1 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits

CHAPTER 3: REAL ESTATE MORTGAGE It is a contract in w/c the debtor guarantees to the creditor the fulfillment of a principal obligation subjecting for the faithful compliance therewith a real property in case of non-fulfillment of said obligation at the time stipulated. Subject Matter: √ IMMOVABLES  TANGIBLES √ ALIENABLE REAL RIGHTS  INTANGIBLES × FUTURE PROPERTIES × a piece of land w/c I intend to purchase 2 weeks from now × a piece of land w/c is the subject of a contract to sell

Q: What if there is a provision that “the mortgage includes such properties which may be acquired in the future?” A: It is INVALID insofar as the properties, to be acquired in the future, are concerned. Effect of invalidity: If the debtor defaults in the performance of the obligation or commits a breach in the condition of the mortgage (non-payment), the mortgagee cannot sell or foreclose all the properties subsequent to the mortgage – being future properties. Perfection: contract. NO DELIVERY or TRANSFER OF POSSESSION required Whereas, pledge is perfected by delivery of the pledged property, being a real

Accessory Contract: When the principal obligation is void, the mortgage is also void. The three essential elements of a contract must be present. CONSENT by BOTH √ MORTGAGOR √ MORTGAGEE – CREDITOR CONSIDERATION: “The causa or consideration which supports the principal obligation is the same as that which supports the accessory contract of mortgage.” Just like pledge: 1.) The mortgage is constituted to secure fulfillment of the principal obligation. 2.) The mortgagor must be the absolute owner of the mortgaged property. 3.) The mortgagor must have free disposal of the thing & he is legally authorized to constitute the mortgage. Parties: CREDITOR. MORTGAGOR – owner of the property or the person who constituted the mortgage. MORTGAGEE – to whose favor the mortgage was constituted; otherwise known as

IMPORTANT PRINCIPLES: Q: If the mortgagee is the creditor, is the mortgagor always the debtor? A: Not necessarily. A 3rd person may validly constitute a mortgage. “Mortgagor is not always the debtor.” Q: If a person, who is not the absolute owner, mortgages a property and duly records it in the Registry of Property, is there a valid mortgage constituted? A: No. “REGISTRATION does not confer validity to an invalid mortgage.” Formal Contract: It must be in writing and recorded in the Registry of Property.  To bind both parties, it must be embodied in a public document.

2 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits

 To bind third persons, it must be embodied in a public document + recorded in the Registry. Hechanova vs. Adil Facts: A private document, not registered, was constituted as a mortgage. Thereafter, the property was sold to the Hechanova spouses under a Deed of Sale. The purported mortgagee objected to the sale, saying that the seller, Jose Servando, could not possibly sell because the property was mortgaged to him. SC: The mortgage is not binding against 3rd persons (the vendee Hechanova spouses), as it was embodied in a private document and unregistered. “It is clear from the records of this case that the plaintiff, Servando, has no cause of action. Plaintiff has no standing to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor of his co-defendants Hechanova and Masa. No valid mortgage has been constituted plaintiff's favor, the alleged deed of mortgage being a mere private document and not registered; moreover, it contains a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code. Even assuming that the property was validly mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not to seek annulment of the sale.”

 Hechanova case involved 3rd parties. On the other hand, in the case of Mobil Oil Phils. vs. Diocares, no 3rd party is involved. Mobil Oil Phils. vs. Diocares Facts: Diocares spouses constituted a loan with Mobil Oil Phils. and in order to secure payment of the loan, they mortgage their property. On top of that, they promised to buy on cash basis their petroleum requirements in an amount not less than 50,000 L per month. Upon failure to pay, Mobil instituted the foreclosure proceedings. The Diocares spouses objected to the foreclosure saying that the mortgage was not registered. SC: The lower court predicated its inability to order the foreclosure in view of the categorical nature of the opening sentence of the governing article 10 that it is indispensable, "in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property." Note that it ignored the succeeding sentence: "If the instrument is not recorded, the mortgage is nevertheless binding between the parties." Its conclusion, however, is that what was thus created was merely "a personal obligation but did not establish a real estate mortgage." Such a conclusion does not commend itself for approval. The codal provision is clear and explicit. Even if the instrument were not recorded, "the mortgage is nevertheless binding between the parties." The law cannot be any clearer. Effect must be given to it as written. The mortgage subsists; the parties are bound. As between them, the mere fact that there is as yet no compliance with the requirement that it be recorded cannot be a bar to foreclosure. The court allowed the foreclosure of the mortgage because no other parties were prejudiced. This is a case involving the mortgagor & the mortgagee only. • CUYCO vs. CUYCO: A provision in a private document, although denominating the agreement as one of mortgage, cannot be considered as such as it is not susceptible of inscription in the property registry. A mortgage in legal form is not constituted by a private document , even if such mortgage be accompanied with delivery of possession of the mortgage property. Under Act 496, there is a required form in order for a mortgage to be valid. It must be ACKNOWLEDGED. ACKNOWLEDGEMENT ≠ JURAT

3 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits

√ Acknowledgment: [Before me, a notary public, personally appear Mr. X who presented his CTC Community Tax Certificate # 1234. Known to me and to me, known as the same person who executed the document as a free and voluntary act and deed.] × Jurat: [Subscribed to & sworn by me…] Implication of CUYCO Case: A mortgage, to be valid between parties, must be in a PUBLIC INSTRUMENT. Q: A is indebted to B in the amount of Php 100,000. The obligation is secured by a mortgage where A signs a public document, acknowledged before a notary public, in favor of B. It was duly recorded in the Register of Deeds. Thereafter, the property is sold to C. The title is transferred to C who is now the owner. Afterwards, A defaulted in the obligation. Can B foreclose the mortgage? A: Yes, because the mortgage is binding as it was registered. Not only was the mortgage recorded in the (1) Day Book, it was also (2) annotated in the dorsal portion of the title so that 3rd persons will know that it is burdened. 3rd persons can no longer invoke the defense of being a purchaser in good faith. Note: The subsequent sale to C is valid. If the mortgaged property is transferred to C, the mortgage will still be reflected to the new title issued to C. Mortgage follows the property, regardless of the owner! (Creation of a REAL RIGHT!) Effect of Acknowledgment & Registration Valid Between Parties Public Document Public Document Private Document Private Document + + + + Registered Unregistered Registered Unregistered √ √ × × Library of Laws Art. 2124. Only the following property may be the object of a contract of mortgage: (1) Immovables; (2) Alienable real rights in accordance with the laws, imposed upon immovables. Nevertheless, movables may be the object of a chattel mortgage. Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties. The persons in whose favor the law establishes a mortgage have no other right than to demand the execution and the recording of the document in which the mortgage is formalized. Art. 2126. The mortgage directly and 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. Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income 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 expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in part, with the formalities required by law. Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said third person possesses, in the terms and with the formalities which the law establishes. Enforceable Against 3rd Persons √ × × ×

4 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits

Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution, modification and extinguishment, and as to other matters not included in this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land Registration Law. Kinds of Mortgages: 1.) Voluntary or Conventional Mortgage – created by the parties; w/ meeting of minds 2.) Legal Mortgage – one required by law to guarantee performance 3.) Equitable Mortgage – one which reveals an intent to make the property a security, even if the contract lacks the proper formalities of a real estate mortgage. The intention of the properties is to subject the property for the fulfillment of an obligation but the document executed is either a: (a) PACTO DE RETRO SALE or Sale with Right to Repurchase (subject to conventional redemption) (b) ABSOLUTE SALE
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price ; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

When these circumstances are present, the presumption is that what is entered into is an EQUITABLE MORTGAGE. - It is the seller who is interested in treating the contract as a mortgage rather than a sale. - It is the buyer who is interested in treating the contract as a sale rather than a mortgage. REMEDY OF THE SELLER: √ REFORMATION of INSTRUMENT, not of the contract!!! You cannot reform the contract because the contract is a Mortgage. The true agreement is not reflected in the contract. The real intention is to subject the property as a security to secure fulfillment of the principal obligation.

EFFECTS OF MORTGAGE: “The mortgage directly & immediately subjects the property to the fulfillment of the obligation secured.” A REAL RIGHT is created by virtue of the mortgage. Even if the property mortgaged is subsequently sold after the constitution of the mortgage, the right created over the property remains in a way that any sale or transfer cannot affect or release the mortgage. The right of the mortgagee to foreclose attaches to the property, whoever is the owner of the property.  Is the court empowered to order the cancellation of mortgage in lieu of surety bond?

It is a right in rem. This conversion can not be ordered for it would abridge the rights of the mortgagee under the mortgage contract. Substitution of the mortgage with a surety bond to secure the payment of the P40. the questioned orders violate the non-impairment of contracts clause guaranteed under the Constitution. Rule 86 of the Rules of Court. Mortgagee is a preferred creditor with regard to the mortgaged property. To substitute the mortgage with a surety bond would convert such lien from a right in rem. The mortgage lien in favor of Petitioner Rodolfo Ganzon is inseparable from the mortgaged property. 2. Iloilo City covered by TCT No. That power survives the death of the mortgagor. The subsequent mortgages become junior mortgage liens. 7. it is clearly recognized that a mortgagee has three remedies that may be alternately availed of in case the mortgagor dies. Moreover.) RELY EXCLUSIVELY on the mortgage & foreclose @ any time before barred by prescription without the right to file a claim for deficiency Mortgagee cannot be forced to file his claim in the estate as the Rules expressly grants him 3 alternatives. Insierto The issue raised before us is whether or not the trial court may order the cancellation of a mortgage lien annotated in a Torrens Certificate of Title to secure the payment of a promissory note and substitute such mortgage lien with a surety bond approved by the same court to secure the payment of the promissory note.) WAIVE & abandon the mortgage & CLAIM the entire debt from the estate as an ordinary claim. 3. 1901-E-61-B-lF of the subdivision plan located in the District of Molo. without the right to file a claim for any deficiency. CA According to Sec. a lien on the property. or other security and foreclose the same at anytime.000. the real estate mortgage constituted on Lot No. to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim.  What is the effect of the death of the mortgagor? Vda. . before it is barred by prescription. and. it is clear that the mortgagee does not lose its right to extra-judicially foreclose the mortgage even after the death of the mortgagor as a third alternative under Section 7.  Mortgage extends to accessions & accessories or improvements of the real property. From the foregoing. (2) to foreclose the mortgage judicially and prove the deficiency as an ordinary claim.5 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Ganzon vs. 3 ALTERNATIVE REMEDIES if the Mortgagor Dies: 1. A subject of a mortgage may be an undivided portion (pro indiviso share) if there is no partition effected in a co-owned property.00 note would in effect change the terms and conditions of the mortgage contract. De Jacob vs. SC: Applying the principles underlying the nature of a mortgage.) FORECLOSE the mortgage judicially & PROVE the deficiency as an ordinary claim. to a right in personam. (3) to rely on the mortgage exclusively. Rule 86 of the Rules of Court. The power to foreclose a mortgage is not an ordinary agency that contemplated exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. There may also be first or second mortgages. T-50324 can not be substituted by a surety bond as ordered by the trial court.

it is a void stipulation being contrary to public policy. and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged. Can the mortgagee ASSIGN OR TRANSFER his credit or his right under the mortgage? Customary Business Scenario: Primary Structures (a real estate company) sells condominium units on installments and the buyer executes a real estate mortgage over the condominium unit to secure payment of the purchase price. In effect. the land is bare. Industrial fruits like uncollected rent may also be foreclosed. They may be foreclosed. and the rents or income not yet received when the obligation becomes due. introduces the improvements? o o o The provisions on Builder-in-Good-Faith will apply. What is transferred to the financing company is not merely the right to collect from the condominium buyer but also the accessory contract of real estate mortgage.6 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Spouses Paderes vs. If the property mortgaged has growing fruits not yet harvested @ the time of maturity. it can be argued that a builder cannot invoke good faith or lack of knowledge of the mortgage as registration of mortgage is constructive notice to the whole world. Granting that there is already transfer of ownership. or in virtue of expropriation for public use. void. with the declarations. Radiowealth may then foreclose the condominium upon default of the buyer. NO NEED TO SECURE THE CONSENT of the MORTGAGOR for the mortgagee to validly assign his right. Can both the house and the lot be subject to foreclosure sale? Spouses Paderes objected to the inclusion of the house in the foreclosure as it was constructed after the constitution of the mortgage. the fruits are deemed included in the mortgage. Mortgagor remains to be the owner. the mortgagor constructed a house and sells the house & lot to another person under a contract to sell. the seller may assign the credit (right to collect) to a financing company like Radiowealth Finance Co. [Bischoff vs. or it passes into the hands of a third person. The mortgagee cannot demand collected rent. he must BUILD ON HIS OWN RISK! B. However. Can there be a stipulation absolutely prohibiting the mortgagor from selling the property? o o No. CA Facts: At the time of the constitution of the mortgage. amplifications and limitations established by law. “PACTUM DE NON ALIENANDO” – stipulation prohibiting the alienation of the property is C. He is not divested of his ownership by merely constituting the mortgage. The mortgage extends to the natural accessions. to the improvements. . After the mortgage. Then the mortgagor defaults in the payment of the obligation. What if another party. are deemed included in the mortgage UNLESS there is an expression stipulation between the parties excluding them. if the seller needs money now. as in a conditional contract of sale. growing fruits. Whatever may be found in the property like a steam sugar mill fitted with a portable 8 HP boiler with all its attachments and a complete tramway with rails & other fittings and 15 small cars located in Hacienda San Jose. 2127. SC: Citing Art. Pomar]  OTHER SCENARIOS: A. not the mortgagor. whether the estate remains in the possession of the mortgagor.

7 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits D. His right is SUBORDINATE to the 1st mortgagee. The mortgagor now assumes the obligations of an antichretic creditor. . he has to redeem the property. The fruits may be applied to the payment of interest. Rights of the 2nd Mortgagee o o o 2nd mortgagor cannot foreclose even if his maturity date is EARLIER than the 1st mortgage. (antichresis) E. He needs to pay the mortgagor’s obligation to the 1st mortgagee. Can the parties stipulate that the mortgagee may take possession of the property? o o This is the scenario of a “prenda” where the mortgagee may possess a coconut plantation for instance. Remedy: In order to foreclose the mortgage.

or if there be no such encumbrancers or there be a balance or residue after payment to them. the court.8 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits MODES OF FORECLOSURE A. as often as more becomes due for principal or interest and other valid charges. Sale of mortgaged property. after deducting the costs of the sale. upon motion. if the proceeds of the sale be sufficient therefor. as soon as a sufficient portion of the property has been sold to pay the total amount and the costs due. otherwise. the amount claimed to be unpaid thereon. 5. or to the person entitled to it. the complaint shall set forth the date and due execution of the mortgage. Sec. 6. See the case of DBP vs. be paid to the person foreclosing the mortgage. the court may. after paying off the mortgage debt due. after being directed to do so as provided in the next preceding section.  WRIT OF POSSESSION When the defendant. including interest and other charges as approved by the court. fails to pay the amount of the judgment within the period specified therein. a description of the mortgaged property. How sale to proceed in case the debt is not all due. 3. from the court which ordered the foreclosure. Deficiency judgment. If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment. shall be entitled to the possession of the property unless a third party is actually holding the same adversely to the judgment obligor. and the names and residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage. In an action for the foreclosure of a mortgage or other encumbrance upon real estate. all of whom shall be made defendants in the action.  Period for EQUITY OF REDEMPTION If upon the trial in such action the court shall find the facts set forth in the complaint to be true. Judgment on foreclosure for payment or sale. and when there shall be any balance or residue. the whole shall be ordered to be sold in the first instance. But if the property cannot be sold in portions without prejudice to the parties. the court. a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage. on motion. effect. shall render judgment against the defendant for any such balance for which. also upon motion. it shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser. the purchaser at the auction sale or last redemptioner. subject to such rights of redemption as may be allowed by law. shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. the sale shall terminate. order more to be sold. Sec. Complaint in action for foreclosure. Sec. the same shall be paid to junior encumbrancers in the order of their priority. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part thereof. JUDICIAL FORECLOSURE – under Rule 68 of the Rules of Court [to be discussed in 3rd Year Subject on Special Civil Actions] RULE 68 FORECLOSURE OF REAL ESTATE MORTGAGE Section 1. upon motion. then to the mortgagor or his duly authorized agent. it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation. Licuanan: Recovery of Deficiency Claim Provided that the Foreclosure is Valid If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff after applying the proceeds of the sale. upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment. Sec. The said purchaser or last redemptioner may secure a writ of possession. he may be personally liable to the plaintiff. and afterwards. if any. there being a rebate of interest where such rebate is proper. Disposition of proceeds of sale. 2. and that in default of such payment the property shall be sold at public auction to satisfy the judgment. and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment. 4. to be ascertained by the court. and the entire debt and costs shall be paid. the names and residences of the mortgagor and the mortgagee. Sec. if any. and when confirmed by an order of the court. upon motion. The amount realized from the foreclosure sale of the mortgaged property shall. the . by the record of the case. and costs. its assignments. Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law.

6. If the property is not redeemed. such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated. to give him possession thereof during the redemption period. the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated. 4. Sec. At any sale. 99-10-05-0 August 7. or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold. Applicability of other provisions. If no right of redemption exists. Said sale cannot be made legally outside of the province in which the property sold is situated. between the hours of nine in the morning and four in the afternoon. the provisions of the following election shall govern as to the manner in which the sale and redemption shall be effected. may redeem the same at any time within the term of one year from and after the date of the sale.9 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract. the debtor. in addition to his expenses. 1. such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. Sec. the certificate of title in the name of the mortgagor shall be cancelled. and a brief memorandum thereof shall be made by the registrar of deeds on said certificate of title. Sec. Sec. 2. B. which time shall be stated in the judgment. unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made. and shall be under the direction of the sheriff of the province. 7. 7. who shall be entitled to collect a fee of five pesos each day of actual work performed. trustee. EXTRAJUDICIAL FORECLOSURE – under Act 3135 & A. Registration. 8. 3.AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES Sec. Sec. inclusive. 32 and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate mortgages under this Rule insofar as the former are not inconsistent with or may serve to supplement the provisions of the latter. the creditor. or other persons authorized to act for the creditor. 3135 . In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to. 5. Sec. Sec. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated. and in case the place within said province in which the sale is to be made is subject to stipulation. Where a right of redemption exists. the deed of redemption shall be registered with the registry of deeds. In the event the property is redeemed. may participate in the bidding and purchase under the same conditions as any other bidder. his successors in interest or any judicial creditor or judgment creditor of said debtor. whether or not provision for the same is made in the power. Sec. The sale shall be made at public auction. and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six. in so far as these are not inconsistent with the provisions of this Act. the final deed of sale executed by the sheriff in favor of the purchaser at the foreclosure sale shall be registered with the registry of deeds. whereupon the certificate of title in the name of the mortgagor shall be cancelled and a new one issued in the name of the purchaser. and if such property is worth more than four hundred pesos. 2001 ACT NO. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation. but the certificate of sale and the order confirming the sale shall be registered and a brief memorandum thereof made by the registrar of deeds upon the certificate of title.M. the justice or auxiliary justice of the peace of the municipality in which such sale has to be made. furnishing bond in an amount equivalent to the use of the property for a period of twelve months. the certificate of title in the name of the mortgagor shall not be cancelled. No. The provisions of sections 31. In any sale made under the provisions of this Act. and a new one issued in the name of the purchaser. or a notary public of said municipality. to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the . of the Code of Civil Procedure. Confirmatory Certificate or Deed of Absolute Sale A certified copy of the final order of the court confirming the sale shall be registered in the registry of deeds.

or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law. Of August 7. When the property is redeemed after the purchaser has been given possession.000. whether the applicant has complied with all the requirements before the public auction is conducted under the direction of the sheriff or a notary public. subject to the approval of the Executive Judge. 10. through the Clerk of Court who is also the Ex-Officio Sheriff. the registration of the certificate of foreclosure sale which in no case shall be more than three (3) months after foreclosure. or in his absence. d) sign and issue the certificate of sale. as amended by Act 4118. No. 8. it shall be the duty of the Clerk of Court to: a) receive and docket said application and to stamp thereon the corresponding file number. and the issuance of commissions to notaries public and enforcement of their duties under the law. Section 7(c). Sec. Section 9(1). No.10 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits requirements of this Act. upon approval of the bond. keep the complete records. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered. 8791 (as amended. No. dated June 30. and if it finds the complaint of the debtor justified. petition that the sale be set aside and the writ of possession cancelled. and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six. 2001 PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE In line with the responsibility of an Executive Judge under Administrative Order No. c) examine. 1924 A. addressed to the sheriff of the province in which the property is situated. which certificate shall . the redeemer may deduct from the price the interest of one per centum per month provided for in section four hundred and sixty-five of the Code of Civil Procedure. No certificate of sale shall be issued in favor of the highest bidder until all fees provided for in the aforementioned sections and in Rule 141. Upon receipt of an application for extra-judicial foreclosure of mortgage. the following procedures are hereby prescribed in extrajudicial foreclosure of mortgages: 1. while awaiting any redemption within a period of one (1) year from date of registration of the certificate of sale with the Register of Deeds concerned. or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code. as amended. b) collect the filing fees therefore pursuant to rule 141. 00-2-01SC. the real estates and/or chattels mortgaged and their respective locations. The collecting Clerk of Court shall. 00-2-01-SC. included in which is the task of supervising directly the work of the Clerk of Court. shall be filed with the Executive Judge. juridical persons whose property is sold pursuant to an extra-judicial foreclosure. as amended. 1975. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six. 4 of Act 3135. who shall execute said order immediately. as amended by A.M. it being town property. and in each case the clerk of the court shall. whichever is earlier.M. and the court shall. and his staff. exceed P100. pursuant to Sec. but the order of possession shall continue in effect during the pendency of the appeal. but not after. the filing fees collected. and Act 1508. Notwithstanding the foregoing provision. 2. Provided. the records shall be archived. 9. shall have been paid. the redeemer shall be entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented. but not later than thirty days after the purchaser was given possession. after which. it being rural property. specifying the damages suffered by him. 2001). if the purchaser occupied the property as his own dwelling. only one filing fee corresponding to such indebtedness shall be collected. Sec. as amended by A. e) after the certificate of sale has been issued to the highest bidder. Section 9(1). date and time of filing. Sec. in case of real estate mortgage foreclosure. the mortgages sought to be foreclosed. as provided in Section 47 of Republic Act No. or used it gainfully. issue a certificate of payment indicating the amount of indebtedness. and issue the corresponding official receipt. order that a writ of possession issue. it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. who is also the Ex-Officio Sheriff. Approved: March 6. as amended. as amended by Act Numbered Twentyeight hundred and sixty-six.M. apart from the official receipt of the fees. shall have the right to redeem the property until. the Vice-Executive Judge. The debtor may. This Act shall take effect on its approval. Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness. upon the filing of such petition. pursuant to Act 3135. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or a notary public. for the management of courts within his administrative area. Res. in the proceedings in which possession was requested. because the (1) mortgage was not violated or the (2) sale was not made in accordance with the provisions hereof. collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six. 99-10-05-0 August 7.00. 6. that in no case shall the amount payable under Rule 141.

3. 5. The name/s of the bidder/s shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale. Conditions of the Foreclosure of Mortgage: • There is a violation or breach on the mortgage contract such as default in the payment of principal. 3135: If the property is valued more than Php 400. What is stated in the notice: √ correct description of the property √ correct TCT No. 3135. PROCEDURAL STEPS IN EJ FORECLOSURE STEP 1: STEP 2: 1.) Pay the filing fee. 1977. the proper recourse is made on JUDICIAL FORECLOSURE. Presidential Decree No.11 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits serve the purpose of having the application docketed with the Clerks of Court of the places where the other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. raffle applications for extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs. Post notices in 3 public places @ least 20 days before the sale of the property Sheriff’s Office @ the Office of the Clerk of Court of the RTC City Assessor’s Office in the place where the property is located Office of the Register of Deeds in the place where the property is located Act No. including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the branches. unless provided in the mortgage contract. in that. dated January 2. There is NO REQUIREMENT to schedule another foreclosure sale if there is only 1 BIDDER. STEP 3: Public sale conducted in (a) (b) located (b) (c) GEN: the province where property is located SPECIFIC: the municipal hall where the property is Who conducts the sale: (a) Sheriff Notary Public Justice of Peace or Auxiliary Justice of Peace (MTC Judge) You still need to pay the commissions of the sheriff even if sale is conducted by notary public.) 3. there will be no trial conducted. The Executive Judge shall. you need to file a petition in court (litigated action) EJ Foreclosure applied before the EXECUTIVE JUDGE through the Clerk of Court (Ex-Officio Sheriff) • It is not a litigated action. 4.) 2. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a notary public shall be published in a newspaper of general circulation pursuant to Section 1. √ correct Tax Declaration Mortgagor NEED NOT BE NOTIFIED. and non-compliance therewith shall constitute a violation of Section 6 thereof. IMPORTANT POINTS ON EJ FORECLOSURE WHEN INSTITUTED: EJ Foreclosure may be instituted or initiated if the right to foreclose is granted to the mortgagee in the (a) contract of real estate mortgage or in a (b) separate instrument. with the assistance of the Clerk of Court. w/ the approval of the Executive Regardless of whether or not the sheriff or the notary public will conduct the sale. - A Certificate of Sale is now issued by the CLERK OF COURT. When: Under Act No. . In a judicial foreclosure. o o Otherwise. there must be publication in a newspaper of general circulation once every 3 consecutive weeks. 1079. MTC judge is not precluded from conducting foreclosure sale as the law Act 3135 prevails over AM 99-10-05-0. it must be conducted between the hours of 9:00 AM to 4:00 PM STEP 4: Judge.

what is conducted is EJ Foreclosure 2 GROUNDS: publication) (2) (1) there was NO VIOLATION of the mortgage IMPROPER CONDUCT of the sale (lack of notice. applied for by the PURCHASER if the property is in the possession of the mortgagor debtor NOT WHEN in the possession of a 3rd party having an adverse claim over the property o 3rd person is claiming a right inconsistent with the owner or in the concept of an owner o The proper remedy would be to file QUIETING OF TITLE. If the Certificate of Sale is not registered. as there is no judgment. 8: Either of the parties may appeal from the order of the judge in accordance with section 14 of Act 496. If there is no appeal raised by the purchaser. Confirmatory Deed Right of Redemption Assumption: The mortgagee is not a banking institution & the mortgagor is a natural person. ACTIONS DURING THE INTERREGNUM Petition for Issuance of Writ of Possession A. .12 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits STEP 5: Period of Redemption: 1 year from registration of the Certificate of Sale Assumption: The mortgagee is not a banking institution & the mortgagor is a natural person. then the purchaser needs to surrender possession of the property. C. to Act 3135: petition that the sale be set aside and the writ of possession cancelled - not the same as Annulment of Judgment. He is entitled to possession until finality of judgment. then the 1-year redemption period WILL NOT RUN. - filed within 30 days from the time purchaser is granted possession of property by virtue of writ of possession filed by the mortgagor-debtor to question the sale in the SAME proceedings purchaser continues in possession of the property even if there is pending period of redemption Act 3135 Sec. Petition to Cancel Sale proper title accdg. (20 years or so) If on appeal. ACCION REINVINDICATORIA  Petition to Cancel Sale  Appeal B. but the order of possession shall continue in effect during the pendency of the appeal. Writ of Possession not a litigated petition in EJ Foreclosure & is issued as a matter of course in RTC must be accompanied with a BOND equivalent to the value of the property for a period of 12 mos. the decision is affirmed. posting. Appeal • If the court grants the petition to cancel the sale [Order Cancelling the Sale]. then he needs to surrender possession of the property. the purchaser still continues possession since he can still appeal the decision. Posting Petition to Cancel Sale 20 days Sale of Absolute Sale Registration of CoS Writ of Possession Actual Possession 30 Days 1 Yr.

Cancel the sale. should the buyer fail to pay cover two or more installments. then the purchaser is issued a Confirmatory Deed of Sale w/c is to be used by the purchaser in registering the property in the Register of Deeds. the 3rd essential element of a cause of action (COA) is missing. RIGHT OF REDEMPTION Right of Redemption vs. Licuanan cannot be held liable for the deficiency given the lack of cause of action of DBP. Illustration B: Judicial Foreclosure Finality of Judgment Juridical Persons (not > 90 d) judgment Natural Persons Right of Redemption Natural & Juridical Persons Equity of Redemption 90 – 120 days after finality of but before sale [Huerta Alba Resort vs. He may file it within 4 years from the registration of CoS. • If no redemption is made. CA]: A.e. if one has been constituted. Exact fulfillment of the obligation. Under Article 1484 of the New Civil Code. this presupposes that the foreclosure must first be valid. RULES ON REDEMPTION Natural Juridical Until but Not Later Than Registration. Equity of Redemption .  If the proceeds of the sale is not enough to satisfy the obligation. o In DBP vs. should the buyer fail to pay cover two or more installments. the mortgagee has the right to recover the deficiency from the debtor. NOTE: If there is no writ of possession issued by the court because the purchaser did not ask to be given possession AND the mortgagor filed a petition to cancel sale.Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments.13 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits • The duty to register is incumbent upon the purchaser. RATIONALE: The object of Recto Law was to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged property. Licuanan: While it is true that in extrajudicial foreclosure of mortgage. the creditor may file a DEFICIENCY CLAIM EXC. namely – an act or omission violative of the plaintiff’s right. Foreclose the chattel mortgage on the thing sold. In this case. can the creditor still file an ordinary civil case for a sum of money for the deficiency? o Yes. Not More Than 90 days from Foreclosure (whichever is earlier) Equity of Redemption i. 90 – 120 days from Finality of Judgment & before Sale Extrajudicial Right of Redemption 1 Year from Registration of Sale Equity of Redemption i. 3. should the buyer fail to pay any installment 2.e. buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. he can file that action in the same proceeding but not strictly within the 1 year period. under the RECTO LAW SIDEBAR: RECTO LAW . in a contract of sale of personal property the price of which is payable in installments. since there was no demand made by DBP. Thus. 90 – 120 days from Finality of Judgment & before Sale Judicial Illustration A: EJ Foreclosure Sale Sale Registration 1 Yr. the vendor may exercise any of the following alternative remedies: 1.

There is a RIGHT OF REDEMPTION whether the mortgagor is a natural or juridical persons.In accordance with Rule 68 of the Rules of Court on Judicial Foreclosure of Mortgage Under the General Banking Law of 2000 – Sec. The difference is with regard judicial foreclosure concerning banking institutions. was ineffective since the amount offered and actually consigned not only did not include the interest but was in fact also way below the P2.66 paid by the highest bidder/purchaser .14 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits - Prerogative to reacquire the mortgaged property after registration of the foreclosure sale Within 1 year from the registration of the certificate of sale Exists only in EJ Foreclosure of Mortgage & when the mortgagee is PNB or a banking institution B. 47 dealing with a banking institution Section 47. Spouses Veloso Governing Rules: The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so.935 and the subsequent consignation in court of P1. Bona fide redemption necessarily implies a reasonable and valid tender of the entire repurchase price. This constitutes the exercise of the right to repurchase. . The statement of intention must be accompanied by an actual and simultaneous tender of payment. the offer by respondents on July 24. the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate. Natural Extrajudicial Judicial • • Right of Redemption from Sale 1 Year from Foreclosure Sale Juridical Until but Not Later Than Registration.500. with interest thereon at rate specified in the mortgage. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. However.872. Not More Than 90 days from foreclosure (whichever is earlier) 1 Year from Foreclosure Sale For extrajudicial foreclosure. 1986 (less than 1 month before the period of redemption expires) to redeem the foreclosed properties for P1. otherwise the rule on the redemption period fixed by law can easily be circumvented. and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Facts: Consequently. shall have the right to redeem the property in accordance with this provision until. there are basically SIMILAR RULES.782. EQUITY OF REDEMPTION . in this case.In the event of foreclosure.554. juridical persons whose property is being sold pursuant to an extrajudicial foreclosure. 1986. but not after. whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. whether judicially or extrajudicially. while made within the period of redemption.000 on August 27. to redeem the property by paying the amount due under the mortgage deed. the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure. Notwithstanding Act 3135.Right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within 90 day period after judgment becomes final but before the sale or the order confirming the sale . Foreclosure of Real Estate Mortgage. of any mortgage on real estate which is security for any loan or other credit accommodation granted.  What is the effect of tender of less than the purchase price? BPI vs.

3. REDEMPTIONER • It’s not only the debtor who is entitled to redeem. He has to get a court declaration of absolute ownership for the consolidation of his ownership. A judgment creditor is one who has a lien on the property subsequent to the judgment under which the property was sold. • In addition to the offer to redeem. Redemption w/in the period allowed by law is not a matter of intent but a question of payment or valid tender of the full redemption price w/in said period. you must also tender the full redemption price. In order to effect a redemption. the amount to be paid must be the AMOUNT DUE under the MORTGAGE DEED. File an action for the REFORMATION OF THE INSTRUMENT. 2. Even a JUDGMENT CREDITOR of the DEBTOR can redeem. He is also called a REDEMPTIONER who is entitled to make an offer to redeem. o Title will not be absolutely conferred on the vendee a retro. • You cannot delay payment by making an offer to redeem and paying the price × NEXT YEAR × IN INSTALLMENTS × OFFERING A SURETY BOND In effect. (3) the amount of any assessments or taxes which the purchaser may have paid on the property after the purchase.000. you are extending the period of redemption which is NOT ALLOWED.15 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits of the properties during the auction sale. Raise it as a DEFENSE against the SELLER that it is actually a mortgage and not a sale. (2) interest of 1% per month on the purchase price. The consigned amount was even withdrawn and replaced with a surety bond amounting to P 100. and (4) interest of 1% per month on such assessments and taxes. Was there a valid offer of redemption despite the fact that only a partial payment was made? SC: None. The vendor a retro can then raise an objection in the judicial proceeding in the consolidation of the his ownership. RULE: OFFER TO REDEEM + ACTUAL TENDER OF FULL REDEMPTION PRICE Full Redemption Price = + + + + • Full Purchase Price 1% Interest Per Month on the Full Purchase Price Taxes & Assessments w/c the Purchaser Paid 1% Interest Per Month on the Taxes & Assessments Necessary Expenses for Preservation If the mortgagee is a banking institution. This means the full obligation of the mortgagor to the bank REMEDIES OF A MORTGAGOR IN AN EQUITABLE MORTGAGE: 1. the judgment debtor must pay the purchaser the redemption price composed of the following: (1) the price which the purchaser paid for the property. CHAPTER 5: CHATTEL MORTGAGE LIBRARY OF LAWS . W/N respondents were diligent in asserting their willingness to pay is irrelevant. When the period of redemption has LAPSED in an Sale A Retro.

the contract is a pledge and not a chattel mortgage. as the case may be) interest thereon at the rate of ___________ per centum per annum.) "This mortgage is given as security for the payment to the said ______. the condition being that the sale shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. 1508 . the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property is situated. and the mortgagee is thereby divested of his title. agreeably to the provisions of this Act. to ____________. 3. 2141. 1. 5. witnesseth: "That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the followingdescribed personal property situated in the municipality of ______________. Validity. a resident of the municipality of ______________. 4. — A chattel mortgage shall be deemed to be sufficient when made substantially in accordance with the following form.16 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Art. Sec. Art. and a mortgage executed in pursuance thereof shall be termed chattel mortgage. Form. with (or without. or. insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to chattel mortgages. his executors or administrators. That if the property is situated in a different province from that in which the mortgagor resides. signed by the parties to the mortgage as above stated. shall make and subscribe an affidavit in substance as hereinafter set forth. and each mortgagor and mortgagee. The short title of this Act shall be "The Chattel Mortgage Law. Chattel mortgage defined. mortgagee. mortgagee. 2. FORM OF CHATTEL MORTGAGE AND AFFIDAVIT "This mortgage made this ____ day of ______19____ by _______________. and shall be signed by the person or persons executing the same. and the certificate of the oath signed by the authority administering the same.AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL PROPERTY AND FOR THE REGISTRATION OF THE MORTGAGES SO EXECUTED Sec. in the presence of two witnesses. which affidavit. or. — A chattel mortgage is a conditional sale of personal property as security for the payment of a debt. of promissory notes for the sum of ____________ pesos. — A chattel mortgage shall not be valid against any person except the mortgagor. Province of ______________. or the performance of some other obligation specified therein. certain promissory notes. Philippine Islands. If the movable. By a chattel mortgage. a resident of the municipality of ___________. in the province in which the property is situated: Provided. according to the terms of __________. Philippine Islands mortgagor. "(If the mortgage is given for the performance of some other obligation aside from the payment of promissory notes. and for the purposes of this Act the city of Manila shall be deemed to be a province. describe correctly but concisely the obligation to be performed. The provisions of this Code on pledge. Province of ____________. who shall sign the mortgage as witnesses to the execution thereof. All personal property shall be subject to mortgage. unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same. to wit: (Here insert specific description of the property mortgaged. and in the words and figures following (here insert copy of the note or notes secured). instead of being recorded. however. Sec. dated _________. personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. shall be appended to such mortgage and recorded therewith. If the condition is performed according to its terms the mortgage and sale immediately become void.) . his agent or attorney. if he resides without the Philippine Islands. is delivered to the creditor or a third person. Sec. Province of ____________ and now in the possession of said mortgagor." Sec. 2140. in the absence of the mortgagee. ACT NO.

"We severally swear that the foregoing mortgage is made for the purpose of securing the obligation specified in the conditions thereof. knots of radiated hair commonly known as remolinos. harvesting. justice of the peace. Sec. after performance of the condition before or after the breach thereof. Failure of mortgagee to discharge the mortgage. in the Province of ________. and that the same is a just and valid obligation. executor. or any other person. 6. 1 or other officer. the parties who signed the foregoing affidavit and made oath to the truth thereof before me. 2 and the amendments thereof. cashier.) FORM OF OATH. discharge the mortgage in the manner provided by law. If growing crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend. personally appeared ____________. and the surplus thereof. age. and for no other purpose. and that in default of the performance of such duties the mortgage may enter upon the premises. and selling the crop and the amount of the indebtedness or obligation secured by the mortgage. as the case may be. anything in the mortgage to the contrary notwithstanding. assign. and retain possession thereof and sell the same. the person entitled to redeem may recover of the person whose duty it is to . and other marks of ownership as described and set forth in the certificate of ownership of said animal or animals. or administrators shall well and truly perform the full obligation (or obligations) above stated according to the terms thereof. his heirs. 8. at or after the time fixed for the performance. take all the necessary measures for the protection of said crop. the description of said property in the mortgage shall contain the brands. executors. or manager thereof. if any shall be paid to the mortgagor or those entitled to the same. 7. — The description of the mortgaged property shall be such as to enable the parties to the mortgage. does not within ten days after being requested thereto by any person entitled to redeem. after reasonable inquiry and investigation. Corporations. and faithfully and without delay to harvest the same. — When a corporation is a party to such mortgage the affidavit required may be made and subscribed by a director. If the property mortgaged be large cattle. sex. — If the mortgagee. or after tender of the performance of the condition. A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged. "Executed at the municipality of _________. in the Province of _________. treasurer.) "In the presence of "_________________ "_________________ (Two witnesses sign here. or either of them. together with the number and place of issue of such certificates of ownership. care for and protect the crop while growing. "_____________________________" (Notary public. and from the proceeds of such sale pay all expenses incurred in caring for. Sec. this _____ day of 19_____ ____________________ (Signature of mortgagor. Descriptions of property.) Sec. "At ___________. to identify the same.17 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits "The conditions of this obligation are such that if the mortgagor. and one not entered into for the purpose of fraud." as defined by section one of Act Numbered Eleven and fortyseven. class. When a partnership is a party to the mortgage the affidavit may be made and subscribed by one member thereof." FORM OF CERTIFICATE OF OATH. or by a person authorized on the part of such corporation to make or to receive such mortgage. trustee. then this obligation shall be null and void. or cowlicks. administrator.

16. 3. administrator. When the condition of a chattel mortgage is broken. is delivered to the creditor or a third person. or assign. or where the property is situated. The fees of the officer for selling the property shall be the same as in the case of sale on execution as provided in Act Numbered One hundred and ninety. — A chattel mortgage is a conditional sale of personal property as security for the payment of a debt. nineteen hundred and six.18 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits discharge the same twenty pesos for his neglect and all damages occasioned thereby in an action in any court having jurisdiction of the subject-matter thereof. or any part thereof." a certificate of transfer as required by section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be issued by the treasurer of the municipality where the sale was held to the purchaser thereof. shall be paid to the mortgagor or person holding under him on demand. or assign. after thirty days from the time of condition broken (default). first. — The mortgagee. a mortgagor or person holding a subsequent mortgage. or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the sale thereof. 3 Sec. at least ten days previous to the sale. 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 by the terms of this Act. By a chattel mortgage. The return shall particularly describe the articles sold. Fees. Officer's return. personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. and the residue shall be paid to persons holding subsequent mortgages in their order. July 2. unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same. and then to the payment of the demand or obligation secured by such mortgage. 2140. 4 and the amendments thereto. 9-12. 13. Sec. Chattel mortgage defined. Sec. either by notice in writing directed to him or left at his abode. may. and the mortgagee. his executor. (inclusive) 3 Sec. or. (2) place. within thirty days thereafter. 4. his executors or administrators. and shall operate as a discharge of the lien thereon created by the mortgage. and the balance. or the performance of some other obligation. If the movable. . his executor. Sale of property at public auction. cause the mortgaged property. make in writing a return of his doings and file the same in the office of the register of deeds where the mortgage is recorded. and the fees of the register of deeds for registering the officer's return shall be taxed as a part of the costs of sale. Sec. if within the municipality. Disposition of proceeds. The proceeds of such sale shall be applied to the payment. 2140 Art. Validity. which the officer shall pay to the register of deeds. if he Civil Code Art. and the register of deeds shall record the same. shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale. This Act shall take effect on August first. administrator. of the costs and expenses of keeping and sale. instead of being recorded. and (3) purpose of such sale has been posted at two or more public places in such municipality. — A chattel mortgage shall not be valid against any person except the mortgagor. Enacted. the contract is a pledge and not a chattel mortgage. provided at least ten days' notice of the (1) time. Sec. The officer making the sale shall. If the sale includes any "large cattle. and state the amount received for each article. 1906 CONFLICT BETWEEN CIVIL CODE & ACT 1508 Act 1508 Sec. to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides. 14. or sent by mail if he does not reside in such municipality. after paying the mortgages.

DRAG NET CLAUSE is not applicable to Chattel Mortgage. But if there is promise to secure future obligations through the Chattel Mortgage executed now. 3. it’s only available to REM. PROVISION A: PROVISION B: retained by o o If the property is delivered to the creditor.19 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits resides without the Philippine Islands. however. one can secure future obligations through a “Continuing Guaranty.  Art. In order to be valid. Provided. creditor can demand payment obligation now. But there are instances when the parties agree to DELIVER the property in a real estate mortgage. If you cannot harmonize both. 2140 NCC. CA . the later provision prevails – Art.  In effect.” But in Chattel Mortgage. there is NO DELIVERY required in Chattel Mortgage. according to Act 1508 Sec. he has the rights & obligations of an antichretic creditor. according to Art. vs. and for the purposes of this Act the city of Manila shall be deemed to be a province. the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property is situated. Effect if the debtor refuse to execute the new deed of chattel mortgage or amend it:  Consider the debtor IN DEFAULT because of the failure to put up the security promised. o o Once the future obligation is incurred. o Mortgagee in possession cannot appropriate the fruits. The creditor has the right to enforce the promise. possession of the property must be delivered to & mortgagee. Is DELIVERY of personal property necessary to perfect a contract of Chattel Mortgage? No. 2140 NCC. o Rather. it is not a mortgage but a pledge. What kind of obligations may be secured by a Chattel Mortgage? In REM & Pledge. Rubber & Plastic Co. then the later provision prevails as it expresses the latest intention of the lawmakers. × FUTURE OBLIGATIONS cannot be secured. √ It’s still a real estate mortgage & the mortgagee is referred to as MORTGAGEE IN POSSESSION. Civil Code Provision PREVAILS because in case of conflicting provisions of law. only √ PRESENT OBLIGATIONS can be secured. ACME Shoe. Therefore. That if the property is situated in a different province from that in which the mortgagor resides. in the province in which the property is situated. 1198: When the debtor loses right to make use of the period (2) When he does not furnish to the creditor the guaranties or securities which he has promised. the creditor can demand the (1) execution or (2) amendment of the Deed of Chattel Mortgage.

ass or other domesticated member of the bovine family. or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described. can only cover obligations existing at the time the mortgage is constituted. the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. . He must be the absolute owner of the property. to the rule that only future things may be the subject of Chattel Mortgage] • • PD 533 Sec. The mortgagor must be legally-capacitated to enter into a contract. NO 3rd parties are concerned. But B.20 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits While a pledge. a chattel mortgage.] Mortgagee can even take care of the growing crops and harvest them. MOVABLES: √ ungathered/growing crops cattle √ vessel √ shares of stock √ large √ REVOLVING STOCK IN TRADE (merchandise inventory in your retail establishment) • [EXC. He cannot make an inconsistent stand when there is an agreement to treat the real property such as a building as a personal property. What can be the objects of Chattel Mortgage? A. . however. Who can constitute a Chattel Mortgage? 1. the security itself. 2. SAMPLE CASE: Who has the RIGHT TO FORECLOSE? Assuming that subject property is a REAL PROPERTY. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon.The debtor cannot later on object that the property is real property and cannot be the proper subject of Chattel Mortgage. It will bind only the parties. by the principle of ESTOPPEL. From the harvest. however.Even if the mortgage is registered. the mortgagee must comply with the foreclosure proceedings required by law for foreclosure of REM. unlike example 2. mule. IMMOVABLES: by agreement of the parties such as one constituted on a building . carabao. He must have free disposal of the property subject of the Chattel Mortgage. of course. does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a (1) fresh chattel mortgage or by (2) amending the old contract to conform with the form prescribed by the Chattel Mortgage Law. the following transactions transpired. 3. In this case. horse. A cannot object on the ground that real property is not a proper subject of Chattel Mortgage. A is estopped from questioning the validity of the Chattel Mortgage. [SWINE IS NOT INCLUDED. real estate mortgage. it will not bind 3rd persons. he can apply the proceeds in the following order: (1) reimbursable necessary expenses (2) principal obligation (3) the residue to subsequent mortgagees (4) the balance to mortgagor B. 3: Large cattle as herein used shall include the cow. Example 1 1/1/11 Chattel Mortgage A & B Example 2 1/1/11 Chattel Mortgage A & B 3/1/11 REM A & C Example 3 1/1/11 REM A & B 3/1/11 REM A & C Example 4 1/1/11 Chattel Mortgage A & B 3/1/11 Chattel Mortgage A & C Example 1: B can foreclose the mortgage if he fails to pay his debt or to fulfill his obligation. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but.

A. C. Jureidini Bros. was becoming financially insolvent. not C. after reasonable inquiry & investigation.defined regulation for official and public guidance and which would prevent confusion and misunderstanding. defendants-appellants could only have meant to convey the house as chattel. credits receivable belonging to Motoomul & Co. REASONABLE DESCRIPTION RULE as termed in Saldana vs. N.21 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits In effect. passes to Jureidini Bros. Motoomul & Co. Vicencio: The view that parties to a deed of chattel mortgage may agree to consider a house as personal property for the purposes of said contract. upon the principle of estoppel. another stock of goods belonging to Motoomul & Co. it is not binding against C. √ In order to BIND 3rd PERSONS. PUBLICATION IS REQUIRED! Manarang vs. partly. yet by ceding. 7. Sec. . It is based. Notice Requirement (for property > P400): PUBLICATION in a newspaper of general circulation once a week for two consecutive weeks. Because when a real property is the subject of a Chattel Mortgage. Jureidini Bros. to identify the same. Affidavit of Good Faith B. Tumalad vs. 1921. Properly. Motoomul & Co. a 3 rd party. the real estate mortgagee has a better right to foreclose the property if A cannot pay his debt or cannot fulfill his obligation. What is the FORM required? √ It must be based on the form prescribed under Sec. delivered to Jureidini Brothers. Inc. Example 3 & 4: The first mortgage recorded shall prevail if they are of the same nature. orderly and well. a larger creditor of Motoomul & Co. that mortgage is valid only between the parties. on May 24. became aware of the precarious condition of the latter. a real property is not the subject of a Chattel Mortgage. Ultimately. so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Example 2: Even if the first Chattel Mortgage is registered. or at least... on June 13. were transferred to Jureidini Bros. The remedy of B is to recover from the residue as he is treated a subsequent mortgagee. √ There must be SUFFICIENT DESCRIPTION of the property. because of the diminishing payments on account of a debt. Phil Guaranty. 5 of Act 1508. selling or transferring a property by way of chattel mortgage. one of the debtor's Iloilo stores known as Bazar Aguila de Oro. the following are required: A. Inc. As between B & C. The description of the mortgaged property shall be such as to enable the parties to the mortgagee or any other person. On the same day also. Registration  Was the subject matter sufficiently described in this case? Giberson vs. Still later. is good only insofar as the contracting parties are concerned. This ruling is demanded by the need for a definite. Facts: H. Ofilada: The mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale at public auction. K. 1921. [Even though] there is no specific statement referring to the subject house as personal property. intended to treat the same as such. B can foreclose in both..

And all other furniture's. It has been held by reputable courts that the absence of the affidavit of good faith vitiates a mortgage as against creditors and subsequent encumbrancers. includes the requirements of an affidavit of good faith appended to the mortgage and recorded therewith. Pasay City. CA The special affidavit of good faith . In effect. SC: Section 7 of the Chattel Mortgage Law provides that "The description of the mortgage property shall be such as to enable the parties to the mortgage." Identification of the mortgaged property would be impossible in this case. Absence of Affidavit of Good Faith does not vitiate or does not invalidate the Chattel Mortgage insofar as the parties are concerned. it is obvious that a valid mortgage cannot be made to secure a debt to be thereafter contracted. Magallanes Press. Davao Lumber This deed of chattel mortgage is void because it provides that the security stated therein is for the payment of any and all obligations herein before contracted and which may hereafter be contracted by the Mortgagor in favor of the Mortgagee. used for restaurant business. in its Section 5.  referring to the Iloilo store! RULE: Affidavit of Good Faith is required only to bind 3rd persons. Subsequently. In the case of Belgian Catholic Missionaries vs. fixtures or equipment found in the said premises. what is the effect of a special affidavit of good faith? CIFC vs. the abovementioned affidavit is not necessary for the validity of the chattel mortgage itself but only to give it a preferred status. cabinet type etc. Phil. there was a writ of execution on some of the properties in favor of Hospital de San Juan de Dios by virtue of a judgment." Thus. to identify the same. if there is no special affidavit of good faith. after reasonable inquiry and investigation. in describing what shall be deemed sufficient to constitute a good chattel mortgage. Zenith.  If there is a chattel mortgage on a vessel. honestly due and owing from the mortgagor to the mortgagee.22 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits SC: The Chattel Mortgage Law. is required only for the purpose of transforming an already valid mortgage into a "preferred mortgage. on the other hand. and the following personal properties therein contained: 1 Radio. . located in front of the San Juan de Dios Hospital at Dewey Boulevard. Guaranty A Chattel Mortgage was made on the following properties: a building of strong materials. this Court held: A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage. then the mortgagee is only a SUBSEQUENT MORTGAGEE. Where the statute provides that the parties to a chattel mortgage must make oath that the debt is a just debt. or any other person.  Was the subject matter sufficiently described in this case? Jaca vs.  Is there a sufficient description of the property if there exists a “catch-all phrase?” Saldana vs.

) If the subject of the Chattel Mortgage is a vessel. which articles can be definitely pointed out or ascertain by simple inquiry at or about the premises . we believe.” EXCEPTION: Revolving Stock In Trade – future merchandise w/c is constantly replenished Whatever is the replacement is the subject of the Chattel Mortgage. moreover. commonly and better known as the Chattel Mortgage Law. Note that the limitation found in the last paragraph of section 7 of the Chattel Mortgage Law 1 on "like or similarly situated properties" make reference to those " thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged".) If the subject of the Chattel Mortgage is a motor vehicle.  Place of Registration: A. CM is unlike REM w/c can be constituted on FUTURE OBLIGATIONS  DRAG NET . fixture and equipment" referred to are properties of like nature. 1508. does not demand a minute and specific description of every chattel mortgaged in the deal of mortgage but only requires that the description of the properties be such "as to enable the parties in the mortgage." The specifications in the chattel mortgage contract in the instant case.23 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Mortgagee filed a third-party claim asserting that some of the properties levied are subject of his chattel mortgage. 3. after reasonable inquiry and investigation to identify the same. SC: Section 7 of Act No. In the province in which the property is situated Sample Case: If the subject of the Chattel Mortgage includes PLDT shares of stocks. 2. It can thus be reasonably inferred therefrom that the "furnitures. similarly situated or similarly used in the restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard. The mortgage should be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the Register of Deeds in Makati where the principal office of PLDT is located. are in substantial compliance with the "reasonable description rule" fixed by the Chattel Mortgage Act. SUBJECT MATTER OF THE CHATTEL MORTGAGE: √ √ × CLAUSE.  VALID Movable Property Described Including “everything” if there is a SPECIAL CLAUSE + you can reasonably identify After-Acquired Properties CM is just like REM w/c cannot be executed on FUTURE PROPERTIES. INVALID Stipulation: “Chattel Mortgage covers the following properties & such other similar properties of the mortgagor to be acquired in the future.) If the subject of the Chattel Mortgage is a public utility vehicle like a jeepney. that the phrase in question is found after an enumeration of other specific articles. the mortgage must be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the LTFRB or the Land Transportation Franchising & Regulatory Board. It is not required that the Chattel Mortgage be registered in the × Securities & Exchange Commission (SEC). the mortgage must be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the LTO or the Land Transportation Office. not to those already existing and originally included at the date of the constitution of the chattel mortgage. We may notice in the agreement. In the province where the mortgagor resides B. or any other person. 1. Pasay City. the mortgage must be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the MARINA or Maritime Industry Authority where the vessel is registered.

14. Foreclosure of REM applies to E. the subsequent mortgagee. provided at least ten days' notice of the (1) time. administrator. 2001) on E. .J. and the mortgagee. — The mortgagee.C may pay the obligation of A. foreclosure happens (a) after the finality of the judgment (b) after the foreclosure of the real property Who can redeem the mortgaged property? (1) Mortgagor (2) Subsequent Mortgagee . Upon (1) ACTUAL PAYMENT or (2) TENDER OF PAYMENT & CONSIGNATION Failure to Give a Discharge: penalized with PHP 20 + ACTUAL DAMAGES Inflation is not considered in the computation of the fee. the most common form of foreclosure of chattel mortgage is extrajudicial. No.In effect. after thirty days from the time of condition broken (default).J. Sale of property at public auction. Officer's return. his executor. or Judicial Demand) √ In REM.M.J. the chattel mortgagee MAY OPT to resort to JUDICIAL FORECLOSURE. to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides.J. (“from breach of mortgage”) Sec. shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale. Fees. foreclosure of REM does not prescribe the period to cause the foreclosure sale. The law expressly allows the subsequent mortgagee to redeem. Disposition of proceeds. may foreclose the property thereafter. or assign. cause the mortgaged property. and (3) purpose of such sale has been posted at two or more public places in such municipality.24 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits DISCHARGE – mortgagor is entitled to a “discharge” when the obligation has already been paid. This extinguishes the principal obligation. if within the municipality. There was no instance of extraordinary inflation in the Philippines. at least ten days previous to the sale. (2) place. 99-10-05-0 (August 7. Consequently. or assign. may. The same procedure laid down in A. C is now the creditor of A for 200. . However.000. .C now steps into the shoes of the B. Rule 68 only applies to judicial foreclosure of a Real Estate Mortgage (REM). the accessory contract is extinguished. or any part thereof. in the foreclosure of chattel mortgage. EXTRAJUDICIAL FORECLOSURE of CHATTEL MORTGAGE (CM) The law expressly allows the mortgagee to extra-judicially foreclose the mortgage property by causing the sale of the property by a PUBLIC OFFICER. the debtor/ mortgagor to B. The Chattel Mortgage becomes void upon the fulfillment of the obligation. The first mortgagee cannot refuse redemption. administrator. REDEMPTION PRIOR TO FORECLOSURE (in Chattel Mortgage) Perfection of Chattel Mortgage 1 : A <-> B for 100k OF REDEMPTION 2nd: A <-> C for 100k st DEFAULT Foreclosure NO RIGHT Redemption Prior to Foreclosure √ In Chattel Mortgage. either by notice in writing directed to him or left at his abode. preferred creditor/ first mortgagee.C. NOTE: Although. foreclosure only happens (a) after default (E. or sent by mail if he does not reside in such municipality. Foreclosure of Chattel Mortgage. his executor. . the preferred creditor/ first mortgagee. While the E. the foreclosure must be made within 30 days from default. or where the property is situated.

NOTICE REQUIREMENTS REM  @ least 20 days notice with publication once a week for 2 consecutive weeks CM  @ least 10 days notice of the time.25 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits REM Foreclosure Sale APPRECIATES CM Foreclosure Sale DEPRECIATES  NO PERIOD  30 DAYS FROM DEFAULT  REAL PROPERTY  PERSONAL PROPERTY *** The difference may be due to the generally perishable nature of movables compared to real property.  Foreclosure sale will be conducted by a public officer under Act 1508 or by a justice of the peace under Act 3135. the creditor can recover the deficiency by filing an ordinary action for the recovery of the deficiency. 99-10-05-0 (August 7. obliged to pay the deficiency. you need to immediately deliver the movable property to the purchaser/bidder. No. Where is the foreclosure sale of Chattel Mortgage conducted? Either in √ the municipality where the mortgagor resides or √ the municipality where the property is located Where is the foreclosure sale of Real Estate Mortgage conducted? Only in √ the municipality where the property is located How to dispose of the proceeds from the foreclosure sale of Chattel Mortgage? LEGAL COSTS  PRINCIPAL OBLIGATION  SUBSEQUENT MORTGAGEE  MORTGAGOR Can the creditor recover the deficiency? . When is the purchaser/bidder placed in possession of the property? Purchaser of personal property in CM is immediately placed in the possession of the property. public officer refers to the (a) notary public and the (b) sheriff.  Registered mail if the mortgagor and subsequent mortgagees do not reside in the same municipality. Possession is immediately delivered to the buyer in foreclosure of Chattel Mortgage. if the creditor is not permitted to retain the excess and that the mortgagor is entitled thereto. . . therefore. the creditor can recover the deficiency. Under A.  Personal service if the mortgagor and subsequent mortgagees reside in the same municipality. CA: In Chattel Mortgage. Debtor is. place and purpose of such sale to be posted in 2 or more public places  Notice must be sent in writing to mortgagor and subsequent mortgagees. then there is a corollary obligation for the debtor to pay the deficiency in case of reduction on the price of the chattels at public auction.M.In REM. Purchaser of real property in REM is not immediately placed in the possession of the property. PAMECA Wood Treatment Plant vs. You first have to initiate proceedings to recover property from the debtor. But you cannot cause the foreclosure sale if you are NOT IN POSSESSION of the personal property. The proper remedy is to file a REPLEVIN suit before you can sell the property because in foreclosure sale of Chattel Mortgage.In CM. REPLEVIN There is no requirement to deliver the movable in Chattel Mortgage. 2001).

Art. Art. . unless there is a stipulation to the contrary. He is also bound to bear the expenses necessary for its preservation and repair. is obliged to pay the taxes and charges upon the estate. The right of redemption. Art. Art. The actual market value of the fruits at the time of the application thereof to the interest and principal shall be the measure of such application. 2132. if the purchaser is able to secure from the court the issuance of a writ of possession. The last paragraph of Article 2085. 2137. there is NO RIGHT OF REDEMPTION. By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor. No law or jurisprudence establishes or affirms such right. Art. execution sales of real property. more precisely. With regard to redemption of chattel mortgage. the mortgagee is called a MORTGAGEE IN POSSESSION. But the creditor may petition the court for the payment of the debt or the sale of the real property. 2133. the Rules of Court on the foreclosure of mortgages shall apply. The sums spent for the purposes stated in this article shall be deducted from the fruits. however. otherwise. IF THEY SO AGREE. But the latter. Rodriguez: No right of redemption exists over personal property such as shares of stock. The contracting parties may stipulate that the interest upon the debt be compensated with the fruits of the property which is the object of the antichresis. as affirmed by Rule 39. The amount of the principal and of the interest shall be specified in writing. the balance paid to the payment of the principal. in order to exempt himself from the obligations imposed upon him by the preceding article. be DELIVERED to the CREDITOR. Can the mortgagor redeem the personal property in Chattel Mortgage? Unlike the foreclosure of REM where the right of redemption may be granted in certain instances. In the 2nd case. if any. redemption only happens after default & prior to foreclosure. may always compel the debtor to enter again upon the enjoyment of the property. with the obligation to apply them to the payment of the interest. 2138. Every stipulation to the contrary shall be void. Art. The property may. Paray vs. In this case. REM: It is NOT REQUIRED (for perfection) that the property be DELIVERED to the CREDITOR. 2139. Art. The creditor. the excess shall be applied to the principal. and thereafter to the principal of his credit. in foreclosure of chattel mortgage. 2135. Antichresis: The creditor is entitled to receive the fruits from an immovable so that he can apply the fruits to the payment of the interest. and Articles 2089 to 2091 are applicable to this contract. Manresa: It is not an accessory undertaking but a separate undertaking because the fruits received are used as payment to the interest and principal. CHAPTER 4: ANTICHRESIS LIBRARY OF LAWS Art. applies only to execution sales.26 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits EXC. 2136. provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury. 2134. except when there is a stipulation to the contrary. The creditor does not acquire the ownership of the real estate for non-payment of the debt within the period agreed upon. if owing. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. the contract of antichresis shall be void.

√ Third parties who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. 2089. that they be legally authorized for the purpose. Registration is NOT REQUIRED for VALIDITY. FOR ENFORCEABILITY: . each one of them guarantees only a determinate portion of the credit . property and × That they be constituted to secure fulfillment of a principal obligation. 2090. even though the debt may be divided among the successors in interest of the debtor or of the creditor. industrial fruits × BARREN LAND OVER W/C THE OWNER HAS NO PLANS OF DEVELOPING FOR VALIDITY: PRINCIPAL + INTEREST must be IN WRITING. in this case.27 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Correct View: Separate undertaking. Art. civil. whoever the owner may be. REGISTRATION is the operative act that will bind 3rd persons. Art. The debtor. The debtor can remain in possession of the property but the creditor receives the fruits. POSSESSION IS NOT REQUIRED TO BE TRANSFERRED TO THE CREDITOR • • One can receive the fruits even without possessing the fruit-bearing real property itself. The contract of pledge or mortgage may secure all kinds of obligations . Therefore. OBJECT OF ANTICHRESIS: “fruit-bearing real property”  natural. Art. the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. to the prejudice of the other heirs who have not been paid. A pledge or mortgage is indivisible. 2085 LAST PARAGRAPH is APPLICABLE to ANTICHRESIS: × × mortgaged. there being several things given in mortgage or pledge. × VERBAL AGREEMENT o It can be another contract but not antichresis. in the sense that when the debtor defaults. 2089 – 2091 are APPLICABLE to ANTICHRESIS: Art. for as long as it is REGISTERED. be they pure or subject to a suspensive or resolutory condition. Art. shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied. From these provisions is expected the case in which. Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage. That the pledgor or mortgagor be the absolute owner of the thing pledged or That the persons constituting the pledge or mortgage have the free disposal of their in the absence thereof. ANTICHRESIS CREATES A REAL RIGHT • • • Right to receive the fruits follows the property. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. 2091. What is required is that the person constituting the antichresis has the RIGHT TO ENCUMBER the property. the creditor can file a petition for the foreclosure of the property . The creditor is not deprived to receive the fruits if there was a subsequent sale/transfer on the property.

The contracting parties may stipulate that the interest upon the debt be compensated with the fruits of the property which is the object of the antichresis. Unless debtor pays the full amount of the obligation. 2.28 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits To bind the parties. He is also bound to bear the expenses necessary for its preservation and repair. o  Remedy for creditor if doesn’t want to perform these obligations: . it must be in writing. the creditor is still obliged. RIGHTS OF THE ANTICHRETIC CREDITOR 1. The sums spent for the purposes stated in this article shall be deducted from the fruits.) Pay the taxes and charges upon the estate – unless there is a contrary stipulation 2. Art. it must be registered under PD 1529. then he can demand the debtor to take over possession of the property. Art. But if he does not want to take the expenses out of his pocket. it is not a valid agreement. The creditor. the antichretic creditor may file a petition for judicial foreclosure. 2138. In actuality.) Right of foreclosure = JUDICIAL FORECLOSURE under Rule 68 o o Upon default by the debtor. the debtor may ask the court to reduce the interest for being unconscionable (as Usury Law is suspended) w/c the court may or may not grant. the excess shall be applied to the principal. the creditor is entitled to receive the fruits from the immovable property?” A: NO. It defeats the purpose of the antichresis agreement if the debtor is still obliged to pay the full amount of the obligation when the interest & the principal were supposed to be paid already from the fruits. provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury.) Right to receive fruits o o Fruits shall be compensated for the interest w/o mentioning the specific amount of interest is not valid because interest must be stipulated in writing in the agreement evidencing the antichresis. Implication: The fruits received by the creditor were not considered in the payment of interest & principal.) Pay the necessary expenses for the preservation and repair o o o Unless. A. he has 2 options:  Sue for specific performance  File petition for judicial foreclosure (right to cause the sale following Rule 68) B. In this case. in order to bind 3 rd parties. is obliged to pay the taxes and charges upon the estate. 2135. the debtor is obliged to pay the FULL AMOUNT of the obligation. If the fruits are not enough to cover the taxes & other necessary expenses. a contrary stipulation is provided such as when the debtor is required to pay them. The sum paid for these expenses shall be deducted from the fruits. o Q: Can the parties stipulate that: “Upon maturity of the obligation. OBLIGATIONS OF THE ANTICHRETIC CREDITOR 1. unless there is a stipulation to the contrary.

then. and afterwards that of the principal. But the latter. the contract is a mortgage and not antichresis. if he expressly waives his right to receive the fruits. it must be expressly agreed between creditor and debtor that the former.29 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Art. To be antichresis. contends that the admitted fact that the loan was without interest. So that if a contract of loan with security does not stipulate the payment of interest but provides for the delivery to the creditor by the debtor of the property given as security. having been given possession of the properties given as security. the creditor is NOT OBLIGED TO ACCOUNT for the fruits. the creditor is OBLIGED TO ACCOUNT for the fruits. while admitting that the contract Exhibit "A" shows a deed of mortgage. in order to exempt himself from the obligations imposed upon him by the preceding article. Q: A: If the creditor failed to pay the taxes. however. he is obliged to account for the fruits. is to apply their fruits to the payment of the interest. In this case. This was his contention. Appellant. therefore. without stating that said fruits are to be applied to the payment of interest. by implication.  What is the effect on the creditor if he is a MORTGAGEE IN POSSESSION? Diego vs. and thereafter to the principal of his credit. his rights and obligations are similar to those of an antichretic creditor. . The lower court. Corollarily. But as correctly pointed out by appellee and the lower court. The true position of appellee herein under his contract with appellant is a "mortgage in possession." As such mortgagee in possession. coupled with the transfer of the possession of the properties mortgaged to the mortgagee. did not err in holding that the contract Exhibit "A" is a true mortgage and not an antichresis. Fernando Facts: The main issue raised is whether the contract between the parties is one of mortgage or of antichresis. it is not an essential requisite of a mortgage that possession of the mortgaged premises be retained by the mortagagor. what is the liability of the creditor? He shall be held liable for DAMAGES. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. there is no obligation to account for the fruits and the debtor is still obliged to pay the full amount of the obligation. the mortgagee in possession has the same obligations of an antichretic creditor. may always compel the debtor to enter again upon the enjoyment of the property. if owing. therefore. b. SC: The doctrine laid down in this case is that: If the debtor did not expressly waive his right to receive the fruits.) If there is an express waiver in the mortgage contract of the creditor’s right over the fruits & there is no stipulation whether or not the fruits shall be applied to the payment of interest. in order that the latter may gather its fruits. 2136.” o Mortgagee in possession needs to account for the fruits and apply it to the interest owing to the principal. a. reveals that the true transaction between him and appellee was one of antichresis.) If there is no express waiver in the mortgage contract of the creditor’s right over the fruits & there is no stipulation whether or not the fruits shall be applied to the payment of interest. Note: This is a Real Estate Mortgage (REM) where the creditor is given possession of the mortgaged property like a coconut plantation. REM + CREDITOR GIVEN POSSESSION OF THE PROPERTY + RIGHT TO ENJOY THE FRUITS Q: A: Is this a mortgage contract or an antichresis? It is still a contract of mortgage where you call the mortgagee as MORTGAGEE IN POSSESSION. if any. “A mortgagee in possession has the obligations of an antichretic creditor. except when there is a stipulation to the contrary.

00 100. but many land & buildings.00 11. a sole proprietorship duly registered with the Department of Trade and Industry (DTI). + EQUITY 2.000.000.000.500.000.30 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits RA # 10142: FINANCIAL REHABILITATION & INSOLVENCY ACT OF 2010 (FRIA) Section 4: Definition of Terms (k) Debtor shall refer to. occurs when your liabilities exceed your assets. cannot pay outstanding debts now.000. unless specifically excluded by a provision of this Act.000.00 20. in the strict technical & traditional sense.) Unable to pay its/his liabilities as they fall due in the ordinary course of business o o o When the debtor has LIQUIDITY problems although he has other assets such as real property which.550. 2 Meanings of “Insolvent” a.00 .000.00 25.00 550. industries in a common fund with intention of dividing the profits among themselves.000.000.00 12.00 b.550.00 LIABILITIES Long Term Liabilities TOTAL LIAB.050. a partnership duly registered with the Securities and Exchange Commission (SEC).000.000. and yet.000.00 5.000. a corporation duly organized and existing under Philippine laws.000.00 5.00 LIABILITIES Short Term Liabilities Long Term Liabilities EQUITY Capital Stock TOTAL LIAB.) Liabilities greater than his assets o o TOTAL LIABILITIES > TOTAL ASSETS Insolvency.000.000. FRIA applies to both: partnerships) (a) individual debtor (b) juridical entity (corporations & Partnership – juridical entity exists at the time of the agreement to contribute  CONSENSUAL CONTRACT o Where two or two or more persons contribute money.000. 5.00 25. Liquidity means the ability to satisfy an obligation when they become due. cannot be readily converted to cash. ASSETS Cash Accounts Receivables Real Estate Property 20. NO CASH. or an individual debtor who has become insolvent as defined herein. ASSETS Cash Accounts Receivables Real Estate Property Goodwill TOTAL ASSETS 0.00 2. however.000. Corporation – acquires juridical personality from the time it is registered in the Securities & Exchange Commission o Issuance of the certificate of incorporation  active intervention of the State (p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.000.

It is initiated by the creditor. or to submit such documents as may be necessary or proper to put the petition in proper order. Section 15. Rehabilitation measures may include dacion en pago or conversion of debt to equity.00 4 REMEDIES FOR INSOLVENCY: 1. In liquidation.) An insolvent. can file VOLUNTARY PETITION FOR REHABILITATION with the RTC Special Commercial Court (no court designation yet since no IRR yet) o Many creditors would object rehabilitation since they are forced to give concessions such as waiving interests. It can meet with its creditors and decide on a REHABILITATION PLAN called a PRE-NEGOTIATED REHABILITATION PLAN. it shall. within the same period. If. 2. o o Verification – “that I am the President of XYZ Corp.” Debtor will allege and include in the petition: (a) a schedule of debts (b) list of creditors (c) amount owing to them (d) the date when they become due . 3. if it has difficulty in meeting its obligations. within five (5) working days from the filing of the petition. Action on the Petition. In such case. .00 2. if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan.) LIQUIDATION. more if the debtor continues as a going concern than if it is immediately liquidated. a rehabilitation receiver is appointed. the court finds the petition deficient in form or substance. give the petitioner/s a reasonable period of time within which to amend or supplement the petition. the five (5) working days provided above for the issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such documents. the court will also issue a Stay Order in rehabilitation. 4.000. they will just file a petition in court for the approval of this plan. converting debt to equity.If the court finds the petition for rehabilitation to be sufficient in form and substance. o o In rehabilitation. The assets are clearly not sufficient to answer all the liabilities. Liquidation of Insolvent Juridical Debtor: The juridical debtor himself may file a VERIFIED PETITION FOR LIQUIDATION.31 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Prepaid Expenses TOTAL ASSETS 50. I have read the contents and all the material facts alleged are true based on my personal knowledge or based on authentic documents.) His/its creditors can file INVOLUNTARY PETITION FOR REHABILITATION. which is why creditors object to liquidation and prefer rehabilitation.000. the court may. Upon the issuance of Commencement Order.170. (gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency. issue a Commencement Order. in its discretion.. not just rehabilitation o o Liquidation involves the sale & distribution of assets. If agreed upon.) Juridical debtor may not seek the assistance of the court. This is the Court-Supervised Rehabilitation. the creditor cannot recover the full amount of the obligation. who will study the rehabilitation plan whether or not it is feasible.

If the petition or motion is sufficient in form and substance.00) or at least twenty-five percent (25%0 of the subscribed capital stock or partner's contributions of the debtor. Requirements before creditors can file a petition for Involuntary Liquidation: 1. the court determines that the petition or motion is meritorious. Involuntary Liquidation. The petition shall show that: (a) there is no genuine issue of fact or law on the claims/s of the petitioner/s. after considering the comments filed.) There must be @ least 3 creditors with an aggregate credit of @ least Php 1. and state that the movants are seeking the immediate liquidation of the debtor.) Verified Motion to convert the pending rehabilitation into liquidation For Involuntary Liquidation: Section 91.000.000. Debtor also needs to submit 3 names/nominees to be appointed by the court as LIQUIDATOR.) There must be @ least 3 creditors with an aggregate credit of @ least 25% of the subscribed capital stock/ partner’s contributions. and that the due and demandable payments thereon have not been made for at least one hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall due. in effect.) Verified Petition if there is no pending proceeding for rehabilitation 2.32 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits o o (e) any collaterals or security and (f) an inventory of assets including accounts receivables. shall contain or set forth the same matters required in the preceding paragraph.000.000.Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1. the court shall issue an Order: (1) directing the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks.00) or at least twenty-five percent (25%) of the subscribed capital or partner's contributions of the debtor. may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. Under the Civil Code provision on “Concurrence & Preferrence of Credits” Civil Code Provisions ASSIGNEE RA # 10142 FRIA LIQUIDATOR Pendency of the Rehabilitation Proceedings: The juridical debtor can file just a VERIFIED MOTION TO CONVERT the rehabilitation proceedings  liquidation proceedings So. At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings. there are 2 modes for Voluntary Liquidation: 1. and (b) there is no substantial likelihood that the debtor may be rehabilitated. whichever is higher. .000. and (2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or motion within fifteen (15) days from the date of last publication.000. WHICHEVER IS HIGHER !!! . If. 2. it shall issue the Liquidation Order mentioned in Section 112 hereof. three (3) or more creditors whose claims is at least either One million pesos (Php1. whichever is higher. may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court. The motion shall be verified.

.00 1. Aggregate Credit must be @ least 25% of the subscribed capital stock.00 They CAN file a petition for involuntary liquidation. Court will order the creditors to file their comments.000.   In example A.000.000. 25% of 2.000. not on subscribed capital stock.00 700.500.000.000.00 4. 2.00.500.000. then the 3 creditors can file a petition for involuntary liquidation.00 625.000.000 is 1. Note: The courts cannot compel the creditors to file their claims as it is in contravention with the constitutional guarantee of non-impairment of obligations.000 is 625.000. SAMPLE COMPUTATION: to determine eligibility for petition for involuntary liquidation Authorized Capital Stock Subscribed Capital Stock Paid Up Capital Stock Aggregate Credit of 3 Creditors ACTUAL Aggregate Credit of 3 Creditors REQUIRED which is 25% of the Subscribed Capital Stock Example A Php 10. voting requirements are based on outstanding capital stock. Since the aggregate credit is 700. he can file such petition.000. o o o o Authorized capital stock (ACS) is the maximum capital stock that the stockholders can purchase or subscribe from the corporation. Even under the Corporation Code. INDIVIDUAL DEBTOR – can also file a PETITION FOR VOLUNTARY LIQUIDATION • • If his properties are not enough to cover his debts amounting to Php 500. Adviento believes this should be outstanding capital stock because outstanding capital stock excludes treasury shares.00 2.33 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Sidenote: Atty.000. then the 3 creditors cannot file a petition for involuntary liquidation. (ff) Publication notice shall refer to notice through publication in a newspaper of general circulation in the Philippines on a business day for two (2) consecutive weeks.00 1.000. SUFFICIENT IN FORM & SUBSTANCE. 2 ORDERS WILL BE ISSUED: 1. Since the aggregate credit is only 500.000.000. Treasury shares are those shares sold to 3rd persons and bought back by the corporation. During the pendency of rehabilitation.000. o If the court finds the petition for liquidation meritorious. Only @ least 25% of ACS is subscribed capital stock which is bought by the stockholders.000.000.000. Paid up capital stock is the amount actually paid by the purchasers. these three creditors may file a VERIFIED MOTION only in the same rehabilitation proceedings to convert rehabilitation into liquidation . Court will order the publication in a newspaper of general circulation once a week for 2 consecutive weeks. 25% of 4. it will now issue a Liquidation Order. Debtor will allege and include in the petition: (a) a schedule of debts (b) list of creditors (c) amount owing to them (d) the date when they become due (e) any collaterals or security and (f) an inventory of assets including accounts receivables.00 1.000.000.000. In example B.00 They CAN NOT file a petition for involuntary liquidation.00 500.000. Example B Php 10.

Petition. or is removing. (k) That being a merchant or tradesman.34 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits • Where to file: in the court of the province/city in w/c he has resided for 6 months prior to filing of this petition. (c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his creditors. property. in contemplation of insolvency. expenses. gift. and (m) That an execution having been issued against him on final judgment for money. Liquidation Order Verified Petition for Liquidation against Individual Debtor for ACTS OF INSOLVENCY: Section 105. with intent to defraud his creditors. conveyance or transfer of his estate. or withdrawn by the petitioner. and the petition for liquidation shall set forth or allege at least one of such acts: ACTS OF INSOLVENCY (a) That such person is about to depart or has departed from the Republic of the Philippines. . Act of Filing = Act of Insolvency (if sufficient in form & substance) 2. The petitioning creditor/s shall post a bond in such as the court shall direct. (i) That he has made any assignment. he has failed. any of his property to avoid its being attached or taken on legal process. he remains absent. made any payment. gift. The following shall be considered acts of insolvency.000. Order by the court to direct the creditors to file their comments 3. JURIDICAL DEBTOR vs.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides. (j) That he has. conveyance or transfer of his estate. Acts of Insolvency.Any creditor or group of creditors with a claim of . property. BOND FURNISHED BY THE CREDITOR: √ to answer for damages if the petition for liquidation is dismissed or withdrawn √ to answer for damages if the debtor shall not be declared insolvent . (l) That for a period of thirty (30) days. conditioned that if the petition for liquidation is dismissed by the court. (e) That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of hindering or delaying the liquidation or of defrauding his creditors. he shall have been found to be without sufficient property subject to execution to satisfy the judgment. sale. Order by the court requiring the publication once a week for 2 consecutive weeks 2. (b) That being absent from the Republic of the Philippines. he has generally defaulted in the payment of his current obligations for a period of thirty (30) days. (d) That he conceals. (h) That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one of his creditors. or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs. grant. damages occasioned by the proceedings and attorney's fees. or with claims aggregating at least Five hundred thousand pesos (Php 500. after demand. (g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of defrauding his creditors. rights or credits with intent to hinder or delay the liquidation or defraud his creditors. with intent to defraud his creditors. to pay any moneys deposited with him or received by him in a fiduciary. sale. (f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant. INDIVIDUAL DEBTOR: Individual Debtor Juridical Debtor 1. rights or credits. Liquidation Order w/in 5 days from filing 1.

Upon the filing of such creditors' petition. the court shall issue an Order requiring the individual debtor to show cause. Section 107.If the individual debtor shall default or if.) Prohibiting transfers of properties. will be allowed to vote in the election of the liquidator. . why he should not be adjudged an insolvent. by majority. and whose claims are not barred by the statute of limitations . prove his claim in the liquidation proceedings and share in the distribution of the assets of the debtor. such as claims of defenses of legal compensation or condonation. Order to Individual Debtor to Show Cause. Election of Liquidator.35 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Section 106. . Who has the right to vote for the liquidator in juridical entities? (a) petitioning creditor & (b) other creditors who filed their claims. A secured creditor will not be allowed to vote. Order of the Court in involuntary liquidation of individual debtor: 1.) Prohibiting payments of other obligations/debts. (Sec. and is admitted for the balance of his claim. (2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale. . or (b) has the value of the property subject of his security or lien fixed by agreement with the liquidator.) Directing the debtor to show cause why he should not be adjudged insolvent. at a time and place to be fixed by the said court. LIQUIDATOR will submit within 3 months after appointment a LIQUIDATION PLAN. A secured creditor may: (a) waive his right under the security or lien. unless: (a) he waives his security or lien. Default. . and transferring any property belonging to him. For individual debtors. shall be appointed as the liquidator. may vote for the liquidator.Only creditors who have filed their claims within the period set by the court. (a) When the value of the property is less than the claim it secures. 2. nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms. the liquidator may convey the property to the creditor and waive the debtor's right of redemption upon receiving the excess from the creditor. then the court will issue a LIQUIDATION ORDER. 3. or (3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.  SEC. Rights of Secured Creditors. where there is a submission of nominees of the liquidator. If the debtor fails to answer because he cannot pay a lawyer so he was not able to file an answer. It will also issue an order APPOINTING A LIQUIDATOR. NOTE: NO MENTION OF “REHABILITATION” OF INDIVIDUAL DEBTOR IN THE FRIA SECURED CREDITORS may be a (a) MORTGAGEE or (b) PLEDGEE a liquidation order will NOT AFFECT a secured creditor Section 114. the court will appoint the liquidator unlike in a juridical entity. Upon good cause shown. The creditors entitled to vote will elect the liquidator in open court. However. or (b) maintain his rights under the security or lien : If the secured creditor maintains his rights under the security or lien: (1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. (b) If its value exceeds the claim secured. 115) Section 115. 114 EXPLAINED: . the issues are found in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof. The nominee receiving the highest number of votes cast in terms of amount of claims. the court may issue an Order forbidding the individual debtor from making payments of any of his debts. ad who is qualified pursuant to Section 118 hereof. after trial. the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance.

shall be excluded from the insolvency proceedings. owned by two or more persons. If there is property. . Property held by the insolvent debtor as a trustee of an express or implied trust. breach of trust. VALUE OF THE PROPERTY > CREDIT . Art.Creditor will pay the liquidator the excess. be transferred to the wife or to a third person other than the assignee. The debtor is liable with all his property. . Art. upon the things pledged or mortgaged. So long as the conjugal partnership or absolute community subsists. 2236. o The secured creditor can agree with the liquidator as to the valuation of the property. repaired. safekeeping or preservation of personal property. 2240. when the price thereof can be determined proportionally. 2238. neither is the right lost by the sale of the thing together with other property for a lump sum. except insofar as the latter have redounded to the benefit of the family. PREFERENCE & ORDER OF CREDITS Library of Laws Art. 2239. on the movables. 3. substance and identity. Art.Deficiency will be treated as an ordinary claim. kept or possessed. or those guaranteed by a chattel mortgage. With reference to specific movable property of the debtor. by order of the court. (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor. Art. money or securities obtained by them.) LIQUIDATOR can sell the property mortgaged and PAY the secured creditor the entire amount. 2. and if the movable has been resold by the debtor and the price is still unpaid. other than that mentioned in the preceding article. (3) Claims for the unpaid price of movables sold. provided it has not lost its form. o Full amount of the principal obligation secured by a mortgage filed as an ordinary claim. If it is the husband who is insolvent. taxes and fees due thereon to the State or any subdivision thereof. VALUE OF THE PROPERTY < CREDIT . 4.) FORECLOSE the mortgage or enforce the lien. repair. Q: A: How will the liquidator DISTRIBUTE THE PROPERTIES? The assets of the insolvent debtor will be distributed in accordance with the preference and concurrence of credits set forth in the Civil Code. one of whom is the insolvent debtor. its property shall not be among the assets to be taken possession of by the assignee for the payment of the insolvent debtor's obligations. 2237. the lien may be enforced on the price. or malfeasance by public officials committed in the performance of their duties. up to the value thereof. 2241. present and future. (5) Credits for the making. CONCURRENCE.) MAINTAIN his right under the mortgage. on said movables. the following claims or liens shall be preferred: SPECIFIC PERSONAL PROPERTY (1) Duties. Liquidator will receive the excess & waive the right of redemption of the debtor.) WAIVE his lien over the real property and file his claim to the liquidator like an ORDINARY CLAIM. (2) Claims arising from misappropriation. his undivided share or interest therein shall be among the assets to be taken possession of by the assignee for the payment of the insolvent debtor's obligations. Art. . subject to the exemptions provided by law. for the fulfillment of his obligations.Liquidator will deliver the property to the creditor. the administration of the conjugal partnership of absolute community may. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code.36 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits IF DEBTOR IS INSOLVENT + LIQUIDATION ORDER + LIQUIDATION PLAN WHAT IS THE RIGHT OF THE MORTGAGEE? 1. so long as they are in the possession of the debtor. on the movable thus made.Liquidator will deliver the property to the creditor. up to the value of the same. this right is not lost by the immobilization of the thing by destination.

and family. (10) Credits for lodging and supplies usually furnished to travellers by hotel keepers. on the share of each in the fruits or harvest. or household helpers for one year preceding the commencement of the proceedings in insolvency. other than those referred to in Articles 2241. (7) Fines and civil indemnification arising from a criminal offense. shall enjoy no preference. Art. and expenses incurred in the administration of the insolvent's estate for the common interest of the creditors.37 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits (6) Claims for laborers' wages. until their delivery and for thirty days thereafter. Art. (8) Credits between the landlord and the tenant. for the insurance premium for two years. 1. for the price of the contract and incidental expenses. upon the immovable sold. other than those mentioned in Articles 2241. or (b) in a final judgment. upon the real estate mortgaged. (3) Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority. if they have no property of their own. upon said buildings. on the movables belonging to the guest as long as such movables are in the hotel. reconstruction. upon the property insured. and 2242. With reference to specific immovable property and real rights of the debtor. (10) Taxes and assessments due any province. within thirty days from the unlawful seizure. 1. and 2242. respectively. Taxes mentioned in No. upon the immovable donated. (5) Credits and advancements made to the debtor for support of himself or herself. when approved by the court. (8) Legal expenses. canals or other works. the following claims or credits shall be preferred in the order named: FREE PROPERTY (1) Proper funeral expenses for the debtor. (11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor. engaged in the construction. 1. and only as to later credits. (5) Mortgage credits recorded in the Registry of Property. appear in (a) a public instrument. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments. or illness resulting from the nature of the employment. of the debtor. 1. by attachments or executions. (8) Claims of co-heirs for warranty in the partition of an immovable among them. No. and No. or liens within the purview of legal provisions governing insolvency. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property. 2245. No. mechanics and other workmen. as well as of architects. (7) Credits annotated in the Registry of Property. (9) Taxes and assessments due the national government. in virtue of a judicial order. (6) Support during the insolvency proceedings. upon the price of the sale. (14) Credits which. canals or other works. 1. (13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited. or repair of buildings. Art. the creditor may demand them from any possessor. (12) Credits for rent for one year. the following claims. (3) Claims of laborers. and shall constitute an encumbrance on the immovable or real right: SPECIFIC REAL PROPERTY (1) Taxes due upon the land or building. upon the immovable preserved or improved. canals or other works. (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement. reconstruction or repair of buildings. (2) For the unpaid price of real property sold. (10) Credits of insurers. and for three months thereafter. laborers. 2242. (7) For expenses of salvage. canals or other works. Article 2241. if the movables to which the lien or preference attaches have been wrongfully taken. when properly authorized and approved by the court. other than those indicated in Articles 2241. (4) Claims of furnishers of materials used in the construction. real and personal. upon the goods carried. . without special privilege. (4) Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident. upon the goods salvaged. on the goods manufactured or the work done. or children under his or her parental authority who have no property of their own. mortgages and liens shall be preferred. and 2242. if they have been the subject of litigation. but not on money or instruments of credit. upon the fruits harvested. upon the real property thus divided. No. upon the personal property of the lessee existing on the immovable leased and on the fruits of the same. or by any other right or title not comprised in the four preceding articles. (13) Gifts due to public and private institutions of charity or beneficence. With reference to other property. arising from the contract of tenancy on shares. No. In the foregoing cases. Article 2242. but not for money loaned to the guests. engineers and contractors. (9) Credits for transportation. (11) Taxes and assessments due any city or municipality. masons. upon said buildings. (9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee. Art. No. 1. during the last year preceding the insolvency. (2) Credits for services rendered the insolvent by employees. upon the property affected. 2244. (12) Damages for death or personal injuries caused by a quasi-delict. 1. shall first be satisfied. Credits of any other kind or class. 2243. 1. No.

exclude all others to the extent of the value of the personal property to which the preference refers. Specific Real Property Art. 2241: (1) Duties. 3. exclude all others to the extent of the value of the immovable or real right to which the preference refers. shall be satisfied according to the following rules: (1) In the order established in Article 2244. Art. Specific Personal Property: Art. repair. 2242 for Specific Real Property (2) unpaid price of real property sold (3) claims of laborers (4) claims of furnishers of materials in construction (5) mortgage credits recorded (6) expenses for the preservation (7) credits annotated in the Registry of Property (8) claims of co-heirs for warranty in the partition (9) claims of donors (10) credits of insurers Art. real or personal. they shall be satisfied pro rata. Art. Art. 2251. or household helpers (3) Expenses during the last illness of the debtor (4) Compensation due the laborers (5) Credits and advancements made to the debtor for support of himself (6) Support during the insolvency proceedings (7) Fines and civil indemnification arising from a criminal offense (8) Legal expenses (9) Taxes and assessments due the national government (10) Taxes and assessments due any province (11) Taxes and assessments due any city or municipality (12) Damages for death or personal injuries caused by a quasi-delict (13) Gifts due to public and private institutions of charity or beneficence (14) Credits which. as to the amount not paid. 2242 A. 2241 & Art. appear in (a) a public instrument. 2247. . THEY CONCUR. 2242: (1) Taxes due upon the land or building. after the payment of the credits which enjoy preference with respect to specific property. 2250. 2. after the payment of the taxes and assessments upon the immovable property or real right.) Specially Preferred Art. 2242 Art. safekeeping (6) laborers' wages (7) expenses of salvage (8) credits between the landlord and the tenant (9) credits for transportation (10) credits for lodging and supplies (11) credits for seeds. breach of trust. shall be added to the free property which the debtor may have. for the payment of the other credits. The excess. laborers. Those credits which enjoy preference with respect to specific movables. taxes and fees due thereon to the State or any subdivision thereof. and those which enjoy preference. If there are two or more credits with respect to the same specific movable property.) Absolutely Preferred No. they shall be satisfied pro rata. 2248. Those credits which enjoy preference in relation to specific real property or real rights. Those credits which do not enjoy any preference with respect to specific property. cultivation and harvest (12) credits for rent for one year (13) claims in favor of the depositor for wrongful sale They are preferred creditors with respect to the property but among themselves. (2) Common credits referred to in Article 2245 shall be paid pro rata regardless of dates. or (b) in a final judgment. 2246. Art. Art. 2244 MAHARLIKA (1) Proper funeral expenses (2) Credits for services rendered by employees. B. If there are two or more credits with respect to the same specific real property or real rights.) Ordinary Preferred Art. 1 of Art. 2241 & Art. without special privilege. after the payment of duties. 2249. 4 ORDERS OF PREFERENCE 1. taxes and fees due the State or any subdivision thereof. if they have been the subject of litigation.38 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Art. or malfeasance (3) unpaid price of movables sold (4) credits guaranteed with a pledge or chattel mortgage (5) credits for the making. if any. 2241 for Specific Personal Property (2) misappropriation. Sharing will be PRO RATA.

220) X 1.000) 1.571) (11.   These are all PREFERRED CREDIT with respect to the car. preference refers to the application of the proceeds. Car is imported from Japan which required the payment of customs duties.000) (50.39 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits 4.000) (20. PREFERENCE A. B. Preference is not a lien or charge on the property. C.000) 20.910.000 = (20/70) X 40. there is no problem as the proceeds of the asset is more than enough to pay the claims/credits.600. SAMPLE CASE: A.000) 40.000 (180.000 (10. Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in proportion. (referring to 20.797. Concurrence: A car with several creditors which has legal pledges or liens or claims over the property.000. Specific Personal Property Customs Duties Chattel Mortgage (registered) Mechanic’s Lien Balance Php 100. The purchase price was not yet fully paid. The owner of the car may have contracted a loan & subjected the car to a recorded chattel mortgage.100. It refers to the order of payment once property is sold.000 (10.000) (120.220) X 1. Remember that order and preference of credits is only applicable when debtor is INSOLVENT (liabilities > assets) CONCURRENCE VS.000. Preference: When the asset is disposed.  Insurer for the premiums and the Vendor for the unpaid price concur pro rata.000 Php 2. if any.000 (102. Specific Real Property Real Property Taxes Insurance Premiums Unpaid Price Balance Php 5.000 Php 50. Free Property . The car was repaired due to damages.297) 0 ABSOLUTE PREFERRED = (120/2.  Mortgage and Mechanic’s Lien concur pro rata.703) (1.000) goes to the FREE PROPERTY.) Common Credits COMMON TAO For example.429) 0 ABSOLUTE PREFERRED = (50/70) X 40.000 (90.000 In the first instance.900.100/2.900. Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in proportion. there are several creditors which have liens or claims over specific properties over the INSOLVENT debtor.000 In the first instance.000 (28.000 = (2.000) (2.000) 2. But there is one ABSOLUTE PREFERRED CREDIT  CUSTOMS DUTIES (not taxes) B. The BALANCE. there is no problem as the proceeds of the asset is more than enough to pay the claims/credits.

if they have been the subject of litigation. 2241 & Art. or household helpers (3) Expenses during the last illness of the debtor (4) Compensation due the laborers (5) Credits and advancements made to the debtor for support of himself (6) Support during the insolvency proceedings (7) Fines and civil indemnification arising from a criminal offense (8) Legal expenses (9) Taxes and assessments due the national government (10) Taxes and assessments due any province (11) Taxes and assessments due any city or municipality o These taxes are not customs duties nor realty taxes but could refer to: √ √ √ Business Taxes Capital Gains Tax (CGT) Documentary Stamp Tax (DST) MORTGAGE IN PUBLIC INSTRUMENT W/C IS NOT REGISTERED  LAST PRIORITY (14) Credits which. 133 FRIA) (1) Proper funeral expenses (2) Credits for services rendered by employees. laborers. or (b) in a final judgment. . 2244. respectively. without special privilege. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments. following that exact sequential order. o wages must be paid first under Art. According to Sec.40 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits The FREE PROPERTY is subject to Art. appear in (a) a public instrument. the unregistered mortgagee still joins in the MAHARLIKA (3rd Order) not on the COMMON TAO (4th Order). 2242 PROPER ORDER: (0) Wages of Laborers (synchronizing Art. 133 of FRIA. TWO INSTANCES: (a) embodied in a public instrument but not recorded (b) embodied in a final judgment Hence. 2244 NCC and Sec. The excess of the proceeds of the specific real & personal property and other properties not so charged become part of common credit which shall be paid last. 2244 if the wages are not preferred under Art.

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