bl.m.1603.law on pledge and mortgage_edited

8/18/2019 BL.M.1603.Law on Pledge and Mortgage_edited

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BUSINESS LAW

BL.M - 1603LAW ON PLEDGE AND MORTGAGE

Certs Knowledge Engineering Team“Home of Topnotch Professionals

MARGINAL NOTESREVIEW NOTES

CONTRACT OF PLEDGE

Pledge – is a contract by virtue of which the debtor delivers to

the creditor or to a third person a movable, or instrument

evidencing incorporeal rights for the purpose of securing the

fulfilment of a principal obligation with the understanding that

when the obligation is fulfilled, the thing delivered shall bereturned with all its fruits and accessions.

Characteristics:

1.

Real contract

2.

Accessory contract

3.

Unilateral contract

4.

Subsidiary contract

Cause or consideration:1.

As to the pledgor: the principal obligation

2.

If the pledger is not the debtor: the compensation

agreed upon or mere liberality (gratuitous)

Kinds of pledge:

1.

Voluntary or conventional

2.

Legal

Essential requisites of pledge?

Appropriation of the thing pledge

1.

Automatic appropriation is prohibited, hence, null and

void. (the stipulation was made at the time the contract

of pledge was perfected)


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BL.M – 1603.Law on Pledge and Mortgage BL

2.

Appropriation after it falls due is allowed (only move for

the sale of the thing at public auction)

Subject matter of pledge:

1.

Personal property

2.

Incorporeal rights evidenced by documents whether

negotiable or not.

Requisites before the pledgor would be liable pay damages

to the pledgee for failure to advice for known hidden

flaws?

Obligations of the creditor (Pledgee) to take due care of the

thing pledged. (diligence of a good father of a family)?

Obligation of the pledgee not to use the thing pledged or to

misuse. Rules?

When is the right of the pledgor to ask that the thing

pledged be deposited judicially or extra-judicially available?

Right of the pledgor to substitute the thing pledge.

Requisites?

Right of the pledgee to demand substitute or immediate

payment in case he is deceive as to the substance or quality

of the thing pledge

1.

To claim another thing in pledge

2.

To demand immediate payment

Extinguishment of the pledge by the return of the thing

pledge- even if there is a stipulation that the pledge shall

continue. Presumption : returned by the pledgee otherwise

proven, ex: stolen or for substitution.

Extinguishment of pledge by renunciation or abandonment-

statement in writing-acceptance and return not necessary-

pledgee become depositary.


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BL.M – 1603.Law on Pledge and Mortgage B

Right of the pledgee to cause sale of the thing, formalitie?

Right of pledgor and pledgee to bid at public sale. Rules?

Effect of sale of thing pledge?

Right of pledgee to choose on the two or more thing pledged

shall be sold

-

Unless there is a contrary stipulation

-

Sufficient property is sold, no more shall be sold

Legal pledges

CONTRACT OF MORTGAGE

Real Estate Mortgage - a contract whereby the debtor secures

to the creditor the fulfillment of a principal obligation, especiallysubjecting to such security immovable property or real rights

over immovable property in case the principal obligation is not

complied with at the time stipulated.

Characteristics:

1. Real contract

2. Accessory contract

3. Unilateral contract

4. Subsidiary contract

Cause or consideration:

1. As to the mortgagor : the principal obligation

2. If the mortgagor is not the debtor: the

compensation agreed upon or mere liberality

(gratuitous)

Kinds of mortgage:

1. Voluntary or conventional

2. Legal

3. Equitable

Essential requisites of Real Estate Mortgage

1. Constituted to secure fulfilment of a principal

obligation


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2. mortgagor is the absolute owner

3. mortgagor has free disposal of property or has legal

authority

4. Thing pledged or mortgaged may be alienated

5. The document in which it appears be recorded in the

registry of deeds

a. if not recorded, mortgage is still valid between

the parties

b. mortgagee has the right to demand execution

and recording of the document (in case of legal

mortgage).

Appropriation of the thing mortgage:

a.

Automatic appropriation is prohibited , hence,null and void. (the stipulation was made at the

time the contract of pledge was perfected)

b.

Appropriation after it falls due is allowed (only

move for the sale of the thing at public auction)

Subject matter of Real Estate Mortgage:

a. Immovable Property

b. Immovable real rights

Effect of mortgage?

Extent of mortgage?

Alienation or assignment of mortgage credit is allowed.

Right of creditor against transferee of mortgaged

property?

A stipulation forbidding the owner from alienation the

immovable property is void.

o Against public good. Transmission of property

should not be empeded.

Foreclosure – is the remedy available to the mortgagee by

which he subjects the mortgaged property to the satisfaction


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of the obligation to secure which the mortgage was

given through the sale of the property at public auction

and the application of proceeds thereof to his claim.

Kinds of foreclosure:

1.

Judicial

2.

Extrajudicial- right to foreclose must be inserted in the

contract

Redemption- the mortgagor reacquires the property foreclose

by the mortgagee

Stipulation of upset price (TIPO) - minimum price at which the

property shall be sold is null and void.

Kinds of redemption:

1.

Equity of redemption –

a)

Extrajudicial

b)

Judicial

2.

Right of redemption –

a)

Extra-judicial

b)

Judicial

ANTICHRESIS

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.

Accessory

Formal contract – in writing


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1.6.1.

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.

PLEDGE REAL MORTGAGE CHATTEL MORTGAGE

1. accessory contract

2. pledgor/mortgagor must be absolute owner of property pledged/mortgaged

3. pledgor/mortgagor must have free disposal or be authorized

4. thing pledged/mortgaged may be alienated when principal obligation becomes due

for payment

5. 3rd

persons NOT parties may be the pledgor/mortgagor

6. can secure pure, conditional, natural obligations, voidable and unenforceablecontracts

7. indivisible

1. Real contract 1. Consensual contract 1. Consensual contract

2. constituted on

movables

2. constituted on

immovables

2. constituted on movables

3. property is delivered

to pledgee/3rd person

3. delivery is not necessary 3. delivery is not necessary

4. not valid against 3rd

persons unless a

description of the thing

pledged and the date

of the pledge appear in

public instrument

4. not valid against 3

persons if not registered

4. Registration in Chatte

Mortgage Register is

necessary for validity

5. Debtor not entitled

to excess unless

otherwise agreed or

except in case of legalpledge

5. If property is foreclosed,

the excess over the amount

due goes to the debtor

5. If property is foreclosed,

the excess over the amount

due goes to the debtor

6. Creditor not entitled

to deficiency

notwithstanding

stipulation to the

contrary

6. If property is foreclosed

and there is deficiency,

creditor is entitled to

recover the deficiency from

the debtor

6. If property is foreclosed

and there is deficiency,

creditor is entitled to

recover the deficiency from

the debtor


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1.6.2.

The amount of the principal and of the

interest shall be specified in writing;

otherwise, the contract of antichresis

shall be void.

1.6.3.

The creditor, unless there is a stipulation

to the contrary, is obliged to pay the taxes

and charges upon the estate. `

1.6.4.

The creditor is also bound to bear the

expenses necessary for its preservation

and repair and shall be deducted from

the fruits.

Right of antichretic debtor to reacquire enjoyment of

property. Rules?Remedy of creditor in case of non-payment of debt

a.

If the debt is not paid, the creditor does not acquire

ownership since what was transferred is only the right

to receive the fruits and not the ownership of the

property.

b.

Remedy:

1. bring an action for specific performance2. petition for the sale of real property in a

public auction

CHATTEL MORTGAGE

Chattel mortgage – is the contract by virtue of which personal

property is recorded in chattel mortgage register as a security

for the performance of an obligation..

1.

Accessory

2.

Formal – registration is required for validity

3.

Unilateral


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Affidavit of good faith?

-

Should be appended to the mortgage and be recorded.

Effect of absence of affidavit of good faith?

Foreclosure:

Application of proceeds of sale:

1.

Costs and expenses of keeping and sale

2.

Payment of the obligation secured

3.

Claims of persons holding subsequent mortgages in

their order

4.

Balance, to the mortgagor.


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MULTIPLE CHOICE QUESTIONS

1.

A contract where the collateral must be placed in the

possession of the creditor or third person:

A.

mortgage;

B.

pledge;

C.

antichresis;

D.

all of the above;

E.

none of the above.

2.

A common requisite to the contracts of pledge and

mortgage:

A.

that they be constituted to secure the property subject

of the contract;

B.

that the obligor be the absolute owner at the time theproperty is to be delivered to the obligee;

C.

that the persons constituting the contract have the free

disposal of their property or legally authorized for the

purpose;

D.

that only parties to the principal obligation may secure

the latter by pledging or mortgaging their own property;

E.

that the obligee may alienate the thing even before the

principal obligation becomes due.

3.

In real estate mortgage, the mortgagor can sell the property

mortgaged

A.

Even without the consent of the mortgagee

B.

If not prohibited to sell

C.

Only if with the written consent of the mortgagee

D.

Only if with the oral consent of the mortgagee

4.

Julia Baretto, minor of 16 years of age, sold her necklace to

Daniel Padilla for P15,000. Later, Daniela Padilla, needing

money to pay for his mother’s indebtedness, borrowed

P20,000 from Kathreen Bernardo and as a security, pledge

the necklace to Kathreen. Daniel Padilla failed to pay

Kathreen resulting into the auction sale of the necklace in

favor of Robin for P17,500. Which of the following

statements is correct?


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A.

The title of Daniel Padilla over the necklace is not valid,

hence the pledge, as well as the sale of said necklace is

likewise defective. The pledgor must be the owner of

the thing pledged.

B.

If Robin was a purchaser in bad faith as he knew of the

defective title of Daniel Padilla over the necklace from

Julia Baretto, ownership will not pass to Robin.

C.

The deficiency of P2,500 may still be recovered by

Kathreen Bernardo from Daniel Padilla if there is

stipulation to this effect.

D.

Kathreen Bernardo can no longer recover the deficiency

of P2,500 from Daniel Padilla. The pledge, together with

the sale is valid. The voidable title of Daniel Padilla is

valid because it is not yet annulled.

5.

An obligation of the pledgee:

A.

to sell the thing pledged at public auction;

B.

to answer for the loss of the thing pledged in case of

negligence;

C.

to deposit the thing pledged with a third person;

D.

to use the thing pledged.

6.

An affidavit of good faith refers to an oath in a contract of

chattel mortgage wherein the parties severally swear that:A.

the mortgage is made for the purpose of securing the

obligation specified in the conditions thereof and for no

other purpose, and that same is valid obligation and

one not entered into for fraud;

B.

they will abide by the stipulations of the contract and

any violation thereof will subject the guilty party to

interest and penalties;

C.

the mortgage is executed for the purpose of securing

the obligations of the debtor and the latter undertakes

that he is the absolute owner of the property

mortgaged;

D.

all of the above;

E.

none of the above.


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7.

A similarity between pledge and chattel mortgage:

B.

delivery is necessary

C.

constitute a lien on the property

D.

the creditor is entitled to recover any deficiency

E.

registration is necessary for validity of the contract

F.

all of the above.

8.

In commodatum, the bailee acquires:

A. jus utendi or right to use;

B. jus fruendi or right to the fruits;

C.

ownership;

D.

right to use and right to the fruits.

9.

It is a form of commodatum where the bailor may demandthe thing at will:

A. precarium;

B.

bailment;

C.

special commodatum;

D.

unilateral.

10.

Vhong mortgaged his agricultural land to Deniece as a

guarantee for the payment of P200,000 indebtedness to

Deniece. They come to an agreement that Vhong should notsell the land while the obligation exists. Before the maturity

of the mortgage, Cedric offered to buy the land from Vhong,

Which is not correct?

A.

Vhong can sell the land to Cedric regardless of the

agreement not to sell

B.

Vhong cannot sell the land if there is an agreement not

to sell.

C.

Vhong can sell the land to Cedric even if there is no

consent from Deniece.

D.

Vhong can sell the land to Cedric at his option.

Pactum commissorium or pacto comisorio refers to:

A.

a provision in the agreement to create pledge;

B.

a mortgage to secure future advances;


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C.

a stipulation in a contract where the mortgaged

property shall become the property of the mortgagee

upon failure to pay the debt;

D.

a stipulation in a contract where the mortgaged

property may be alienated when the principal

obligation becomes due.

11.

1st Statement - The creditor cannot appropriate the thing

given by way of pledge or mortgage, or dispose of them,

except if there is a stipulation to the contrary.

2nd Statement - The indivisibility of a pledge or mortgage is

affected by the fact that the debtors are solidarily liable.

A. Only the 1st

statement is true

B.

Only the 2nd

statement is trueC.

Both are true

D.

Both are false

12.

Julia borrowed P10,000 from Alex secured by the pledge of

laptop worth P7,500 and watch worth P2,500.

Subsequently, Julia paid half of the obligation, what is her

right?

A.

Julia can demand for the proportionate extinguishment

of the pledge;B.

Julia can demand the return of the ring;

C.

she can demand the cancellation of the pledge;

D.

she cannot demand the cancellation of the pledge until

the loan is fully paid;

E.

none of the above.

13.

1st

statement – 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.

2nd

statement – If after the auction sale, the thing pledged is

not sold, the pledgee can appropriate the thing pledge.

A. Only the 1st statement is true

B. Only the 2nd

statement is true

C. Both are true


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D. Both are false

14.

1st statement – Chattel mortgagee like pledge is a real

contract.

2nd statement – In chattel mortgage like pledge, the

possession of the thing mortgaged is vested in the creditor.

A.

Only the 1st

statement is true

B.

Only the 2nd statement is true

C.

Both are true

D.

Both are false.

1st

statement – The creditor, by himself and before the debt

becomes due and demandable, may sell the thing pledged.

2nd

statement – If the creditor is deceived on the substanceor quality of the thing pledged, his only right is to

immediately demand the payment of the principal

obligation.

A.

Only the 1st

statement is true

B.

Only the 2nd

statement is true

C.

Both are true

D.

Both are false

15.

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

following cannot be pledged?

A.

negotiable instruments and documents;

B.

bonds and shares of stock;

C.

warehouse receipts and bills of lading;

D.

all of the above;

E.

none of the above.

16.

1st statement - A real estate mortgage may guarantee future

obligation, while a chattel mortgage cannot guarantee

future obligation.

2nd statement – The mortgagee has the right to take

possession of the chattel mortgaged upon default of the

mortgagor.

A. Only the 1st

statement is true


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B. Only the 2nd

statement is true

C. Both are true

D. Both are false

17.

The creditor is not entitled to recover any deficiency in case

the price of sale of the thing pledged is less than the

amount due, what is the reason?

A.

equity;

B.

it is iniquitous;

C.

to compel creditor to hold an honest public sale;

D.

to discourage creditors from abusing the financial needs

of the borrower.

18.

What is the obligation of the pledgee when the pledgeearns or produces fruits, income, dividends, or interests?

A.

to give fruits, income, dividends, or interests to the

pledgor;

B.

to account for them and deduct them from the principal

obligation;

C.

to compensate them with those which owing to him, or

insofar as the amount mayexceed that which is due, he

shall apply it to the principal;

D.

pledgee has no obligation because the pledge extendsto the fruits, income, dividends and interests earned or

produced by the thing pledged.

19.

If there is danger of destruction, impairment, or diminution

in value of the thing pledged, what is the duty of the

pledgee without fault?

A.

he may cause the same to be sold at a public sale;

B.

he may demand that the thing be returned to the

pledgor and be substituted with a thing of the same

kind and not of inferior quality;

C.

he may ask that the thing be judicially or extrajudicially

deposited;


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D.

he may require that the thing be deposited with a third

person.

20.

An obligation of the pledgor:

A.

to reimburse the pledgee for expenses made for its

preservation;

B.

to demand the return of the thing pledged upon

extinction of the principal obligation;

C.

to bid and have preference at the foreclosure sale;

D.

to substitute the thing pledged.

21.

Mr. Borrowie pledged his SMC bond with a face value of

P100,000.00 to secure his loan from Mr. Lendy in the

amount of P50,000.00. The bond was due on January 30,2013 while the loan is due on February 3, 2013. In this case

the bond becomes due before it is redeemed, which of the

following statements is correct?

A.

Mr. Borrowie has the right to collect and receive the

amount due from the bond and the obligation to pay

the loan from the proceeds of the bond;

B.

Mr. Lendy may collect and receive the amount due from

the bond and apply the same to the payment of his

claim and deliver the surplus to Mr. Borrowie;C.

the principal obligation is extinguished;

D.

the pledge is extinguished.

22.

Pledges created by operation of law refers to:

A.

right of redemption;

B.

right of retention;

C.

right of subrogation;

D.

right of substitution.

23.

1st

statement – A real estate mortgage is inseparable and

directly and immediately subjects the property upon which

it is imposed, whenever the possessor maybe, to the

fulfilment of thee obligation.


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2nd

statement – In case of pledge of animals, their offspring

shall pertain to the pledger of the animal pledged and are

no longer subject to the pledge, unless stipulated.

A. Only the 1st statement is true

B. Only the 2nd statement is true

C. Both are true

D. Both are false

24.

Nora mortgaged his farmland to Vilma. The farmland has a

fair market value of P50,000 while the loan is only P10,000.

Thereafter, Nora sold the farmland to Boyet. What is the

legal effect of the sale to Boyet.

A.

the sale is void and Vilma may foreclose the mortgagein case of default by Nora;

B.

the sale is valid but it does not affect the mortgage;

C.

the sale is unenforceable as Nora was not authorized to

sell the property;

D.

Vilma may foreclose the property to protect her

interest.

25.

It is a remedy available to mortgagee where he subjects the

mortgaged property to the satisfaction of the obligationthrough the sale of the property at public auction and the

application of the proceeds thereof to the payment of his

claims:

A.

foreclosure

B.

assignment

C.

alienation

D.

encumbrance

26.

The following are the kinds of real estate mortgage, except;

A.

voluntary mortgages

B.

legal mortgages

C.

contracts of sale with right of repurchase;

D.

equitable mortgages

E.

all of the above


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27.

The contract of mortgage extends to and includes the

following except:

A.

growing fruits

B.

improvements, even those made by third persons

subsequent to mortgage

C.

natural accessions

D.

proceeds of insurance received from insurance of the

property

E.

none of the above.

28.

Which of the following is not a principal obligation of the

mortgagor?

A.

to comply with his obligations at the time stipulatedB.

to pay any deficiency in case there is a balance due to

the mortgagee after applying the proceeds of the

foreclosure sale

C.

to respect the right of the mortgagee

D.

to continue in the ownership and possession of the

mortgaged property

E.

all of the above.

29.

Which of the following is not a principal right of themortgagee?

B.

to compel the mortgagor to execute a contract of

mortgage in a public instrument

C.

to free the property from the encumbrance once the

obligation is fulfilled

D.

to claim from the transferee of the mortgaged property

the payment of the part of credit secured by the

property which the transferee possesses

E.

to recover any deficiency in case there be a balance due

after applying the proceeds of the foreclosure sale

F.

all of the above

30.

An affidavit of good faith refers to an oath in a contract of

chattel mortgage wherein the parties severally swear that:


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A.

the mortgage is made for the purpose of securing the

obligation specified in the conditions thereof and for no

other purpose, and that same is valid obligation and

one not entered into for fraud;

B.

they will abide by the stipulations of the contract and

any violation thereof will subject the guilty party to

interest and penalties;

C.

the mortgage is executed for the purpose of securing

the obligations of the debtor and the latter undertakes

that he is the absolute owner of the property

mortgaged;

D.

all of the above;

E.

none of the above.

31.

It is the right of the mortgagor to redeem the mortgaged

property after his default but before the auction sale:

A.

right of pre-emption;

B.

right of redemption;

C.

equitable right;

D.

equity of redemption.

32.

True or false:

A.

Consumable goods may be the subject ofcommodatum.

B.

In commodatum, the death of either the bailor or the

bailee extinguishes the contract.

C.

In mutuum, ownership of the thing passes to the

borrower.

D.

Just like guaranty, pledge and mortgage cannot exist

without valid principal obligation, nevertheless they

may be constituted to secure voidable, unenforceable

or natural obligation.

E.

Future properties can be pledged or mortgaged.

F.

The pledgor or owner may only alienate the thing

pledged with the consent of the pledgee.

G.

Indivisibility of a pledge or mortgage applies only if the

debtors are solidary.


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H.

A thing pledged must be placed in the possession of the

creditor, or of a third party by common agreement,

however, constructive or symbolical delivery is

sufficient.

I.

All movables which are within the commerce may be

pledged, provided they are susceptible of possession,

thus, incorporeal rights may not be pledged.

J.

In order for the pledge to take effect against third

persons, it must be in a public instrument and the

instrument must contain the description of the thing

pledged and the date of the pledge.

K.

In pledge, the sale of the thing pledged extinguishes the

principal obligation, whether or not the proceeds of the

sale are equal to the amount of the principal obligation,interest and expenses.

L.

In chattel mortgage, if the proceeds are less than the

principal obligation, the creditor is not entitled to

recover the deficiency.

M.

In chattel mortgage, the thing mortgaged is not

transferred to the possession of the creditor.

N.

In case of non-payment in pledge, the creditor shall

proceed before a court sheriff for the public auction of

the thing pledged.


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