Mortgage

- An accessory obligation
- Need not be supported by consideration; the consideration is included in the loan
- Even if the mortgagor is not the debtor and he receives no consideration for the mortgage, the
loan is still valid.
- Debtor need not be the mortgagor; however, the mortgagor must be the owner of the land

A – debtor B – creditor C – mortgagor D – buyer (3rd party)

Mortgagor gave an SPA to the debtor to mortgage the land. While the debt was still subsisting, the
mortgagor sold it to D. Debtor did not pay. The mortgage is registered.

Can the mortgagor sell the property without the consent of the mortgagee? Yes. (Art 2130)
If the mortgagor sold the property, the mortgage not registered, and he claims that there is no
encumbrance over the property = he can be held liable criminally. But in the situation, the mortgage was
registered.

Can the land be foreclosed? Yes. Loan is inseparable from the land. Principle of INSEPARABILITY.
Article 2126. The mortgage directly or immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was
constituted.

B foreclosed. It was sold in a public auction. There was a deficiency. Can B ask for the deficiency from D?
No because he is not the debtor. Unless there is SALE WITH ASSUMPTION OF MORTGAGE = so the buyer
of the land will be liable for the deficiency. But in a sale with assumption of mortgage the consent of the
creditor is required since D will now assume the debt. If D wants to redeem the property: he can
because he is an interested party.

2085. The mortgagor must be the absolute owner of the thing pledged or mortgaged.
In the case of Norkis where the intention was not to transfer ownership but was a contract to sell, the
mortgage was not valid – because the mortgagor was not yet the owner of the property mortgaged.

Future property cannot be the subject of pledge or mortgage. Exception: Stocks in trade (also
perishable goods) under chattel mortgage because they may be substituted. For example: Imung
giChattel Mortgage ang contents sa Sari-sari store. By the nature of the chattel, it is obvious that the
stocks will be sold. Also, by the nature of the business, replacement of stocks will have to be made.

Art 2087. When the principal obligation becomes due, is demanded and not paid then the thing pledged
or mortgaged can be foreclosed: it can be alienated. It must be sold in public auction.
Art 2088. It cannot be appropriated (pacto comisorio).

SPA to sell and apply proceeds to the loan = valid.

1. They have a contract of mortgage. FMV of land = P1,000,000. Loan = P100,000. In the same
document it is stated that the creditor has the option to buy for the amount written in the loan
upon maturity. Upon maturity the creditor said “quits na ta”. Is it valid? No. Pactum
Commissorium. It could be valid if the sale will be for the FMV of P1,000,000 – it would now be
ALIENATION under 2087 and not APPROPRIATION. Pactum Commissorium is against public
 policy because you can get the land at a very very low cost. Loan value is usually lower than
FMV.

2. A owner. Entered into pacto de retro. Land is worth P1,000,000. The pacto de retro price is
P100,000. B is in possession. A fails to redeem. B seeks consolidation of title because A failed to
pay the pacto de retro price. Is it a valid pacto de retro or is it pacto comisorio? Was there a
sale? No. It was an equitable mortgage because the price was so low. If legitimate pacto de retro
= not pactum commissorium. If there is a valid sale, it is pacto de retro: there is a transfer of
ownership. In pactum commissorium, there is no transfer of ownership.

3. There was a loan. Because he was not able to pay, the mortgagor executed a dacion en pago.
This is not a pactum commissorium because there are two contracts. They are not simultaneous.
However, if the dacion en pago is attached simultaneously to the loan then it is pactum
commissorium.

So there are 3 instances when a loan with mortgage may be pactum commissorium or not depending on
the situation. Take note: In pactum commissorium it is only the MORTGAGE that is VOID; principal
obligation remains. You will still be liable for the loan.

Principles to remember (pledge, mortgage, chattel):

1. It is an accessory obligation
2. It is subject to the principle of pactum commissorium
3. It is a REAL RIGHT inseparable from the property itself: whoever the possessor, it will follow the
land. It has to be registered because if it is not registered it is not binding upon 3 rd persons.
4. Indivisibility. There is one debt but secured by many objects. So if the debt is P1,000,000 and the
objects are valued at P250,000 each, and the debtor paid P500,000 – the debtor cannot compel
the return of the objects worth P500,000 because the entire debt is not yet paid in full. It is at
the option of the creditor – he can release if he wants to BUT the debtor CANNOT COMPEL the
release of the property held as security.

Art 2089.
(2) A is a debtor. He died. He has 3 heirs. 1 heir paid his share (1/3) but the rest did not pay their share.
Can the paying heir demand the release of his share of the property? No. Indivisible.

There is a 1 million debt and there is a 1 million property. Creditor has 4 heirs (C1, C2, C3, C4) and the
debtor has 4 heirs (D1, D2, D3, D4). C4 and D4 entered into a compromise: upon payment of D4’s share,
C4 will release his portion of the property. Allowed? No. Indivisible.

Exception: (par 4) When there are several things given in mortgage or pledge, each one guarantees a
determinate portion of the credit.

Art 2091. Just like in guaranty: Can secure all obligations EXCEPT void obligations.
Art 2092. Only with regard to pledge because pledge is a REAL CONTRACT. There can be a contract of a
promise of a future pledge.

PLEDGE
Art 2093. The thing is placed in the possession of the creditor or a 3 rd person upon the agreement of the
parties.

A has goods in the warehouse of C. A borrowed from B. And B knew that A had goods in the warehouse.
Was there a pledge? No. There must be a common agreement that the depositary recognizes the
pledge. While it is true that there can be a pledge if the goods are in the hands of a 3 rd person, it must be
remembered that there must be a COMMON AGREEMENT.

In pledge, does actual possession be with the creditor? No. It can be with a 3 rd person.

When can the thing pledged be given to a 3 rd person even against the will of the debtor?
Art 2104. Deposited with 3rd person if creditor:
1. USES the thing without authority (unless for preservation);
2. Given authority to use but MISUSES the thing
Debtor may ask that it be deposited with a 3 rd person.

Art 2095. Incorporeal rights may be pledged. If negotiable: must be properly INDORSED. Art 2118. If a
credit which has been pledged becomes due before it is redeemed, the pledgee has an obligation to
collect. So if it is not indorsed, the creditor cannot collect. Just like in deposit: example – when a
certificate of deposit was deposited to him and he failed to renew, he will be liable for the amount of
loss because it is part of his duty to take care of that thing.

Art 2096. A pledge to be valid against 3 rd persons has to appear in a public instrument:
1. Description of the thing pledged
2. Date of the pledge
So it does not have to be registered unlike in Chattel.

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