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VI. Pledge and Mortgage - Coggle Diagram

- - - - D. Remedies of a Pledgee/Mortgagee - These remedies are alternative.
        
        Foreclosure . In essence, a legal proceeding to terminate the pledgor/mortgagor's interest in the collateral.
        
        Specific Performance - a waiver/abandoning of the security, and an action to recover the indebtedness specifically.
        
        E. Indivisibility of Pledge/Mortgage (2089-2090) - Means that the entire collateral answers for the totality of the debt. This is to protect the creditor.
        
        F. Pactum Commissorium (2087-2088) - Refers to a stipulation allowing the creditor to automatically appropriate/dispose the collateral. This is illegal. As creditor only entitled to FORECLOSE and not to APPROPRIATE.
        
        Elements (DBP v. CA)
        
        PROPERTY - Pledged/Mortgaged by way of security for the payment of a principal.
        
        AUTOMATIC APPROPRIATION - is allowed by stipulation whereby the creditor appropriates the collateral in case of non-payment of the principal within the stipulated period.
        
        Effect on Pledge or Mortgage - Does not substantially affect the validity of the contract of pledge or mortgage. Here, laws on foreclosure sale will instead apply.
        
        Ratio - Circumvents the requirements of a foreclosure sale. This means that no proper compensation for the security as the amount of the loan is ordinarily much less than the real value of the thing pledged or mortgaged.
        
        G. Equitable Mortgage (1602-1605) - A contract which though lacking in form/words/other requisites shows intent of the parties to charge property as security of a debt WITH nothing impossible or contrary to law.
        
        ELEMENTS
        
        SALE - parties entered into a contract denominated as a sales contract
        
        TRUE INTENT - to secure an existing debt by way of mortgage.
        
        WHEN PRESUMED (1602) - A contract is presumed to be an equitable mortgage, regardless of its nomenclature under the following circumstances:
        
        INADEQUATE - Price of the sale with a right to repurchase is unusually inadequate (not true consideration, consid is the loan)
        
        POSSESSION - Vendor remains in possession as a lessee or otherwise (an attribute of ownership, if ownership was transferred then possession should have been, sketch if attributes of own are separated)
        
        NEW INSTRUMENT - Is executed after the expiration of the right to repurchase which extends the redemption period or granting a new one. (goes against rights of vendee a retro as they would normally want an absolute title)
        
        RETENTION - When purchaser retains for himself a part of the purchase price (tl;dr purchase price is interest of the loan)
        
        TAXES - Vendor binds himself to pay taxes on the thing sold (owner pays taxes, again, attribute of ownership)
        
        ANALOGOUS - Cases where it may be fairly inferred that the real intent was to secure the payment of a debt or performance of an obligation.
        
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        Purpose - It is to prevent the circumvention of the laws on usury and the prohibition against pactum commissórium. Pacto de retro sales have been frequently used to conceal the true nature of the contract, i.e., a loan secured by a mortgage
        
        Subsequent Sale - An agreement to sell by the pledger the collateral is valid.
        
        Pactum Commissorium; Examples(Bustamante v. Rosel) - Debtor is obliged to dispose of the collateral at a pre-agreed consideration, amounting to practically the same amount as the loan. In effect, creditor acquires the collateral in event of non-payment. Though in the case stipulation was creditor has option to buy or purchase.
        
        Limitation of Right to Alienate - Also constitutes pactum commissorium if the right of the owner to dispose of the property is impaired.
        
        Permissible Stipulations - Amounts to a novation of the original mortgage.
        
        Subsequent modifications - of the original contract by the parties is permissible in relation to Arts. 2080 and 2137.
        
        Cession - of the property mortgaged in payment of the debt which amounts in its legal effect to a novation of the original contract and to a voluntary sale of the said property for the amount of the debt.
        
        Sale - a pledgor or mortgagor may validly sell the collateral to the pledgee or mortgagee for the amount of the debt, when the latter becomes due, if the parties stipulate upon the sale. So long as no stipulation for automatic appropriation.
        
        Dacion En Pago - Dation as defined in NCC 12453 is where the property is alienated to the creditor in satisfaction of a debt in money which is governed by the law on sales
        
        When Divisible (2089) - Requires express stipulation of divisibility.
        
        GR - A pledge or mortgage is indivisible, even if the debt may be divided among the successors of the debtor/creditor.
        
        XCPN - Several things are given in P/M where each one of them guarantees only a determinate portion of the credit. Here, debtor has a right of extinguishment of P/M as the portion of the debt it secures is satisfied.
        
        Effect of Indivisibility
        
        Debtor - Debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the P/M
        
        Creditor - His heir who received his share of the debt may not return the P or cancel the M to the prejudice of the other heirs who have been unpaid.
        
        Solidary Liability (2090) - does not affect the indivisibility of the pledge/mortgage
        
        Definition - Foreclosure is the means/legal proceedings by which the thing pledged/mortgaged is alienated for payment. It is governed by the rules depending on the kind of pledge/mortgage.
        
        How Done - The Creditor (Pledgee/Mortgagee) institutes the foreclosure, either to gain title or to force a sale to satisfy the unpaid obligation. Generally, the contract or statute may authorize either a power-of-sale foreclosure OR the sale of the collateral at a non-judicial public sale by a public official/creditor/trustee.
        
        Alternative - Once foreclosed, even if thing not sold, specific performance cannot be elected.
        
        Deficiency Judgment - Rule 68, Sec. 6 Deficiency judgment — If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment; otherwise, the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract, which time shall be stated in the judgment.
      - Effect of Promise (2092) - Only gives rise to a personal action between the contracting parties, without prejudice to criminal responsibility.
        
        RPC 316 - Art. 316. Other forms of swindling. — The penalty of arresto mayor in its minimum and medium period and a fine of not less than the value of the damage caused and not more than three times such value, shall be imposed upon:
        1. Any person who, pretending to be owner of any real property, shall convey, sell, encumber or mortgage the same. 2. Any person, who, knowing that real property is encumbered, shall dispose of the same, although such encumbrance be not recorded. 3. The owner of any personal property who shall wrongfully take it from its lawful possessor, to the prejudice of the latter or any third person. 4. Any person who, to the prejudice of another, shall execute any fictitious contract. 5. Any person who shall accept any compensation given him under the belief that it was in payment of services rendered or labor performed by him, when in fact he did not actually perform such services or labor. 6. Any person who, while being a surety in a bond given in a criminal or civil action, without express authority from the court or before the cancellation of his bond or before being relieved from the obligation contracted by him, shall sell, mortgage, or, in any other manner, encumber the real property or properties with which he guaranteed the fulfillment of such obligation.
        
        Liability - Person can be made liable when either:
        
        DEFRAUD - by offering in pledge/mortgage something as unencumbered, despite knowledge of burden
        
        MISREPRESENTS - as owner.
    - - Obligations Secured (2086 & 2052 & 2091) - A mortgage may be constituted to guarantee the performance of a voidable or an unenforceable contract . It may also guarantee a natural obligation.
        It may also secure all kinds of obligations, be they pure or subject to a suspensive or resolutory condition. (2091)
        
        Q. Effect of Subsequent Voiding - Maybe 1400 & 1398 applies? - VOIDABLE. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.
        
        In obligations to render service, the value thereof shall be the basis for damages. (1303a)
        
        Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (1307a)
      - Consideration - As an accessory obligation, the consideration is the same as that of the principal obligation.
  - - - Future Property - Cannot be the subject of a pledge or mortgage.
        
        Transfer of Title - There is no transfer of title of the collateral. At most, delivery is only to secure the fulfillment of the principal obligation.
  - - - EXTINGUISHMENT (2110) - If the thing pledged is returned by the pledgee to the pledgor or owner,t he pledge is extinguished.
- - - - C. Obligations Secured -
        
        GR - limited to the principal obligations mentioned in the contract of real-estate mortgage.
        
        XCPN - May be used to secure future advancements or future debts, so long as the debts yet to be contracted are accurately described.
        
        C1. Dragnet/Blanket Mortgage Clause/After-incurred obligations - Continuing Security, discharged only upon full payment of the principal obligation.. A stipulation which is specifically phrased to subsume ALL debts, whether past or future. These must be carefully and strictly construed.
        
        C2. Reliance on Security Test - When the mortgagor takes another loan for which another security was given and it could not be inferred that the loan was in reliance of the security with the dragnet clause. Requires that new debt refers to security with dragnet.
        
        Subsequent Securities (Prudetnial Bank v. Villar) - Requires that the specific security be exhausted first before the dragnet mortgage may be resorted to.
        
        Applicability to Pledge (ACME Shoe v. CA) - A pledge may secure after-incurred obligations as well.
        
        D. Object of Real Estate Mortgage (2124) - Only immovable property or alienable real rights imposed upon immovables.
        
        D1. After Acquired Properties - A stipulation in a registered real estate mortgage that all property taken in exchange or replacement by the mortgagor (after acquired property) shall become subject to the mortgage IS BINDING. This is because a REM need not be registered twice to bind the after-acquired parties and affect third parties. There must be stipulation in the mortgage to contract to the effect that will compel the mortgagor to enter into a NEW MORTGAGE CONTRACT each time (contract to mortgage). Often contemplates accessions.
        
        D2. Effect and Extent (2126-2127)
        
        Immediacy (2126) - The mortgage DIRECTLY and IMMEDIATELY subjects the property upon which it is imposed + its possessor to the fulfillment of the obligation for whose security it was constituted. This means collateral inseperable from the mortgage until the discharge of the principal.
        
        Extent (2127) - Covers the:
        
        Natural accessions,
        
        improvements,
        
        growing fruits, and rents and income NOT YET received when the obligation becomes due.
        
        Indemnity granted/owing to the proprietor from the insurers of the mortgaged property or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law,regardless if the estate remains in possession of mortgagor or passes into the hands of third persons.
        
        Purpose - The stipulation (on after acquired properties) referred to is common. In fact, it may be logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used; for this reason, it is agreed that they shall be replaced with others to be thereafter acquired by the mortgagor
        
        Future Property - After-acquired are not future properties, instead property in exchange or replacement of the existing security as security might lose value due to wear and tear.
        
        E. Right to Alienate Mortgage credit (2128,1625,1627) - Pertains to the principal obligation. Right of the mortgagee. Change in creditor.
        
        F. Right to Alienate Collateral (2085,2129-2130) - A stipulation forbidding the owner from alienating the immovable mortgage shall be void. This also covers stipulations requiring the approval of the creditor prior to alienation. Right of the mortgagor.
        
        Creditor; Third Person(2129) The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said third person possesses, in the terms and with the formalities which the law establishes.
        
        Benefit - The right to alienate is in favor of the mortgagor, as they may opt to sell the property in case of a threat to alienate.
        
        Rationale - The mortgagor remains the owner of the collateral, thus retains jus disponendi.
        
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        G. FORECLOSURE OF REAL ESTATE MORTGAGE - Proceeding by which the property mortgaged is sold to satisfy the debt.
        
        1. JUDICIAL FORECLOSURE
        
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        2. EXTRAJUDICIAL FORECLOSURE - Here, no equity of redemption. As no judicial complaint for foreclosure such that no judgment and 90-120 period.
        
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        SCOPE (2128) - Mortgage credit may be alienated/assigned to a third person, in whole or in part, with the formalities required by law.
        
        Assignment of Credit (1627) - The assignment of credit includes ALL the accessory rights, such as mortgage.
        
        Third Persons (1625) - An assignment of a credit, right or action shall produce no effect as against a third person UNLESS it appears in a public instrument or the instrument is recorded in the registry of property IF the assignment involves real property.
        
        Alienable Real rights - includes rights, title and interest in a contract of lose, or RTI in the land on which the building was constructed.
    - - Subject of Mortgage (2124) - ONLY the following
        
        Immovables
        
        REAL RIGHTS - that are alienable in accordance with laws and imposed upon immovables.
        
        REQUISITES
        
        PRINCIPAL OBLIGATION
        
        ABSOLUTE OWNERSHIP - over the property
        
        FREE DISPOSAL - with legal authority
        
        WRITTEN DOCUMENT (2125) - notarized, recorded in the registry of deeds.
        
        Effect of Non-Registration (2125) - If the instrument is not recorded, the mortgage is nevertheless binding between the parties.
        
        It gives the mortgagee the right to demand the execution and recording of the real estate mortgage.
        
        Not binding against third parties if not registered. (1358 & 1403)
        
        Multiple Mortgages - You can mortgage the same collateral multiple times so long as there is no stipulation prohibiting this.
        
        Equity of Redemption - “[t]he rule is well settled that a second mortgagee merely takes what is called an equity of redemption and thus a second mortgagee has to wait until after the debtor’s obligation to the first mortgagee has been fully settled. The rights of a second mortgagee are strictly subordinate to the superior lien of the first mortgagee.”
        
        Right of Junior Mortgagee
        
        PRINCIPAL DEBT
        
        RESIDUE PROCEEDS - Residue proceeds of the foreclosure sale may be applied to the junior mortgagee.