REVIEWER IN BUSINESS LAW

LAW ON PLEDGE

TEST I. MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. One of the distinctions between pledge and mortgage is that pledge:

a. is constituted to secure the fulfilment 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.
2. 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.
c. is sufficient that it be in a private instrument showing a description of the thing
pledged and the date of the pledge.
d. must be accompanied by an affidavit of good faith.
3. The following is required in order that a chattel mortgage will bind third persons.
a. The chattel mortgage must be accompanied by an affidavit of good faith and
recorded in the Chattel Mortgage Register.
b. The chattel mortgage must be in a public instrument showing a description of the
thing mortgaged and the date of the chattel mortgage.
c. It is sufficient that the chattel mortgage be in writing, public or private.
d. The thing mortgaged must be delivered to the creditor.
4. The following is required in order that a real mortgage will bind third persons.
a. The real mortgage must be accompanied by an affidavit of good faith and recorded
with the Registry of Property.
b. The real mortgage must be in a public instrument showing a description of the thing
mortgaged and the date of the real mortgage.
c. It is sufficient that the real mortgage be in writing, public or private.
d. The real mortgage must be recorded in the Registry of Property.
5. When is appropriation by the creditor of the thing given as security allowed in pledge,
real mortgage and chattel mortgage?
a. When the thing given as security in real mortgage is not sold at two public auctions.
b. When the thing given as security in pledge is not sold at two public auctions.
c. When the thing given as security in chattel mortgage is not sold at one public
auction.
d. No appropriation is allowed in either pledge, real mortgage or chattel mortgage.
6. This is a stipulation in pledge or mortgage providing that the ownership o the thing given
as security will pass to the pledge or mortgagee upon default of the debtor.
a. Constitutum possessorium
b. Pactum commissorium
c. Legal subrogation
d. Redemption
7. D borrowed P30,000.00 from C. To secure the debt, D pledged his ring, wristwatch, and
necklace. Before the debt could be paid, C died leaving X, Y and Z as heirs. By
agreement among the heirs who inherited the credit, the ring would secure the share of
X of the credit, the wristwatch the share of Y, and the necklace the share of Z. Later, D
pays X P10,000.00.
a. D can demand the extinguishment of the pledge of the ring.
b. X may release the pledge of the ring.
c. The pledge of the ring will remain until the shares of Y and Z are paid by D.
 d. D can demand the extinguishment of the pledge of the ring, wristwatch and necklace
because there has been partial payment.
8. The following may be the object of pledge, except:
a. all movables within the commerce of men which are susceptible of possession
b. bills of lading
c. shares of stock
d. parcels of land
9. A kind of mortgage which lacks the formalities required by law but nevertheless shows
the intention of the parties to secure a debt with real property is known as:
a. conventional mortgage
b. voluntary mortgage
c. equitable mortgage
d. legal mortgage
10. The debtor/pledgor has the following rights, except to:
a. ask for the return of the thing pledged after he has paid the debt, its interests, and
with expenses in a proper case.
b. continue to be the owner of the thing pledged unless it is expropriated.
c. require the deposit of the thing with a third person if it is in danger of being impaired
or lost through the negligence or wilful act of the pledge.
d. alienate the thing pledged without the consent of the pledge.
11. The creditor/pledge has the following rights, except to:
a. retain the thing in his possession until the debt is paid.
b. use the thing pledged even without authority if such use is necessary for its
preservation.
c. demand reimbursement of the expenses made for the preservation of the thing.
d. automatically appropriate the thing pledged upon default of the debtor in the
payment of his debt.
12. On March 1, 2010, D obtained a loan of P10,000.00 from C. To secure the debt which is
payable on May 1, 2010, D pledged a promissory note amounting to P12,000.00 which
was executed in his favor by M. The promissory note is due April 25, 2010 and properly
endorsed by D to C.
a. On April 25, 2010, C can collect the note of P12,000.00 from M. The entire proceeds
will belong to C.
b. On April 25, 2010, C can collect the note of P12,000.00 from M. However, he must
give P2,000.00 to D.
c. C cannot collect from M. D is the one entitled to collect the note from M.
d. C cannot collect from M. He must sell the note at public auction at maturity if D
cannot pay.
13. A third person who pledges his property to secure another persons 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 pledgors
consent.
d. if through some acts of the creditor, the pledge cannot be subrogated to the rights,
mortgages and preferences of the creditor.
14. 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.
15. 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.
16. 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
b. Voluntary pledge
c. Legal pledge
d. Chattel Mortgage
17. 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.
18. 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.
19. It is the right of the mortgagor to redeem the property that was mortgaged after it was
sold.
a. Equity of redemption
b. Right of redemption
c. Right of subrogation
d. Right of pre-emption
20. 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.
21. 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
b. pledge
c. real estate mortgage
d. chattel mortgage
22. 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
23. 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
24. 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.
25. 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. Ds 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
b. II and IV
c. I and II
d. II and III
26. In a contract of pledge, the pledge/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.
27. 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.
28. The following elements are common in both pledge and mortgage, except:
a. The contract is constituted to secure the fulfilment 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.
29. 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.
30. 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.
31. D borrowed P100,000.00 from C. The loan is secured by a mortgage of Ts lot.

TEST II. - MATCHING TYPE. Indicate your answers by writing the letter representing the
statement or phrase that best describes, defines or explains the numbered items.

Terms

1. Pledge 11. Indivisibility

2. Real estate mortgage 12. Antichresis
3. Chattel mortgage 13. Affidavit of good faith
4. Pactum commissorium 14. Pledgor
5. Foreclosure 15. Mortgagor
6. Legal pledge 16. Equitable mortgage
7. Conventional pledge 17. Upset price
8. Equity of redemption 18. Free disposal
9. Right of redemption 19. Pledgee
10. Inseparability 20. Mortgagee

Statements

A. The party who delivers a movable property to another to secure his debt or that of
another person.
B. The property being given in pledge or mortgage must not be subject to any claims or
encumbrances.
C. The price stipulated by the parties in a mortgage below which the property shall not be
sold in the event of foreclosure.
D. The party who receives a movable property from another to secure the latters debt or
that of another.
E. The object of a chattel mortgage.
F. The right of the mortgagor to repurchase within a certain period the property that was
mortgaged after it was sold for the payment of the mortgage debt.
G. The character of a contract of mortgage whereby the property upon which the mortgage
is imposed is subjected to the fulfilment of the obligation for whose security it was
constituted, whoever the possessor of the property may be.
H. One lacking the formalities of a mortgage but nevertheless shows the intention of the
parties that a certain property shall secure an obligation.
I. A pledge created by the agreement of the parties.
J. A sworn statement attesting to the fact that the mortgage is made for the purpose of
securing the obligation specified in the conditions thereof, and for no other purpose, and
that the obligation is a just and valid obligation, and one not entered into for the purpose
of fraud.
K. A mortgage constituted upon an immovable to secure an obligation.
L. The stipulation in a contract of pledge or mortgage whereby the creditor automatically
becomes the owner of the property pledged or mortgaged upon default of the debtor,
which stipulation is void.
M. The remedy given to the mortgagee by which he subjects the mortgaged property to the
satisfaction of the obligation through the sale of the mortgaged property at public auction
and the application of the proceeds of the sale to the payment of his claim.
 N. A mortgage constituted upon a movable property to secure an obligation.
O. The character of pledge or mortgage whereby a lien is created on the property pledged
or mortgaged, which lien continues until the obligation it secures has been fully paid.
P. The party who constitutes a security upon a movable or immovable property but without
delivering the property.
Q. Movable property is delivered by the debtor to the creditor or a third person by common
agreement to secure a principal obligation.
R. 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.
S. A pledge created by operation of law.
T. A contract whereby the fruits of an immovable belonging to the debtor or a third person
are to be applied to the interest of, and thereafter to, the principal obligation.
U. The party in whose favour a security is constituted upon a movable or immovable
property but without the delivery of the property to him.
V. None of the foregoing.

TEST III. TRUE OR FALSE. Write the word TRUE if the statement is true, and the word
FALSE if the statement is false.

_______ 1. A third person may pledge his property to secure another persons debt.
_______ 2. The mortgagee of a real estate may appropriate for himself the said property if it is
not sold at two public auctions to satisfy the debtors obligation.
_______ 3. The thing pledged or mortgaged cannot be sold or alienated by the creditor before
the due date of the obligation it secures unless the debtor fails to fulfil certain conditions.
_______ 4. A stipulation in a pledge or mortgage whereby the creditor automatically becomes
the owner of the property pledged or mortgaged upon default of the debtor is void.
_______ 5. A mortgagee may appropriate the movable property mortgaged if the same is not
sold at two public auctions in case of foreclosure.
_______ 6. A third person who mortgages his property to secure another persons debt shall be
liable as a rule for the deficiency in case the proceeds of the foreclosure sale are lower than the
amount of the debtors obligation.
_______ 7. A pledge or mortgage is divisible if there are several debtors who are jointly bound.
_______ 8. A promise to constitute a pledge or mortgage which is accepted creates a pledge or
mortgage between the promissory and the promissee.
_______ 9. The thing pledged may be delivered to a third person by the agreement of the debtor
and the creditor.
_______ 10. Incorporeal rights such as shares of stock may be the object of pledge.
_______ 11. A pledge to be binding against third persons must be registered in the Registry of
Property.
_______ 12. Pledge shall extend to the fruits of the thing pledged unless there is a contrary
stipulation.
_______ 13. The debtor/pledgor may alienate the thing pledged without the pledgees consent.
_______ 14. If the thing given in pledge is in danger of destruction or impairment without the fault
of the pledge, the pledge may sell the property in a public sale with the proceeds becoming the
new security in place of the thing originally pledged.
_______ 15. The pledge may use the thing pledge even without obtaining the consent of the
pledgor if the use of the thing is necessary for its preservation.
_______ 16. A written renunciation by the pledge of the pledge extinguishes the pledge although
the thing remains in the possession of the pledgee.
_______ 17. In conventional pledge, if the thing pledged is sold at public auction upon the
debtors default, the debtors obligation is extinguished whether the proceeds of sale are below or
above the amount of the obligation.
_______ 18. In legal pledge, the pledge may recover the deficiency if the proceeds of sale are
lower than the amount of the debtors obligation.
_______ 19. A mortgage of immovable property is also a real property.
_______ 20. A real mortgage is binding between the parties although the same was entered into
orally.
_______ 21. Third persons who have no knowledge of the existence of a real mortgage are bound
by such mortgage if the same is recorded in the Registry of Property.
_______ 22. A real mortgage extends to the growing fruits and improvements on the property
mortgaged.
_______ 23. A stipulation forbidding the mortgagor of an immovable to alienate the same is valid.
_______ 24. A chattel mortgage is valid between the parties although the same is not recorded in
the Chattel Mortgage Register.
_______ 25. An affidavit of good faith must be appended to the deed of chattel mortgage and
recorded in the Chattel Mortgage Register for the chattel mortgage to bind third persons.
_______ 26. As a rule, the mortgagee in a chattel mortgage may recover the deficiency from the
debtor in case the proceeds of the foreclosure sale are lower than the amount of the debtors
obligation.
_______ 27. The amount of the principal and the interest must be in writing for a contract of
antichresis to be valid.
_______ 28. The antichretic creditor may exempt himself from the payment of the taxes and
charges upon the immovable and the expenses for its preservation and repair by compelling the
debtor to enter upon the enjoyment of the property.
_______ 29. If the debtor fails to pay his debt in a contract of antichresis, the creditor acquires
ownership of the immovable.
_______ 30. In antichresis, the actual market value of the fruits at the time they are applied to the
interest and principal obligation shall be the measure of such application.