Mortgage and pledge 

Mortgage

This is a contract by which the debtor or a third party places chiefly real estate or the in-rem rights on this, as a security for the performance of an obligation. Thus, if this expires and has not been satisfied, the mortgaged property may then be sold and any money made on the sale will be applied to the original debt, which will have a higher priority than any other creditor.

Pledge

A contract by which the debtor or a third party places personal property as security for the payment of a debt. In the event this expires and has not been paid off, the pledged property will face the same consequences as in the case of a mortgage.

Types

• Real estate mortgage:

  Real estate mortgages are regulated by the Mortgage Law of February 8, 1946, which establishes that only the following can be subject to a mortgage:

  • Real estate.
  • Transferable rights according to the Law, prevailing on the said real estate.

  Apart the said requirements, the document must be registered in the Property Register to be valid.

  Once this has been set up, the mortgaged goods are directly and immediately subject to the performance of the main obligation, regardless of the holder.

• Personal property mortgage:

  Personal property mortgage is reserved for goods that are similar to real estate and can, therefore, be mortgaged.

These are considered to be:

• commercial premises;
• cars and other motor vehicles, tramways and train carriages;
• airplanes;
• industrial machinery and
• intellectual and industrial property.
• This type of mortgage must be set up in a deed and registered in the legally established special Register.

Pledge:

The law reserves the pledge for goods that are more difficult to identify and, thus, more difficult to keep track of.

Apart from the requirements affecting a mortgage, in order to set up a pledge agreement, possession of the property in question must be transferred to the creditor, or a third party (bailment). All personal property or goods on the commercial premises can be pledged, once they are susceptible to ownership.

This contract gives creditors (bailees) the right to retain the property within their possession or within the possession of the third party to whom it was submitted, until the debt is repaid. The creditor is not entitled to use the pledged property without prior authorization from the owner. If the creditor does not respect this clause, or acts in a way that is otherwise improper, the owner (bailee) may demand that the pledged property be deposited.

A pledge without bailment

In this case, the pledged goods will remain in the possession of the owner.
This pledge will be set up in a public deed, or in a policy signed up by the business broker in the case of bank transactions, and then registered in the legally established Special Register.

Once this has been set up, the debtor can not dispose of or transfer this property from its location without prior permission of the creditor.