***START OF FINALS*** PLEDGE MORTGAGE AND ANTICHRESIS

(Articles 2058-2141 NCC)

Chapter 1. Provisions Common to Pledge and Mortgage (Arts. 2058-2092 NCC)

 Credit security
 Involves tangible security – mas gusto ng bank (Personal/Real property)
 Personal – as security - do it in a form a pledge or chattel mortgage
 Immovable – REM real estate mortgage

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: TO BE
VALID!
(1) That they be constituted to secure the fulfillment of a principal obligation; - MUST BE
VALID PO
(2) That the pledgor or mortgagor be the absolute owner (at present) of the thing pledged or
mortgaged;
 3rd Party pledge/mortgage pwede – pledgor not debtor kaya pwede!
Cannot mortgage future property!!!

(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. –SPA
agent!
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (1857) SAF
In case of default the creditor may run after the principal borrower by way of
collection suit or foreclosure of pledge or mortgage
Rights of creditor are exclusive, exclude the other when exercise one Art. 2086.
The provisions of Article 2052 are applicable to a pledge or mortgage. (n)

Art. 2087. 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. (1858)

Art. 2088. 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. (1859a)
 Stipulation automatic owner (Pactum Commissorium) – against public policy! –
the creditor who is the mortgagee has ONLY 1 right after the event of default –
RIGHT TO FORECLOSE!!!!!!!
IF WANT TO ACQUIRE PROPERTY CANNOT BE BY STIPULATION; CAN BE
BY AUCTION SALE.
Creditor is declared owner at the expiration of redemption period

Art. 2089. 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.
Contract of pledge/mortgage is INDIVISIBLE!!!! Always taken as 1 or whole!!!!
 Example – 1 real estate mortgage – subject of many real estate
Cannot give partial release of real estate mortgage
  Cancel old RM and constitute new RM for remaining parcels of land – if not that is
unsafe & unsound Banking practice – INDIVISIBLE!!!! Kasi!!!!
Both spouses must sign RM if not VOID! Pirma dapat sa harapan mo!

Therefore, 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.
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.
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 specially answerable is satisfied.
(1860)

Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are
not solidarily liable. (n)

Art. 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure
or subject to a suspensive or resolutory condition. (1861)
 Contract of mortgage will not exist until that period

Art. 2092. 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.
(1862)
 Promise broken – specific performance/rescission + damages

DURAN VS. IAC (138 SCRA 491)

Facts: Petitioner Duran owned 2 parcels of land in Caloocan City which she had purchased from
the Moja Estate. She left the Philippines in June 1954 and returned in May 1966. On May 13,
1963, a Deed of Sale of the 2 lots was made in favor of Duran’s mother who mortgaged the
same property to respondent Marcelo –Tiangco. When Duran came to know about the mortgage
made by her mother, she wrote the Register of deeds of Caloocan City informing the latter that
she had not given her mother any authority to sell or mortgage any of her properties in the
Philippines.
Failing to get an answer from the registrar, she returned to the Philippines. Meanwhile, when her
mother failed to redeem the mortgage properties, foreclosure proceedings were initiated by
private respondent Marcelo-Tiangco and, ultimately, the sale by the sheriff and the issuance of
Certificate of Sale in favor of the latter.
Petitioner Duran claims that the Deed of Sale in favor of her mother is a forgery,
saying that at the time of its execution in 1963 she was in the US.

Issue: WON the Deed of Sale is valid

Held: The Deed of Sale is VALID, with respect to the mortgagees, the defendants- appellants.
While it is true that under Art. 2085 of the Civil Code, it is essential that
the mortgagor be the absolute owner, of the property mortgaged, and while as between the
daughter and the mother, it was the daughter who still owned the lots, STILL insofar as innocent
3rd persons are concerned the owner was already the mother inasmuch as she had already
become the registered owner. A fraudulent or forged document of sale may become the root of
valid title if the certificate of the title has already transferred from the name of the owner to the
name of the forger or the name indicated by the forger
The mortgagee had a right to rely upon what appeared in the certificate of title, and did
not have to inquire in the certificate of the title, and did not have to inquire further. What is
important is that at the time the mortgage was executed, the mortgagees in good faith actually
believed Duran’s mother to be the owner, as evidences by the registration of the property is in the
name of Fe Duran.
Therefore, an innocent purchaser for value relying on torrens title issued is protected.

ARENAS VS. RAYMUNDO (19 PHIL 46)

Facts: This is an action for the replevin of certain jewelry delivered by its owner (Arenas) to de
Vega for sale on commission and that the latter, in turn, delivered it to Conception Perello,
likewise to sell on commission, but that Perello, instead of fulfilling her trust, pledged the jewelry
in the defendant's pawnshop without the knowledge of either de Vega or the owner. The
defendant, now in possession of the said jewelries, refuses to deliver said jewelries unless first
redeemed.

Issue: WON defendant Raymundo has the right to collect from plaintiff Arenas the sum loaned to
Perello out of the value of the said jewelry.

Held: The contract of pledge was null and void, since Perello was not the owner of the jewelry
pledged. “Between the supposed good faith of Raymundo and the undisputed good faith of
Arenas, the owner of the jewelry, neither law nor justice permit that the latter, after being the
victim of embezzlement, should have to choose of the 2 extremes of a dilemma, both of which
without legal ground or reason, are injurious and prejudicial to her interest and rights, that she
must either lose her jewelry or pay a large sum received by the embezzler as a loan from
Raymundo, when Arenas is not related to the Perello by any legal or contractual bond out of which
legal obligations arise.

Article 1857 of the Civil Code prescribes as one of the essential requisites of the contracts of pledge and of
mortgage, that the thing pledged or mortgaged must belong to the person who pledges or mortgages it. This
essential requisite for the contract of pledge between Perello and the defendant being absent as the former was not
the owner of the jewelry given in pledge, the contract is as devoid of value and force as if it had not been made, and
as it was executed with marked violation of an express provision of the law, it cannot confer upon the defendant any
rights in the pledged jewelry, nor impose any obligation toward him on the part of the owner thereof, since the latter
was deprived of her possession by means of the illegal pledging of the said jewelry, a criminal act.

Between the supposed good faith of the defendant Raymundo and the undisputed good faith of the plaintiff Arenas,
the owner of the jewelry, neither law nor justice permit that the latter, after being the victim of the embezzlement,
should have to choose one of the two extremes of a dilemma, both of which, without legal ground or reason, are
injurious and prejudicial to her interest and rights, that is, she must either lose her jewelry or pay a large sum
received by the embezzler as a loan from the defendant, when the plaintiff Arenas is not related to the latter by any
legal or contractual bond out of which legal obligations arise.

ALCANTARA VS. ALINEA (8 PHIL 111)

Facts: Defendant Alinea borrowed from plaintiff Alcantara P480 with the stipulation that if at the
expiration of the period of payment said debt should not be paid, it would be understood that the
house and lot described in the contract belonging to the defendant be considered as absolutely
sold to the plaintiff for said sum. The defendant failed to pay, so plaintiff filed an action for the
delivery of said house and lot to him by the defendant who refused to do so. The trial court
decided for the plaintiff. Defendant appealed.

Issue: WON the stipulation was pactum commissorium

Held: No. Pactum commissorium presumed the exsistence of mortgage, pledge or antichresis.
There is no pactum commissorium when the parties agreed to a contract of loan and a promise
of sale of house and lot.
 The contract is a loan and a promise of sale of house and lot, the price of which should be
the amount loaned, if within fixed period of time such amount should not be paid. Either one of
the contracts is perfectly legal or both are authorized. The fact that the parties have agreed at the
same time in such manner that the fulfillment of the promise of sale would depend upon the
nonpayment or return of the amount loaned, has not produced any change in the nature and
legal conditions of either contracts, or any essential defect which would nullify the same.

UY TONG VS. CA (161 SCRA 383)

Facts: Spouses Uy Tong purchased from BAYANIHAN 7 units of motor vehicles for P47,700.00
payable in 3 installments. The transaction was evidenced by a Written Agreement which provided
that if VENDEE should fail to pay the latter shall become automatically the owner of the former’s
apartment in Binondo, Manila, with the only obligation on its part to pay unto the VENDDE
P3,535.00 and that VENDEE shall execute the corresponding Deed of Absolute Sale in favor of
the Vendor and/or Assignment of Leasehold Rights.

Later, the spouses failed to pay their obligation which impelled Bayanihan to file an action for
specific performance. The trial court ruled in favor of Bayanihan and ordered the spouses to
execute a deed of assignment over their apartment. Notwithstanding the execution of the deed of
assignment, the spouses remained in possession of the premises and refused to vacate upon
their allowance to lease the same. Consequently, Bayanihan filed suit for recovery which ruled in
its favor.

The spouses now assails the written agreement that such agreement is in the nature of a pactum
commissorium which is null and void.

Issue: WON the agreement is in the nature of pactum commisorium

Held: No. A perusal of the terms of the questioned agreement evinces no basis for the application
of the pactum commissorium provision. First, there is no identification of any contract of mortgage
entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of property because it took the intervention of
the trial courts to exact fulfillment of the obligation.

DBP VS CA (284 SCRA 14)

Facts: CUBA, a grantee of a Fishpond Lease Agreement from the Government, obtained from
DBP 3 separate loans, each of which was covered by a promissory note. Simultaneous with the
execution of the notes was the execution of the “Assignment of Leasehold Rights” by CUBA, as
borrower of the mortgaged properties by way of security in the payment of the loans. Condition
no. 12 provides for the appointment of DBP as attorney-in-fact with authority, among other things,
to sell or otherwise dispose of the said real rights in case of default by CUBA and to apply the
proceeds to the payment of the loan.

Issue:
1. WON the condition in question constitute pactum commissorium
2. WON the act of DBP in appropriating to itself CUBA’s leasehold rights with
foreclosure proceedings was contrary to Article 2088 and, therefore, invalid.

Held:
1. The elements of pactum commissorium are not present – Condition 12 did not provide
that the ownership over the leasehold rights would automatically pass to DBP upon
CUBA’s failure to pay the loan on time
2. DPB exceeded authority vested by condition - DBP cannot take refuge in condition 12
of the deed of assignment to justify its act of appropriating the leasehold rights. As
stated, condition 12 did not provided that CUBA’s default would operate to vest DBP
ownership of the said rights. Besides, an
 assignment to guarantee an obligation, as in the present case, is virtually a mortgage and
not an absolute conveyance of title which confers ownership on the assignee

BUSTAMANTE VS. ROSEL (319 SCRA 413)

Facts: Respondent ROSEL (lender) entered into a loan agreement with petitioner BUSTAMANTE
(borrower) and her late husband, under, among others, the condition that the Rosel is given the
option to buy at a certain price the property given as collateral in the event the borrower fails to
pay. When the loan was about to mature, Rosel proposed to buy at the pre-set price of 200K the
collateral given to guarantee the payment of the loan, but Bustamante refused to sell. When
Bustamante tendered payment of the loan to Rosel which it refused to accept, insisting on
petitioner’s signing a prepared deed of absolute sale of the collateral. Rosel consigned the
amount of 47,500 with the trial court with which Rosel filed a complaint for specific performance.

Issue: WON the stipulation in the loan contract was valid and enforceable.

Held:
1. Stipulation embraced in concept of pactum commisorium – Bustamante did not
fail to pay the loan when Rosel refused to accept payment, Bustamante consigned the
amount with the trial court. A scrutiny of the stipulation of the parties reveals a subtle
intention of the creditor to acquire the property given as security for the loan. This is
embraced in the concept of pactum commissorium.
2. Intent to appropriate property as collateral appears to be evident – the debtor is obliged
to dispose of the collateral at the pre-agreed consideration amounting to practically the
same amount of the loan. In effect, the creditor acquires collateral in event of non-
payment of the loan. This is within the concept of PC, thus stipulation is void.

ELEMENTS OF PACTUM COMMISSORIUM

a. There should be a property mortgaged by way of security for the payment of the
principal obligation;
b. There should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged in the case of non-payment of the principal obligation within the stipulated
period.

CHAPTER 2. PLEDGE (Arts. 2093-2123 NCC)

Art. 2093. In addition to the requisites prescribed in Article 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. (1863)

Art. 2094. All movables which are within commerce may be pledged, provided they are
susceptible of possession. (1864)

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar documents may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed. (n)

Art. 2096. 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. (1865a)

Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor
or owner, subject to the pledge. The ownership of the thing pledged is transmitted to the vendee
or transferee as soon as the pledgee consents to the alienation, but the latter shall continue in
possession. (n)

Art. 2098. The contract of pledge gives a right to the creditor to retain the thing in his possession
or in that of a third person to whom it has been delivered, until the debt is paid. (1866a)

Art. 2099. The creditor shall take care of the thing pledged with the diligence of a good father of
a family; he has a right to the reimbursement of the expenses made for its preservation, and is
liable for its loss or deterioration, in conformity with the provisions of this Code. (1867)

Art. 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so.
The pledgee is responsible for the acts of his agents or employees with respect to the
thing pledged. (n)

Art. 2101. The pledgor has the same responsibility as a bailor in commodatum in the case under
Article 1951. (n)

Art. 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor shall
compensate what he receives 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. Unless
there is a stipulation to the contrary, the pledge shall extend to the interest and earnings of the
right pledged.
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 pledge, if there is no stipulation to the contrary.
(1868a)

Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged
in order to recover it from, or defend it against a third person. (1869)

Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if he
should do so, or should misuse the thing in any other way, the owner may ask that it be judicially
or extrajudicially deposited. When the preservation of the thing pledged requires its use, it must
be used by the creditor but only for that purpose. (1870a)
Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor,
unless and until he has paid the debt and its interest, with expenses in a proper case. (1871)

Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of
being lost or impaired, the pledgor may require that it be deposited with a third person. (n)

Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the pledgor may demand the return of the thing, upon
offering another thing in pledge, provided the latter is of the same kind as the former and not of
inferior quality, and without prejudice to the right of the pledgee under the provisions of the
following article.
The pledgee is bound to advise the pledgor, without delay, of any danger to the thing
pledged. (n)

Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or
diminution in value of the thing pledged, he may cause the same to be sold at a public sale. The
proceeds of the auction shall be a security for the principal obligation in the same manner as the
thing originally pledged. (n)

Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand immediate payment of the principal obligation.
(n)

Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the
pledgor or owner, there is a prima facie presumption that the same has been returned by the
pledgee. 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. (n)

Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledged is necessary, the pledgee becoming a depositary. (n)

Art. 2112. 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. 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; and 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. (1872a)

Art. 2113. 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. (n)
Art. 2114. 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. (n)

Art. 2115. 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. 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. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. (n)

Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the
result thereof. (n)

Art. 2117. 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.(n)

Art. 2118. If a credit 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. (n)

Art. 2119. 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. (n)

Art. 2120. If a third party secures an obligation by pledging his own movable property under the
provisions of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to
2070, and Articles 2077 to 2081. He is not prejudiced by any waiver of defense by the principal
obligor. (n)

Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731,
and 1994, are governed by the foregoing articles 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. (n)

Art. 2122. 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. (n)

Art. 2123. 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. (1873a)

YULIONGSI VS. PNB (22 SCRA 585)

Facts: Plaintiff Yuliongsi was the owner of 3 vessels. In 1947, plaintiff obtained a loan from
defendant PNB for P50,000 guaranteed by a pledge of the 3 vessels to PNB,
which pledge contract was duly registered with the office of the Customs Collector of Cebu.
Plaintiff effected partial payment of said loan and delivered 2 promissory notes for the balance. In
1948, the defendant filed criminal charges against plaintiff for estafa thru falsification of
documents. With the institution of the criminal action, defendant took physical possession of the 3
pledged vessels. After the first note fell due, without the plaintiff effecting payment, the defendant,
pursuant to the terms of the contract, executed a document of sale transferring the vessels to
itself. 2 of the vessels were later sold to a 3rd party. Plaintiff filed an action to recover the vessels
or their value plus damages. Trial court decided for defendant PNB.

Issue: WON the contention of PNB is tenable

Held: The pledgee can temporarily entrust the physical possession of the chattels (in this case, the
vessels) to the pledgor without invalidation the pledge. The pledgor is regarded as holding the
property pledged merely as trustee for the pledgee.
Since the defendant was, pursuant to the terms of the contract, in full contract of the
vessels thru the plaintiff, the former could take actual possession at any time during the life of the
pledge to make more effective its security. Its taking of the vessels. Therefore, was not unlawful,
nor was it unjustified considering that plaintiff had just defrauded the defendant.

ESTATE OF G. LITTON VS.MENDOZA (163 SCRA 246)

Facts: Estate of G. Litton brought an action against Mendoza for the collection of a sum of money.
While the case was pending resolution, EGL assigned in favor of (pledgee/assignee) by way of
securing or guaranteeing EGL’s obligation to the pledge his litigated credit against Mendoza duly
submitted to the court with notice to the parties. The lower court ruled in favor of EGL.
Subsequently, pending resolution of the appeal of Mendoza to the CA, Mendoza entered into a
compromise agreement with EGL wherein EGL acknowledged that all his claims against Mendoza
had been settled.

Issue: WON the compromise agreement is valid

Held: No. Although Mendoza may validly alienate the litigated credit under Article 1634, said
provision should not be taken to mean as a grant of an absolute right on the part of the assignor
EGL to indiscriminately dispose of the thing or the right given as security.

CRUZ & SERRANO VS. CHUA A.H. LEE (54 PHIL 10)
Facts: Chua took from Cruz and Serrano a pawn ticket in pledge to secure an obligation.
The pledge was lost for failure of Chua to renew the loan of Cruz and Serrano with the
pawnbroker

Issue: WON Chua is bound to renew the ticket from time to time, by the payment of interest or
premium

Held: Yes. The ordinary pawn ticket is a document by virtue of which the property in the thing
pledged passes from hand to hand by mere delivery of the ticket. It results that one who takes a
pawn ticket in pledge acquired domination over the pledge.
Article 2099 contemplates that the pledge may have to undertake expenses in order to prevent
the pledge from being lost; and these expenses the pledge is entitled to
recover from the pledgor. This follows that where, in a case like this, the pledge is lost by failure of
Chua to renew the loan, he is liable for the resulting damage. This duty of Chua is not destroyed
by the fact that he has obtained a judgment for the debt of Cruz and Serrano which was secured
by the pledge.
The duty to use the diligence of good father of a family in caring for the thing pledged as
long as the same remains in the power of the pledge.

BELGIAN CATHOLIC MISSIONARIES vs. MAGALLANES PRESS (49 PHIL 647)

Facts: X Co.(Magallanes Press) had a mortgage credit against Y Co. (JP Helbronn) for the sum of
P14,000 secured by a first chattel mortgage. Z Co.(Belgian Catholic Missionaries) also had a
mortgage credit for the amount of P30,000 secured by a second chattel mortgage on the same
personal property. After this second mortgage has been executed, the payment of the mortgage
credit of X Co. (Magallanes Press) became due, which credit had been reduced to the sum of
P8,000 through partial payments. W (Jose Ma. Mamije –transferee) acquired said mortgage credit
and increased it by P6,000.

Issue: WON Z co.(Belgian), the second mortgagee, or W (Mamije), the transferee has preferential
right to the mortgage right to the mortgaged property

Held: Z Co. (Belgian) X CO. (Magallanes), at the time of the transfer of its mortgage right to W
(Mamije), had a preferential right over that of Z Co. (Belgian) for the reminder of the amount of the
credit, that is P8,000. Z Co. (Belgian) had a preferential right to the rest of the value of the
mortgaged property after deducting the remaining mortgage credit of X Co. (Magallanes) The
increase of the mortgage security becomes anew mortgage in itself, inasmuch as the original
mortgage did not contain any stipulation in regard to the increase of the mortgage credit, and
even if it did, said increase would take effect only from the date on the increase