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Pledge, Mortgage and Antichresis: A Comprehensive Guide to Legal Concepts and Provisions, Exercises of Accounting

University of the Philippines Baguio (UPB)Accounting

Accounting questions and answers

Typology: Exercises

2020/2021

Uploaded on 12/14/2023

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PLEDGE, MORTGAGE AND ANTICHRESIS
Provisions Common to Pledge and Mortgage
Common requisites of pledge and mortgage
1. That they be constituted to secure the fulfillment of a principal obligation.
The principal obligation must be a valid obligation, as a rule, because being accessory
contracts, pledge and mortgage owe their existence upon the principal obligation. However,
a pledge or mortgage may secure:
a. All kinds of obligations, whether pure or subject to a suspensive or resolutory condition
(Art. 2091) or even
b. Voidable, unenforceable, or natural obligations. (Arts. 2052, 2086)
2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged.
a. Ownership at the time pledge or mortgage is constituted
The pledgor or mortgagor must be the absolute owner of the thing pledged or
mortgaged at the time it is constituted. Therefore, a pledge or mortgage constituted on
future property is void. (Arenas vs. Raymundo, 19 Phil 46)
b. Third persons may pledge or mortgage their property
It is not required for the validity of a pledge or mortgage that the debtor be the owner
of the thing pledged or mortgaged. Third persons may pledge or mortgage their property
to secure another person's debt. (Art. 2085) However, they can be held liable only to the
extent of the value of their property. With respect to mortgage, they may be held liable
for any deficiency in case of foreclosure if they expressly agreed to assume the principal
obligation. (Philtrust vs. Echaus, 52 Phil 852)
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. (Art. 2085)
Free disposal means the property being given in pledge or mortgage is free from claims
or encumbrances.
Thus, if the pledge or mortgage was constituted on the property of a corporation under
receivership, the pledge or mortgage is not valid, because the corporation does not have the
free disposal of the thing. (Compana General de Tabacos vs. Gauzon, 20 Phil 261)
When thing pledged or mortgaged may be sold or alienated to pay debt
1. Before maturity
General rule: The thing pledged or mortgaged cannot be sold or alienated since
payment of the debt cannot yet be compelled.
Exception: If the pledgor or mortgagor fails to fulfill certain conditions, such a
violation would make the debt due and entitle the pledgee or mortgagee to have the thing
sold through the formalities required by law. (PNB vs. Lopez-Vito, 52 Phil 41) Thus, if the
debtor has lost the right to make use of the period, or when there is an acceleration clause in
an obligation payable in installments and the debtor has defaulted in the payment of an
installment, the thing pledged or mortgaged may be alienated because such violations would
make the balance of the debt become due and demandable.
2. At maturity
Upon default of the debtor to pay the obligation at maturity, the thing pledged or
mortgaged may be sold or otherwise alienated to pay the creditor. (Art. 2087)
Appropriation of the thing pledged or mortgaged
1. Pactum commissorium, concept
This is a stipulation in a pledge or mortgage which provides for automatic forfeiture, i.e.,
that ownership of the thing pledged or mortgaged shall pass to the creditor by the mere default
of the debtor. (Declaro vs. Alpha Insurance, 58564-R, June 16, 1978)
The elements of pactum commissorium, which enables the mortgagee (or pledgee) to
acquire ownership of the mortgaged (pledged) property without the need of foreclosure
proceedings, are (a) there should be a property mortgaged (or pledged) by way of security
for the payment of the principal obligation, and (b) and there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged (or pledged) in case of non-
payment of the principal obligation within the stipulated period. (Sps. Ong vs. Roban
Lending Corporation, G. R. No. 172592, July 9, 2008; Garcia vs. Villar, G.R. No. 158891,
June 27, 2012)
This stipulation is void for being contrary to morals and public policy. (Perez vs. Cortez,
35 Phil 211) The creditor is allowed only to move for the sale of the thing pledged or
mortgaged after the principal obligation becomes due, in order to collect the amount of his
claims from the proceeds. (Ranjo vs. Salmon, 15 Phil 436) The stipulation, however, that
the pledgee or mortgagee may purchase the thing pledged or mortgaged at its current price
if the debt is not paid on time is valid. (See Warner-Barns vs. Buenaflor and Macoy, C.A. 36
OG 3290.) The pledgee or mortgagee may also bid at the public auction of the things
pledged or mortgaged.
2. Appropriation of property pledged or mortgaged
a. Pledge
Appropriation in pledge is allowed only if the thing pledged is not sold at two public
auctions. The pledgee is required in this case to give an acquittance for his entire claim.
(Art. 2112)
b. Mortgage
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PLEDGE, MORTGAGE AND ANTICHRESIS

Provisions Common to Pledge and Mortgage Common requisites of pledge and mortgage

  1. That they be constituted to secure the fulfillment of a principal obligation. The principal obligation must be a valid obligation, as a rule, because being accessory contracts, pledge and mortgage owe their existence upon the principal obligation. However, a pledge or mortgage may secure: a. All kinds of obligations, whether pure or subject to a suspensive or resolutory condition (Art. 2091) or even b. Voidable, unenforceable, or natural obligations. (Arts. 2052, 2086)
  2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. a. Ownership at the time pledge or mortgage is constituted The pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged at the time it is constituted. Therefore, a pledge or mortgage constituted on future property is void. (Arenas vs. Raymundo, 19 Phil 46) b. Third persons may pledge or mortgage their property It is not required for the validity of a pledge or mortgage that the debtor be the owner of the thing pledged or mortgaged. Third persons may pledge or mortgage their property to secure another person's debt. (Art. 2085) However, they can be held liable only to the extent of the value of their property. With respect to mortgage, they may be held liable for any deficiency in case of foreclosure if they expressly agreed to assume the principal obligation. (Philtrust vs. Echaus, 52 Phil 852)
  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. (Art. 2085) Free disposal means the property being given in pledge or mortgage is free from claims or encumbrances. Thus, if the pledge or mortgage was constituted on the property of a corporation under receivership, the pledge or mortgage is not valid, because the corporation does not have the free disposal of the thing. (Compana General de Tabacos vs. Gauzon, 20 Phil 261) When thing pledged or mortgaged may be sold or alienated to pay debt
  4. Before maturity General rule: The thing pledged or mortgaged cannot be sold or alienated since payment of the debt cannot yet be compelled. Exception: If the pledgor or mortgagor fails to fulfill certain conditions, such a violation would make the debt due and entitle the pledgee or mortgagee to have the thing sold through the formalities required by law. (PNB vs. Lopez-Vito, 52 Phil 41) Thus, if the debtor has lost the right to make use of the period, or when there is an acceleration clause in an obligation payable in installments and the debtor has defaulted in the payment of an installment, the thing pledged or mortgaged may be alienated because such violations would make the balance of the debt become due and demandable.
  5. At maturity Upon default of the debtor to pay the obligation at maturity, the thing pledged or mortgaged may be sold or otherwise alienated to pay the creditor. (Art. 2087) Appropriation of the thing pledged or mortgaged
  6. Pactum commissorium, concept This is a stipulation in a pledge or mortgage which provides for automatic forfeiture, i.e., that ownership of the thing pledged or mortgaged shall pass to the creditor by the mere default of the debtor. (Declaro vs. Alpha Insurance, 58564 - R, June 16, 1978) The elements of pactum commissorium, which enables the mortgagee (or pledgee) to acquire ownership of the mortgaged (pledged) property without the need of foreclosure proceedings, are (a) there should be a property mortgaged (or pledged) by way of security for the payment of the principal obligation, and (b) and there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged (or pledged) in case of non- payment of the principal obligation within the stipulated period. (Sps. Ong vs. Roban Lending Corporation, G. R. No. 172592, July 9, 2008; Garcia vs. Villar, G.R. No. 158891, June 27, 2012) This stipulation is void for being contrary to morals and public policy. (Perez vs. Cortez, 35 Phil 211) The creditor is allowed only to move for the sale of the thing pledged or mortgaged after the principal obligation becomes due, in order to collect the amount of his claims from the proceeds. (Ranjo vs. Salmon, 15 Phil 436) The stipulation, however, that the pledgee or mortgagee may purchase the thing pledged or mortgaged at its current price if the debt is not paid on time is valid. (See Warner-Barns vs. Buenaflor and Macoy, C.A. 36 OG 3290.) The pledgee or mortgagee may also bid at the public auction of the things pledged or mortgaged.
  7. Appropriation of property pledged or mortgaged a. Pledge Appropriation in pledge is allowed only if the thing pledged is not sold at two public auctions. The pledgee is required in this case to give an acquittance for his entire claim. (Art. 2112) b. Mortgage

In no case is appropriation of the property mortgaged allowed. Indivisibility of pledge and mortgage General rule: 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. (Art. 2089) This rule applies even if the debtors are jointly liable. (Art. 2090)

  1. Indivisibility among heirs of debtor The debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. (Art.
  1. Indivisibility among .heirs of creditor The creditor's heir who received his share of the debt cannot return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid. (Art. 2089) Exception: The pledge or mortgage is divisible if several things are given in pledge or mortgage and each one of them guarantees only a determinate portion of the credit. The debtor in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is answerable is satisfied. (Art. 2089) Examples:
  2. D borrowed P10,000.00 from C. The debt is secured- by a pledge of D's ring and bracelet. Even if D pays C P6,000.00, he cannot ask for the return of the ring or the bracelet so as to extinguish partially the pledge. He can ask for the extinguishment of the pledge only after he has paid the obligation in full. However, if D and C agreed that the ring would secure the amount of P6,000.00, and the bracelet P4,000.00, then D can ask for the extinguishment of the pledge constituted on the ring upon his payment of P6,000.00.
  3. D borrowed from C P100,000.00 secured by a mortgage on D's two adjoining lots (Lot 1 and Lot 2). D dies leaving E and F as heirs with E inheriting Lot 1 and F Lot.2. Even if E pays C P50,000.00, he cannot ask for the extinguishment of the mortgage on Lot 1.
  4. Suppose it is C who dies leaving X and Y as heirs of the credit right. If D pays X P50,000.00, X cannot cancel the mortgage on Lot 1 to the prejudice of Y.
  5. A and B jointly borrowed P20,000.00 from C. To secure the debt, A pledged his necklace and B his ring. If A pays C P10,000.00, he cannot ask for the extinguishment of the pledge on his necklace. Although the debtors are jointly liable, the pledge constituted on the necklace and the ring is indivisible. Promise to constitute pledge or mortgage A promise to constitute a pledge or mortgage gives rise only to a personal action between the contracting parties. (Art. 2092) The debtor can be compelled by the creditor to fulfill his promise by executing the pledge or mortgage. Until the mortgage has been executed, no real right on the property is created. In the case of pledge, the same shall not be perfected until the delivery of the object of the pledge. Should the debtor fail to comply with his promise to constitute the pledge or mortgage, he loses the benefit of the period. Accordingly, the creditor may demand immediate payment. (See Art. 1198.) Example: D borrowed P20,000.00 from C. The loan is payable in 12 months. D promised to execute a mortgage on his land within one month to secure the debt. C accepted the promise. In this case, no mortgage has been constituted yet. However, C has a personal right to demand the constitution of the mortgage. Once the mortgage has been constituted, it creates a real right in favor of C. If D does not constitute the mortgage within the one-month period, C may demand immediate payment of the debt. PLEDGE Kinds of pledge
  6. Conventional or voluntary - That which is constituted by the mutual consent of the pledgor and the pledgee.
  7. Legal - That which is created by operation of law. (Arts. 546, 1731 and 1994) Conventional Pledge Requisites
  8. That it be constituted to secure the fulfillment of a principal obligation. (Art. 2085)
  9. That the pledgor be the absolute owner of the thing pledged. (Art. 2085)
  10. 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. (Art. 2085)
  11. That the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (Art. 2093) Necessity of actual or physical delivery A pledge, being a real contract, requires for its perfection the delivery of the thing to the creditor or to a third person by common agreement. Thus, without delivery, the pledge is void. (El Banco Espanol-Filipino vs. Peterson, 7 Phil 409) The delivery required here is actual

he has collected to the payment of his claim, and deliver the surplus, should there be any, to the pledgor. (Art. 2118) Example: D received a promissory note of P10,000.00 from M the same being due on March 1. Thereafter, D pledged the promissory note to secure a loan of P8,000.00 which he obtained from C. The loan is due on March 5. On March 1, C can collect the note of P10,000.00 from M. He shall apply P8,000.00 for the payment of his claim and deliver the surplus of P2,000.00 to D.

  1. To sell the thing pledged upon default of the debtor. (Arts. 2087, 2112) Obligations of the creditor/pledgee
  2. To take care of the thing pledged with the diligence of a good father of a family. (Art. 2099)
  3. To be liable for the loss or deterioration of the thing pledged unless it is due to fortuitous event. (Art. 2099)
  4. Not to deposit the thing pledged with a third person, unless authorized. (Art. 2100)
  5. To be responsible for the acts of his agents or employees with respect to the thing pledged. (Art. 2100)
  6. Not to use the thing pledged, except when: a. He is authorized by the owner, or. b. The use of the thing is necessary for its preservation.
  7. To deliver to the debtor the surplus after paying his claim from what he has collected on a credit that was pledged and which has become due before it is redeemed. (Art. 2108) Rights of a third person who pledges his own movable property to secure the debt of another
  8. To be indemnified by the debtor if he pays the creditor. The indemnity consists of the following: a. The total amount of the debt. b. The legal interests thereon from the time the payment was made known to the debtor, even though it did not earn interest for the creditor. c. The expenses incurred by the pledgor after having notified the debtor that payment had been demanded of him. d. Damages, if they are due. (Arts. 2066, 2120))
  9. To be subrogated to all the rights of the creditor against the debtor if he pays the creditor. (Arts. 2067, 2120) The pledgor is considered a third person interested in the fulfillment of the obligation; hence, he is entitled to be subrogated to the creditor's rights upon payment. (See Arts. 1236 and 1302.) Example: D obtained a loan of P10,000.00 from C. The debt is secured by the guarantee of G and the pledge by T of his ring. If T pays C, T steps into the place of C. Thus, T can demand the indemnification mentioned in No. 1 above from D. If D cannot pay, T can go after G.
  10. To be released from liability in the following cases: a. If the creditor voluntarily accepts immovable or other property in payment of the debt even if the creditor thereafter loses the same by eviction. (Arts. 2077, 2120) Example: D borrowed P50,000.00 from C. The debt is secured by a pledge of T's ring. On due date, C accepted a parcel of land from D in payment of the debt. T can demand that he be released from the pledge. T shall be released even if later, C should lose the lot by eviction in case there is a rightful owner. Note: The acceptance by the creditor of a property in payment of the debt is in the nature of dacion en pager. b. If an extension of time is granted to the debtor by the creditor without his (pledgor's) consent. (Arts. 2079, 2080) c. If through some act of the creditor, the pledgor cannot be subrogated to the rights, mortgages and preferences of the creditor. (Arts. 2080, 2120) Thus, if, in the example in No. 2, C cancels G's guarantee, T is released from liability because if T pays C, T can no longer go after G if D cannot pay the indemnification due him (T). Extinguishment of pledge Pledge may be extinguished directly or indirectly.
  11. Indirect cause - When the principal obligation secured by the pledge is extinguished, the pledge, being merely an accessory contract, is likewise extinguished. Any third person who has any right in or to the thing pledged may satisfy the principal obligation as soon as the latter becomes due and demandable. (Art. 2117) Example: D owes C P5,000.00. The debt is secured by a pledge of D's wristwatch. If D pays C P5,000.00, the debt is extinguished together with the pledge.
  12. 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. (Art. 2110) 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 (Art. 2111) if in the meantime, the thing pledged is not yet returned to the owner. c. Sale of the thing pledged
  3. Formalities of the sale - The sale shall be: a) By public auction, b) Through a notary public, and c) With notice to the debtor and the owner of the thing pledged, stating the amount for which the public sale is to be held. (Art. 2112)
  4. 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 the only bidder. (Art. 2113) c) Third persons.
  5. 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. (Art. 2114)
  6. 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. (Art. 2115) a) If the price is more than the 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. (Art. 2115) Example: D owes C P10,000.00. The debt is secured by a pledge of D's shares of stock which is evidenced by a stock certificate delivered by D to C at the time D received the proceeds. If D defaults and C sells the shares of stock at P9,500.00, D's debt is extinguished. C cannot recover the deficiency of P500.00. If the shares of stock are sold at P11,000.00, D's debt is likewise extinguished. The excess of P1,000. belongs to C unless the parties had an agreement that any excess shall be turned over to D.
  7. 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. (Art. 2119) 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. In this case, he shall be obliged to give an acquittance for his entire claim. (Art. 2112) Note: The sale of the thing pledged or its appropriation will result in the extinguishment not only of the pledge but also of the principal obligation. Legal Pledge Legal pledge, concept Legal pledge or pledge by operation of 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 A possessor in good faith may retain the movable upon which he has incurred necessary and useful expenses until he has been reimbursed therefor. (Art. 546) Example: B bought a bicycle from S believing that S was the owner. After obtaining possession of the bicycle, B incurred P1,000.00 to have it repaired by causing the removal of rust from it and replacing some deteriorating parts. Later, O came forward and proved that he was the owner and that S merely deceived B. B is entitled to retain the bicycle (by way of legal pledge) until O has reimbursed him the amount of P1,000.00 for the j necessary and useful expenses that he had incurred.
  2. Possessory lien of worker He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. (Art. 1731) Example: O brought his wristwatch to R for repair. R has the right to retain the wristwatch by way of legal pledge until O has paid him for the repair work he has undertaken.

a. Land, buildings, roads and construction of all kinds adhered to the soil. b. Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable. c. Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. d. Statues, reliefs, painting or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements. e. Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works. f. Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included. g. Fertilizer actually used on a piece of land. h. Mines, quarries, slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant. i. Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast. j. Contracts for public works, and servitudes and other real rights over immovable property. (Art. 415)

  1. Alienable real rights in accordance with the laws, imposed on immovables. (Art. 2124) Form of real mortgage
  2. Between the parties The real mortgage may be in any form since it is a consensual contract. The contract is binding between the parties even if not registered in the Registry of Property. However, since a real mortgage creates a real right, the same must be in a public instrument for the convenience of the parties. (See Art. 1358.) The person in whose favor the law establishes a mortgage have no other right than to demand the execution and the recording of the document in which the mortgage is formalized. (Art. 2125)
  3. As regards third persons The real mortgage must be recorded in the Registry of Property. (Art. 2125) However, the real mortgage is nevertheless binding against third persons who have knowledge of the same. Extent of real mortgage A contract of real mortgage shall cover the following:
  4. The property mortgaged.
  5. Natural accessions.
  6. Improvements.
  7. Growing fruits.
  8. Rents and income not yet received when the obligation becomes due.
  9. Indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriations for public use. (Art. 2127) Stipulation prohibiting alienation and second mortgage
  10. Alienation A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. (Art. 2130)
  11. Second mortgage The mortgagor, being the owner of the property mortgaged, may execute a second mortgage thereon, even without the consent of the mortgagee. This is an incident of ownership. A stipulation wherein the mortgagor must get the consent of the mortgagee before subsequently mortgaging the property is valid if the property is registered under the Torrens System. Such stipulation, however, may be disregarded by the mortgagor if the property was originally registered under the Spanish Mortgage Law. (Philippine Industrial Co. vs. El Hogar Filipino, 45 Phil 336). Foreclosure of real mortgage
  12. Foreclosure, concept Foreclosure is the remedy available to the mortgagee by which he subjects the property mortgaged to the satisfaction of the obligation secured.
  13. Grounds for foreclosure a. When the principal obligation is not paid when due. b. When there is any violation of any condition, stipulation or warranty by the mortgagor.
  14. Kinds of foreclosure a. Judicial foreclosure - This is a foreclosure made through the filing a petition in court. (Rule 68, Rules of 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.

  1. Deficiency judgment If the proceeds of sale are not sufficient to satisfy the claim of the creditor, the court, upon motion, shall render judgement 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. Accordingly, even if there is such stipulation, the sale of the property shall take place in accordance with the requirements of the law, and the property sold to the highest bidder. (BPI vs. Yulo, 31 Phil 472) b. Extra-judicial foreclosure - This is made in compliance with the provisions of Act. No. 3135 in the following cases:
  2. Where there is a stipulation in the mortgage contract that the mortgage may be foreclosed extra-judicially; or
  3. 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 as 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 filing a court action.
  1. Effect of sale when there are two or more mortgages a. On senior mortgagees - Foreclosure and sale by a junior mortgagee do not affect the rights of persons holding prior encumbrances. The purchaser acquires the property subject to the right of foreclosure of a senior mortgagee. b. On junior mortgagees - Foreclosure and sale by a senior mortgagee will extinguish all subsequent mortgages. 5. Redemption a. Concept 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. (Peralta vs. Dalipe, 46 OG133) b. 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. (Rule 68, Rules of Court.) 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 registration of the sale to redeem the property. Real mortgage distinguished from sale with right to repurchase 1. Real mortgage is constituted as security for a principal obligation. Sale with right to repurchase is not a security for an obligation. 2. There is no transfer of ownership in real mortgage. In sale with right to repurchase, ownership of the property is transferred upon delivery. 3. In real mortgage, there is generally no transfer of possession. In sale with right to repurchase, the property is generally transferred to the buyer a retro. 4. A real mortgage is indivisible. In sale with right to repurchase, redemption of the property may be partial. 5. Real mortgage applies only to real property. Sale with right to repurchase applies to both real and personal property. CHATTEL MORTGAGE Requisites of chattel 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.

b. Claim of the person foreclosing the mortgage. c. Claims of persons holding subsequent mortgages in their order. d. Balance, if any, shall be paid to the mortgagor. (Act 1508, Sec. 14)

  1. Effect of sale when there are two or more mortgages a. On senior mortgagees - Foreclosure and sale by a junior mortgagee do not affect the rights of persons holding prior encumbrances. The purchaser acquires the property subject to the right of foreclosure of a senior mortgagee. The junior mortgagee may, however, redeem the thing. (Act 1508, Sec. 13) b. On junior mortgagees - Foreclosure and sale by a senior mortgagee will extinguish all subsequent mortgages.
  2. 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, except in the case of foreclosure of a chattel mortgage constituted on personal property which is sold at a price payable in installments. (See Art. 1484.) Distinctions between Pledge, Real Mortgage and Chattel Mortgage Pledge and real mortgage distinguished
  3. Pledge is constituted on movables. Real mortgage is constituted on immovables.
  4. In pledge, the thing is delivered to the creditor or a third person by common agreement. In real mortgage, the thing is not required to be delivered to the creditor.
  5. A pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge to bind third persons. A real mortgage must be registered to take effect against third persons.
  6. In pledge (conventional), the deficiency cannot be recovered even if there is a stipulation to that effect. In real mortgage, the deficiency can be recovered.
  7. In pledge (conventional), the excess of the proceeds of sale is retained by the pledgee unless there is a stipulation that it shall be given to the pledgor. In real mortgage, the excess of the proceeds of sale belongs to the mortgagor even if there is no stipulation to that effect
  8. In pledge, the pledgee may appropriate the thing pledged if the same is not sold in two public auctions. In real mortgage, the mortgagee cannot appropriate the thing mortgaged. Pledge and chattel mortgage distinguished
  9. In pledge, the thing is delivered to the creditor or a third person by common agreement, in chattel mortgage, the thing is not required to be delivered to the creditor.
  10. A pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge to bind third persons. A chattel mortgage must be registered and accompanied by an affidavit of good faith to take effect against third persons.
  11. In pledge (conventional), the deficiency cannot be recovered even if there is a stipulation to that effect. In chattel mortgage, the deficiency can be recovered, except in the case of personal property sold in installments.
  12. In pledge, the excess of the proceeds of sale is retained by the pledgee unless there is a stipulation that it shall be given to the pledgor and in the case of legal pledge. In chattel mortgage, the excess of the proceeds of sale belongs to the mortgagor even if there is no stipulation to that effect
  13. In pledge, the pledgee may appropriate the thing pledged if the same is not sold in two public auctions. In chattel mortgage, the mortgagee cannot appropriate the thing mortgaged. Real mortgage and chattel mortgage distinguished
  14. Real mortgage is constituted on immovables. Chattel mortgage is constituted on movables.
  15. A real mortgage must be registered to bind third persons. A chattel mortgage must be accompanied by an affidavit of good faith to take effect against third persons.
  16. A real mortgage may secure future obligations. A chattel mortgage cannot secure future obligations. Criminal liability in pledge or mortgage
  17. Any person who, pretending to be the owner of any real property, shall convey, sell, encumber, or mortgage the same shall be guilty of estafa. (Art. 316, par. 1. Revised Penal Code)
  18. Any person who, knowing that real property is encumbered, shall dispose of the same as unencumbered, is also guilty of estafa. (Art. 316, par. 2, Revised Penal Code.)
  19. Any person who shall knowingly remove any personal property mortgaged under the Chattel Mortgage Law to any province or city other than that which it- was located at the time of the execution of the mortgage, without the written consent of the mortgagee or his executors, administrators, or assignees. (Art. 319, par. 1, Revised Penal Code)
  20. Any mortgagor who shall sell or pledge personal property already pledged, or any part thereof, under the terms of the Chattel Mortgage Law, without the written consent of the mortgagee written on the back of the mortgage and noted on the record thereof in the office of the Register of Deeds of the province where such property is located. (Art. 319, par. 2. Revised Penal Code) ANTICHRESIS Antichresis, concept 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 interest, and thereafter to the

principal of his credit. (Art. 2132) Characteristics of antichresis a

  1. Accessory - It is a contract that is dependent upon another for its existence.
  2. Formal - It must be in writing. The amount the principal and of the interest shall be in writing; otherwise the contract of antichresis is void. (Art. 2134)
  3. Nominate - It has a special name under the law.
  4. Real right - It creates a lien on immovable property.
  5. Real property - It is a real property by itself.
  6. Indivisible - It subsists as long as the principal obligation remains unpaid. (Arts. 2089, 2139) (Please see rules on indivisibility of pledge and mortgage which are applicable to a contract of antichresis.) Requisites of antichresis
  7. That it be constituted to secure the fulfillment of a principal obligation. (Arts. 2085, 2139) A contract of antichresis may secure all kinds of obligations, be they pure or subject to a resolutory or suspensive condition. (Arts. 2091, 2139)
  8. That the debtor be the absolute owner of the immovable property. Nonetheless, a third person, not a party to the principal obligation, may be the owner of the immovable given as security. (Arts. 2085, 2139)
  9. 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. (Ibid.)
  10. That the amount of the principal and the interest must be in writing; otherwise, the antichresis is void. (Art. 2134) Measure of application of fruits The actual market value of the fruits at the time of application thereof to the interest and principal shall be the measure of such application. (Art. 2133) Obligations of the creditor
  11. To pay the taxes and charges upon the immovable, unless there is a stipulation to the contrary.
  12. To bear the expenses necessary for its preservation and repair. Application of the fruits of the immovable (Arts. 2135, 2138)
    1. The taxes and charges upon the immovable.
    2. The expenses for preservation and repair.
    3. Interest on the principal obligation.
    4. Principal obligation. When debtor can reacquire enjoyment of property (Art. 2136)
    5. Upon full payment of his obligation to the creditor.
    6. When he is compelled by the creditor to enter into the enjoyment of the property, unless there is stipulation to the contrary. This right is available to the creditor if he desires to exempt himself from the obligation to pay the taxes and charges upon the property and the expenses for its preservation and repair. Effect of non-payment of the debt within the period agreed upon (Art. 2137) The creditor does not acquire ownership of the immovable for non-payment of the debt within the period agreed upon. Any stipulation to the contrary is void. In case of non-payment, the creditor shall have the following remedies:
    7. To petition the court for the payment of the debt.
    8. To sell the immovable. The provisions of the Rules of Court on foreclosure of mortgages shall apply. In case of any deficiency in the foreclosure sale, the creditor can recover the deficiency. PLEDGE, MORTGAGE AND ANTICHRESIS DIAGNOSTIC EXERCISES MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.
    9. One of the distinctions between pledge and mortgage is that pledge: a. is constituted to secure the fulfillment of a principal obligation. b. requires absolute ownership on the part of the person constituting the security. c. requires that the one constituting the security must have the free disposal of the thing or be legally authorized for the said purpose. d. requires the actual delivery of the thing given as security to the creditor or a third person by common agreement.
    10. In order to bind third persons, a pledge: a. must be recorded with the Register of Deeds. b. must be in a public instrument showing a description of the thing pledged and the date of the pledge.

pay.

  1. A third person who pledges his property to secure another person's debt is released from liability in the following cases, except: a. when the creditor voluntarily accepts an immovable property in payment of the debt. b. when the creditor voluntarily accepts a movable property in payment of the debt. c. if an extension of time is granted to the debtor by the creditor with the pledgor's consent. d. if through some acts of the creditor, the pledgee cannot be subrogated to the rights, mortgages and preferences of the creditor.
  2. A pledge is extinguished through any of the following, except: a. sale of the thing pledged. b. appropriation of the thing pledged after the thing is not sold at one public auction. c. written abandonment of the pledge in writing. d. return of the thing pledged.
  3. D pledged his 100 shares of stock of San Miguel Corporation to C to secure his debt of P5,000.00. On due date, D was not able to pay the debt, so C caused the sale of the shares at public auction. The shares of stock were sold at P4,500.00. a. To extinguish the obligation, C may recover the deficiency of P500.00 from D if there is a stipulation to that effect. b. To extinguish the obligation, C may recover the deficiency even if there is no stipulation to that effect. c. The obligation is extinguished even if there is a deficiency of P500.00. Accordingly, C can no longer recover the deficiency. d. The obligation is extinguished only if the proceeds of sale amount to P5,000.00 or more.
  4. This refers to the right of a person to retain a thing until he receives payment of his claim in the cases provided by law such as one who has executed work on a movable. a. Conventional pledge. c. Legal pledge. b. Voluntary pledge. d. Chattel Mortgage.
  5. One of the following may not be the object of a real mortgage: a. Land, buildings, roads and construction of all kinds adhered to the soil. b. Fertilizer actually used on a piece of land. c. Animal houses, pigeon houses or other breeding places intended by the owner to be permanently attached to the land, including the animals therein. d. Growing fruits that have been gathered from trees planted on land.
    1. D borrowed P100,000.00 from C. To secure the debt, D mortgaged his land and building in favor of C. The mortgage is registered with the Registry of Property. Sometime later, D sold the land and building to X who was not aware of the mortgage of the land and building. Based on the above information, which of the following statements is false? a. X must respect the mortgage although he was not a party thereto. b. X was not bound by the mortgage because he was not aware of it. c. If C forecloses the mortgage and the proceeds of the foreclosure sale are not enough to pay for the debt, C can recover the deficiency from D. d. If C forecloses the mortgage and the proceeds of the foreclosure sale exceed the amount of debt, D is entitled to the excess.
    2. It is the right of the mortgagor to redeem the property that was mortgaged after it was sold. a. Equity of redemption. c. Right of subrogation. b. Right of redemption. d. Right of pre-emption.
    3. A chattel mortgage may have the following as object, except: a. motor vehicles. b. shares of stock. c. vessels. d. floating docks and structures which are intended by their nature and object to remain at a fixed place on a river, lake or coast.
    4. D borrowed P50,000.00 from C. The obligation bears interest of 10% per annum. To secure the debt, D agreed with C that the fruits from the agricultural lot of D shall answer for the interest and the principal obligation. Assuming the form required by law was complied with, the contract entered into between D and C for the application of the fruits of the lot to the interest and principal obligation is known as: a. antichresis. c. real estate mortgage. b. pledge. d. chattel mortgage.
    5. For its validity, the contract referred to in the preceding number: a. must be in writing, whether public or private. b. must be in a public instrument. c. may be in any form, whether oral or written. d. may be inferred from the conduct of the parties.
    6. The measurement of the application of the fruits to the interest and principal obligation in the contract referred to in No. 21 is the actual value of the fruits at the time they are: a. gathered.

b. applied. c. gathered less reasonable depreciation, if any, of the immovable. d. applied less reasonable depreciation, if any, of the immovable.

  1. Which of the following statements is incorrect with respect to the contract referred to in No. 21? a. An immovable belonging to a person other than the debtor may secure the obligation of the debtor. b. The contract subsists as long as the obligation of the debtor remains unpaid. c. The creditor may appropriate for himself the immovable if the debtor fails to pay his obligation. d. The debtor may be compelled by the creditor to enter into the enjoyment of the immovable if the creditor desires to exempt himself from the taxes and charges upon the estate and the expenses for its preservation and repair.
  2. D pledged his computer to secure a loan which he obtained from C. The debt which amounts to P10,000.00 is due after 60 days. Before the due date, C executed an instrument abandoning the pledge.' I. D's debt of P10,000.00 is extinguished. II. The pledge of the computer is extinguished even if D has not yet accepted the renunciation of the pledge. III. The pledge is not extinguished until C returns the ring to D. IV. The pledge is extinguished even if C has not returned the ring to C. Based on the foregoing, which is false among the four statements? a. I and III. c. I and II. b. II and IV. d. II and III.
  3. In a contract of pledge, the pledgee/creditor may do the following, except to: a. use the thing pledged for purposes of preservation. b. retain the thing pledged until the principal obligation is satisfied. c. ask for a substitute if he was deceived on the substance or quality of the thing pledged. d. sell the thing pledged without notice to the pledgor/debtor.
  4. The following are the characteristics of a chattel mortgage, except: a. the mortgagor must be the absolute owner of the property mortgaged. b. it is an accessory contract. c. it involves movable or immovable property. d. the deed of chattel mortgage must be accompanied by an affidavit of good faith to be binding against third persons.
  5. The following elements are common in both pledge and mortgage, except: a. the contract is constituted to secure the fulfillment of a principal obligation. b. the property on which the security is constituted must be delivered to the creditor. c. the debtor must be the absolute owner of the property pledged or mortgaged. d. the debtor must have free disposal of the property pledged or mortgaged.
  6. In the sale of the thing pledged at public auction, which of the following statements is incorrect? a. The sale extinguishes the principal obligation regardless of the amount of the proceeds of sale. b. The pledgee can appropriate the thing pledged if it is not sold at the first public auction. c. The creditor has no right to recover deficiency. d. The debtor is not entitled to the excess of proceeds unless there is an agreement.
  7. Which of the following is a similarity of chattel mortgage and pledge? a. Deficiency is recoverable in case of sale of the thing pledged/mortgaged. b. The object of the contract is a movable property. c. The excess of the proceeds of sale over the amount of the obligation belongs to the pledgor/mortgagor. d. An affidavit of good faith is required to bind third persons.
  8. D borrowed pi 00,000.00 from C. The loan is secured by a mortgage of T's lot. On due date, D was unable to pay. Accordingly, C foreclosed the mortgage on the lot and during the public auction, the lot was sold for P90,000.00. a. C can recover the deficiency from D. b. C can recover the deficiency from T. c. C can recover the deficiency from both D and T. d. C can no longer recover the deficiency.
  9. Consider the following cases: I. D owes C P10,000.00. To secure the debt, D pledged his cell phone. D defaults. The cell phone is sold for P9,000.00 at the public auction. II. D bought a car for P360,000.00 from C. The price, which is payable in 12 equal monthly installments of P30,000.00, is secured by a chattel mortgage on the car. After paying 2 installments, D defaults in the payment of 3 installments. C forecloses the chattel mortgage and the car is sold at the public auction for P280,000.00.

a mortgage on her lot. a. Mary Montes may demand the return of her diamond ring if she pays her share of the debt, while Melany Manalo's share remains outstanding. b. Melany Manalo may demand the cancellation of the mortgage on her lot if she pays her share of the debt, while Mary Montes's share remains outstanding. c. Both Mary Montes and Melany Manalo must pay the total amount of the debt before Mary Montes could demand the return of the diamond ring, and Melany Manalo the cancellation of the mortgage on her lot. d. Patricia Palma may demand payment of the amount of P100,000.00 from either Mary Montes or Melany Manalo.

  1. As a general rule, any deficiency in the foreclosure sale may be recovered in the following contracts, except in: a. chattel mortgage. c. conventional pledge. b. real mortgage. d. antichresis.
  2. As a general rule, in case of excess of the proceeds of the foreclosure sale over the creditor's claim, the excess shall belong to the creditor in: a. chattel mortgage. c. conventional pledge. b. real mortgage. d. antichresis.
  3. Recording in the Registry of Property in the appropriate book is required for the validity of the contract of: a. chattel mortgage. c. conventional pledge. b. real mortgage. d. antichresis.
  4. The delivery required in pledge for its perfection and validity is: a. actual delivery. c. execution of private document. b. execution of public instrument. d. transfer of title of ownership.
  5. D obtained a loan from C. To secure the debt, D pledged his ring to C. Before due date, C executed a private document stating that he was abandoning the pledge. In the meantime, C remained in possession of the ring and D has yet to express his acceptance of the abandonment of the pledge. a. The pledge of the ring is extinguished. b. The pledge is not extinguished until C returns the ring. c. The pledge is not extinguished unless D accepts the abandonment since it is an act of generosity. d. The pledge is not extinguished because the abandonment should be in a public instrument.
  6. D contracted the services of T, a tailor, to sew D's pair of pants with D providing the cloth for the purpose. The parties agreed that T's labor shall be P500.00. The security that T holds for the payment of the labor agreed upon is in the nature of: a. chattel mortgage. c. conventional pledge. b. legal pledge. d. antichresis.
  7. The requirement that the thing on which the security is constituted must be delivered by the debtor to the creditor or a third person by common agreement refers to the characteristic of a pledge being: a. an accessory contract. c. an indivisible contract. b. a real contract. d. a consensual contract.
  8. The creation of a lien on the property upon which it is imposed, whoever may be the possessor of the property, to the fulfillment of the obligation for whose security it was constituted refers to the characteristic of a real mortgage being: a. an accessory contract. c. an inseparable contract. b. an indivisible contract. d. a real property in itself.
  9. D obtained a loan of P5,000.00 from C. The obligation is secured by a pledge of D's ring which he delivered to C. Both the loan and the pledge were in a private instrument. While the loan was outstanding, D sold the ring through a public instrument to X who was not aware of the pledge. Under the deed of sale, D obliged himself to deliver the ring physically to X after a week. Before X could obtain actual delivery of the ring, he learned that D had earlier pledged the same and that C was selling the ring in a public sale because of D's default in the payment of his debt. a. X is bound by the pledge made by D to C. b. X is not bound by the pledge made by D to C. c. C can sell the ring to satisfy his claim. d. X did not acquire ownership of the ring from D.
  10. D borrowed P10,000.00 from C the debt being payable in 6 months. To secure the debt, D promised to pledge his ring within 2 weeks. Two weeks had already lapsed but D had not yet constituted the pledge. I. C may demand the constitution of the pledge. II. D loses the benefit of the period given to him to pay the debt; hence, C may demand immediate payment of the debt.

a. Both statements are true. c. I is true; II is false. b. Both statements are false. d. I is false; II is true.

  1. Carmona, a creditor of Delantes, telephoned the latter to inform him that he (Carmona) was abandoning the pledge of the ring which Delantes had constituted to secure his loan obligation to Carmona amounting to P20,000.00. Carmona told Delantes that he would personally deliver the ring to Delantes within one week. a. Both the loan obligation and the pledge are extinguished by the abandonment. b. Neither the loan obligation nor the pledge is extinguished by the abandonment. c. Only the loan obligation is extinguished. d. Only the pledge is extinguished.
  2. D applied witfi C for a loan of P100,000.00 at 10% interest per annum promising to constitute a mortgage on his condominium unit to secure the loan within one month from the time he received the proceeds. On the strength of D's promise to furnish a security, C granted the loan application and gave D the option to pay the loan on or before the lapse of one year. D, however, failed to constitute the mortgage on his condominium unit within one month as he had promised. A list containing the following possible remedies were presented to you by C for evaluation: I. Demand immediate payment of the debt from D. II. Demand that D constitute the mortgage as he had promised. III. Foreclose the mortgage on the condominium to satisfy the claim. Which of the foregoing possible remedies may you validly recommend to C? a. I or II. c. I or III. b. II or III. d. I, II or III.
  3. D, your client, is applying for a loan of P200,000.00 with C. He is proposing to C that he will secure the loan with a chattel mortgage on his car. He made a list containing the items below and asks you to check whether they are correct: I. D will no longer be liable for deficiency to C in case he defaults in the payment of the loan and the car is sold at the foreclosure sale for less than P200,000.00. II. D and C must record the deed of chattel mortgage in the Chattel Mortgage Register for the validity of the chattel mortgage. III. D must execute an affidavit of good faith to be appended to the deed of chattel mortgage to bind third persons. IV. D will be entitled to the excess of the proceeds of the foreclosure sale over the loan obligation in case he defaults in the payment of the loan. Which of the foregoing will you relay to D as correct? a. I, II, and III. c. I, III and IV b. I, II and IV. d. II, III and IV.
  4. D obtained a loan of P1,000,000.00 from C. To secure the debt, D executed deed of mortgage covering two of his lots, Lot A and Lot B, each of which is in the name of D in the certificate of title. The mortgage of Lot A was recorded within one week in the Office of the Register of Deeds, but that of Lot B could not be processed as other documents were being required by the Register of Deeds. In the meantime, D sold Lot A to X, and Lot B to Y. X knew nothing on the mortgage of Lot A, but Y was aware of the mortgage of Lot B. a. Both X and Y are bound by the mortgage on the lot sold to each of them. b. Both X and Y will not be bound. In the case of X, he knew nothing of the mortgage. In the case of Y, the mortgage was not registered. c. X is bound by the mortgage of Lot A. Y is not bound by the mortgage of Lot B. d. X is not bound by the mortgage of Lot A. Y is bound by the mortgage of Lot B.
  5. Chattel mortgage and pledge are similar in what respect? a. Right of the creditor to recover the deficiency if the proceeds of the foreclosure sale are lower than the obligation. b. Object of the contract. c. Right of the person constituting the security to get excess of the proceeds of the foreclosure sale over the amount of the obligation. d. Formality required to bind third persons.
  6. D obtained a loan of P5,000.00 from C. The loan obligation, which is due at the end of six (6) months, is secured by a pledge of D's ring which D delivered to C. While D executed a promissory note for the loan of P5,000.00, no written instrument was executed by the parties for the pledge of the ring. You are presented the following statements for evaluation: I. The pledge is not binding between the parties. II. The pledge is not binding to third persons. In your evaluation of the foregoing facts and statements: a. Both statements are true. c. Only Statement 1 is true. b. Both statements are false. d. Only Statement II is true.
  7. D obtained a loan of P300,000.00 from C payable in 12 months. The debt bears interest at 1% per month and is secured by a chattel mortgage executed by D on his car and a real

becomes the owner of the painting. D defaulted. a. C became the owner of the painting upon the default of D pursuant to their agreement. b. C must sell the painting in a public sale, and if it is not sold at the first public auction, C already acquires ownership thereof. c. C did not become the owner of the painting upon the default of D. d. Under no instance may C become the owner of the painting. He must sell it at public auction not only once but several times until it is sold.

  1. Refer to No. 66. The stipulation between D and C that C automatically becomes the owner of the painting upon D's default is known as: a. Constitutum possessorium. c. Expromision. b. Pactum commissorium. d. Delegacion.
  2. D obtained a loan of P100,000.00 from C. To secure the debt, D pledged his goods which are currently stored in the warehouse of W. The stipulations of the parties include the following: I. The goods will remain in the warehouse of W. II. C will automatically become the owner of the goods if D defaults in the payment of the loan. The stipulation/s binding between D and C is/are: a. I only. c. Both I and II. b. II only. d. Neither I nor II.
  3. D borrowed P30,000.00 from C pledging as security his ring, necklace and bracelet with the ring as the most valuable, and the bracelet as the least valuable. On due date, D paid the amount of P20,000.00. Accordingly: a. D can demand the return of the ring and the necklace, the two most valuable of the three objects of pledge. b. D can demand the return of the necklace and the bracelet, the two least valuable of the three of the objects of pledge. c. D can demand the return of any of the two objects of pledge at his choice. d. D cannot demand the return of any of the things pledged.
  4. D obtained a 12% interest-bearing loan of P50,000.00 from C, and to secure the debt, D pledged his diamond pendant. On due date, D wrote a letter to C proposing to relinquish the ownership of the diamond pendant because he did not have enough money to pay the loan and the interest due although the total amount due was less than the value of the pendant. C accepted the proposal. a. Ownership of the pendant was acquired by C by reason of pactum commissorium. b. Ownership of the pendant was acquired by C by reason of dacion en pago. c. Ownership of the pendant was not acquired by C because the agreement is void. d. Ownership of the pendant was not acquired by C because the value thereof should be of the same amount as the total amount due.
  5. For binding effect between the parties: I. A chattel mortgage must be recorded in the Chattel Mortgage Register. II. A real mortgage must be recorded in the Registry of Property. The foregoing is true with respect to: a. Both I and II. c. I only. b. Neither I nor II. d. II only.
  6. The following are the indirect causes of extinguishment of pledge: I. Written abandonment of the thing pledged. II. Appropriation of the thing pledged if not sold at two public auctions. III. Return of the thing pledged. IV Sale of the thing pledged. Which of the above modes of extinguishment will extinguish not only the pledge but also the principal obligation it secures? a. I and III. c. I and II. b. II and IV. d. Ill and IV
  7. When the thing pledged is in danger of deterioration or impairment without the fault of the pledgee, the pledgor has a right to demand the return the thing pledged by offering another thing of the same kind and quality. At the same time, the pledgee has a right to cause the sale of the thing pledged. Who between the pledgor and pledgee is given preferential right? a. Pledgor b. Pledgee c. Either one whoever asserts first the right. d. Neither, because the preferential exercise of the right must be stipulated.
  8. The creditor may automatically appropriate for himself the thing on which the security was constituted upon the default of the debtor in: a. Pledge. c. Anthichresis b. Mortgage. d. Automatic appropriation is not allowed in any case.
  1. D borrowed P5,000.00 from C. To secure the debt, D pledged 50 grams of "shabu”. On due date, demanded payment but D refused to pay by raising the defense that his debt is void. May C collect from D? a. No, because the loan obligation and the pledge are contrary to law. b. Yes, but if D cannot pay, C may go after the pledge to satisfy his claim. c. No, because the nullity of the pledge carried with it the nullity of the loan obligation. d. Yes, but if D cannot pay, C may have to resort to other remedies to satisfy his claim.
  2. A written instrument indicates that D received P20,000.00 from C. Later, the parties executed a written instrument indicating the delivery by D of his laptop computer to C. In case of doubt, what contract was entered into between D and C as regards the laptop computer? a. Pledge c. Sale b. Dacion en pago d. None, the contract is void as to the delivery of the computer.
  3. D obtained a loan of P100,000.00, secured by a pledge of diamond ring, from C. The parties had a stipulation that should D fail to pay the debt on due date, C may purchase the diamond ring at the current purchase price. Is the stipulation valid? a. No, such stipulation is in the nature of pactum commissorium. b. Yes, the purchase of the ring by C at the current price does not come within the prohibition on pactum commissorium. c. No, but C can still purchase the ring if it is not sold at two public auctions. d. Yes, but C can only purchase the ring if it is not sold at two public auctions.
  4. D borrowed P50,000.00 from C. The parties agreed in a private instrument that D's goods which are deposited in the warehouse of W would secure the loan by way of pledge. C never took actual possession of the goods, nor did the parties agree that the goods would remain with W. Was a pledge constituted on the goods? a. Yes, because mere agreement that the goods would secure the debt is sufficient. b. No, the goods must be delivered to C, or there must be a common agreement that the goods would remain in the possession of W. c. Yes, delivery of the goods to the creditor is not required if they are in the control and possession of a third person. d. No, the pledge should be in a public instrument for the pledge to be constituted.
  5. D obtained a 12 - month loan of P100,000.00 from C. D constituted a mortgage on a certain lot which he knew belonged to X. On due date: a. C cannot collect from D because the obligation is rendered void, D, the mortgagor, not being the owner of the mortgaged lot. b. C can collect from D because the mortgagor need not be the owner of the property. c. C can collect from D because although the mortgage is void, the loan obligation can stand independently from it. d. C cannot collect from D because the latter was not authorized by any power of attorney to mortgage the lot.
  6. A real mortgage: a. confers ownership of the mortgaged property in the mortgagee upon its constitution. b. creates encumbrance on real property. c. confers ownership of the mortgaged property in the mortgagee if the principal obligation it secures is not paid on due date. d. confers ownership of the mortgaged property in the mortgagee upon default of the debtor if the parties stipulated about it.
  7. These statements are presented to you: I. In a real mortgage, the property on which it was constituted is not required to be delivered to the creditor. II. Placing a real property mortgaged in the possession of the creditor is an authorization to the creditor to make himself the owner if the principal obligation is not paid when due. In your evaluation of the foregoing statements: a. Only Statement I is true. c. Both statements are true. b. Only Statement II is true. d. Both statements are false.
  8. These statements are presented to you: I. A mortgage on real property is a real property by itself. II. Movables may be the object of real mortgage by stipulation of the parties. In your evaluation of the foregoing statements: a. Both statements are true. c. Statement I is true; Statement II is false. b. Both statements are false. d. Statement I is false; Statement II is true.
  9. A sale with right to repurchase differs from real mortgage in that in sale with right to repurchase: a. there is no transfer of ownership of the property. b. a security is constituted on the property. c. the contract is indivisible. d. there is generally a transfer of possession of property.