NATIONAL UNIVERSITY - MANILA
BAINTE6X - REGULATORY FRAMEWORK AND BUSINESS TRANSACTIONS
ATTY. KENNETH LLOYD G. DELA CRUZ
ADAPTED FROM: CLASS LECTURES
PLEDGE AND MORTGAGE
Civil code of the Philippines is the governing pledge
and mortgage.
Essential Elements of Pledge or Mortgage
1. Constituted to secure the fulfillment of a
principal obligation
2. Absolute owner of the thing pledge or
mortgage property
3. Free disposal of their property, and in
absence, they be legally authorized for the
purpose.
Kinds of obligation that may be secured - Art. 2091
May a third person pledge or mortgage his own
property to secure the performance of the principal
obligation of another? - Yes. 2nd Par. of Art. 2085
Principal obligation is due and remains to be unpaid:
● The thing pledge or the mortgage property may
be alienated - Art. 2087 (Sold at a public auction,
proceeds shall be used as payment to the
obligation)
● The creditor cannot appropriate the thins pledge
or the mortgaged property - Art. 2088 (Hindi
pwede makuha ni creditor)
○ If there is a stipulation - VOID
Commissorium/automatic
○ Pactum
appropriation - VOID (Contrary to law
and public policy)
EXCEPTION:
● Subsequent voluntary act on the part of
the debtor - dacion en pago
● If 1st and 2nd auction the thing pledged
is not sold, the creditor may appropriate
the thing pledge. - Art. 2112
Pledge or mortgage is indivisible - Art. 2089
● Pledge or mortgage cannot be partially
extinguished
○ If several things are given in mortgage
or pledge, each of them guarantees only
a determinate portion of the credit.
● Even though debt may be divided among the
successors in interest of the debtor or creditor
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PLEDGE (Art. 2093 -2023)
Debtor delivers to the creditor/third person/
(Parties)
Moveable property, or instrument evidencing
incorporeal rights (Subject matter)
To secure the fulfillment of a principal obligation
If obligation is fulfilled, the thing delivered shall
be returned to the debtor
Characteristics of contract of pledge
● Accessory
● Indivisible
● Real contract
● Subsidiary
● Unilateral - upon the fulfillment of the obligation
only one party who has the obligation to perform
(creditor, to return the thing pledge)
Kinds of Pledge
1. Voluntary/Conventional - constituted by mutual
consent of the pledgor and the pledgee
2. Legal - created by operation of law
Additional requisites: Actually or Physical Delivery
Form of contract of Pledge
1. To bind the parties - in any form
2. To bind the third person - in a public instrument
showing description of the thing pledge and the
date of the pledge.
Will the pledgor or owner of the thing pledge alienate
the thing pledge - Art. 2097
● With the consent of the pledge
● Upon consent by the pledgee the ownership of
thing pledged is transferred to the buyer
● Pledgee remains to be in possession
If the debt is due and not yet satisfied
● Creditor may sell the thing pledged
○ Thing pledged must be sold at a public
auction
○ With the intervention of a notary public
○ Notice to the debtor or owner stating
the amount due for which the public
sale is to be held.
NATIONAL UNIVERSITY - MANILA
BAINTE6X - REGULATORY FRAMEWORK AND BUSINESS TRANSACTIONS
ATTY. KENNETH LLOYD G. DELA CRUZ
ADAPTED FROM: CLASS LECTURES
If the thing pledged is sold at a public auction and the
proceeds of the sale is equal or not equal (higher or
lower) to the principal obligation
● The principal obligation is extinguished - Art.
2115
Price of the auction sale is more the amount of the
principal obligation - creditor
● Debtor is not entitled to the excess, unless agreed
upon (General Rule). Art. 2115
Price of te auction sale is less than the amount of the
principal obligation
● Creditor is not entitled to the deficiency even if
there is a stipulation to the contrary (Absolute
Rule) - Art. 2115
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Real Estate Mortgage
Contract whereby the debtor or third person
secures to the creditor the fulfillment of a
principal obligation
Subjecting to such security immovable property
or real right over immovable property (Subject
Matter)
In case he principal obligation is not complied
with at the time stipulated
Characteristics of Real estate Mortgage
● Accessory
● Indivisible
● Consensual
● Subsidiary - enforceable if principal obligation is
due and demandable and remains to be unpaid
● Unilateral - if principal obligation is fulfilled,
creditor cancels the contract of real estate
mortgage
Form of contract Real Estate Mortgage
1. To bind the parties - in any form; partly oral or
partly in writing. When all essential requisites are
present.
2. To bind third person - registered in Registry of
Properties (Requirement to bind 3rd person).
Public Instrument (Requirement for the
convenience of the parties)
May the owner of the mortgaged property alienate the
thing mortgaged - Yes.
●
Any stipulation forbidding the owner to alienate
is considered video. (Absolute Rule)
Foreclosure
● Refers to the remedy available to the mortgagee
● He subjects the property mortgaged to the
satisfaction of the obligation secured
● When the principal obligation is not paid when
due or when there is any violation of any
condition, stipulation or warranty by the
mortgagor.
Judicial Foreclosure - by court order
● Filing a petition in court
● Equity redemption (mortgagor can redeem the
mortgage property): hindi pa na ibenta sa auction
○ Not less than 90 days not more than
120 days from the entry of judgment to
pay his liability to prevent the public
sale of his mortgaged property.
● Right of redemption
○ As a rule, no right of redemption
○ A mortgagor in judicial foreclosure
made by mortgagee -bank - before the
confirmation of the foreclosure sale.
Extrajudicial Foreclosure - outside the court
● Stipulation or special power of attorney inserted
in the contract of mortgage.
● Equity of Redemption
● Right of Redemption
○ If natural person - 1 year from date of
registration
○ If juridical - until but not after
registration of certificate of foreclosure
sale, in no case shall be more than 3
months after foreclosure whichever is
early.
Rules in excess or deficiency in foreclosure of real estate
mortgage:
● In case of excess
○ Mortgagor is entitled to the excess in
the absence of stipulation to the
contrary.
● In case of deficiency
○ Mortgagee can recover the deficiency
in the absence of stipulation to the
contrary.
NATIONAL UNIVERSITY - MANILA
BAINTE6X - REGULATORY FRAMEWORK AND BUSINESS TRANSACTIONS
ATTY. KENNETH LLOYD G. DELA CRUZ
ADAPTED FROM: CLASS LECTURES
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Chattel Mortgage
Contract by virtue of which personal property is
recorded in the Chattel Mortgage Register as a
security for the performance of an obligation.
Characteristics
● Accessory
● Indivisible
● Formal - must be registered in the Chattel
Mortgage Register
Form of Chattel Mortgage
● To bind parties - Registered in the chattel
mortgage registry, and in any form.
● To bind third person - registered and there must
be an affidavit of good faith
● And for no other purpose
● The obligation is just and valid
● Not entered for the purpose of fraud
Rules in excess or deficiency in foreclosure of chattel
mortgage
● In case of excess
○ Mortgagor is entitled to the excess in
the absence of stipulation to the
contrary.
● In case of deficiency
○ Mortgagee can recovery the deficiency
in the absence of stipulation to the
contrary
○ In recto law, mortgagee cannot recover
deficiency.
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