Common Provisions of pledge and mortgage

Essential Requisites

1. constituted to secure the fulfillment of a principal obligation. (Art. 2085, par. 1)

- Pledge and mortgage are purely accessory contracts like guarantee. They cannot
exist without a valid obligation. However, they may guarantee a voidable,
unenforceable, or natural obligation. (Arts. 2086, 2052.)

2. pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. (Art. 2085, par.
2)
- It is essential that the contract be constituted only by the absolute owner of the
thing pledged or mortgaged, or at least by the pledgor or mortgagor with the
authority or consent of the owner of the property pledged or mortgaged.
- Future property cannot be pledged or mortgated
- A pledge or mortgage executed by one who is not the owner of the property pledged
or mortgaged is without legal existence and registration cannot validate it.
-
3. persons constituting the pledge or mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose. (Art. 2085, par. 3)
- The act of pledging or mortgaging is an act of strict ownership involving as it does an
alienation or transmission of real rights in property. Hence, the pledgor or mortgagor
must have the capacity or authority to dispose of the property.

Art. 2087 provides that in contracts of pledge and mortgage that when the principal obligation becomes
due, the things in which the pledge or mortgage consists may be alienated for the payment to the
creditor. Although this condition is not expressly stated in the contract, it is necessarily implied as an
inherent element of the transaction of mortgage or pledge. The creditor does not automatically become
the owner if at the time stipulated the obligation is still unfulfilled. (Art. 2112). The pledgor remains the
owner during the pendency of the pledge and prior to foreclosure and sale.

Prohibition Against Pactum Commissorium

Pactum Commissorium - A stipulation whereby the thing pledged or mortgaged or under antichresis
(Art. 2137) shall automatically become the property of the creditor in the event of nonpayment of the
debt

Pactum commissorium referred to in Articles 2088 and 2137, therefore, presupposes the existence of
mortgage or pledge or that of an antichresis. In case of such stipulation, the security contract remains
valid; only the prohibited stipulation is void.

Exception to the prohibition – the pledgee may appropriate the thing pledged if after the first and
second auctions, the thing is not sold (Art. 2112)

Kinds of Obligations that can be Secured

Capability to secure all kinds of obligations, whether pure or conditional, voidable, unenforceable, and
natural (Arts. 2052 and 2091)

Indivisibility

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, par 1)

A pledge or mortgage is one and indivisible as to the contracting parties and the rule applies even if the
obligation is joint and not solidary. Generally, the divisibility of the principal obligation is not affected by
the indivisibility of the pledge or mortgage.

Consequences of indivisibility

1. Single thing. — Every portion of the property pledged or mortgaged is answerable for the whole
obligation as soon as it falls due.
2. Several things. — When several things are pledged or mortgaged to secure the same debt in its
entirety, all of them are liable for the totality of the debt and the creditor does not have to
divide his action by distributing the debt, among the various things pledged or mortgaged.
3. Debtor’s heir/creditor’s heir. — The debtor’s heir who has paid a part of the debt cannot ask for
the proportionate extinction of the pledge or mortgage (Art. 2089, par. 2.) nor can the creditor’s
heir who has received his share of the debt return the pledge or cancel the mortgage if the debt
is not completely satisfied. (Art. 2089, par. 3.)

Exception to the rule of indivisibility

1. Where each one of several things guarantees determinate portion of credit (Art. 2089, pars. 4
and 5) – Not actually an exception because in such a case, there would be as many pledges or
mortgages as there are things given in pledge or mortgage.
2. Where only portion of loan was released.
3. Where there was failure of consideration.
4. Where there is no debtor-creditor relationship as when a third party is the pledgor or mortgagor

Cocept of Pssession of Mortgagee or Pledgee

Possession not in the concept of owner. Thus, the subject property cannot be acquired through
acquisitive prescription, unless they remounce their status as such.

Retention of Ownership

Pledgor and Mortgagor retain ownership of the thing given as a security.

Promise to Constitute Pledge or Mortgage

A promise to constitute a pledge or mortgagem if accepted, gives rise to a personal right binding upon
the parties and creates no real right in the property. (Art. 2092)

Pledge vs. Real Mortgage

Pledge Real Mortgage

As to the Subject Matter
Constituted on movable Constituted on Immovable
As to Delivery of Property
Property is delivered to pledgee or by consent to Not necessary
a third person
As to Validity Against Third Persons
Not valid against third persons without Not valid against third persons without
knowledge, unless a description of the thing knowledge, unless registered
pledged and date of the pledge appear in a public
instrument
As to Authority to Sell
Pledgor can sell the thing pledged on ly with the Mortgagor can sell the property mortgaged even
consent of the pledgee. without the consent o the mortgagee