Notes on Pledge Mortgage Chattel Mortgage and Antichresis PDF

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Notes on the Law on Pledge, Real Mortgage & ChattelMortgageCommon Provisions on Pledge and Mortgage Essential Requisites common to both Pledge and Mortgage: a. They are constituted to secure fulfillment of the principal obligation. b. The pledgor or mortgagor is the absolute owner of the thi...

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Notes on the Law on Pledge, Real Mortgage & Chattel Mortgage Common Prov Provisions isions on Pledge and Mortg Mortgage age 1. Essential Requisites common to both Pledge and Mortgage: a. They are constituted to secure fulfillment of the principal obligation. b. The pledgor or mortgagor is the absolute owner of the thing pledge or mortgage. c. The person constituting the pledge or mortgage have free disposal of the their property and in the absence thereof, that may be legally authorized for the purpose (Art. 2085); and d. The when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment of the creditor. (Art. 2087)

Note: a. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property (Art. 2085). b. Any kind of obligation whether pure or conditional, including natural, voidable and unenforceable obligations may be secured by a contract of pledge and mortgage. (Art. 2091, 2052). 2. Meaning of 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. (Art 2088). Reason : The amount of the loan is ordinarily much less than the value of the security.

Note: The appropriation must be automatic without need of further act on the part of the debtor. Hence, the prohibition does not apply to: a. Subsequent voluntary act of the debtor of making cession of the property or; b. A promise to assign or sell said property in payment of the debt. 3. 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 of 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.

Examples: a. A borrowed from B P 10,000 and to guarantee payment, A pledge his diamond ring worth P 4,000 and a pair of earnings worth P 6,000. if A pays P 4,000, he cannot ask for the return of the ring because both the ring and the earnings are given to secure payment of the entire obligation of P 10,000. The same is true if A dies leaving W and X as heirs and W pays P4,000 to B. If the creditors are B and C, and A pays B P4, 000, B cannot return the ring to the prejudice of C who has not received his share. However, if it is agreed that the ring was given to secure the payment of P4,000 and the earnings, the balance of P6,000 and A (or his heir W) pays P 4,000, A (or W) can demand the return of the ring. b. A and V are jointly liable to C in the sum of P9,000 secured by A’s ring worth P 5,000 and B’s watch worth P4,000. If A pays P5,000 he cannot demand the return of the ring even if their liability is only joint or proportionate because pledge is indivisible. 4. Legal effect of a promise to constitute a pledge or mortgage:

2 It gives rise only to a personal right binding upon the parties but it creates no real right in the property. (See Art. 2092).

PLEDGE 1. 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. 2. Characteristics/Nature as a contract: a. Real b. Accessory c. Unilateral d. Subsidiary contracts because the obligation incurred does not arise until the fulfillment of the principal obligation that is secured. e. In addition to the common requisites of pledge and mortgage (Art 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. (Art 2093). 3. Cause or Consideration in PLEDGE Insofar as the pledgor is concerned, it is the principal obligation. But if he is the debtor (Art 2085), the cause is the compensation stipulated for the pledge or the mere liberality of the pledgor. 4. What are the Kinds of pledge: a. Voluntary or conventional – one which is created by agreement of the parties; or b. Legal – one which is created by operation of law (Art 2121) 5. Additional requirements in order that pledge shall take effect against third parties: a. The description of the thing pledge; and b. The date of pledge (Art 2076) 6. May thing pledge be alienated? Yes, provided the pledgee consents to the sale. Ownership passes to the vendee but subject to the rights of the pledgee. (Art 2097) 7. Enumerate the 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 (Art 2099). b. To be reimbursed for the expenses incurred in its preservation (Art 2099). c. To compensate (set – off) the fruits, income, dividends or interests earned or produced by the thing pledged and received with those which are due to him (Art 2102). d. To bring the actins which pertain to the owner of the thing pledged in order to recover if from or defend it against a third person (Art 2103). 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 (Art 2108). f. To claim a substitute or demand immediate payment, if he is deceived on the substance or quality of the thing pledged (Art 2109) g. To sell the thing pledged at public auction if the obligation secured is not paid (Art 2112). h. To bid at the public sale (Art 2114). i. To collect the amount that become due on a credit pledged before such credit is redeemed. j. To choose which one of the several thing pledged shall be sold (Art 2119) .

8. Obligations of the pledgee: a. To take care of the thing pledge with the diligence of a good father of the family (Art 2099). b. To answer for its loss or deterioration in the proper case; c. Not to deposit the thing pledge with a third person unless authorized (Art )

3 d. To be responsible for the acts of his agents or employees with respect to the thing pledged (Art 2100); e. Not to use the thing pledged unless authorized or its preservation so requires (Art 2104); f. To advise the pledgor, without delay, of any danger to the thing pledged (Art 2107). g. To promptly advise the pledgor or owner in case of sale at public auction of the result thereof (Art 2116); and h. To return the thing pledged when the principal obligation is paid. 9. 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.

Note: The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold. If the creditor appropriated the thing, it shall be considered as full payment for his entire claim. He is thus obliged to give an acquittance for the same (Art. 2115). The sale must be made at the public auction 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. 10. Rules on the proceeds after sale of the thing pledged: a. Price of sale more than the amount due – The debtor is not entitled to the excess, unless otherwise agreed; and b. Price of sale less tan the amount due – The creditor is not entitled to recover any deficiency, notwithstanding any stipulation to the contrary. (Art. 2115) Reason: To compel the creditor to hold an honest public sale.

Note: 1. The creditor, however, may sue on the principal obligation instead of electing to sell the thing pledged. 2. In pledge by operation of law, after payment of the debt and expense, the remainder of the price shall be delivered to the obligor (Arts 2121, 2122) 3. Under the Chattel Mortgage Law, the mortgagor can also recover the excess (Act. No. 1506, Sec 14). 11. Instances of Legal Pledges or Pledges by Operation of Law: a. Possessor in good faith – for necessary and useful expenses incurred over the thing (Art 546); b. Usufructuary – for taxes and extraordinary expenses (Art 612) ; c. Bailee – For damages suffered by reason of the flaws in the thing loaned. (Arts 1944, 1951); d. Agent – for expenses advance and damages caused by the agency (Art 1914); e. Depositary – for the payment of what may be due him by reason of the deposit (Art 1994); and f. Hotel Keeper – for credits for lodging and supplies furnished (Art 2004); and g. Independent contractor – he who has executed work upon a movable has a right to retain it by way of pledge until he is paid. (Art 1731, see also Art 1701). In case of pledge by operation of law, the proceeds shall be applied to the debt and expenses, the remainder of the price of the sale shall be delivered to the obligor. (Art. 2121). The thing under 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 thing. (Art. 2122) 12. Rights of the Pledgor: a. TO continue to be the owner of the thing pledged, until its sale, unless it is expropriated(Art 2103) ;

4 b. To demand the deposit of the thing pledged should the creditor use it without authority, or misuse it in any other was (Art 2104); c. To substitute the thing pledged if it is endangered without fault of the pledgee without prejudice to the pledgee’s right to have the thing sold at public sale (Art 2108). d. To bid and have preference at the foreclosure sale if he should offer the same terms as the bidder (Art 2113) His offer is not valid however if he is the only bidder. All bids shall offer to pay the purchase price in cash. If a bid other than for cash is accepted, the pledgee is deemed to have received the purchase price in cash, as far as the pledgor or owner is concerned. (Art. 2114). The sale of the thing pledged extinguishes the principal obligation, whether or not the proceeds are equal to the amount of the principal obligation, interest and expenses in proper case; and e. To demand the return of the thing pledged upon the extinction of the principal obligation. (Art 2085 (1)) Note: A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to exinguish the pledge. For this purpose, neither the acceptance by the pledgor or owner, nor the return of the thing pledged is necessary. The pledgee becomes a depositary or bailee. 13. Obligations of the pledgor: a. To notify the pledgee of any flaw or defect of the thing pledged known to him; otherwise he answers for damages suffered by the pledgee (Art 2101); b. To reimburse the pledgee for expenses made for its preservation (Art 2099); and c. To fulfill his principal obligation (Art 2085) 14. Principles in Pledge: 1. As a general rule, the pledge extends to the interest and earnings of the thing pledged, unless there is a stipulation to the contrary. (Art. 2102) 2. Unless the pledge is expropriate, the debtor continues to be the owner thereof. Nevertheless, the creditor may bring actions which pertains to the owner of the thing pledged in order to recover it from or defend it against third person. (Art. 2104) 3. The creditor cannot use the thing pledged without the consent of the owner, and if he should do so, or should misuse t he thing in any other way, the owner may ask the Court that it be JUDICIALLY OR EXTRA-JUDICIALLY DESPOSITED. However, when the preservation of the thing pledged requires its use, it must be used by the creditor but only for that purpose. (Art. 2104) 4. The remedy of the pledgor should the thing pledgedd be in danger of being lost or impaired through the negligence or willful act of the pledgee is to require the thing to be deposited with a third person. (Art. 2106) 5. The creditor who is deceived on the substance or quality of the thing pledged may either (1) claim another thing instead; or demand immediate payment of the principal obligation (Art. 2109). 15. Remedies should there be reasonable grounds to fear the destruction or impairment of the thing pledged, without fault of the pledgee: -

The pledgee is bound to advise the pledgor, without delay or danger to the thing pledged. The pledgor, on the other hand, may demand the return of the thing, upon offering another in pledge provided the latter is of the same kinf as the former and not of inferior quality and without prejudice to the RIGHT OF THE PLEDGEE to cause the sale of the thing pledged at public sale. The proceeds of the auction sale shall be security for the principal obligation in the same manner as the thing originally pledged. (Arts. 2107; 2108). Between the right of the pledgor to demand the return of the thing pledged and the right of the pledgee to cause it to be sold at public auction, the latter prevails.

16. Causes for the extinguishments of the pledge:

5 a. Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation to the contrary being void (Art 2110); b. Renunciation or abandonment executed in writing by the pledgee even without return of the thing (Art 111) c. Destruction or loss of the thing pledged; d. Extinction of the principal obligation (by payment or sale of the thing pledged); and e. Other causes of extinguishments or ordinary obligations (Art 1231) SALIENT FEA FEATURES TURES OF PRESIDENTIAL DECREE NO. 114 otherwise kno known wn as REGUL REGULA ATING THE EST ESTABLISHMENT ABLISHMENT AND OPERA OPERATION TION OF PA PAWNSHOPS WNSHOPS Background: • Pawnshops provide an additional source of credit especially for small borrowers left unserved by the banking and other financial institutions in the country; • There is no specific law in the Philippines that governs pawnshop establishments, particularly providing definite and uniform standards for their operation. Declaration of Policy: – It is hereby declared the policy of the State to regulate the establishment of pawnshops and to place their operation on a sound and stable basis to derive the optimum advantages from them as an additional source of credit; to prevent and mitigate, as far as practicable, practices prejudicial to public interest; and to lay down the minimum requirements and standards under which they may be established and do business. ( Sec. 2) Definition of Terms: • “Pawnshop” shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably with pawnbroker or pawn brokerage. • “Pawner” shall refer to the borrower from a pawnshop. • “Pawnee” shall refer to the pawnshop or pawnbroker. • “Pawn” is the personal property delivered by the pawner to the pawnee as security for a loan. • “Pawn ticket” is the pawnbrokers’ receipt for a pawn. It is neither a security nor a printed evidence of indebtedness. • “Property” shall include only such personal property as may actually be delivered to the control and possession of the pawnshop: Provided, however, That certain specified chattels such as guns, knives and similar weapons whose reception in pawn is expressly prohibited by other laws or regulations shall not be included. A pawnshop may be established as a single proprietorship, partnership or corporation. (SEC. 4) Any person or entity desiring to engage in the pawnshop business shall (a) register with the Bureau of Commerce ( Department of Trade and Industries) in the case of single proprietorship or the Securities and Exchange Commission in the case of a corporation or any other association ( partnership) and (b) secure a license from the appropriate city or municipality having territorial jurisdiction over the place of establishment and operation (business permit). SEC. 6. Requirement of registration with the Central Bank. – Any individual, corporation, or association duly registered and licensed to engage in the pawnshop business shall file an information sheet, under oath, with the Central Bank before commencement of actual operation s: Provided, however, That pawnshops duly licensed and operating before the approval of this Decree shall, within six months from the date of effectivity of the same, register with the Central Bank. For this purpose, the Central Bank shall furnish pawnshops, upon request, with necessary copies of the prescribed information sheet. Requirement of registration with the Central Bank – Any individual, corporation, or association duly registered and licensed to engage in the pawnshop business shall file an information sheet, under oath, with the Central Bank before commencement of actual operations. (Sec. 6) The minimum paid-in capital of any pawnshop which may be established after the effectivity of this Decree shall be one hundred thousand pesos (P100,000.00):

6 Citizenship requirement. Upon the effectivity of this Decree, only Filipino citizens may establish and own a pawnshop organized in the form of a single proprietorship: Provided, however, That in the case of a partnership, at least sevent seventy y per cent (70%) of its capital shall be owned by Filipino citizens itizens: Provided, further That in the case of a corporation, at le least ast seventy per cent (70%) of the voting capital stock shall be owned by citizens of the Philippines, or if there be no capital stock, at least sevent seventy y per cent (70%) of the members entitled to vote, shall be citiz citizens ens of the Philippines Philippines. SEC. 9. Amount of loan. Pawnshops may grant such amount of loans as may be agreed upon between the parties: Provided, That the amount of loan shall, in no case, be less than thirty per cent (30%) of the appraised value of the security offered for the loan unless the pawner manifests in writing the desire to borrow a lesser amount. SEC. 10. Rates of interest. – No pawnshop shall directly or indirectly stipulate, charge, demand, take or receive any higher rate or greater sum or value for any loan or forbearance than the rate allowed by the Usury Law for such transactions. It shall be unlawful for a pawnshop to divide the pawn offered by a pawner in order to collect greater interest and/or to require the pawner to pay an additional charge as insurance premium for the safekeeping and conservation of the article pawned. In addition to interest charges, pawnshops may impose a Maximum service charge of five pesos (P5.00), but in no case to exceed one per cent (1%) of the principal loan. SEC. 13. Redemption. – The pawner who fails to pay his obligation on the date it falls due may may,, within ninet ninety y days from the date of maturity of the obligation obligation,, redeem the pawn by payment of the principal of the debt with interest: Provided, however, That for the purpose of computing interest due after maturity of the obligation, the basis shall be the sum of the principal obligation and interest earned at the time the obligation matured matured. SEC. 14. Disposition of pawn on default of pawner. – In the event the pawner fails to redeem the pawn within ninety days from the date of the maturity of the obligation in accordance with the preceding section, the pawnbr pawnbroker oker may sell or otherwise dispose of any article take taken n or receive received d by him in pawn: Provided, however, That the pawner shall be duly notified of such sale on or bef bef...