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PLEDGE AND MORTGAGE PROVISIONS COMMON TO PLEDGE AND MORTGAGE rticle 2085. 2085. The following requisites are essential to the contracts of pledge and mortgage: hat they be constituted to secure the fulllment of a principal obligation; hat the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; hat the persons constituting the pledge or mortgage have the free disposal of their property and in the absence thereof, that they be hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. rticle 2086. 2086. The provisions of article 202 are applicable to a pledge or mortgage. !" guaranty cannot e#ist without a valid obligation. $owever, it may guarantee the performance of a voidable or unenforceable contrac rticle 2087. 2087. &t is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pled
WHAT IS PLEDGE? It is a contract by virtue of which the debtor delivers to the creditor or to a third person a ova!le or a doc"ent involving incorporeal incorporeal rights for the #"r#ose o$ sec"rin% t&e $"l$illent 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! W&at are t&e 'inds o$ #led%e? Pledge "ay be either# $! %olunta %oluntary ry or convent conventional ional &create &created d by agree"e agree"ent nt of the parties'( parties'( 2! )egal )egal &by &by opera operatio tion n of of law'! law'! W&at are t&e c&aracteristics o$ #led%e? (RA)S* Pledge is# $!
Real Real because it is perfected by delivery of the thing pledged!
2!
Acessor+ Acessor+ because it has no independent e*istence!
+!
)nilateral )nilateral because it creates an obligation solely on the part of the creditor to return the thing pledged upon fulfill"ent of the principal obligation!
,!
S"!sidiar+ because the obligation of the creditor does not arise until fulfill"ent of the principal obligation!
WHAT IS THE CONSIDERATION IN PLEDGE? If the pledgor is also the debtor the consideration is the principal contract! If the pledgor is a third person the cause it the co"pensation received received or the liberality of the pledgor! WHAT ARE THE D DI,,ERENCES I,,ERENCES -ETWEEN PLEDGE AND MORTGAGE? $!
Mo!ilit+ - pledge is constituted on "ovables( "ortgage on i""ovables!
2!
Deliver+ - pledge re.uires delivery for perfection( "ortgage does not!
Cayo IID 2002
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+!
Re."isites to !ind t&ird #erson/s - pledge to bind third persons "ust be in a public instru"ent( "ortgage "ust be registered in the proper registry! registry!
A LOAN IS SECURED BY BOTH A PLEDGE AND A GUARANTY. CAN THE CREDITOR REFUSE PAYMENT BY THE GUARANTOR AND CHOOSE TO FORECLOSE IN ORDER TO SATISFY THE DEBT? No, payment by the guarantor cannot be refused. WHAT ARE THE ESSENTIAL RE0)ISITES O, PLEDGE AND MORTGAGE? (PRADO* $!
P"r#ose / o secure fulfill"ent of principal obligation(
2!
Real - here "ust be delivery of the thing!
+!
Alienation - when the principal obligation beco"es due and the debtor defaults the thing "ay be alienated to satisfy the for"er!
,!
Dis#osal - Pledgor1"ortgagor Pledgor1"ortgagor "ust have free disposal of the thing or capacity to dispose!
!
O1ners&i# - Pledgor1"ortgagor Pledgor1"ortgagor "ust be the absolute owner of the thing(
P)RPOSE2 To sec"re $"l$illent o$ a #rinci#al o!li%ation WHAT I, THE THING PLEDGED/MORTGAGED IS S)-SE0)ENTL3 LOST4 WHO -EARS THE LOSS? IS THE PRINCIPAL O-LIGATION E5TING)ISHED? he pledgor bears the loss! 3e"e"ber 3e"e"ber that there hasn4t been transfer of ownership! he principal obligation is of course not e*tinguished the pledge1"ortgage pledge1"ortgage is only accessory! accessory! 5owever 5owever the debtor "ust replace the thing or lose the benefit of the period! Pledge/mortgage is a direct lien on the property. It is better than guarantee because the property pledged can be sold upon default by the debtor, unlike in guaranty where several requirements have to be complied with first. PRO-LEM2 D TRANS,ERS PROPERT3 TO C AND AT THE SAME TIME E5EC)TES AN INDEMNIT3 AGREEMENT4 AGREEMENT4 OR D TRANS,ERS PROPERT3 TO C TO SEC)RE AN E5ISTING O-LIGATION6 O-LIGATION6 HOW WILL THE TRANS,ER -E CHARACTERI7ED? 6oth transfers will be characteri7ed as pledges!
REAL2 T&ere "st !e deliver+ o$ t&e t &e t&in% to #er$ect t&e contract6 An agreement to pledge, when there is breach, gives rise to damages.
ALIENATION2 W&en t&e #rinci#al o!li%ation !ecoes d"e and t&e t &e de!tor de$a"lts8 t&e t&in% a+ !e alienated to satis$+ t&e $orer6 DOES THE CREDITOR HAVE TO GO TO CO)RT TO EN,ORCE THE PLEDGE OR MORTGAGE? 8o to re.uire litigation would be to nullify the lien and defeat the purpose of the contract!
,REE DISPOSAL2
+!
Re."isites to !ind t&ird #erson/s - pledge to bind third persons "ust be in a public instru"ent( "ortgage "ust be registered in the proper registry! registry!
A LOAN IS SECURED BY BOTH A PLEDGE AND A GUARANTY. CAN THE CREDITOR REFUSE PAYMENT BY THE GUARANTOR AND CHOOSE TO FORECLOSE IN ORDER TO SATISFY THE DEBT? No, payment by the guarantor cannot be refused. WHAT ARE THE ESSENTIAL RE0)ISITES O, PLEDGE AND MORTGAGE? (PRADO* $!
P"r#ose / o secure fulfill"ent of principal obligation(
2!
Real - here "ust be delivery of the thing!
+!
Alienation - when the principal obligation beco"es due and the debtor defaults the thing "ay be alienated to satisfy the for"er!
,!
Dis#osal - Pledgor1"ortgagor Pledgor1"ortgagor "ust have free disposal of the thing or capacity to dispose!
!
O1ners&i# - Pledgor1"ortgagor Pledgor1"ortgagor "ust be the absolute owner of the thing(
P)RPOSE2 To sec"re $"l$illent o$ a #rinci#al o!li%ation WHAT I, THE THING PLEDGED/MORTGAGED IS S)-SE0)ENTL3 LOST4 WHO -EARS THE LOSS? IS THE PRINCIPAL O-LIGATION E5TING)ISHED? he pledgor bears the loss! 3e"e"ber 3e"e"ber that there hasn4t been transfer of ownership! he principal obligation is of course not e*tinguished the pledge1"ortgage pledge1"ortgage is only accessory! accessory! 5owever 5owever the debtor "ust replace the thing or lose the benefit of the period! Pledge/mortgage is a direct lien on the property. It is better than guarantee because the property pledged can be sold upon default by the debtor, unlike in guaranty where several requirements have to be complied with first. PRO-LEM2 D TRANS,ERS PROPERT3 TO C AND AT THE SAME TIME E5EC)TES AN INDEMNIT3 AGREEMENT4 AGREEMENT4 OR D TRANS,ERS PROPERT3 TO C TO SEC)RE AN E5ISTING O-LIGATION6 O-LIGATION6 HOW WILL THE TRANS,ER -E CHARACTERI7ED? 6oth transfers will be characteri7ed as pledges!
REAL2 T&ere "st !e deliver+ o$ t&e t &e t&in% to #er$ect t&e contract6 An agreement to pledge, when there is breach, gives rise to damages.
ALIENATION2 W&en t&e #rinci#al o!li%ation !ecoes d"e and t&e t &e de!tor de$a"lts8 t&e t&in% a+ !e alienated to satis$+ t&e $orer6 DOES THE CREDITOR HAVE TO GO TO CO)RT TO EN,ORCE THE PLEDGE OR MORTGAGE? 8o to re.uire litigation would be to nullify the lien and defeat the purpose of the contract!
,REE DISPOSAL2
WHAT DO 9,REE DISPOSAL: AND 9CAPACIT3 TO DISPOSE: O, THE PROPERT3 MEAN? ree disposal "eans that the property is not sub:ect to any clai" by a third person! Capacity to dispose "eans that though the pledgor1"ortgagor does not have free disposal the third person with a clai" authori7ed hi" to dispose &tingin ;o lang'! In case of corporations, the board should adopt a resolution to approve the pledge/mortgage. If what is to be pledged or mortgaged constitutes all of the corporations assets, !/" of outstanding capital stock must approve. #ule on consent$ If pledgor/mortgagor is married, consent of spouse is needed% if agent, authori&ation of principal. 'or married persons ( how to wiggle out of a pledge or mortgage agreement$ Pledge or mortgage your con)ugal property without your spouses signature. In case the property is foreclosed, you can raise the defense that there was no consent *remember, half consent is no consent+ -hat if the pledge was constituted to secure an obligation of the family business, doesnt this redound to the benefit of the con)ugal partnership No, P0P said that the pledge of con)ugal property con only be considered to redound to the benefit of the partnership if the family business is constituting pledges. If you are the pledgee/mortgagee, check if pledgor/mortgagor has authority to dispose of the property. Another e1ample on free disposal or legal authority$ 21. Pledgor corporation is placed under receivership. 3he corporation cannot pledge shares of stock because pledge is a disposition requiring court approval.
OWNERSHIP2 CAN ,)T)RE PROPERT3 -E PLEDGED? 8o it is essential that the pledgor be the absolute owner of the thing! 8ote# It is the sale and not the registration in the )< that transfers transfers ownership of a vehicle! 8ote# A co/owner can only pledge1"ortgage pledge1"ortgage his ideal share in the co/ownership! co/ownership! 8ote# A "ortgagor can rely on what is on the face of the orrens orrens title! -4A3 I0 52AN3 67 A6089:32 8-N2#04IP 6834 62N2'I;IA9 AN< 92=A9 3I392 must vested in the pl edgor/mortgagor 21. 3rustee is legal owner of shares of stock% trustor is beneficial owner$ Neither can pledge the shares. Pledge/mortgage cant be constituted without a principal obligation even if there is a subsequent principal obligation. 3his is different from situation where the lender e1tends a credit line for >5, >5, thou though gh borr borrow ower er has has not yet yet draw drawn n, the the cred credit it lin line can stil stilll be secur ecured ed via via pledge/mortgage. 21. deed of assignment/absolute sale to secure fulfillment of obligation € this is a mortgage or an implied trust according to the 0;. 3he pledgor/mortgagor must be absolute owner of the thing or the property. 3he creditor may rely on the title/stock certificate if there is no notice of defect in title. 4owever, failure of the pledgor to present the thing is a red flag that should put the pledgee on guard as to the pledgors right to pledge the thing.
3hough the pledgor must own the thing and have free disposal of it, see the following problem discussed in class$ 21. 8n day >, stocks are sold to ? with the condition that the sale will be effective if ? tops the bar. 8n day !, ? pledges the stocks. 8n day ", the bar e1am results come out, with ? in the number one spot. Is the pledge valid 7es, the pledge is valid. #emember 8blicon, condi tional obligations 3he effects of a conditional obligation to give, when the condition happens, retroact to the date of the constitution of the obligation. 8-N2#04IP #23#8A;30 38 . In the above condition, what if the condition is resolutory As long as the pledge is registered in a public document, it is valid and binding as to third persons. 21$ @ ? receives from A shares of stock with the resolutory condition that they shall be returned to A if ? does not pass the bar. C H have the same effect 21$ >5 obligation, >.5 worth of stocks pledged. -hen the stocks go down top >.E5, can you claim that the value of the pledge is diminishing and then choose to sell the stocks for >.E5, keeping the profits as security, pursuant to !>CH P0P says$ J5aybe but speculative.K Probably not if the change in price is )ust a day@to@day fluctuation. P#86925$ >5 I0 02;:#2< 67 A LCCD 58#3=A=2 AN< A GCCD P92"dicial confir"ation of the sale6 A$ter t&e con$iration o$ t&e sale8 t&e #"rc&aser s&all !e entitled to t&e #ossession o$ t&e #ro#ert+8 and all t&e ri%&ts o$ t&e ort%a%or 1it& res#ect to t&e #ro#ert+ are severed or terinated6 he e.uity of rede"ption period actually e*tends until the sale is confir"ed! Even a$ter
t&e la#se o$ t&e B to ;P"dicial $oreclos"re is done !+ a 6A86 In s"c& a case8 t&ere is still a ri%&t o$ rede#tion 1it&in one +ear $ro t&e re%istration o$ t&e sale6 ?EP # T&e #roceeds o$ t&e sale o$ t&e #ro#ert+ 1ill !e dis#osed as $ollo1s2 ;6 ,irst8 t&e costs of the sale 1ill !e ded"cted $ro t&e #rice at 1&ic& t&e #ro#ert+ 1as sold E8 1&ic& can !e i#osed on ot&er #ro#ert+ o$ t&e ort%a%or6 T&is is "nli'e t&e r"le in #led%e8 1&ere t&e #led%ee cannot collect an+ de$icienc+6 T&is is also "nli'e t&e r"le in etra>"dicial $oreclos"re 1&ere t&e ort%a%ee "st %o to co"rt and $ile anot&er action $or t&e collection o$ t&e de$icienc+6 In t&is case8 t&ere is no need to $ile an action6 T&e ort%a%ee >"st &as to $ile a otion in co"rt $or t&e de$icienc+ >"d%ent6
W&+ s&o"ld +o" sta+ a1a+ $ro >"dicial $oreclos"re? Judicial foreclosure is costly, since the parties would need to hire lawyers. Moreover, in judicial foreclosure, the parties have very little control over the sale because there is court intervention. Judicial foreclosure is also more susceptible to stalling6dilatory tactics by the mortgagor, since he can file all sorts of motions in court to prevent the sale. EXTRA2/UDICIAL FORECLOSURE UNDER ACT 3435
W&en is etra>"dicial $oreclos"re #ro#er? here must be a provision in the mortgage giving the mortgagee the special power of attorney to carry out the e$traFjudicial foreclosure under Act '7.
W&ere s&o"ld t&e sale !e ade? he sale can only be made in the province where the property is situated. !o if several properties located in different provinces are mortgaged to secure one principal obligation, the creditor must foreclose in each and every jurisdiction where the property is located.
W&at is t&e #roced"re? STEP ;2 ,ile a co#laint $or etra>"dicial $oreclos"re 1it& t&e Eec"tive "d%e STEP "d%ent creditor o$ t&e de!tor8 or an+ #erson &avin% a >"nior enc"!rance or lien on t&e #ro#ert+ a+ eercise t&e ri%&t o$ rede#tion6 Ea#le2 Mort%a%or ort%a%ed a &o"se and lot to A6 Later8 Mort%a%or also ort%a%ed it to -6 A $oreclosed t&e ort%a%e and !o"%&t t&e &o"se and lot at t&e a"ction6 In t&is case8 "#on t&e sale o$ t&e #ro#ert+ to A8 t&e onl+ ri%&t t&at - as second ort%a%ee &as is t&e ri%&t to redee6 He a+ eercise t&e ri%&t !+ #a+in% o$$ t&e de!t sec"red !+ t&e $irst ort%a%e6 -s eercise o$ Mort%a%ors e."it+ o$ rede#tion is e."ivalent to $oreclos"re o$ t&e >"nior ort%a%e6 5ow "uch should the one e*ercising the right of rede"ption payH T&e ort%a%or or 1&oever is redeein% t&e #ro#ert+F s&o"ld #a+ t&e P3C5A?E P3ICE o$ t&e #ro#ert+ not t&e ao"nt o$ t&e ori%inal o!li%ation an+oreF #l"s I8E3E?
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