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CREDIT TRANSACTIONS
CREDIT TRANSACTIONS All transactions involving the purchase or loan of goods, services, or money in the present with a promise to pay or deliver in the future Contracts of security Types: 1. Secured transactions or contracts of real security - supported by a collateral or an encumbrance of property. 2. Unsecured transactions or contracts of personal security - supported only by a promise or personal commitment of another such as a guarantor or surety. Security Something given, deposited, or serving as a means to ensure fulfilment or enforcement of an obligation or of protecting some interest in property. Types of Security a. personal when an individual becomes surety or guarantor b. real or property when a mortgage, pledge, antichresis, charge or lien or other device used to have property held, out of which the person to be made secure can be compensated for loss Bailment The delivery of property of one person to another in trust for a specific purpose, with a contract, e press or implied, that the trust shall be faithfully e ecuted and the property returned or duly accounted for when the special purpose is accomplished or !ept until the bailor claims it. Parties: 1. bailor - the giver" one who delivers property 2. bailee- the recipient" one who receives the custody or possession of the thing thus delivered LOAN (Articles !"" # !$ % A contract wherein one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it or money or other consumable thing, upon the condition that the same amount of the same !ind and #uality shall be paid. $Art 1%&&'
C&aracteristics: 1. Real Contract delivery of the thing loaned is necessary for the perfection of the contract NOTE: An accepted promise to ma!e a future loan is a consensual contract, and therefore binding upon the parties but it is only after delivery, will the real contract of loan arise. $Art 1%&(' 2. Unilateral Contract - once the sub)ect matter has been delivered, it creates obligations on the part of only one of the parties $i.e. borrower'. 'in(s: 1. Commodatum when the bailor $lender' delivers to the bailee $borrower' a non-consumable thing so that the latter may use it for a certain time and return the identical thing. 'in(s of commo(atum: a. Ordinary Commodatum use by the borrower of the thing is for a certain period of time b. Precarium - one whereby the bailor may demand the thing loaned at will and it e ists in the following cases* i. neither the duration nor purpose of the contract is stipulated ii. the use of the thing is merely tolerated by the owner
CO))ODAT+) (Articles !", # !,-% Nature: 1. P+RPOSE: 4ailee in commodatum ac#uires the temporary use of the thing but not its fruits $unless stipulated as an incidental part of the contract'.$Art 1%&7' /se must be temporary, otherwise the contract may be a deposit. 2. CA+SE: 3ssentially gratuitous" it ceases to be a commodatum if any compensation is to be paid by the borrower who ac#uires the use, in such case there arises a lease contract. Similar to a donation in that it confers a benefit to the recipient. The presumption is that the bailor has loaned the thing for having no need therefor. &. S+B.ECT )ATTER: -enerally nonconsumable whether real or personal but if the consumable goods are not for consumption as when they are merely for e hibition, consumable goods may be the sub)ect of the commodatum. $Art 1%&8' (. 4ailor need not be the owner of the thing owned $Art. 1%&9' since by the loan, ownership does not pass to the borrower. A mere lessee or usufructuary may lend but the borrower or bailee himself may not lend nor lease the thing loaned to him to a third person $Art 1%&2:2;' ,/ Purely Personal (Art !"!%: 5eath of either party terminates the contract unless by stipulation, the commodatum is transmitted to the heirs of either or both parties. 4ailee can neither lend nor lease the ob)ect of the contract to a third person.
Loan
5elivery by one party and the receipt of other party of a given sum of money or other consumable thing upon an agreement, e press or implied, to repay the same.
Cre(it
Ability of a person to borrow money or things by virtue of the trust or confidence reposed by the lender that he will pay what he promised.
Loan
1. 6nterest ta!en at the e piration of the credit 2. Always on a double name paper $two signatures appear with both parties held liable for payment'
Cre(it
6nterest is ta!en in advance Always on a single name paper $i.e. promissory note with no indorse-ment other than the ma!er'
O0li1ations of t&e 0ailor (Art !2$ # Art !,-%: 1. To respect the duration of the loan GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted. EXCEPT ONS: a! n case of ur"ent need in which case bailee may demand its return or temporary use" #! The bailor may demand immediate return of the thing if t$e #ailee commits any act of in"ratitude specified in Art! %&' . 2. To refund to the bailee e traordinary e penses for the preservation of the thing loaned, provided the bailee brings the same to the !nowledge of the bailor before incurring them, e cept when they are so urgent that the reply to the notification cannot be awaited without danger. &. To be liable to the bailee for damages for !nown hidden flaws. Re4uisites: a. There is flaw or defect in the thing loaned" b. The flaw or defect is hidden" c. The bailor is aware thereof" d. =e does not advise the bailee of the same" and e. The bailee suffers damages by reason of said flaw or defect
&. 0elationship between the parties is that of obligorobligee (. ,reditor receives payment for his loan
0elationship is that of a landlord and tenant 1wner of the property rented receives compensation or price either in money, provisions, chattels, or labor from the occupant thereof in return for its use $Tolentino vs -on@ales, 7A 2hil 779 1%2B'
Loan
0eal contract
Sale
,onsensual contract 4ilateral reciprocal and
NOTE: 6f the property is >sold?, but the real intent is only to give the ob)ect as security for a debt as when the >price? is comparatively small there really is a contract of loan with an >e#uitable mortgage.? Commo(atum5 )utuum
1. Sub)ect matter is money or fungible things 2. 6n commodatum, the bailee is bound to return the identical thing borrowed when the time has e pired or purpose served &. .utuum may be gratuitous and commodatum is always gratuitous
Barter
Sub)ect matter is non-fungible, $non consumable' things The thing with e#uivalent value is given in return for what has been received
Rent
5elivery of some nonconsumable thing in order that the other may use it during a certain period and return it to the former. There is no transfer of ownership of the thing delivered
9ali(ity of unconsciona0le interest rate in a loan Supreme ,ourt in Sps! Solan"on (s! 1ose Sala6ar0 G!R! No! *)'2330 1une )20 )77*, said that since the usury law had been repealed by ,4 ,ir. +o. %A7 there is no more ma imum rate of interest and the rate will )ust depend on the mutual agreement of the parties $citing Lim La8 (s! Olympic Sa8mill Co!0 *)2 SCRA 3,2'. 4ut the Supreme ,ourt said that nothing in said circular grants lenders carta #lanc$e authority to raise interest rates to level which will either enslave their borrowers or lead to a hemorrhaging of their assets $citing Almeda (s! CA0 )'& SCRS )2) '. 6n 9edel (s! CA0 )22 SCRA 3+* , it was ruled that while stipulated interest of 7.7E per month on a loan is usurious pursuant to ,4 ,ircular +o. %A7, the same must be e#uitably reduced for being ini#uitous, unconscionable and e orbitant. 6t is contrary to morals, $contra #onos mores'. 6t was reduced to 12E per annum in consonant with )ustice and fair play. DEPOSIT (Articles !$- # -88!% A contract constituted from the moment a person receives a thing belonging to another, with the obligation of safely !eeping it and of returning the same.
Deposit
1. 2urpose is Safe!eeping 2. .ay be gratuitous &. .ovableCcorporeal things only in case of e tra)udicial deposit
Commo(atum
1. 2urpose is the transfer of the use 2. 3ssentially and always gratuitous &. 4oth movable and immovable may be the ob)ect
'in(s of Deposit: 1. Gudicial $Se#uestration' ta!es place when an attachment or sei@ure of property in litigation is ordered. 2. 3 tra-)udicial a. Holuntary one wherein the delivery is made by the will of the depositor or by two or more
C&aracteristics:
&. property saved from destruction without !nowledge of the owner NOTES: Article 1%88 does not embrace incorporeal property, such as rights and actions, for it follows the person of the owner, wherever he goes. A contract for the rent of safet) eposit bo*es is not an ordinary contract of lease of things but a special 5ind of deposit" hence, it is not to be strictly governed by the provisions on deposit. The relation between a ban! and its customer is that of a bailor and bailee. $,A Agro vs ,A, 21% S,0A (28' O0li1ations of t&e Depositary (Art !<# !! %: 1. To !eep the thing safely $Art 1%B2' 3 ercise over the thing deposited the same diligence as he would e ercise over his property 2. To return the thing $Art 1%B2' Person to =&om t&e t&in1 must 0e returne(: a. 5epositor, to his heirs and successors, or the person who may have been designated in the contract b. 6f the depositary is capacitated he is sub)ect to all the obligations of a depositary whether or not the depositor is capacitated. 6f the depositor is incapacitated, the depositary must return the property to the legal representative of the incapacitated or to the depositor himself if he should ac#uire capacity $Art 1%BA'. c. 6f the depositor is capacitated and the depositary is incapacitated - the latter does not incur the obligation of a depositary but he is liable* i..to return the thing deposited while still in his possession" ii.to pay the depositor the amount which he may have benefited himself with the thing or its price sub)ect to
5. "hen 'ust the thing be returne /pon order of the /pon demand of court or when depositor litigation is ended 6. (n whose beha$f it is he$ 2erson who has a 5epositor or third right person designated
GENERAL RULE: ,ontract of deposit is gratuitous $Art 1%87' EXCEPT ONS: 1. when there is contrary stipulation 2. depositary is engaged in business of storing goods
to return: product, accessories, and accessions of the thing deposited $Art 1%9&' &. +ot to deposit the thing with a third person unless authori@ed by e press stipulation $Art 1%B&' The depositor is liable for the loss of the thing deposited under Article 1%B& if* a. he transfers the deposit with a third person without authority although there is no negligence on his part and the third person" b. he deposits the thing with a third person who is manifestly careless or unfit although authori@ed even in the absence of negligence" or c. the thing is lost through the negligence of his employees whether the latter are manifestly careless or not.
>&at
2. The only benefit is that which accrues to the depositor &. The irregular depositor has a preference over other creditors with respect to the thing deposited
Rule =&en t&ere are t=o or more (epositors (Art !@,%: 1. f t$in" deposited is di(isi#le and depositors are not solidary* 3ach depositor can demand only his proportionate share thereto. 2. f o#li"ation is solidary or if t$in" is not di(isi#le* 0ules on active solidarity shall apply, i.e. each one of the solidary depositors may do whatever may be useful to the others but not anything which may be pre)udicial to the latter, $Art. 1212' and the depositary may return the thing to anyone of the solidary depositors unless a demand, )udicial or e tra)udicial, for its return has been made by one of them in which case, delivery should be made to him $Art. 121('. &. Return to one of depositors stipulated. The depositary is bound to return it only to the person designated although he has not made any demand for its return. NOTES: The depositary may retain the thing in pledge until full payment of what may be due him by reason of the deposit $Art 1%%('. The depositor<s heir who in good faith may have sold the thing which he did not !now was deposited, shall only be bound to return the price he
GENERAL RULE: The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited. EXCEPT ONS: 1. at the time of the deposit, the depositor was not a8are of the dangerous character of the thing 2. when depositor was not e/pected to 5no8 the dangerous character of the thing 3. when the depositor notified the depository of the same 4. the depositary 8as a8are of it 8it$out ad(ice from the depositor
E:tin1uis&ment of 9oluntary Deposit (Art !!,% 1. Foss or destruction of the thing deposited 2. 6n case of gratuitous deposit, upon the death of either the depositor or the depositary 3. 1ther causes, such as return of the thing, novation, merger, e piration of the term fulfilment of the resolutory condition, etc $Art 12&1' Necessary Deposits 1. .ade in compliance with a legal obligation 2. .ade on the occasion of any calamity such as fire, storm, flood,
Deposit 0y Tra?ellers in &otels an( inns: The !eepers of hotels or inns shall be responsible as depositaries for the deposit of effects made by travellers pro(ided* a. +otice was given to them or to their employees of the effects brought by the guest" and b. The guests ta!e the precautions which said hotel-!eepers or their substitutes advised relative to the care and vigilance of their effects. NOTES: Fiability e tends to vehicles, animals and articles which have been introduced or placed in the anne es of the hotel. Fiability shall 3K,F/53 losses which proceed from force ma)eure. The act of a thief or robber is not deemed force ma)eure unless done with the use of arms or irresistible force. The hotel-!eeper cannot free himself from the responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation to such effect shall be void. +otice is necessary only for suing civil liability but not in criminal liability. 7+ARANTA (Articles -82< # -8@2% A contract whereby a person $guarantor' binds himself to the creditor to fulfil the obligation of the principal debtor in case t$e latter fail to do so.
Classification of 7uaranty: 1. 6n the 4road sense* a. 2ersonal - the guaranty is the credit given by the person who
2. As to its Ori"in a. ,onventional - agreed upon by the parties. b. Fegal - one imposed by virtue of a provision of a law. c. Gudicial - one which is re#uired by a court to guarantee the eventual right of one of the parties in a case. &. As to Consideration a. -ratuitous - the guarantor does not receive any price or remuneration for acting as such. b. 1nerous - the guarantor receives valuable consideration. (. As to the Person "uaranteed a. Single - one constituted solely to guarantee or secure performance by the debtor of the principal obligation. b. 5ouble or sub-guaranty - one constituted to secure the fulfilment by the guarantor of a prior guaranty. 7. As to Scope and E/tent a. 5efinite - the guaranty is limited to the principal obligation only, or to a specific portion thereof. b. 6ndefinite or simple - one which not only includes the principal obligation but also all its accessories including )udicial costs S+RETASBIP A contract whereby a person $surety' binds himself solidarily with the principal debtor A relation which e ists where one person $principal' has underta!en an obligation and another person $surety' is also under a direct and primary obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, the second
3.
4. 5. 6.
Suretys&ip
1. Surety assumes liability as regular party to the underta!ing 2. Surety is original promisor &. Surety primarily liable an is
4. -uarantor binds himself to pay if the principal ,A++1T 2AL 7. 6nsurer of solvency of debtor 8. -uarantor can avail of the benefit of e cussion and division in case creditor proceeds against him
(. Surety underta!es to pay if the principal 513S +1T 2AL 7. 6nsurer of the debt 8. Surety cannot avail of the benefit of e cussion and division
In(orsement
7uaranty
2. /nless the note is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time he will be discharged absolutely from all liability thereon, whether he has suffered any actual damage or not &. 6ndorser does not warrant the solvency. =e is answerable on a strict compliance with the law by the holder, whether the promisor is solvent or not
(. 6ndorser can sued as promisor be
2. Jailure in either or both of these particulars does not generally wor! as an absolute discharge of a guarantor<s liability, but his is discharged only to the e tent of the loss which he may have suffered in conse#uence thereof
Dou0le or su0*1uaranty (Art -8, -n( par% 1ne constituted to guarantee the obligation of a guarantor Continuin1 1uaranty (Art -8,"% 1ne which is not limited to a single transaction but which contemplates a future course of dealings, covering a series of transactions generally for an indefinite time or until revo!ed. NOTES: 2rospective in operation $?i@o (s CA0 )*& SCRA 2' ,onstrued as continuing when by the terms thereof it is evident that the ob)ect is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is e pressly reserved $?i@o (s CA0 )*& SCRA 2' >Juture debts? may also refer to debts e isting at the time of the constitution of the guaranty but the amount thereof is un!nown and not to debts not yet incurred and e isting at that time. 3 ception to the concept of continuing guaranty is c$attel mort"a"e. A chattel mortgage can only cover obligations e isting at the time the mortgage is constituted and not those contracted subse#uent to the e ecution thereof -T$e 4el"ian Cat$olic 9issionaries0 nc! (s! 9a"allanes Press0 nc!0 32 P$il &3%.! An e ception to this is in case of stoc!s in department stores, drug stores, etc. -Torres (s! Lim>ap0 '& P$il *3*.!
7uaranty
A contract by which a person is bound to another for the fulfilment of a promise or engagement of a third party
>arranty
An underta!ing that the title, #uality, or #uantity of the sub)ect matter of the contract is what it has been represented to be, and relates to some agreement made ordinarily by the party who ma!es the warranty
NOTES: A guaranty is gratuitous, unless there is a stipulation to the contrary. The cause of the contract is the same cause which supports the obligation as to the principal debtor. The peculiar nature of a guaranty or surety agreement is that is is regarded as valid despite the absence of any direct consideration received by the guarantor or surety either from the principal debtor or from the creditor" a consideration moving to the principal alone will suffice.
EXCEPT ONS: 1. Dhere the guaranty is constituted without the !nowledge or against the will of the principal debtor, the guarantor can recover only insofar as the payment had been beneficial to the debtor $Art. 2A7A'. 2. 2ayment by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which, however, re#uires the debtor<s consent. 4ut the payment is in any case valid as to the creditor who has accepted it $Art. 12&9'. &. Daiver of the right to demand reimbursement.
7uarantorCs ri1&t to Su0ro1ation (ART/-8$<% Subrogation transfers to the person subrogated, the credit with all the rights thereto appertaining either against the debtor or against third persons, be they guarantors or possessors of mortgages, sub)ect to stipulation in conventional subrogation. NOTE: This right of subrogation is necessary to enable the guarantor to enforce the indemnity given in Art. 2A88. 6t arises by operation of law upon payment by the guarantor. 6t is not necessary that the creditor cede to the guarantor the former<s rights against the debtor. 6t is not a contractual right. The right of guarantor who has paid a debt to subrogation does not stand upon contract but upon the principles of natural )ustice.
EXCEPT ON: The guarantor can still claim reimbursement from the debtor in spite of lac! of notice if the following conditions are present* (PI7% a. guarantor was prevented by fortuitous event to advise the debtor of the payment" and b. the creditor becomes insolvent" c. the guaranty is 1ratuitous.
Ri1&t of 7uarantor to procee( a1ainst (e0tor before payment
8. E tension granted to the debtor by the creditor without the consent of the guarantor $Art 2AB%' BOND An underta!ing that is sufficiently secured, and not cash or currency Bon(sman (Art -8@-% A surety offered in virtue of a provision of law or a )udicial order. =e must have the #ualifications re#uired of a guarantor and in special laws li!e the 0ules of ,ourt. NOTES: Gudicial bonds constitute merely a special class of contracts of guaranty by the fact that they are given >in virtueM of a )udicial order.? 6f the person re#uired to give a legal or )udicial bond should not be able to do so, a pledge or mortgage sufficient to cover the obligation shall admitted in lieu thereof $Art 2A9&' A )udicial bondsman and the subsurety are +1T entitled to the benefit of e cussion because they are not mere guarantors, but sureties whose liability is primary and solidary. $Art 2A9(' PLED7EE )ORT7A7E AND ANTICBRESIS I/ Common Elements of Ple(1eE )ort1a1eE an( Antic&resis (Articles -8@, # -8!-% A/ +ssentia$ &e-uisites (SOD% (Art -8@,% 1. Secures the fulfillment of a principal obligation" 2. 2ledgor, mortgagor, antichretic debtor must be the absolute owner of the thing pledged or mortgaged" and The reason being that in anticipation of a possible foreclosure sale in case of default which is still a sale, the rule is that the seller must be the owner of the thing sold $,avite 5evelopment 4an! vs. Fim, &2( S,0A &(8'
Art/ -8<
2rovides for his protection #efore he has paid but after he has become liable
E:tin1uis&ment of 1uaranty: $0A2,32' 1. Release in favor of one of the guarantors, without the consent of the others, benefits all to the e tent of the share of the guarantor to whom it has been granted $Art 2AB9'" 2. 6f the creditor voluntarily accepts immovable or other properties in payment of the debt, even if he should afterwards lose the same through eviction or conveyance of property $Art 2ABB'" &. Dhenever by some act of the creditor, the guarantors even though they are solidarily liable cannot be subrogated to the rights, mortgages and preferences of the former $Art 2A9A'" (. Jor the same causes as all other obligations $Art 12&1'" 7. Dhen the principal obligation is e tinguished"
GENERAL RULE: 2actum ,ommissorium is forbidden by law and is declared null and void. EXCEPT ON: The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold. $Art 2112'
NOTE: The security contract remains valid" only the prohibited stipulation is void. C/ Capabi$it) to secure a$$ #in s of ob$igations. i.e. pure or con itiona$ (Art -8! % D/ (n i/isibi$it) (Art -8@!% GENERAL RULE: A pledge, mortgage, or antichresis is in i/isib$e, even though the debt may be divided among the successors in interest of the debtor or of the creditor. Their indivisibility is not affected by the fact that the debtors are )ointly or not solidarily liable. Conse4uences of in(i?isi0ility: 1. Sin"le t$in" 3very portion of the property pledged or mortgaged is answerable for the whole obligation 2. Se(eral t$in"s All of the several things pledged or mortgaged are liable for the totality of the debt &. ?e#tor<s $eirAcreditor<s $eir +either the debtor<s heir who has paid part of the debt cannot as! for proportionate e tinguishment, nor creditor<s heir who received his share of the debt return the pledge or cancel the mortgage as long as the debt is not completely satisfied. BEXCEPT ONS: 1. Dhere each one of several things guarantees a determinate portion of the credit 2. Dhere only a portion of the loan was released
2. &.
(.
Consi(eration in ple(1e: 6nsofar as the pledgor is concerned, the cause is the principal obligation. 6f the pledgor is not the debtor, the cause is the compensation stipulated for the pledge or the mere liberality of the pledgor. E:tent of ple(1e: /nless stipulated otherwise, pledge e tends to the fruits, interests or earnings of the thing. Ri1&ts an( O0li1ations of a Ple(1or Ri1&ts O0li1ations
1. To demand return in case of reasonable grounds to fear destruction or impairment of the thing without the pledgee<s fault, sub)ect to the duty of replacement $Art 21AB' 2. To bid and be preferred at the public auction $Art 211&' &. To alienate the thing pledged provided the pledgee consents to the sale $Art 2A%B' (. To as! that the thing pledged be deposited $Arts 21A( N 21A8' 1. To advise the pledgee of the flaws of the thing $Art 21A1' 2. +ot to demand the return of the thing until after full payment of the debt, including interest due thereon and e penses incurred for its preservation $Art 21A7'
C&aracteristics of t&e contract: *! Real )! Accessory ,! Su#sidiary (. Unilateral it creates only an obligation on the part of the creditor who must free the property from the encumbrance once the obligation is fulfilled.
NOTES: As an accessory contract, its consideration is that of the principal contract from which it receives life. A mortgage does not involve a transfer, cession or conveyance of property but only constitutes a lien thereon. /ntil discharged, it follows the property wherever it goes and subsists notwithstanding changes of ownership. A mortgage gives the mortgagee no right or claim to the possession of the property, and therefore, a mere mortgagee has no right to e)ect an occupant of the property mortgaged unless the mortgage should contain some provision to that effect. The only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. 6f the possession is transferred to the mortgagee, it must not e pressly be for purpose of applying the fruits to the interest then to the principal of the credit, for then it would be an antichresis.
transmission of property should not be unduly impeded. 2. )ort1a1ee * To claim from a &rd person in possession of the mortgaged property the payment of the part of the credit secured by the which said third person possesses $Art 212%' NOTE: 6t is necessary that prior demand for payment must have been made on the debtor and the latter failed to pay $4P (s Concepcion ; Fi>os0 nc!0 ', P$il 27&' 6oreclosure The remedy available to the mortgagee by which he sub)ects the mortgaged property to the satisfaction of the obligation to secure that for which the mortgage was given NOTES: 6t denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself $?4P (s Gara"o6a0 +3 SCRA &&+' Joreclosure is valid where the debtor is in default in the payment of his obligation $Go#onsen"0 1r! (s CA0 )3& SCRA 3%)' 'in(s: 1. Gudicial ordinary action for foreclosure under 0ule 89 of the 0ules of ,ourt 2. 3 tra)udicial when mortgagee is given a special power of attorney to sell the mortgaged property by public auction, under Act +o. &1&7 .u(icial foreclosure
1. There is court intervention 2. 5ecisions are appealable 3. 1rder of court cuts off all rights of the parties impleaded 4. There is e#uity
REAL )ORT7A7E
1. ,onstituted on immovables 2. 5elivery is not necessary
E:tent of )ort1a1e: Absent e press stipulation to the contrary, the mortgage includes the accessions, improvements, growing fruits and income of the property not yet received when the obligation becomes due and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of e propriation for public use $Art 212B' O0;ect of )ort1a1e: Juture property cannot be an ob)ect of a contract of mortgage $Art 2A97:2;' =owever, a stipulation sub)ecting to the mortgage lien, properties $improvements' which the mortgagor may subse#uently ac#uire install, or use in connection with real property already mortgaged belonging to the mortgagor is valid $2eople<s 4an! and Trust ,o. vs. 5ahican Fumber ,o., 2A S,0A 9(' Special Ri1&ts: 1. )ort1a1or * To alienate the mortgaged property but the mortgage shall remain attached to the property. NOTE: A stipulation forbidding the owner from alienating the immovable mortgage shall be void $Art 21&A' being contrary to public policy inasmuch as the
E:tra;u(icial foreclosure
1. +o court intervention 2. +ot appealable because it is immediately e ecutory 3. Joreclosure does not cut off right of all parties involved 4. There is right of
years from the time the right of action accrues $Arts 11(2 N 11(('. Stipulation of upset price or GtipoH 6t is a stipulation in a mortgage of real property of minimum price at which the property shall be sold, to become operative in the event of a foreclosure sale at public auction. 6t is null and void for the property must be sold to the highest bidder. 2arties cannot, by agreement, contravene the law and interfere with the lawful procedure of the courts $426 vs Lulo, &1 2hil (B8' E:tra;u(icial foreclosure real property (Act No/ " ",% The law covers only real estate mortgages. 6t is intended merely to regulate the e tra)udicial sale of the property mortgaged if and when the mortgagee is given a special power of e press authority to do so in the deed itself or in a document anne ed thereto. The authority to sell is not e tinguished by the death of the mortgagor $or mortgagee' as it is an essential and inseparable part of a bilateral agreement $Pere6 (s PN40 *% SCRA +,,'. +o sale can be legally made outside the province in which the property sold is situated" and in case the place within said province in which the sale is to be made is the sub)ect of stipulation, such sale shall be made in the said place in the municipal building of the municipality in which the property or part thereof is situated. Proce(ure for e:tra;u(icial foreclosure of 0ot& real estate mort1a1e un(er Act No/ " ", an( c&attel mort1a1e un(er Act No/ ,8@ -A!9! No! 22H*7H7'H70 1anuary *'0 )777. 1. Jiling of application before the 3 ecutive Gudge through the ,ler! of ,ourt 2. ,ler! of ,ourt will e amine whether the re#uirement of the law have been complied with, that is, whether the notice of sale has been posted for not less than 2A days in at least
5. 2eriod to redeem start from date of registration of certificate of sale 6. Special power of attorney in favor of mortgagee is needed in the contract
NOTES: A foreclosure sale retroacts to the date of registration of the mortgage and that a person who ta!es a mortgage in good faith and for valuable consideration, the record showing clear title to the mortgagor, will be protected against e#uitable claims on the title in favor of third persons, of which he had no actual or constructive notice $St! ?ominic Corporation (s! AC *'* SCRA '%% '. Dhere there is a right to redeem, inade#uacy of price is not material because the )udgment debtor may reac#uire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the auction sale and conse#uently not sufficient to set aside the sale. .ere inade#uacy of the price obtained at the sheriff<s sale will not be sufficient to set aside the sale unless >the price is so inade#uate as to shoc! the conscience of the court? ta!ing into consideration the peculiar circumstances attendant thereto. $Sulit (s! CA0 )&+ SCRA 33*. Should there remain a balance due to the mortgagee after applying the proceeds of the sale, the mortgagee is entitled to recover the deficiency. This rule applies both to )udicial and e tra-)udicial foreclosure real mortgage. The action to recover a deficiency after foreclosure prescribes after 1A
&. (.
7.
8. B. 9. %.
Re(emption 6t is the transaction by which the mortgagor reac#uires or buys bac! the property which may have passed under the mortgage, or divests the property of the lien which the mortgage may have created. NOTES: A sale by the mortgagor to a third party of the mortgaged property during the period for redemption transfers only the right to redeem the property and the right to possess, use and en)oy the same during said period. Dhere sale with assumption of mortgage not registered and made without the consent of the mortgagee, the buyer, thereof, was not validly substituted as debtor and, hence, had no right to redeem $4onne(ie (s! CA0 *)' SCRA *))'. 'in(s:
NOTES: The .ortgagor and .ortgagee have no right to waive the posting and publication re#uirements under Act. +o. &1&7. +otices are given to secure bidders and prevent a sacrifice of the property. ,learly, the statutory re#uirements of posting and publication are mandated, not for the mortgagor<s benefit, but for the
(Articles
A contract whereby the creditor ac#uires the right to receive the fruits of an immovable of the debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit $Art 21&2'
C&aracteristics 1. Accessory contract it secures the performance of a principal obligation 2. :ormal contract it must be in a specified form to be valid, i.e., >in writing.? $Art 21&(' Special Re4uisites 1in a ition to the co''on essentia$ re-uisites2: 1. 6t can cover only the fruits of an immovable property" $Art 21&2' 2. 5elivery of the immovable is necessary for the creditor to receive
O0li1ations of antic&retic cre(itor: 1 To pay ta es and charges on the estate, including necessary e penses NOTE: ,reditor may avoid said obligation by* a. compelling debtor to reac#uire en)oyment of the property or b. by stipulation to the contrary 2 To apply all the fruits, after receiving them, to the payment of interest, if owing, and thereafter to the principal & To render an account of the fruits to the debtor ( To bear the e penses necessary for its preservation and repair Reme(ies of cre(itor in case of non* payment of (e0t 1. 4ring an action for specific performance" or 2. 2etition for the sale of the real property as in a foreclosure of mortgages under 0ule 89 of the 0ules of ,ourt.$Art 21&B' NOTES: The parties, however, may agree on an e tra)udicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge $Ta(era (s! El Fo"ar :ilipino0 nc!0 &+ P$il %*)'. A stipulation authori@ing the antichretic creditor to appropriate the property upon the non-payment of the debt within the agreed period is void $Art 2A99'. CBATTEL )ORT7A7E (Articles - 28*- 2 %
Ple(1e
1. 0efers to personal property 2. 2erfected by delivery of the thing pledged &. ,onsensual contract &. 0eal ,ontract
Antic&resis
1. 2roperty is delivered to creditor 2. ,reditor ac#uires only the right to receive the fruits of the property, hence, it does not produce a real right &. The creditor, unless there is stipulation to the contrary, is obliged to pay the ta es and charges upon the estate (. 6t is e pressly stipulated that the creditor given possession of the property shall apply all the fruits thereof to the payment of interest, if owing, and thereafter to the
Real )ort1a1e
1. 5ebtor usually retains possession of the property 2. ,reditor does not have any right to receive the fruits" but the mortgage creates a real right over the property &. The creditor has no such obligation
A contract by virtue of personal property is recorded ,hattel .ortgage 0egister security for the performance obligation $Art 21(A'.
which in the as a of an
C&aracteristics
2.
&.
(. 7.
(. 6f there is deficiency after foreclosure, creditor is entitled to recover the deficiency from the debtor, e cept under Art. 1(9( Sub)ect matter of both is movable property
Effect of re1istration: Creates a real ri"$t The registration of the chattel mortgage is an effective and binding notice to other creditors of its e istence and creates a real right or a lien which, being recorded, follows the chattel wherever it goes. The registration gives the mortgagee symbolical possession $Nort$ern 9otors0 nc! (s! Co=uia0 &+ SCRA ,%3'.
Affi(a?it of 7oo( 6ait& 1ath in a contract of chattel mortgage wherein the parties Pseverally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a )ust and valid obligation and one not entered into for the purpose of fraud.? $Sec. 7, ,hattel .ortgage Faw'
1nly
e#uity of redemption is available to the mortgagor" the latter can no longer redeem after the confirmation of the foreclosure sale.
Ri1&t of re(emption Dhen the condition of a chattel mortgage is bro!en the following may redeem* a' mortgagor" b' person holding a subse#uent mortgage" or c' subse#uent attaching creditor. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it. The redemption is made by paying or delivering to the mortgagee the amount due on such mortgage and the costs, and e penses incurred by such breach of condition before the sale thereof $Sec 1&, Act +o. 17A9'. Ri1&t to possession of foreclose( property 1. 0eal mortgage After the redemption period has e pired, the purchaser of the property has the right to a conveyance and to be placed in possession thereof. NOTES: 2urchaser is not obliged to bring a separate suit for possession. =e must invo!e the aid of the courts and as! for a D06T 1J 21SS3SS61+. Section B of Act +o. &1&7 allows the purchaser to ta!e possession of the foreclosed property during the period of redemption upon filing of an e parte application and approval of a bond. 2. ,hattel mortgage Dhen default occurs and the creditor desires to foreclose, the creditor has the right to ta!e the property as a preliminary step for its sale.
GENERAL RULE: 5ebtor is liable with all his property, present and future, for the fulfilment of his obligations. $Art 22&8' EXE9PT PROPERTE: 1. 2resent property those provided under Arts. 177 and 2A7 of the Jamily ,ode, Sec. 1&, 0ule &% of the 0ules of ,ourt, and Sec. 119 of the 2ublic Fand Act 2. Juture property a debtor who obtains a discharge from his debts on account of his insolvency, is not liable for the unsatisfied claims of his creditors with said property sub)ect to certain e ceptions e pressly provided by law. $Secs. 89, 8%, The 6nsolvency Faw :Act +o. 1%78;' &. 2roperty under legal custody and those owned by municipal corporations necessary for governmental purposes
7eneral Cate1ories of Cre(it: 1. Specia$ Preferre Cre its - those listed in Arts. 22(1 and 22(2 shall be considered as mortgages and pledges of real or personal property or liens $Art. 22(&'. =ence, they are not included in the insolvent debtorIs assets. NOTES: Arts. 22(1 and 22(2 do not give the order of preference or priority of payment. They merely enumerate the credits which en)oy preference with respect to specific movables or immovables. Dith respect to the same specific movables or immovables, creditors, with t$e e/ception of t$e State -No! *. , merely concur. They only find application when there is a concurrence of credits, i.e., when the same specific property of the debtor is sub)ected to the claims of several creditors and the value of such property is insufficient to pay in full all the creditors. 6n such a situation, the #uestion of preference will arise.
Lien
,reates a charge on a particular property
&.
Co''on Cre its those listed under Art. 22(7, which shall be paid pro rata regardless of dates. NOTE: 1rdinary 2referred and ,ommon ,redits cover only >free property? of the debtor, or those not sub)ected to Special 2referred ,redit. Effects of Article 8 of La0or Co(e to Art --22: 1. 0emoved the one-year limitation found in +o. 2 of Art. 22(( 2. .oving up the claims for unpaid wages $and other monetary claims' of laborers or wor!ers of insolvent from second priority to first priority in the order of preference established by Art. 22((
2.
Or inar) Preferre Cre its - those listed in Art. 22(( as amended by Art. 11A of the Fabor ,ode. NOTES: The provision not only enumerates the preferred credits with respect to other property, real and personal, of the debtor, but also gives their order of preference >in the order named?. 6n contrast with Articles 22(1 and 22(2, Article 22(( creates no liens on determinate property which follow such property. Dhat Article
NOTES: 6n case of ban!ruptcy or li#uidation of the employer<s business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of the government and other creditors may be paid. The terms, >declaration? of ban!ruptcy, or >)udicial? li#uidation have been eliminated, nevertheless, according to the S,, ban!ruptcy or li#uidation proceedings are still necessary for the operation of the preference accorded to wor!ers under Art. 11A of the Fabor ,ode. $?4P (s! NLRC *+, SCRA ,)+I RA No! &%*' Sec *7'
Refectionary Cre(it 6ndebtedness incurred in the repair or reconstruction of something previously made, such repair or reconstruction being made necessary by the deterioration or destruction of the thing as it formerly e isted. ORDER O6 PRE6ERENCE O6 CREDITS Arts. 22(1 and 22(2, )ointly with Arts. 22(8 to 22(% establish a t8oH tier order of preference* / 0irst tier includes ta es, duties and fees due on specific movable or immovable property" -/ Secon tier all other special preferred $non-ta ' credits shall be satisfied pro-rata, out of any residual value of the specific property to which such credits relate. NOTES: The pro-rata rule does not apply to credits annotated in the 0egistry of 2roperty by virtue of a )udicial
order, by attachments and e ecutions, which are preferred as to >later credits?. 6n satisfying several credits annotated by attachments or e ecutions, the rule is still preference according to the priority of the credits in the order of time. 6n order to ma!e the pro rating provided in Art 22(% fully effective, the preferred creditors enumerated in +os. 2 to 1( of Art 22(2 must necessarily be convened, and the import of their claims ascertained. There must be first some proceeding where the claims of all the preferred creditors may be bindingly