PLEDGE, MORTGAGE, ANTICHRESIS AND CHATTEL MORTGAGE

Learning outcomes
▪ At the end of the lecture, students will be able to understand and identify pledge
from mortgage, antichresis and chattel mortgage.
▪ Students will be able to understand the consequences when one defaults in
payment in pledge, mortgage, and chattel mortgage.
PLEDGE
Provisions Common to Pledge and Mortgage
The following requisites are essential to the contracts of pledge and mortgage:
▪ (1) That they be 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.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property
Article 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.
IT IS CALLED PACTUM COMMISSORIUM
It is a stipulation authorizing the creditor to appropriate the things given by way of pledge
and mortgage or to dispose of them. It is declared null and void by law.
Reason : The amount of the loan is ordinarily much less than the value of the security
Rules on the indivisibility of Pledge and Mortgage:
a. 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.
b. Therefore, the debtor’s heirs who has paid off the debt cannot ask for the
proportionate extinguishments of the pledge or mortgage as long as the debt is not
completely satisfied.
c. Neither can the creditor’s heirs 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.
d. The above rules, however, do not apply where there being in several things given
in mortgage or pledge, each of them guarantees only a determinate portion of the
credit. In this case, the debtor shall have a right to the extinguishments of the
 pledge or mortgage as the portion of the debt for each thing is especially
answerable is satisfied.

A borrowed from B P10,000 to guarantee payment, A pledge his diamond ring worth
P4,000 and a pair of earrings worth P6,000. If A pays P4,000 he cannot ask for the return
of the ring because both the ring and the earrings are given to secure payment of the
entire obligation of P10,000.

Meaning of Pledge
It is a contract by virtue of which the debtor delivers to the creditor or to the third person
a movable or instrument evidencing incorporeal rights for the purpose of securing the
fulfillment of a principal obligations is fulfilled the thing delivered shall be returned with all
the fruits and accessions.

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.
All movables which are within commerce may be pledged, provided they are susceptible
of possession.

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.
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.
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.
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.
Rights of the Pledgee
a. To retain the thing in his possession or in that of a third person to whom it has
delivered, until the debt is paid
b. To be reimbursed for the expenses incurred in its preservation.
c. to compensate the fruits, income, dividends or interests earned or produced by the
thing pledged and received with those which are due to him.
d. d. To bring the actions which pertain to the owner of the thing pledged in order to
recover if from or defend it against a third person
 e. To sell the thing pledged at the public auction, if without his fault, there is danger
of destruction, impairment or diminution in the value of the thing.
f. To claim a substitute or demand immediate payment, if he is deceived on the
substance or quality of the thing pledged.
g. To sell the thing pledged at public auction if the obligation secured is not paid.
h. To bid at the public sale.
i. To collect the amount that become due on a credit pledge before such credit is
redeemed.
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.
Conditions required in an extra-judicial foreclosure sale of the thing pledged:
a. The debt is due and unpaid
b. The sale must be at a public auction
c. There must be notice to the pledgor and owner, stating the amount due, and
d. The sale must be made with the intervention of a notary public.

Mortgage
A mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a
principal obligation by subjecting the debtor’s immovable property or his real rights over
immovable property as a security such that when the principal obligation is not paid on
due date, said property may be sold and the proceeds used to settle the entire obligation.
A mortgage is also referred to as real estate mortgage or simply real mortgage. Only
immovable and alienable real rights imposed upon immovable may be the object of a
contract of real mortgage.
As a general rule, the mortgagor-debtor retains ownership as well as possession
of the property mortgage as a security for the payment of the sum borrowed from
the mortgagee-creditor. Being an accessory contract, its validity would depend on the
validity of the debt secured by it and the mortgage must sufficiently describe the debt
sought to be secured.
The following requisites are essential to the contract of real mortgage:
A. That it is constituted to secure the fulfillment of a principal obligations;
B. That the mortgagor be the absolute owner of the real property mortgaged; and
C. That the person constituting the mortgage has the free disposal of his/her property,
and in the absence thereof, that he/she be legally authorized for the purpose.
When the person applying for the loan is not the owner of the real property being
mortgages, the mortgagee should have made inquiries into and confirm the authority of
the mortgagor. If he/she deliberately fails to do such, then it raises doubt whether he or
she is an innocent mortgagee for value.
A registered mortgage creates a right in rem, a real right, lien inseparable from the
property mortgaged, which is enforceable against the whole world, affording
specific security for the satisfaction of a debt. If the mortgagor sells the mortgaged
property, the property remains subject to the fulfillment of the obligation secured by it. All
subsequent purchasers of the property must respect the mortgage, whether the transfer
to them was with or without the consent from the mortgage.
To illustrate: Jason bought a parcel of land to Cardo, and the sale was recorded to the
Office of the Register of Deeds. Prior to the sale, Cardo had already mortgaged the
property land to Lando, which was also registered. For failure of Cardo to pay the
mortgage debt, Lando foreclosed the mortgage, and the was sold to Mark as the highest
bidder. Mark opposed the application for registration of Jason. In this case, the land
should be registered in the name of Mark, but subject to Jason’s equitable right of
redemption which right should be exercised within one (1) year from the date the decision
becomes final.
The first mortgagee has superior rights over junior mortgagees or attaching creditors. The
mortgagor’s default does not operate to vest in the mortgagee the ownership of the
encumbered property. The only right of the mortgagee in case of non-payment of a debt
secured by mortgage would be to foreclose the mortgage and have the encumbered
property sold to satisfy the outstanding obligation. On the other hand, upon payment of
the mortgage debt, there is no more mortgage, and the mortgagee must return the
certificate of title to the mortgagor.
A real estate mortgage constituted on immovable property is not limited to the property
itself but also extends to all its accessions, improvements, growing fruits and rents or
income as well as to the proceeds of insurance should the property be destroyed or the
expropriation value of the property should it be expropriated.
The mortgage credit may be alienated or assigned to a third person, with the formalities
required by law. The alienation or assignment is valid even if it is not registered. The
registration is necessary only to affect third persons. The creditor may claim from a third
person in possession of the mortgaged property the payment of the part of the credit
secured by the property which third person possesses, in terms with the formalities which
the law establishes.
To illustrate: Martha mortgage her condominium unit worth P5,000,000 in favor of Chloe
to secure Martha’s debt of P6,000,000. Martha then sold the condominium unit to Agatha.
In this case, the obligation of Martha to pay the debt is not affected by the transfer. On
the due date of the obligation, Chloe may demand payment from Martha; if the Martha
fails to pay, Chloe may foreclose the mortgage. Chloe has the right to claim from Agatha
the payment of P5,000,000 which is part of the credit secured by the property sold to
Agatha to prevent the foreclosure of the said mortgage. Agatha is not liable for any
deficiency in the absence of a contrary stipulations. The remedy of Agatha is to proceed
against Martha.
In case the mortgagor dies, a secured creditor holding a real estate mortgage can choose
among three distinct, independent, and mutually exclusive remedies that can be
alternative pursued by him or her for the satisfaction of his/her credit.
1. Waive the mortgage and claim the entire debt from the estate of the mortgagor as
an ordinary claim.
2. Foreclose the mortgage judicially and prove any deficiency as an ordinary claim.
3. Rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription without right to file a claim for any deficiency, this includes
extrajudicial foreclosure which bars any subsequent deficiency claim against the
estate of the deceased.
Foreclosure is the remedy available to the mortgagee by which he/she subjects the
mortgage property to the satisfaction of the obligation as a necessary consequence of
non payment of a mortgage indebtedness.
As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time
it is due and is valid only when the debtor is in default in the payment of his or her
obligation.
A mortgage may be foreclosed judicially by bringing an action for that purpose in the
proper court, which has jurisdiction over the area wherein the real property involved or a
portion thereof is situated.
A mortgage may be foreclosed judicially by bringing an action for that purpose in the
proper court, which has jurisdiction over the area wherein the real property involved or a
portion thereof is situated. The court shall order the mortgagor to pay the amount due
with interest and other charges within a period not less than 90 days nor more than 120
days from the entry on judgment.
If the mortgagor fails to pay at the time directed in the order, the court shall order the
property to be sold to the highest bidder at a public auction. Publication is required and
failure to comply with the requirements as to publication of notice of auction sale
constitutes a jurisdictional defect which invalidates the sale or render the sale voidable.
The proceeds of the sale shall be applied to the payment of the following;
a. Cost of the sale
b. The amount due of the mortgagee
c. Claims of the junior encumbrances or persons holding subsequent mortgages in
the order of their priority
d. The balance if, shall be paid to the mortgagor or his duly authorized agent or to the
person entitled to it.
Redemption may be defined as a transaction by which the mortgagor reacquires or buys
back the property within a certain period and for a certain amount, a property that has
been sold due to debt, tax, or encumbrance. It is allowed in cases of foreclosures in favor
of banking and credit institutions and in extrajudicial foreclosures. There are two types of
redemption.
1. Equity of redemption
2. Right of redemption
Equity of redemption or the right of the mortgagor in case of judicial foreclosure to
redeem the mortgaged property after his or her default in the performance of the
conditions of the mortgage but before the confirmation of the sale of the mortgaged
property by paying the secured debt within 90 day period after the judgment becomes
final or even after the foreclosure sale but prior to its confirmation.
Right of redemption or the right of the mortgagor in case of judicial foreclosure to
redeem the mortgaged property at anytime within the term of one (1) year from and after
the date of registration of the certificate of sale with the appropriate Registry of Deeds.
Antichresis
By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest,
if owing, and thereafter to the principal of his credit.
The actual market value of the fruits at the time of the application thereof to the interest
and principal shall be the measure of such application.
The amount of the principal and of the interest shall be specified in writing; otherwise, the
contract of antichresis shall be void.
The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes and
charges upon the estate. He is also bound to bear the expenses necessary for its
preservation and repair.
The debtor cannot reacquire the enjoyment of the immovable without first having totally
paid what he owes the creditor.
▪ The creditor does not acquire the ownership of the real estate for non-payment of
the debt within the period agreed upon.
▪ Every stipulation to the contrary shall be void. But the creditor may petition the
court for the payment of the debt or the sale of the real property. In this case, the
Rules of Court on the foreclosure of mortgages shall apply.
▪ The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis,
provided that if the value of the fruits should exceed the amount of interest allowed
by the laws against usury, the excess shall be applied to the principal.
Chattel Mortgage
By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as
a security for the performance of an obligation. If the movable, instead of being recorded,
is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage.
Act No. 1508- The Chattel Mortgage Law
A chattel mortgage is a conditional sale of personal property as security for the payment
of a debt, or the performance of some other obligation specified therein, the condition
being that the sale shall be void upon the seller paying to the purchaser a sum of money
or doing some other act named. If the condition is performed according to its terms the
mortgage and sale immediately become void, and the mortgagee is thereby divested of
his title.
A chattel mortgage shall not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the property is delivered to and
retained by the mortgagee or unless the mortgage is recorded in the office of the register
of deeds of the province in which the mortgagor resides at the time of making the same,
or, if he resides without the Philippine Islands, in the province in which the property is
situated: Provided, however, That if the property is situated in a different province from
that in which the mortgagor resides, the mortgage shall be recorded in the office of the
register of deeds of both province in which the mortgagor resides and that in which the
property is situated, and for the purposes of this Act the city of Manila shall be deemed to
be a province.
Object of Chattel Mortgage Contract:
• Only movable or personal properties such as:
• Shares of stock (the mortgage to be registered both in Chattel Mortgage Registries of
the province where the mortgagor resides, and the province where the corporation has
its principal business);
• Interest in business;
Growing crops;
• Large cattles;
• Vehicles (the mortgage to be registered also with the Land Transportation Office); and
• Vessels (the mortgage to be registered with the Office of the Philippine Coast Guard of
the Port of Documentation of such vessels. (Pres. Decree No. 1521, Sec. 3 9a)