Beruflich Dokumente
Kultur Dokumente
PLEDGE: A contract by virtue of which the debtor delivers to the creditor or to a third
person a movable or document evidencing incorporeal rights 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.
3. 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
5. when the principal obligation becomes due, the thing in which the pledge or
mortgage consists may be alienated for the payment to the creditor.
third persons not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property
Kinds of Pledge
Characteristics of Pledge
3. unilateral- creates obligation solely on the part of the creditor to return the thing
subject upon the fulfillment of the principal obligation
4. subsidiary- obligation incurred does not arise until the fulfillment of the principal
obligation
2. compensation stipulated for the pledge or mere liberality of the pledgor- if pledgor
is not the debtor
Important Points
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
2. pledge or mortgage executed by one who is not the owner of property pledged
or mortgaged is without legal existence and registration cannot validate it.
4. in case of property covered by Torrens title, a mortgagee has the right to rely
upon what appears in the certificate of title and does not have to inquire further.
PLEDGE MORTGAGE
Constituted on movables Constituted on immovables
Not valid against 3rd persons unless a Not valid against 3rd persons if not
description of the thing pledged and the registered
date of the pledge appear in a public
instrument
1. creditor is merely entitled to move for the sale of the thing pledged or mortgaged
with the formalities required by law in order to collect
2. creditor cannot appropriate to himself the thing nor can he dispose of the same
as owner.
3. promise to assign or sell said property in payment of the obligation if, upon its
maturity, it is not paid
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5. if after the first and second auctions, the thing is not sold
Important Points
b. when several things are pledged or mortgaged, all of them are liable for
the totality of the debt. Creditor does not have to divide his action by
distributing the debt, among the various things pledged or mortgaged
c. the debtors heir who has paid a part of the debt cannot ask for the
proportionate extinction of the pledge or mortgage nor can the creditors
heir who has received his share of the debt return the pledge or cancel
the mortgages if the debt is not yet completely satisfied
3. rule that real property, consisting of several lots should be sold separately,
applies to sales in execution, and not to foreclosure of mortgages
4. the mere embodiment of a real estate mortgage and a chattel mortgage in one
document does not have the effect of fusing both securities into an indivisible
whole
5. contract of pledge or mortgage may secure all kinds of obligation, be they pure or
subject to a suspensive or resolutory condition
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
4. pledge shall take effect against 3rd persons only if the ff appears in a public
instrument:
5. thing pledged may be alienated by the pledgor or owner only if with the consent
of the pledgee.
6. contract of pledge gives right to the creditor to retain the thing in his possession
or in that of a third person to whim it has been delivered, until the debt is paid
7. creditor :
a. shall take care of the thing pledged with the diligence of a good father of a
family.
b. has the right to the reimbursement of the expenses made for its
preservation is liable for its loss or deterioration by reason of fraud,
negligence, delay or violation of the terms of the contract, and not due to
fortuitous event
c. may bring the actions which pertain to the owner of the thing in order to
recover it from, or defend it against a 3rd person
d. cannot use the thing without the authority of the owner, and if he should
do so, or misuse the thing, the owner may ask that it be judicially or
extrajudicially deposited.
e. may use the thing if it is necessary for the preservation of the thing
8. pledgee:
a. cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so
b. is responsible for the acts of his agents or employees with respect to the
thing pledged
c. has no right to use the thing or to appropriate the fruits without the
authority of the owner can apply the fruits, income , dividends or interest
earned or produced by the thing pledged to the payment of the interest,
and thereafter to the principal of his credit.
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
Unless there is stipulation to the contrary, the interest and earnings of the
right pledged and in case of animals, their offsprings are included in the
pledge.
d. may cause public sale of the thing pledged if, without fault on his part,
there is danger of destruction, impairment or dimunition in value of the
thing. The proceeds of the auction shall be a security for the principal
obligation.
9. pledgor :
b. cannot ask for the return of the thing against the will of the creditor, unless
and until he has paid the debt and its interest, with expenses in a proper
case
d. may require that the thing be deposited with a 3rd person if through the
negligence or wilfull act of the pledgee the thing is in danger of being lost
or impaired
Extinguishment of Pledge
If the thing pledged is returned by the pledgee to the pledgor or owner, pledge is
extinguished.
For this purpose, neither the acceptance by the pledgor o owner, nor the return of the
thing pledged is necessary, the pledgee becoming a depositary.
If subsequent to the perfection of the pledge, the thing is in the possession of the
pledgor or owner, there is prima facie presumption that the thing has been returned
by the pledgee.
If the thing is in the possession of 3 rd person who has received it from the pledgor or
owner after the constitution of the pledge, there is prima facie presumption that the
thing has been returned by the pledgee.
3. there must be notice to the pledgor and owner, stating the amount due, and
The pledgee may appropriate the thing if after the 1st & 2nd auctions, the thing is not
sold.
Pledgor/owner shall have a better right if he should offer the same terms as the
highest bidder
Pledgee may also bid, but his offer shall not be valid if he is the only bidder. All bids
at the public auction shall ofer to pay the purchase price at once.
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BIDS MUST BE FOR CASH. If any other bid is accepted, the pledgee is deemed to
have received the purchase price, as far as the pledgor or owner is concerned.
1. extinguishes the principal obligation whether the price of the sale is more or less
than the amount due
2. if the price is more than amount due, the debtor is not entitled to the excess
unless the contrary is provided
3. if the price of the sale is less, neither is the creditor entitled to recover the
deficiency. Contrary stipulation is void.
After public auction, the pledgee shall promptly advise the pledgor or owner of the
result.
Any third person who has any right in the thing may satisfy the principal obligation as
soon as the latter becomes due and demandable
The right of choice given to the pledgee as to which of the things pledged he shall
cause to be sold is limited only by stipulation. After sufficient property has been sold
to satisfy the obligation plus interest and expenses, no more shall be sold.
A 3rd person who is not a party to the principal obligation may secure the latter by
pledging his own property. He has the same as a guarantor and he cannot be
prejudiced by any waiver of defense by the principal obligor
Legal Pledges
- 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 and by reason thereof (art
546)
2. He who has executed work upon a movable has a right to retain it by way of
pledge until he is paid. (art 1731)
3. The agent may retain the things which are the objects of agency until the
principal effects the reimbursement and pays the indemnity. (art 1914)
4. The laborers wages shall be a lien on the goods manufactured or the work done.
(art 1707)
Special Laws apply to pawnshops and establishments which are engaged in making
loans secured by pledges. Provisions of the Civil Code shall apply subsidiarily.
It is a contract whereby the debtor secures to the creditor the fulfillment of a principal
obligation, specially 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.
1. immovables
2. alienable real rights in accordance with the laws, imposed upon immovables
* future property cannot be object of mortgage
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
Important Points
2. It is not an essential requisite that the principal of the credit bears interest, or that
the interest as compensation for the use of the principal and the enjoyment of its
fruits be in the form of a certain percent thereof.
Kinds of Mortagage
1. voluntary
2. legal
3. 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
5. when the principal obligation becomes due, the thing in which the pledge or
mortgage consists may be alienated for the payment to the creditor.
LEGAL MORTGAGE: the persons in whose favor the law establishes a mortgage have
on other right than to demand the execution and the recording of the document in which
the mortgage is formalized.
4. Mortgage deed once duly registered forms part of the records for the registration
of the property mortgaged
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
Effect of Mortgage
1. creates real rights, a lien inseparable from the property mortgaged, enforceable
against the whole world
Extent of Mortgage
b. to the improvements,
c. growing fruits
d. the rents or income not yet received when the obligation becomes due,
e. to the amount of the indemnity granted or owing to the proprietor from the insurers of
the property,
f. 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.
Important Points
4. Mortgage is a continuing security until the full amount of advances are paid.
6. Creditor may claim from a 3rd person in possession of the property the payment
of the part of the credit secured by the property.
2. PD 1952
Foreclosure of Mortgage:
It 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.
Kinds of Foreclosure
1. judicial
2. extrajudicial
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Both should be distinguished from execution sale governed by Rule 39 of the Rules of
Court.
1. May be availed of by bringing an action in the proper court which has jurisdiction
over the area wherein the real property involved or a portion thereof is situated
2. If the court finds the complaint to be well-founded, it shall order the mortgagor to
pay the amount due with interest and other charges within a period of not less
than 90 days nor more than 120 days from the entry of judgment.
3. If the mortgagor fails to pay at time directed, the court, upon motion, shall order
the property to be sold to the highest bidder at a public auction.
4. Upon confirmation of the sale by the court, also upon motion, it shall operates to
divest the rights of all parties to the action and to vest their rights to the
purchaser subject to such rights of redemption as may be allowed by law
5. debtor has the right to redeem the property sold within 1 year from and after the date
of sale
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
3. Action for recovery of deficiency may be filed even during redemption period.
4. Action to recover prescribes after 10 years from the time the right of action
accrues
2. an ancillary stipulation
2. Property may be sold for less than its fair market value upon the theory that the
lesser the price the easier for the owner to redeem.
3. The value of the mortgaged property has no bearing on the bid price at the public
auction, provided that the public auction was regularly and honestly conducted.
1. Mortgagee may waive right to foreclose his mortgage and maintain a personal
action for recovery of theindebetness.
REDEMPTION
It is a transaction by which the mortgagor reacquires the property which may have
passed under the mortgage or divests the property of the lien which the mortgage may
have created.
Kinds of Redemption
1. equity of redemption:
right of the mortgagor to redeem the mortgaged property after his default in the
performance of the conditions of the mortgage but before the sale of the mortgaged
property or confirmation of sale
2. right of redemption:
right of the mortgagor to redeem the property within a certain period after it was sold
for the satisfaction of the debt.
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
Equity of Redemption
Right of Redemption
1. may be exercised within 1 year from and after the date of registration of the
certificate of sale with the appropriate Registry of Deeds.
3. effect of seasonable redemption is not to recover ownership which was never lost
but the elimination from his title the lien created by the levy or attachment.
4. sale by the mortgagor to a 3rd person during redemption period transfers only the
right to redeem the property and the right to possess, use and enjoy the same
during said period.
5. if sale to a 3rd person is not registered and made without the consent of the
mortagee, buyer was not validly substituted as a debtor thus has no right to
redeem
If the property is foreclosed, the excess If the property is sold, the debtor is not
over the amount due goes to the debtor entitled to the to the excess UNLESS it is
otherwise agreed or in case of legal
pledge
Creditor is entitled to deficiency from the Creditor is not entitled to recover deficiency
debtor EXCEPT if it is a security for the notwithstanding any stipulation to the
purchase of personal property in contrary
installments
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
2. Civil Code
Important points
Effect of Registration
Right of Redemption
a. mortgagor;
3. the redemption is made by paying or delivering o the mortgagee the amount due on
such mortgage and the costs and expenses incurred by such breach of condition
before the sale
1. public sale
Period to Foreclose
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2. The 30-day period is the minimum period after violation of the mortgage condition
for the creditor to cause the sale at public auction with at least 10 days notice to
the mortgagor and posting of public notice of time, place, and purpose of such
sale, and is a period of grace for the mortgagor, to discharge the obligation.
3. After the sale at public auction, the right of redemption is no longer available to
the mortgagor.
1. where mortgage foreclosed: creditor may maintain action for deficiency although
Chattel Mortgage Law is silent on this point. Reason is chattel mortgage is only given
as a security and not as payment of the debt.
4. balance, if any, shall be paid to the mortgagor, or person holding under him
General Provisions:
1. the debtor is liable with all his property, present and future, for the fulfillment of
his obligations, subjects to exemptions provided by law
- exempt property:
a. present property
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S E C U R I T Y T R A N S A C T I O N S MEMORY AID ATENEO CENTRAL BAR OPERATIONS 2002
b. future property
2. insolvency shall be governed by the Insolvency Lae (Act No. 1956, as amended)
4. if there is co-ownership, and one of the co-owners is the insolvent debtor, his
undivided share or interest in the property shall be possessed by the assignee in
insolvency proceedings because it is part of his assets
Classification of Credits
1. special preferred credits (Arts 2241 & 2242 of NCC)
2.ordinary preferred credits (Art 2244) - preferred in the order given by law
3.common credits (Art 2245) - credits of any other kind or class, or by any other right
or title not comprised in Arts 2241-2244 shall enjoy no
preference
1. credits which enjoy preference with respect to specific movables, exclude all others to
the extent of the value of the personal property to which the preference refers.
2. if there are 2 or more credits with respect to the same specific movable property,
they shall be satisfied pro rata, after the payment of duties, taxes and fees due the
State or any subdivision thereof
3. those credits which enjoy preference in relation to specific real property or real rights,
exclude all others to the extent of the value of the immovable or real right to which
the preference refers.
4. if there are 2 or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro rata, after the payment of the taxes and assessment
of the taxes and assessments upon the immovable property or real right.
5. the excess, if any, after the payment of the credits which enjoy preference with
respect to specific property, real or personal, shall be added to the free property
which the debtor may have, for the payment of other credits.
6. those credits which do not enjoy any preference with respect to specific property,
and those which enjoy preference, as to the amount not paid, shall be satisfied
according to the following rules:
- order established by Art 2244
- common credits referred to in Art 2245 shall be paid pro rata regardless
of dates.
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