Northern CPAR: Business Laws – Pledge, Mortgage and AntichresisNORTHERN CPA REVIEW th 4 Floor Pelizloy Centrum. Lower Session Road, Baguio City Contact Numbers: SMART : 09294891758; GLOBE : 09272128204 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 person’s 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 1 Driven for real excellence! Batch – HQ05 BL by Atty. Andrix Domingo, CPA th BL – 6 3. 2 Driven for real excellence! Batch – HQ05 BL by Atty. after all the above are paid.Northern CPAR: Business Laws – Pledge. 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. b) If the price is less. 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. 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. Requisites of real mortgage 1. a) If the price is more than amount of the obligation. Examples of legal pledge 1. 4. the pledgee is deemed to have received the purchase price. as far as the pledgor or owner is concerned. CPA th BL – 6 . stating the amount for which the public sale is to be held. b) Claim of the person foreclosing the mortgage. He shall be preferred if he should offer the same terms as the highest bidder. interest and expenses in a proper case. imposed on immovables. That the mortgagor be the absolute owner of the thing mortgaged. Depository’s 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. 1) If the defendant fails to pay the amount due within the time directed. Mortgage and Antichresis b) c) through a notary public.this is a foreclosure made through the filling a petition in court. Judicial foreclosure. Possessory lien of worker 3. 2) Who may bid at the public auction a) The pledgor or owner. Immovables 2. Appropriation of the thing pledged If the thing pledged is not sold in the first and second public auctions. That it be constituted to secure the fulfillment of a principal obligation. unless there is a contrary stipulation. D. That the document on which the mortgage appears be recorded in the Registry of Property Object of real mortgage 1. that he be legally authorized for the purpose. Alienable real rights in accordance with the laws. If any other bid is accepted. and in the absence thereof. Possessory lien by a possessor in good faith 2. b) The pledgee. his offer shall not be valid if he is only bidder. c) Claims of junior encumbrancers in the order of their priority. That the person constituting the mortgage must have the free disposal of his property. 2) The proceeds of sale shall be distributed as follows: a) The costs of sale. 2. d) Balance. shall be paid to the mortgagor or his agent. Andrix Domingo. 3) Required amount of bids All bids shall offer to pay the purchase price at once. However. the creditor may appropriate the thing pledged. the debtor shall not be entitled to the excess. and with notice to the debtor and the owner of the thing pledged. 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. the property shall be sold. unless there is an agreement to that effect. c) Third persons. 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. by the court. He may demand the sale of only as many of the things as are necessary for the payment of the debt. That the document in which the mortgagee appears be recorded in the Chattel Mortgage Register. upon motion. and for no other purpose. Redemption A transaction through which the mortgagor. 3 Driven for real excellence! Batch – HQ05 BL by Atty.this is made in compliance with the provisions of Act No. Mortgage and Antichresis 3) Deficiency judgment If the proceeds of sale not sufficient to satisfy the claim of the creditor. Recovery of deficiency In case of deficiency in the foreclosure sale. following the provisions of the Chattel Mortgage Law as far as practicable. Judicial foreclosure. the court. and that the obligation is a just obligation. Kinds of foreclosure of chattel mortgage a. Extra-judicial foreclosure. 2) Right of redemption. That the mortgagor be the absolute owner of the thing mortgaged. Requisites of chattel mortgage 1. “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. b.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. or divests the mortgaged premises of the lien which the mortgage may have created. the mortgagor has one year from the date of sale to redeem the property. 4.this is foreclosure made by instituting a court action. shall render judgment against the debtor. b) In extra-judicial foreclosure. 3. or 2) Where such extra-judicial foreclosure sale is made under a special power of attorney inserted in the contract. the mortgagor may redeem the property after the sale and before the confirmation by the court of the sale. for such balance. reacquires or buys back the value of the title which may have passed under the mortgage. That the person constituting the mortgage must have the free disposal of his property. the mortgagor is given not less than 90 days to pay the mortgage debt before the property is sold. 2) Claim of the person foreclosing the mortgage. and one not entered into for the purpose of fraud. a) In judicial foreclosure. b) In extra-judicial foreclosure. CPA th BL – 6 . the creditor may recover the same from the principal debtor by filling the court action.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. and in the absence thereof. Distribution of proceeds The proceeds shall be distributed in the same order in the case of judicial foreclosure. 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. 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. Foreclosure sale The proceeds of sale shall be distributed as follows: 1) The costs of sale. Extra-judicial foreclosure. That it be constituted be secure the fulfillment of a principal obligation.Northern CPAR: Business Laws – Pledge. b. Andrix Domingo.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. 3) Claims of persons holding subsequent mortgages in their order. Kinds of redemption 1) Equity of redemption. a) In judicial foreclosure. the mortgagor may avail himself of this right after his default but before the sale of the property. 3135 in the following cases: 1) Where there is a stipulation in the mortgage contract that the mortgage may be foreclosed extra-judicially. by means of payment or the performance of the condition. or one claiming in his right. that he be legally authorized for the purpose. 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. 2. 000 obligations to B. c. c. This is: a. a. A paid P20. Which of the following statement is true? a. c. if any. Even without the consent of the mortgagee. pacto de retro 6. 2. d. If not prohibited to sell.Northern CPAR: Business Laws – Pledge. Before the maturity of the mortgage. pactum comisorio d. QUIZZER: 1. except: a. A cannot sell the land to C because of the agreement not to sell. It was stipulated that in case of non-payment on due date. a. d. c. The thing pledged or mortgaged may be appropriated if the debtor cannot pay. b.000 from B. 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. and thereafter to the principal of his credit. Mortgage and Antichresis 4) Balance. 4 Driven for real excellence! Batch – HQ05 BL by Atty. b. 3) Interests on the principal obligation. That the debtor must have the free disposal of such immovable property. pacto de retro 5. This forfeiture is: a. A can sell the land to C only if B consents in writing.000. Any stipulation in a contract of pledgee authorizing the pledge to sell the thing pledged if the pledgor cannot pay is void. shall be paid to the mortgagor. A can demand the return of any two (2) of the things pledged. A cannot sell the land to C unless A pays the obligation. Requisites of antichresis 1. 7. That it be constituted to secure the fulfillment of a principal obligation. A pledged his ring to B. Pledgor or mortgagor must be the absolute owner. Only if with the oral consent of the mortgagee. That the amount of the principal and the interest must be in writing. That the debtor be the absolute owner of the immovable property 3. b. After the obligation falls due. d. On due date. 4. caveal emptor b. the mortgagor can sell the property mortgaged. Pledge and mortgage are accessory contracts. A can sell the land to C despite the agreement not to sell. the title to the property which is the subject matter of the contract is transferred to the other party. d. the antichresis is void. A borrowed P100. A mortgaged his residential land to B as a guarantee for the payment of P400. c. with the obligation to apply them to the payment of the interests. Pledgor or mortgagor must have the free disposal of the thing pledged. As a result. Elements of contracts of pledge and mortgage. A goes to B relinquishing ownership of the ring in favor of B.000 from B. A can demand the return of one (1) of the things pledged. the ring would belong to B. Real estate mortgage is an accessory contract. otherwise. pactum comisorio d. Deficiency judgment If the proceeds of sale are not sufficient to satisfy the claim of the creditor. and as security. 4. In real estate mortgage. 2. A borrowed P30.000 from B with A’s ring given to B by way of pledge. 4) Principal obligation. cavear emptor b. he pledge his ring. that he be duly authorized for the purpose. 2) The expenses for preservation and repair. In mortgage and in pacto de retro sale. b. d. They agreed that A should not sell the land while the obligation exists. the mortgagee is entitled to the entire proceeds of the sale of the thing mortgaged. CPA th BL – 6 . and in the absence thereof. b. A cannot demand the return of any of the things pledged. Which is correct? a. pair of earrings and necklace. and as a security. A can demand the return of the ring. dacion en pago c. C offered to buy the land from A. Application of the fruits of the immovable 1) The taxes and charges upon the immovable. Only if with the written consent of the mortgagee. 3. dacion en pago c. A borrowed P100. Andrix Domingo. In mortgage. 000 if there is stipulation to that effect. 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. the pledgee may cause the same to be sold at a public auction. If D was a purchaser in bad faith as he knew of the defective title of B over the bracelet. only the second is true 17. together with the foreclosure sale. only the second is true 14. 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. both are false c. as well as the sale of said bracelet is likewise defective. If the thing pledged is returned by the pledgee to the pledgor or owner. d. The creditor cannot appropriate the things given by way of pledge or mortgage. d. S foreclosed the mortgaged property and sold it at public auction for P80. pledged the bracelet to the latter. The indivisibility of a pledge or mortgage is affected by the fact that the debtors are solidarily liable. both are true b.000 from B. only the second is true 12. B paid the first and second installments but he failed to pay the balance. If the price of the sale is more than the amount of the obligation. a.000 may still recover by C from B. If subsequent to the perfection of the pledge. the pledgee may also bid and his offer shall be valid even if he is the only bidder. b. The title of B over the bracelet is not valid. S cannot recover the deficiency except if there is stipulation. At the public auction. S. both are true b. 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. 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. Mortgage and Antichresis 8. The deficiency of P5. B. except if there is a stipulation to the contrary. S sold to B a specific car for P200.000 from C and as a security. which statement is correct? a. both are false c.000. only the second is true 16. c. As a result. only the first is true d. both are false c. a. In the preceding number. c. a. b. the pledge is extinguished. B failed to pay C resulting into the auction sale of the bracelet in favor of D for P10. needing money to pay her daughter’s tuition fee borrowed P15. The title of B was still valid. both are false c. The title of B over the bracelet is not valid.000 payable in four equal installments. ownership will not pass to him (D). hence the pledge. both are true b.000. only the first is true d. both are true b. C can no longer recover the deficiency of P5. 10. both are true b. sold her bracelet to B for P8. Andrix Domingo.000 from B as the mortgage. In case of pledge of animals. 5 Driven for real excellence! Batch – HQ05 BL by Atty. S cannot recover the deficiency any more even if there is stipulation to that effect. or dispose of them. together with the sale is valid. 11. only the first is true d. S can recover from B the balance of P20. The pledge. only the first is true d. as well as the sale of said bracelet is likewise defective. unless it is otherwise agreed. c. 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. CPA th BL – 6 . The voidable title of B is valid because it is not yet annulled. b. only the second is true 13. The mortgagor must be the owner of the thing mortgaged. only the first is true d. Later. The pledgor must be the owner of the thing pledged. was valid. If through the negligence or willful act of the pledgee. S can recover from B the balance of P20. S delivered the car to B but required B to mortgage it back to S to answer for the unpaid installments. the thing pledged is in danger of being lost or impaired. the debtor shall be entitled to the excess. If D was a purchaser in bad faith as he knew of the defective title of B over the bracelet from S. except if there is a stipulation to the contrary. except if the debt may be divided among the successors in interest of the debtor or of the creditor. Which of the following statements is correct? a. a. The deficiency of P5. hence the chattel mortgage. minor of 16 years.Northern CPAR: Business Laws – Pledge. only the first is true d. only the second is true 15. both are false c. C can no longer recover the deficiency of P5. ownership will not pass to him (D). 9. d.000. A pledge or mortgage is indivisible.000 may still be recovered by C from B if there is a stipulation to this effect. both are true b. their offspring shall pertain to the pledgee of the animals.000 only. a. a. The creditor can use the thing pledge even without the authority of the pledgor. a. both are false c. A pledged his ring to B for P20. A borrowed P100.000. the pledgee can appropriate the thing pledged. Mortgage and Antichresis If two or more things are pledged. Andrix Domingo. the thing pledged is not sold. only the first is true d. both are true b. The registration in the Registry of Property is necessary for the validity of a contract of real estate mortgage.000 from A even if there is stipulation.000. If after the auction sale. only the second is true 20. only the second is true 18.000. Pledge is a real contract.Northern CPAR: Business Laws – Pledge. only the first is true d. both are false c. 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. In chattel mortgage like pledge the possession of the thing mortgaged is vested in the creditor. both are false c. B sold the ring at a public auction for P16. a. both are false c. In real estate mortgage the mortgagor can sell the property mortgage even without the consent of the mortgagee. A can recover the excess of P4. a.000 if stipulated. only the first is true d. both are false c. only the first is true d. both are false c. both are true b. Except in case of sale of personal property in installments.000 from B payable in 10 equal monthly installments. If A violates the condition of the mortgage. In sale at public auction. only the first is true d. a. only the second is true 19. only the first is true d. both are true b. 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. 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. only the second is true 25. Using the same facts. 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. B cannot recover the deficiency. and the car was foreclosed and sold at a public auction but the proceeds is less than the collectible amount. only the first is true d. if the proceeds of the sale is less than the principal obligation the creditor-mortgagee can recover the deficiency. Chattel mortgage like pledge is a real contract. To secure payment of the loan. 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. A failed to pay his obligation on time. only the second is true 21. A stipulation prohibiting the owner from alienating the immovable mortgaged shall be void. CPA th BL – 6 . only the second is true 24. both are true b. B cannot recover P4. both are true b. A executed a chattel mortgage on his Mercedes Benz car. the pledgor may choose which he will cause to be sold. only the second is true 22. 23. a. only the second is true -----End of Handouts----- 6 Driven for real excellence! Batch – HQ05 BL by Atty. both are false c. both are false c. both are false c. both are true b. if the proceeds of sale is P24. unless there is a stipulation to the contrary. both are true b. only the first is true d. a. a. a. a. both are true b.