Putting an asset up as security for a debt: the common rules

It is Chapter I of Title VII of Book Three of the Civil Code of 2020, Articles 991 to 999. These are the rules common to pledge, mortgage and antichresis: what holds for all three, before getting into each one.

They may be constituted by the debtor or by a third person over their own assets, to secure someone else’s obligation. They may fall only on things and rights that exist and are specially individualized.

• That the asset or right exist and be specially individualized.Verified against the official source
• That the guarantee be constituted over assets belonging to whoever gives it, be that the debtor or a third party.Verified against the official source
• For the creditor to become owner of the asset, acquiring it through the corresponding execution: there is no other way.Verified against the official source
• For the guarantee to be extinguished in parts, that each asset secure a determined portion of the credit, or that divisibility has been agreed.Verified against the official source

• The document individualizing the encumbered asset or right, because Article 993 requires it to be specially individualized.

1. 1

   Step 1: What a real guarantee is exactly

   Article 991 defines it by what it lets the creditor do: real security rights are those constituted to secure performance of an obligation by granting their holder a direct and immediate power over another’s asset and the faculty to promote its sale and collect from the price if the obligation is not performed. Note what it says and what it does not: promote the sale and collect from the price, not keep the asset.

2. 2

   Step 2: You can secure someone else’s debt

   Article 992 expressly allows it: real security rights may be constituted by the debtor or by a third person over their own assets, to secure someone else’s obligation. Whoever puts up the asset need not be the one who owes the money.

3. 3

   Step 3: Accessory to the credit, but renounceable separately

   Article 994 sets both sides: real security rights are accessory to the credit they secure, and are not transferable independently of it; however, their holders may renounce them independently of the secured credit. The guarantee cannot be sold on its own, but it can be let go on its own.

4. 4

   Step 4: Indivisible: each part answers for everything

   Article 995 explains what it means: each of the encumbered assets, and each part of them, secures payment of the whole credit and of each of its parts. If the guarantee covers several assets, the creditor may pursue them all together, or only one of them, regardless of who owns it or whether other guarantees exist. The exception is where each asset secures only a determined portion of the credit: the debtor is then entitled to have the guarantee extinguished as they satisfy the part of the debt each asset specially answers for. Divisibility may also be agreed, or ordered by the court at the request of the asset’s owner, provided the creditor is not harmed.

5. 5

   Step 5: If the asset is replaced, the guarantee follows it

   Article 996 calls it real subrogation: the guarantee transfers by operation of law onto whatever assets replace the encumbered ones, whether by indemnity, price or any other concept allowing real subrogation. If the asset is lost and an insurance cheque comes in, the guarantee goes onto that money without anyone having to ask.

6. 6

   Step 6: You cannot let the asset’s value fall

   Article 997 forbids it to the owner: the owner may not do any act that diminishes the guarantee’s value. And it gives the creditor a way out if it happens anyway: if the asset given as security deteriorates or diminishes so as to be insufficient to secure the credit, the creditor is entitled to have the guarantee improved and to ask for the conservation measures the case admits.

7. 7

   Step 7: The creditor does not keep the asset

   Article 998 is the chapter’s strongest protection and is worth quoting in full: a creditor holding a real security right may not appropriate or dispose of the encumbered asset, except by acquiring it through the corresponding execution. Any agreement to the contrary is null and is treated as unwritten. Signing that the creditor keeps the car or the house if you do not pay does not give them that right: the clause is void.

8. 8

   Step 8: Promising a guarantee is not giving one

   Article 999 closes it in one line: the promise to constitute real security rights produces only a personal action between the contracting parties. Until the guarantee is constituted there is no power over the asset: there is, at most, a right to claim against the other party.

These rules apply between the parties and before the Court of First Instance; Article 995 expressly gives the court the faculty to order the guarantee’s divisibility at the request of the asset’s owner. The Civil Code designates no agency to administer them.

• Signing that the creditor keeps the asset if you do not pay: that agreement is null and treated as unwritten.
• Believing that paying half releases half the guarantee: it is indivisible unless each asset answers for a determined portion.
• Thinking the creditor must pursue every asset: they may go against just one.
• Giving as security an asset that does not yet exist or is not specially individualized.
• Selling the guarantee apart from the credit: it is not transferable independently of it.
• Relying on a promise of a guarantee: it produces only a personal action between the contracting parties.
• Letting the asset deteriorate: the creditor may demand that the guarantee be improved.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov