PLEDGE and
MORTAGE
Requisites of Contract of Pledge
and Mortgage
1. That they 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.
ACCESSORY CONTRACT
A pledge or mortgage, being an accessory contract, cannot
exist without a valid obligation or a principal contract.
However, a pledge or mortgage may secure:
1. Pure obligations
2. Conditional obligations
3. Obligations with a term
4. Natural obligations
5. Rescissible Contracts
6. Voidable Contracts
7. Unenforceable Contracts
Consideration for Pledge or
Mortgage
The consideration shall be the same as that of the principal
obligation being secured.
Right to Foreclose
It is also of the essence of these contracts that where the
principal obligation becomes due, the thing in which the
pledge or mortgage consist may be alienated for the
payment to the creditor.
Alienation of the thing pledged
or mortgaged; when allowed
Before Maturity
GENERAL RULE: The thing pledged or mortgaged cannot be sold
or alienated since payment of the debt cannot yet be compelled.
EXCEPTION: If the pledgor or mortgagor fails to fulfill certain
conditions, such a violation would make the debt due and
entitle the pledgee or mortgagee to the thing sold through the
formalities required by law.
Alienation of the thing pledged
or mortgaged; when allowed
At Maturity
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 debtor
Appropriation of the thing
pledged or mortgaged
Pactum Commissorium
This is a stipulation in a pledge or mortgage which provided for
automatic forfeiture, i.e. that townership of the thing pledged or
mortgaged shall pass to the creditor by the mere default of the
debtor.
Elements:
1. There should be a property pledged or mortgaged by way of security for the payment of
the principal obligation.
2. There should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged or pledged in case of non-payment of the principal obligation within the
stipulated period.
Appropriation of the thing
pledged or mortgaged
PLEDGE
Appropriation in pledge is allowed only if the thing
pledged is not sold at two public auctions. The pledgee is
required in this case to give an acquittance for his entire
claim.
MORTGAGE
In no case is appropriation of the property mortgage is
allowed.
Indivisibility of Contract
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:
1. 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.
2. 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.
The indivisibility of a pledge or mortgage is not affected by the fact that the
debtors are not solidarily liable.
PLEDGE
PLEDGE
A pledge is a contract whereby the debtor delivers to
the creditor, or to a third person by common
agreement, a movable thing, to secure 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.
CHARACTERISTICS OF PLEDGE
1. Real Contract – perfected by the delivery of the thing
pledged.
2. Accessory – on independent existence of its own
3. Unilateral – creates an obligation solely on the part of
the creditor to return the thing
4. Indivisible- it creates a lien on the whole or all of the
property pledged, which lien continues until the
obligation secured has been fully paid.
5. Nominate – it has a name given to it by law.
KINDS OF PLEDGE
1. Voluntary or conventional – created by agreement of the
parties
2. Legal – created by operation of law.
CONVENTIONAL PLEDGE -
Requisites
1. That they 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.
4. That the thing pledged be placed in the possession of the
creditor, or of a third person by common agreement.
CAUSE OR CONSIDERATION
1. Pledgor/Debtor – the Principal Obligation
2. Pledgor not the debtor – compensation stipulated or
mere liberality
FORM OF PLEDGE
AS BETWEEN PARTIES
- The pledge may be in any form as in fact the mere
delivery of the object is sufficient to bind the parties
AS REGARDS THIRD PERSONS
- To take effect against third persons, the pledge
must be in public instrument showing a description of the
thing pledged and the date of the pledge.
OBJECT OF PLEDGE
1. Movable property within the commerce of men which
are susceptible of possession.
2. Incorporeal rights evidenced by negotiable instruments,
bills of lading, shares of stocks, bonds, warehouse
receipts and similar documents.
RULES AS TO OBJECT
1. Within the commerce of man and capable of possession.
2. If the pledge earns or produces fruits, income, dividends,
or interests, the creditor shall compensate what he
received 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.
3. Unless there is a stipulation to the contrary, the pledge
shall extend to the interest and earnings of the right
pledged.
RULES AS TO OBJECT, cont.
4. 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 pledged, if there’s no
stipulation to the contrary.
5. Unless the thing pledged is expropriated, the
debtor continues to be the owner thereof.
RULES AS TO OBJECT, cont.
4. 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 pledged, if there’s no
stipulation to the contrary.
5. Unless the thing pledged is expropriated, the
debtor continues to be the owner thereof.
RIGHTS OF THE
PLEDGOR/DEBTOR
1. To alienate with the consent of the pledgee, the thing
pledged.
2. To ask that the thing pledged be judicially or extra-judicially
deposited if it is used without authority or for a purpose other
than for its preservation.
3. To continue to be the owner of the thing pledged unless it is
expropriated.
4. To ask for the return of the thing pledged after the obligation
has been paid, as well as its interests, with expenses in some
cases.
RIGHTS OF THE
PLEDGOR/DEBTOR, cont.
5. To require that the thing pledged be deposited to third person if it is
in danger of being lost or impaired through the negligence or willful
act of the pledgee.
6. To demand the return of the thing pledged, upon offering another
thing in pledge, provided that the latter of the same kind and quality,
if there are reasonable grounds to fear the destruction or impairment
of the thing pledged without the fault of the pledgee.
This right, however, is without prejudice to the right of the
pledgee to have the thing sold at public sale. The proceeds
of which shall be security for the principal obligation in the
same manner as the thing originally pledged.
OBLIGATIONS OF THE
DEBTOR/PLEDGOR
1. To pay the debt and its interests, with expenses in a
proper case, when they are due.
2. To pay damages that the pledgee may suffer by
reason of the flaws of the thing pledged, if he was
aware of such flaws but did not advise the pledgee
of the same.
RIGHTS OF THE PLEDGEE
1. To retain in his possession the thing pledged until the debt
is paid.
2. To demand reimbursement of the expenses made for the
preservation of the thing pledged.
3. To bring actions which pertain to the owner of the thing
pledged in order to recover it from, or defend it against
third person.
4. To use the thing pledged if he is authorized to do so, or
when its use is necessary for the preservation of the thing.
RIGHTS OF THE PLEDGEE, cont.
5. If he is deceived of the substance of the thing
pledged, he may either: (1) claim that another thing
be given to him as replacement of the thing pledged,
or (2) Demand immediate payment of the principal
obligation.
6. To cause the sale of the thing pledged at a public
sale if there is danger of destruction, impairment, or
diminution in value of the thing pledged without his
fault.
RIGHTS OF THE PLEDGEE, cont.
7. To collect and receive the amount due if the thing
pledged is a credit which becomes due before it is
redeemed, and to apply the same to the payment of
his claim.
8. To sell the thing pledged upon default of the debtor.
OBLIGATIONS OF THE PLEDGEE
1. To take care of the thing pledged with the diligence
of a good father of a family.
2. To be liable for the loss or deterioration of the thing
pledged unless it is due to fortuitous event,
3. Not to deposit the thing pledged with a third
person, unless authorized.
4. To be responsible for the acts of his agents or
employees with respect to the thing pledged.
OBLIGATIONS OF THE PLEDGEE,
cont.
5. Not to use the thing pledged, unless (1) He is
authorized by the owner, or (2) The use of the thing
is necessary for its preservation.
6. To deliver to the debtor the surplus after paying his
claim from what he has collected on a credit that
was pledged and which has become due before it is
redeemed.
DEPOSIT OF THE THING
PLEDGED WITH THIRD PERSON
1. On the part of the pledgee – if there is stipulation
granting such right.
2. On the part of the pledgor:
a. If through the negligence or willful act of the
pledgee, the thing pledged is in danger of being lost
or impaired.
b. If the pledgee uses or misuses the thing.
RIGHTS OF A THIRD PERSON
WHO PLEDGES HIS OWN
PROPERTY
1. To be indemnified by the debtor if he pays the
creditor. The indemnity consists of: (1) Total amount
of debt, (2) The legal interests thereon from the
time the payment was made known to the debtor,
(3) The expenses incurred by the pledgee after having
notified the debtor that payment has been demanded of
him; and (4) Damages, if they are due.
2. To be subrogated to all the rights of the creditor
against the debtor if he pays the creditor.
RIGHTS OF A THIRD PERSON
WHO PLEDGES HIS OWN
PROPERTY, cont.
3. To be released from liability in the following cases:
1. If the creditor voluntarily accepts other property in
payment of the debt even if the creditor thereafter
loses the same by eviction.
2. If an extension of time is granted to the debtor by the
credit without his consent.
3. If through some act of the creditor, the pledgor cannot
be subrogated to the rights, mortgages, and
preferences of the creditor.
EXTINGUISHMENT
1. Indirect Cause – when the principal obligation secured by
the pledge is extinguished, the pledge is likewise
extinguished.
2. Direct Causes:
a. Return by the pledgee of the thing pledged to the pledgor
b. Renunciation or abandonment in writing by the pledgee of
the pledge.
c. Sale of the thing pledged.
d. Appropriation of the thing pledged.
ASSIGNMENT NO. 3
Make a summary/reviewer/discussion of LEGAL PLEDGE
SHORT BOND PAPER
DUE: SEPTEMBER 09, 2025