Northern CPAR: Business Laws Pledge, Mortgage and Antichresis

NORTHERN CPA REVIEW

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E-mail: [email protected]

ATTY. ANDRIX DOMINGO, CPA

BUSINESS LAWS
The Law on:
PLEDGE, MORTGAGE AND ANTICHRESIS
Common requisites 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.
Third persons may pledge or mortgage their property to secure another persons debt. However, they can be held liable only to
the extent of the value of their property.
3. That the persons constituting the pledge or mortgage have the free disposal of the property, and in the absence thereof, that
they be legally authorized for the purpose.
Pactum commissorium
This is a stipulation in a pledge or mortgage which provides for automatic forfeiture
Appropriation in pledge
Appropriation in pledge is allowed only if the thing pledged is not sold at two public auctions.
PLEDGE
>is a contract by virtue of which the debtor delivers to creditor or to a third person a movable, or instrument evidencing
corporeal 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.
Kinds of pledge
1. Conventional or voluntary- that which is constituted by the mutual consent of the pledgor and the pledgee.
2. Legal- that which is created by operation of law.
Conventional Pledge
Requisites
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the pledgor be the absolute owner of the thing pledged.
3. That the person constituting the pledge has the free disposal of his property, and in the absence thereof, that he be legally
authorized for the purpose.
4. That the thing pledged be placed in the possession of the creditor, or a third person by common agreement.
Object of the pledge
1. All movables
2. Incorporeal rights
Extinguishment of pledge
Pledge may be extinguished directly or indirectly
1. Indirect cause- When the principal obligation secured by the pledge is extinguished, the pledge, being merely an accessory
contract, is likewise extinguished.
2. Direct causes- Pledge may be extinguished directly as follows:
A. Return by the pledgee of the thing pledged to the pledgor or owner
1) Any stipulation that the pledge is not extinguished by the return of the thing is void.
2) Prima facie presumption that pledgee returned the thing pledged
a) If the thing pledged is found in the possession of the pledgor or owner.
b) If the thing pledged is in the possession of a third person who has received it from the pledgor or owner.
B. Renunciation or abandonment in writing by the pledgee of the pledge.
1) The acceptance by the pledgor or owner of the renunciation, or the return of the thing pledged, is not necessary for
such mode of extinguishing pledge.
2) The pledgee becomes a depositary upon renunciation if in the meantime, the thing pledged is not yet returned to the
owner.
C. Sale of the thing pledged
1) Formalities of the sale- The sale shall be:
a) by public auction

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b)
c)

through a notary public, and

with notice to the debtor and the owner of the thing pledged, stating the amount for which the public sale is to
be held.
2) Who may bid at the public auction
a) The pledgor or owner.
He shall be preferred if he should offer the same terms as the highest bidder.
b) The pledgee.
However, his offer shall not be valid if he is only bidder.
c) Third persons.
3) Required amount of bids
All bids shall offer to pay the purchase price at once. 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.
4) Effects of sale
The principal obligation shall be extinguished whether or not the proceeds of the sale are equal to the amount of the
principal obligation, interest and expenses in a proper case.
a) If the price is more than amount of the obligation, the debtor shall not be entitled to the excess, unless there is
an agreement to that effect.
b) If the price is less, the creditor cannot recover the deficiency even if stipulated
5) Rule when two or more things are pledged
The pledgee may choose which he will cause to be sold, unless there is a contrary stipulation. He may demand the
sale of only as many of the things as are necessary for the payment of the debt.
D. Appropriation of the thing pledged
If the thing pledged is not sold in the first and second public auctions, the creditor may appropriate the thing pledged.
Legal pledge
Legal pledge or pledge by operation law refers to the right of a person to retain a thing until he receives payment of his
claim.
Examples of legal pledge
1. Possessory lien by a possessor in good faith
2. Possessory lien of worker
3. Depositorys right of retention
Real Mortgage
Mortgage (otherwise known as real estate mortgage or real mortgage) is a contract whereby the debtor secures to the creditor
the fulfillment of a principal obligation, especially 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.
Requisites of real mortgage
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
4. That the document on which the mortgage appears be recorded in the Registry of Property
Object of real mortgage
1. Immovables
2. Alienable real rights in accordance with the laws, imposed on immovables.
Foreclosure of real mortgage
Foreclosure
>is the remedy available to the mortgagee by which he subjects the property mortgaged to the satisfaction of the obligation
secured.
Kinds of foreclosure
a. Judicial foreclosure- this is a foreclosure made through the filling a petition in court.
1) If the defendant fails to pay the amount due within the time directed, by the court, the property shall be sold.
2) The proceeds of sale shall be distributed as follows:
a) The costs of sale.
b) Claim of the person foreclosing the mortgage.
c) Claims of junior encumbrancers in the order of their priority.
d) Balance, after all the above are paid, shall be paid to the mortgagor or his agent.

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3)

Deficiency judgment
If the proceeds of sale not sufficient to satisfy the claim of the creditor, the court, upon motion, shall render judgment
against the debtor, for such balance.
Tipo or upset price
The price which is set by the parties as the amount at which the property will be sold at public auction. This stipulation is
null and void because it contravenes Rule 68 of the Rules of Court which provides that the property mortgaged shall be
sold to the highest bidder.

b.

Extra-judicial foreclosure- this is made in compliance with the provisions of Act No. 3135 in the following cases:
1) Where there is a stipulation in the mortgage contract that the mortgage may be foreclosed extra-judicially; or
2) Where such extra-judicial foreclosure sale is made under a special power of attorney inserted in the contract.
Distribution of proceeds
The proceeds shall be distributed in the same order in the case of judicial foreclosure.

Recovery of deficiency
In case of deficiency in the foreclosure sale, the creditor may recover the same from the principal debtor by filling the court
action.
Redemption
A transaction through which the mortgagor, or one claiming in his right, by means of payment or the performance of the
condition, reacquires or buys back the value of the title which may have passed under the mortgage, or divests the mortgaged
premises of the lien which the mortgage may have created.
Kinds of redemption
1) Equity of redemption- This refers to the right of the mortgagor to redeem the mortgaged property after his default in the
performance of his obligation but before the property is sold.
a) In judicial foreclosure, the mortgagor is given not less than 90 days to pay the mortgage debt before the property is
sold.
b) In extra-judicial foreclosure, the mortgagor may avail himself of this right after his default but before the sale of the
property.
2) Right of redemption- this refers to the right of the mortgagor to repurchase the property within a certain period after it was
sold for the payment of the mortgage debt.
a) In judicial foreclosure, the mortgagor may redeem the property after the sale and before the confirmation by the court
of the sale.
b) In extra-judicial foreclosure, the mortgagor has one year from the date of sale to redeem the property.
CHATTEL MORTGAGE
is a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance
of an obligation.
Requisites of chattel mortgage
1. That it be constituted be secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
4. That the document in which the mortgagee appears be recorded in the Chattel Mortgage Register.
Affidavit of good faith
This is sworn statement attesting to the fact that the mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the obligation is a just obligation, and one not entered into for the purpose of
fraud.
Kinds of foreclosure of chattel mortgage
a. Judicial foreclosure- this is foreclosure made by instituting a court action, following the provisions of the Chattel Mortgage Law
as far as practicable.
b. Extra-judicial foreclosure- this is foreclosure following the provisions of the Chattel Mortgage Law. Instituting a court action is
necessary only to secure possession of the thing preparatory to extra-judicial foreclosure if the debtor refuses to deliver the
thing.
Foreclosure sale
The proceeds of sale shall be distributed as follows:
1) The costs of sale.
2) Claim of the person foreclosing the mortgage.
3) Claims of persons holding subsequent mortgages in their order.

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4)

Balance, if any, shall be paid to the mortgagor.

Deficiency judgment
If the proceeds of sale are not sufficient to satisfy the claim of the creditor, the creditor may institute a court action to recover the
deficiency
ANTICHRESIS
Antichresis
A contract whereby 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 interests, and thereafter to the principal of his credit.
Requisites of antichresis
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the debtor be the absolute owner of the immovable property
3. That the debtor must have the free disposal of such immovable property, and in the absence thereof, that he be duly authorized
for the purpose.
4. That the amount of the principal and the interest must be in writing; otherwise, the antichresis is void.
Application of the fruits of the immovable
1) The taxes and charges upon the immovable.
2) The expenses for preservation and repair.
3) Interests on the principal obligation.
4) Principal obligation.
QUIZZER:
1. Which of the following statement is true?
a. Any stipulation in a contract of pledgee authorizing the pledge to sell the thing pledged if the pledgor cannot pay is void.
b. In mortgage, the mortgagee is entitled to the entire proceeds of the sale of the thing mortgaged.
c. In mortgage and in pacto de retro sale, the title to the property which is the subject matter of the contract is transferred to
the other party.
d. Real estate mortgage is an accessory contract.
2. In real estate mortgage, the mortgagor can sell the property mortgaged.
a. Only if with the oral consent of the mortgagee.
c. If not prohibited to sell.
b. Only if with the written consent of the mortgagee.
d. Even without the consent of the mortgagee.
3.

Elements of contracts of pledge and mortgage, except:

a. Pledgor or mortgagor must be the absolute owner.
b. Pledgor or mortgagor must have the free disposal of the thing pledged.
c. The thing pledged or mortgaged may be appropriated if the debtor cannot pay.
d. Pledge and mortgage are accessory contracts.

4.

A borrowed P100,000 from B with As ring given to B by way of pledge. It was stipulated that in case of non-payment on due
date, the ring would belong to B. This forfeiture is:
a. caveal emptor
b. dacion en pago
c. pactum comisorio
d. pacto de retro

5.

A borrowed P100,000 from B, and as a security, A pledged his ring to B. After the obligation falls due, A goes to B relinquishing
ownership of the ring in favor of B. This is:
a. cavear emptor
b. dacion en pago
c. pactum comisorio
d. pacto de retro

6.

A borrowed P30,000 from B, and as security, he pledge his ring, pair of earrings and necklace. On due date, A paid P20,000. As
a result,
a. A can demand the return of one (1) of the things pledged.
b. A can demand the return of any two (2) of the things pledged.
c. A can demand the return of the ring.
d. A cannot demand the return of any of the things pledged.

7.

A mortgaged his residential land to B as a guarantee for the payment of P400,000 obligations to B. They agreed that A should
not sell the land while the obligation exists. Before the maturity of the mortgage, C offered to buy the land from A. Which is
correct?
a. A cannot sell the land to C because of the agreement not to sell.
b. A can sell the land to C only if B consents in writing.
c. A can sell the land to C despite the agreement not to sell.
d. A cannot sell the land to C unless A pays the obligation.

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8.

S, minor of 16 years, sold her bracelet to B for P8,000. Later, B, needing money to pay her daughters tuition fee borrowed
P15,000 from C and as a security, pledged the bracelet to the latter. B failed to pay C resulting into the auction sale of the
bracelet in favor of D for P10,000 only. Which of the following statements is correct?
a. The title of B over the bracelet is not valid, hence the pledge, as well as the sale of said bracelet is likewise defective. The
pledgor must be the owner of the thing pledged.
b. The deficiency of P5,000 may still be recovered by C from B if there is a stipulation to this effect.
c. C can no longer recover the deficiency of P5,000 from B. The pledge, together with the sale is valid. The voidable title of B
is valid because it is not yet annulled.
d. If D was a purchaser in bad faith as he knew of the defective title of B over the bracelet from S, ownership will not pass to
him (D).

9.

In the preceding number, assuming what was executed by B in favor of C was a valid chattel-mortgage which was eventually
foreclosed and the bracelet was sold to D at the public auction for the same amount, which statement is correct?
a. The title of B over the bracelet is not valid, hence the chattel mortgage, as well as the sale of said bracelet is likewise
defective. The mortgagor must be the owner of the thing mortgaged.
b. The deficiency of P5,000 may still recover by C from B.
c. C can no longer recover the deficiency of P5,000 from B as the mortgage, together with the foreclosure sale, was valid.
The title of B was still valid.
d. If D was a purchaser in bad faith as he knew of the defective title of B over the bracelet, ownership will not pass to him (D).

10. S sold to B a specific car for P200,000 payable in four equal installments. S delivered the car to B but required B to mortgage it
back to S to answer for the unpaid installments. B paid the first and second installments but he failed to pay the balance. S
foreclosed the mortgaged property and sold it at public auction for P80,000. As a result,
a. S can recover from B the balance of P20,000.
b. S can recover from B the balance of P20,000 if there is stipulation to that effect.
c. S cannot recover the deficiency any more even if there is stipulation to that effect.
d. S cannot recover the deficiency except if there is stipulation.
11. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them, except if there is a
stipulation to the contrary.
The indivisibility of a pledge or mortgage is affected by the fact that the debtors are solidarily liable.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
12. A pledge or mortgage is indivisible, except if the debt may be divided among the successors in interest of the debtor or of the
creditor.
In case of pledge of animals, their offspring shall pertain to the pledgee of the animals.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
13. The creditor can use the thing pledge even without the authority of the pledgor.
If through the negligence or willful act of the pledgee, the thing pledged is in danger of being lost or impaired, the pledgee may
cause the same to be sold at a public auction.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
14. If the thing pledged is returned by the pledgee to the pledgor or owner, the
pledge is extinguished, except if there is a
stipulation to the contrary.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner there is a conclusive
presumption that the same has been returned by the pledgee.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
15. A statement in writing by the pledge that he renounces or abandons the pledge is sufficient to extinguish the pledge only if
accepted by the pledgor or owner and the thing pledged is returned.
At the public auction, the pledgee may also bid and his offer shall be valid even if he is the only bidder.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
16. The sale of the thing pledged shall extinguish the principal obligation only
if the proceeds of the sale are equal to the
amount of the principal obligation.
If the price of the sale is more than the amount of the obligation, the debtor shall be entitled to the excess, unless it is otherwise
agreed.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
17. If the price of the sale is less than the amount of the obligation the creditor shall not be entitled to recover the deficiency except
if there is a stipulation to the contrary.

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If two or more things are pledged, the pledgor may choose which he will cause to be sold, unless there is a stipulation to the
contrary.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
18. A pledge shall not take effect against third person if a description of the thing pledged and the date of the pledge do not appear
in a public instrument.
If after the auction sale, the thing pledged is not sold, the pledgee can appropriate the thing pledged.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
19. A pledged his ring to B for P20,000. A failed to pay his obligation on time. B sold the ring at a public auction for P16,000. B
cannot recover P4,000 from A even if there is stipulation.
Using the same facts, if the proceeds of sale is P24,000. A can recover the excess of P4,000 if stipulated.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
20. In sale at public auction, the pledgor or owner may be a bidder and shall have a better right if he should offer the same terms as
the highest bidder.
Pledge is a real contract.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
21. A stipulation prohibiting the owner from alienating the immovable mortgaged shall be void.
The equity of redemption refers to the right of the mortgagor to redeem the mortgaged property within a certain period of time
after it was sold to a third person.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
22. The right of redemption refers to the right of the mortgagor to redeem the mortgaged property after his default in payment but
before the sale.
The registration in the Registry of Property is necessary for the validity of a contract of real estate mortgage.
23. Except in case of sale of personal property in installments, if the proceeds of the sale is less than the principal obligation the
creditor-mortgagee can recover the deficiency.
A borrowed P100,000 from B payable in 10 equal monthly installments. To secure payment of the loan, A executed a chattel
mortgage on his Mercedes Benz car. If A violates the condition of the mortgage, and the car was foreclosed and sold at a public
auction but the proceeds is less than the collectible amount, B cannot recover the deficiency.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
24. In real estate mortgage the mortgagor can sell the property mortgage even without the consent of the mortgagee.
In chattel mortgage the mortgagor cannot sell the thing mortgage even with the written consent of the mortgagee appearing at
the back of the mortgage.
a. both are true
b. both are false
c. only the first is true
d. only the second is true
25. Chattel mortgage like pledge is a real contract.
In chattel mortgage like pledge the possession of the thing mortgaged is vested in the creditor.
a. both are true
b. both are false
c. only the first is true
d. only the second is true

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