by reason of the deposit. (pwede niya i-auction tapos ibalik parin ang sobra)

 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. (Art.
2122)
 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. (Art.
2123)

LESSON 7: REAL ESTATE MORTGAGE

 REAL ESTATE MORTGAGE
- also called Mortgage or Real Mortgage
- It is a contract whereby the debtor secures to the creditor the fulfillment of a 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.
 PARTIES
a) Mortgagor (Debtor, Obligor, Passive Subject)
b) Mortgagee (Creditor, Obligee, Active Subject)

 SUBJECT MATTER
a) Immovable or real property (Like land and anything attached to the land)
b) Alienable real rights over immovable property (co-owner or co-heirs and you have a right about a property)

 EFFICIENT CAUSE
- The security of the principal obligation (same in pledge)

IMPORTANT:

 It is indispensable (required), in order that a real estate mortgage may be validly constituted, that the document
in which it appears be recorded in the Registry of Property (Art. 2125)
 If the instrument is not recorded, the mortgage is nevertheless binding between the parties. (VOID)
 CHARACTERISTICS
1. Real Contract
- it is perfected by the execution of the deed of mortgage. (NOT MEETING OF THE MINDS)
- Although there is no physical delivery but then merong conventional delivery
- You cannot physically transfer land/building
2. Accessory Contract
- Its existence is dependent upon the principal contract.
3. Subsidiary Contract
- The obligation incurred does not arise until the fulfillment of the principal obligation to which it is secured.
4. Unilateral Contract
- It creates an obligation solely on the part of the creditor who must free the property from the encumbrance
once the principal obligation is fulfilled.
5. The mortgagor, as a general rule, retains possession of the property mortgaged.
6. The objects of a real mortgage are immovables and alienable real rights imposed upon immovables.

Note: While a mortgage of land necessarily includes, in the absence of stipulation, the improvements thereon, a building
by itself may be mortgaged apart from the land on which it is built. The building may also be considered by the parties as
a chattel and can be a subject of chattel mortgage.

 ESSENTIAL ELEMENTS (1-3 IS COMMON BETWEEN PLEDGE AND MORTGAGE)

1. It is constituted to secure the fulfillment of a principal obligation.
2. The mortgagor is the absolute owner of the thing mortgaged.
3. The person constituting the mortgage has the free disposal of his property, or in the absence thereof, that he be
legally authorized for the purpose.
4. It must appear in a public document duly recorded in the Registry of Property.

 KINDS OF MORTGAGE
1. Voluntary — agreed upon by the parties
2. Legal — required by law to be executed in favor of certain persons (Art. 2125, par.2; Arts. 2082-2083)
3. Equitable — one which, although it lacks the proper formalities of a mortgage, shows the intention of the parties
to make the property as a security for a debt.

 EFFECTS OF MORTGAGE
1. A real estate mortgage creates a real right, a lien (a claim to a property) inseparable from the property mortgaged,
which is enforceable against the whole world. Until discharged, it follows the property wherever it goes and
subsists notwithstanding changes of ownership. The real estate 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. (Art. 2126)
- Ang mortgage kay ga create ng real right sa mortgagee. Para kapag si mortgagor, gi benta ang property sa
other person, the buyer of the property will become the new mortgagor and must fulfill the principal
obligation and dapat i-recognize ang real right ni mortgagee sa property.
- 3rd persons are bound to recognize the real estate mortgage as long as it is recorded in the register of
properties. If it is not recorded then the mortgagee (creditor), may go against the debtor or mortgagor not
kay 3rd party kasi wala siyang alam.
2. A real estate mortgage creates merely an encumbrance (may claim lang siya or encumbrance nan aka patong sa
property). There is no transfer of ownership, thus, the debtor remains the owner. The law considers void any
stipulation forbidding the owner from alienating the mortgaged immovable (Art. 2130)
- Under the Revised Penal Code (Art. 316), Estafa is committed by a person, who, knowing that the real
property is encumbered, shall dispose of the same as unencumbered.
 EXTENT OF THE MORTGAGE
- Unless otherwise stipulated, the general rule is that a mortgage constituted on immovable property is not
limited to the property itself but also extends to all its accessions, improvements, growing fruits and rents or
income (Art. 2102), as well as to the proceeds of insurance should the property be destroyed, or the
expropriation value of the property should it be expropriated.

 ALIENATION OR ASSIGNMENT OF MORTGAGE

- The real estate mortgage may be alienated or assigned by the mortgagee to a third person, in whole or in
part, with the formalities required by law. (Art. 2128)

 EXTINGUISHMENT
1. By the fulfillment of the principal obligation
2. By renunciation or abandonment

 WAIVER OF SECURITY BY CREDITOR

 The mortgagee may waive the right to foreclose his mortgage and maintain a personal action for recovery of the
indebtedness (principal obligation)
 The mortgagee cannot have both remedies. He has only one cause of action; hence, he cannot split up his cause
of action by filing a complaint for payment of the debt and another complaint for foreclosure.

 FORECLOSURE
- is 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 through the sale of the property at public auction and
the application of the proceeds thereof to the payment of his claim.
- The creditor mortgagee may take the property and sell it in public auction. The proceeds will be used as a
payment for the principal obligation

JUDICIAL FORECLOSURE (file ka sa court)

- Foreclosure by bringing an action for that purpose in the Regional Trial Court of the place where the property
is located. This is governed by Rule 68 of the Rules of Court.
 If there be a balance due to the mortgagee after applying the proceeds of the sale, the mortgagee is entitled to
recover the deficiency, except when the mortgagor is a third person, in which case the creditor should recover
the deficiency from the debtor himself. [This must be embodied in the judgment of the Court as a deficiency
judgment.]
- If kulang parin ang proceeds, the judge will make a judgment regarding the deficiency (bayaran parin ni
DEBTOR not the 3RD PARTY)
 The proceeds of the sale shall be applied to the payment of the:
a) Costs of the sale (Nagastos ni sheriff sa pagbenta)
b) Amount due to the mortgagee
c) Claims of persons holding subsequent mortgages in the order of priority (ibang mortgagee)
d) The balance, if any, shall be paid to the mortgagor.

EXTRAJUDICIAL FORECLOSURE (parties nalang mag benta)

- If stipulated by the parties, a mortgage maybe foreclosed extrajudicially by the mortgagee by an extrajudicial
sale of the mortgaged property. This is governed by Act No. 3135.

 Procedure:
1. Public auction must be conducted in the province where the property is situated.
 2. Posting of notice of sale in at least 3 public places therein.
3. Publication in a newspaper of general circulation.
4. Personal notice to mortgagor is not required.
 The mortgagee is entitled to recover the deficiency. (after the sale of the property, the mortgagee can still collect from
the debtor)
 The balance (if sobra), if any, shall be paid to the mortgagor (my opinion).

 REDEMPTION (dito kung na foreclose ang property mo then nabenta sa public auction, pwede mo pa ba ma
redeem?)

(Note: This is not the same redemption discussed in sale with right to repurchase and legal redemption by co-owners or
owners of adjoining lands.)

1. Equity of Redemption — the right of the mortgagor to redeem the mortgaged property after his default but
before the sale of the mortgaged property is confirmed by the court (judicial foreclosure)
2. Right of Redemption — the right of the mortgagor to redeem the mortgaged property within a certain period
(one year) after it was sold for the satisfaction of the mortgaged debt.

 In Judicial Foreclosure, it is a general rule that the mortgagor cannot exercise the right of redemption after the
sale is confirmed by the court. (Hence, the mortgagor can redeem before the court confirms the sale.)
- Once the sale approved by the court then the debtor can no longer redeem the property (general rule)
- However, if the property has been mortgaged in favor of banks, banking and credit institutions, redemption
is allowed within one year from the registration of the sale.
 In Extrajudicial Foreclosure, the mortgagor may redeem the property within one year from the date of the
registration of the sale in the Registry of Property.

REQUISITES FOR VALID REDEMPTION

1. The redemption must be made within period allowed by law.

2. Payment of the purchase price of the property plus 1% interest per month together with the taxes thereon, if any,
paid by the purchaser with the same rate of interest computed from the date of registration of the sale; and
3. Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the
proper Register of Deeds.

LESSON 8: CHATTEL MORTGAGE

 CHATTEL MORTGAGE
- By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as a security for the
performance of an obligation. (Art. 2140)
- 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 is governed by Act No. 1508 of the Chattel Mortgage Law.
 PARTIES
a) Mortgagor (Debtor, Obligor, Passive Subject)
b) Mortgagee (Creditor, Obligee, Active Subject)

SUBJECT MATTER

a) Personal property
b) Shares of stock in a corporation
c) Interest in business
 d) Machinery and house of mixed materials treated by parties as personal property and no innocent third person
will be prejudiced thereby
e) Vessels, the mortgage of which have been recorded with the Philippine Coast Guard in order to be effective as to
third persons
f) Motor vehicles, the mortgage of which had been registered both with the Land Transportation Commission and
the Chattel Mortgage Registry is order to affect third persons
g) House which is intended to be demolished
h) Growing crops and large cattle (Sec. 7, Par. 2 and 3, Act No. 1508)

EFFICIENT CAUSE

- The security of the principal obligation

IMPORTANT:

 It is required that there must be registration of the personal property in the Chattel Mortgage Register as security
for the performance of an obligation. Under the Chattel Mortgage Law, if the property as situated in a different
province from that in which the mortgagor resides, the registration must be in both registers, otherwise, the
chattel mortgage is void.
 However, if the chattel mortgage is not recorded, it is nevertheless binding between the parties. (3 rd parties not
included)
 The registration of the chattel mortgage is an effective and binding notice to other creditors of its existence and
creates a real right or a lien which being recorded follows the chattel wherever it goes. The registration gives the
mortgagee the symbolical possession.

CHARACTERISTICS

1. Real Contract — It is perfected by the registration of the mortgage.

2. Accessory Contract — Its existence is dependent upon the principal contract.
3. Subsidiary Contract — The obligation incurred does not arise until the fulfillment of the principal obligation to
which it is secured.
4. Unilateral Contract — It creates an obligation solely on the part of the creditor who must free the property from
the encumbrance once the principal obligation is fulfilled.
5. Formal Contract — For its validity, registration in the Chattel Mortgage Register is indispensable.

ESSENTIAL ELEMENTS

1. It is constituted to secure the fulfillment of a principal obligation.

2. The mortgagor is the absolute owner of the thing mortgaged.
3. The person constituting the mortgage has the free disposal of his property, or in the absence thereof, that he be
legally
4. It must be recorded in the Chattel Mortgage Register.

AFFIDAVIT OF GOOD FAITH

 To constitute a good chattel mortgage, an affidavit of good faith must be appended to the mortgage and recorded
therewith. But the absence of the affidavit vitiates a mortgage only as against third persons without notice.
 The affidavit of good faith is an oath wherein the parties severally swear that the mortgage is made for the purpose
of securing the obligations 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.
OFFENSES INVOLVING CHATTEL MORTGAGE

1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law 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 of the mortgagee. (Para secured si mortgagee, dapat hindi itransfer ang property to another location
without the consent of the mortgagee)
2. Selling or pledging personal property already mortgaged, or any part thereof, under the terms of the Chattel
Mortgage Law without the consent of the mortgagee written on the back of the mortgage and duly recorded in
the Chattel Mortgage Register (Art. 319, Revised Penal Code).

ASSIGNMENT OF MORTGAGE

 There is no law expressly requiring the recording of the assignment of a mortgage. While such assignment may be
recorded, the law is permissive and not mandatory.
 The assignee is subrogated to the rights and obligations of the assignor-mortgagee with respect to the chattel
mortgage constituted in favor of the latter. Consequently, the assignee is bound by the terms and conditions of
the chattel mortgage executed between the mortgagor and the mortgagee.

EXTINGUISHMENT OF THE CHATTEL MORTGAGE (NOT THE PRINCIPAL OBLIGATION)

1. By the fulfillment of the principal obligation

2. By renunciation or abandonment
3. By loss of the thing

FORECLOSURE OF CHATTEL MORTGAGE (different in REAL MORTGAGE)

- If the debtor defaults in the payment of the secured debt, the creditor is permitted to sold the sale at public
auction through a public officer (sheriff or notary public) and he can recover his credit for the proceeds of the sale
- Procedure:
1. The mortgagee may, after 30 days from the time of the condition broken, cause the mortgaged property
to be sold at public auction by a public officer (Sec. 14, Act No. 1508).
2. Public auction must be conducted in the province where the property is situated or where the mortgagor
resides.
3. Posting of notice of sale in 2 or more public places therein.
4. Notice to the mortgagor is required.
- The proceeds of the sale shall be applied to the payment of the:
1. Costs and expenses of keeping and the sale
2. Payment of the obligation secured by the mortgage
3. Claims of persons holding subsequent mortgages in the order of priority
4. The balance, if any, shall be paid to the mortgagor. (IBALIK ANG SOBRA)
- The creditor may maintain an action for the deficiency although the Chattel Mortgage Law is silent on this point.
(BASTA MORTGAGE, PWEDE KOLEKTAHIN ANG KULANG)

REDEMPTION

- The following may redeem the property:

1. The mortgagor
2. A person holding a subsequent mortgage (2ND mortgagor)
3. A subsequent attaching creditor

NOTE: The redemption should be before the sale of the mortgaged property, by paying to the mortgagee the amount due
on such mortgage and the costs and expenses incurred.
DISTINCTION BETWEEN CHATTEL MORTGAGE AND PLEDGE

1. In chattel mortgage, delivery of the personal property is NOT necessary, while in pledge, delivery is necessary.
2. In chattel mortgage, registration in the Chattel Mortgage Register is required by law, while in pledge, registration
in the Registry of Property is not necessary.
3. In chattel mortgage, the foreclosure procedure is found in Section 14 of Act No. 1508, while in pledge, the
procedure of the public auction is found in Article 2112 of the Civil Code.
4. In chattel mortgage, the excess amount of the foreclosure goes to the debtor, while in pledge, the debtor is not
entitled to the excess unless otherwise stipulated.
5. In chattel mortgage, the creditor is entitled to recover the deficiency, while in pledge, the creditor is not entitled
to recover the deficiency notwithstanding any stipulation to the contrary.

SIMILARITIES OF CHATTEL MORTGAGE AND PLEDGE

1. Both are executed to secure performance of a principal obligation.

2. Both are constituted only on personal property.
3. Both are indivisible (also real estate property mortgage)
4. Both constitute a lien on the property.
5. In both, the creditor cannot appropriate the property to himself (pactum commissorium).
6. In both, when the debtor defaults, the property is sold for the payment of the creditor.
7. Both are extinguished by the fulfillment of the principal obligation or the destruction of the property pledged or
mortgaged.