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. 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. MORTGAGOR – owner of the property or the person who constituted the mortgage. MORTGAGEE – to whose favor the mortgage was constituted; otherwise known as

 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. Enforceable Against 3rd Persons √ × × ×

4 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits

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. 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!!!

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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.”

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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.

3. 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. Rule 86 of the Rules of Court. or other security and foreclose the same at anytime. From the foregoing. Rule 86 of the Rules of Court. to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim.000. 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. and. SC: Applying the principles underlying the nature of a mortgage. This conversion can not be ordered for it would abridge the rights of the mortgagee under the mortgage contract. before it is barred by prescription.) 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. (3) to rely on the mortgage exclusively. the real estate mortgage constituted on Lot No. to a right in personam. To substitute the mortgage with a surety bond would convert such lien from a right in rem.) WAIVE & abandon the mortgage & CLAIM the entire debt from the estate as an ordinary claim.5 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits  Is the court empowered to order the cancellation of mortgage in lieu of surety bond? Ganzon vs.00 note would in effect change the terms and conditions of the mortgage contract. without the right to file a claim for any deficiency. a lien on the property. Moreover. T-50324 can not be substituted by a surety bond as ordered by the trial court. 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. it is clearly recognized that a mortgagee has three remedies that may be alternately availed of in case the mortgagor dies. CA According to Sec. 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. Iloilo City covered by TCT No. 7. - . 3 ALTERNATIVE REMEDIES if the Mortgagor Dies: 1.  What is the effect of the death of the mortgagor? Vda. 1901-E-61-B-lF of the subdivision plan located in the District of Molo. De Jacob vs. It is a right in rem.) FORECLOSE the mortgage judicially & PROVE the deficiency as an ordinary claim. (2) to foreclose the mortgage judicially and prove the deficiency as an ordinary claim. There may also be first or second mortgages. That power survives the death of the mortgagor. 2. The subsequent mortgages become junior mortgage liens. The mortgage lien in favor of Petitioner Rodolfo Ganzon is inseparable from the mortgaged property. Mortgagee is a preferred creditor with regard to the mortgaged property.

Industrial fruits like uncollected rent may also be foreclosed. The mortgagee cannot demand collected rent. SC: Citing Art. They may be foreclosed. In effect. are deemed included in the mortgage UNLESS there is an expression stipulation between the parties excluding them. or it passes into the hands of a third person.  Mortgage extends to accessions & accessories or improvements of the real property. Pomar]  OTHER SCENARIOS: A. [Bischoff vs. whether the estate remains in the possession of the mortgagor. 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. o Mortgagor remains to be the owner. he must BUILD ON HIS OWN RISK! B. and the rents or income not yet received when the obligation becomes due. amplifications and limitations established by law. as in a . Spouses Paderes vs. After the mortgage. the mortgagor constructed a house and sells the house & lot to another person under a contract to sell. “PACTUM DE NON ALIENANDO” – stipulation prohibiting the alienation of the property is void. Then the mortgagor defaults in the payment of the obligation. 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. and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged. the land is bare. Can there be a stipulation absolutely prohibiting the mortgagor from selling the property? o No. constituting the mortgage. it is a void stipulation being contrary to public policy. CA Facts: At the time of the constitution of the mortgage. to the improvements. the fruits are deemed included in the mortgage. growing fruits. He is not divested of his ownership by merely C. with the declarations. not the mortgagor. or in virtue of expropriation for public use. 2127. Granting that there is already transfer of ownership. it can be argued that a builder cannot invoke good faith or lack of knowledge o of the mortgage as registration of mortgage is constructive notice to the whole world.6 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits - A subject of a mortgage may be an undivided portion (pro indiviso share) if there is no partition effected in a co-owned property. The mortgage extends to the natural accessions. introduces the improvements? o The provisions on Builder-in-Good-Faith will apply. o However. What if another party. - If the property mortgaged has growing fruits not yet harvested @ the time of maturity. 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.

o Remedy: In order to foreclose the mortgage.7 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits conditional contract of sale. Radiowealth may then foreclose the condominium upon default of the buyer. D. (antichresis) E. Can the parties stipulate that the mortgagee may take possession of the property? o This is the scenario of a “prenda” where the mortgagee may possess a coconut o plantation for instance. the seller may assign the credit (right to collect) to a financing company like Radiowealth Finance Co. if the seller needs money now. 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. - NO NEED TO SECURE THE CONSENT of the MORTGAGOR for the mortgagee to validly assign his right. he has to redeem the property. Rights of the 2nd Mortgagee o 2nd mortgagor cannot foreclose even if his maturity date is EARLIER than the 1st mortgage. The mortgagor now assumes the obligations of an antichretic creditor. He needs to pay the mortgagor’s obligation to the 1st mortgagee. The fruits may be applied to the payment of interest. o His right is SUBORDINATE to the 1st mortgagee. .

the amount claimed to be unpaid thereon. the sale shall terminate. See the case of DBP vs. the names and residences of the mortgagor and the mortgagee. 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. Complaint in action for foreclosure. then to the mortgagor or his duly authorized agent. subject to such rights of redemption as may be allowed by law. be paid to the person foreclosing the mortgage. the same shall be paid to junior encumbrancers in the order of their priority. the court may. 3. upon motion. upon which . a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage. a description of the mortgaged property. he may be personally liable to the plaintiff. Sec. 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. or to the person entitled to it. Sec. order more to be sold. including interest and other charges as approved by the court. 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. if any. If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment. Deficiency judgment. In an action for the foreclosure of a mortgage or other encumbrance upon real estate. if any. But if the property cannot be sold in portions without prejudice to the parties. shall be entitled to the possession of the property unless a third party is actually holding the same adversely to the judgment obligor. as soon as a sufficient portion of the property has been sold to pay the total amount and the costs due. after deducting the costs of the sale. from the court which ordered the foreclosure. as often as more becomes due for principal or interest and other valid charges. the whole shall be ordered to be sold in the first instance. How sale to proceed in case the debt is not all due. 5. and when there shall be any balance or residue. 6. and costs. shall render judgment against the defendant for any such balance for which. on motion. and the entire debt and costs shall be paid. after being directed to do so as provided in the next preceding section. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part thereof. and that in default of such payment the property shall be sold at public auction to satisfy the judgment. and afterwards. Sale of mortgaged property. and when confirmed by an order of the court. after paying off the mortgage debt due. The said purchaser or last redemptioner may secure a writ of possession. the purchaser at the auction sale or last redemptioner. Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law.  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. 4. Judgment on foreclosure for payment or sale. Disposition of proceeds of sale. Sec. there being a rebate of interest where such rebate is proper. if the proceeds of the sale be sufficient therefor. the complaint shall set forth the date and due execution of the mortgage. 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. also upon motion. the court.8 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits MODES OF FORECLOSURE A. by the record of the case. effect. 2. upon motion. it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation. the court.  WRIT OF POSSESSION When the defendant. Sec. upon motion. The amount realized from the foreclosure sale of the mortgaged property shall. to be ascertained by the court. Sec. 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. or if there be no such encumbrancers or there be a balance or residue after payment to them. its assignments. 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. fails to pay the amount of the judgment within the period specified therein. all of whom shall be made defendants in the action.

in addition to his expenses. and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six. inclusive. the deed of redemption shall be registered with the registry of deeds.AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES Sec. 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. 6. may redeem the same at any time within the term of one year from and after the date of the sale. or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold. Sec. 2001 ACT NO. 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 a brief memorandum thereof shall be made by the registrar of deeds on said certificate of title. 5. Said sale cannot be made legally outside of the province in which the property sold is situated. the creditor. Sec. 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. The provisions of sections 31. otherwise. or a notary public of said municipality. Sec. to give him possession thereof during the redemption . the certificate of title in the name of the mortgagor shall not be cancelled. 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. 1. 4. 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. may participate in the bidding and purchase under the same conditions as any other bidder. 99-10-05-0 August 7. If the property is not redeemed. 3135 . his successors in interest or any judicial creditor or judgment creditor of said debtor. EXTRAJUDICIAL FORECLOSURE – under Act 3135 & A. No. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to. In the event the property is redeemed. 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. Sec. Sec. 2. of the Code of Civil Procedure. the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract. and shall be under the direction of the sheriff of the province. the justice or auxiliary justice of the peace of the municipality in which such sale has to be made. the provisions of the following election shall govern as to the manner in which the sale and redemption shall be effected. 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. trustee. the certificate of title in the name of the mortgagor shall be cancelled. Sec. Where a right of redemption exists. B. Sec. and in case the place within said province in which the sale is to be made is subject to stipulation. who shall be entitled to collect a fee of five pesos each day of actual work performed. unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made. Sec. If no right of redemption exists. which time shall be stated in the judgment. and a new one issued in the name of the purchaser. 3. between the hours of nine in the morning and four in the afternoon. whether or not provision for the same is made in the power. Applicability of other provisions. At any sale. The sale shall be made at public auction. the debtor. 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. the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated. Registration. or other persons authorized to act for the creditor. 8. in so far as these are not inconsistent with the provisions of this Act.9 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits execution may issue immediately if the balance is all due at the time of the rendition of the judgment. 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 if such property is worth more than four hundred pesos. 7. In any sale made under the provisions of this Act. 7.

and if it finds the complaint of the debtor justified. 4 of Act 3135. pursuant to Act 3135. and issue the corresponding official receipt. 2. apart from the official receipt of the fees. 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. This Act shall take effect on its approval. c) examine. 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. When the property is redeemed after the purchaser has been given possession. included in which is the task of supervising directly the work of the Clerk of Court. who shall execute said order immediately. it being rural property. 2001). keep the complete records. addressed to the sheriff of the province in which the property is situated. 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. No. as amended.10 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits period. date and time of filing. b) collect the filing fees therefore pursuant to rule 141. Sec. but the order of possession shall continue in effect during the pendency of the appeal. or in his absence. shall have the right to redeem the property until. as amended. 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. and the issuance of commissions to notaries public and enforcement of their duties under the law. as amended by Act Numbered Twentyeight hundred and sixty-six.00. and in each case the clerk of the court shall. juridical persons whose property is sold pursuant to an extra-judicial foreclosure. Approved: March 6. order that a writ of possession issue. shall have been paid. and his staff. as provided in Section 47 of Republic Act No. 6. who is also the Ex-Officio Sheriff. through the Clerk of Court who is also the Ex-Officio Sheriff. 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.M. 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. the records shall be archived. and the court shall. pursuant to Sec.M. 2001 PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE In line with the responsibility of an Executive Judge under Administrative Order No. it being town property. as amended by A. but not later than thirty days after the purchaser was given possession. but not after. 9. d) sign and issue the certificate of sale. e) after the certificate of sale has been issued to the highest bidder. 1924 A. it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. in the proceedings in which possession was requested. The collecting Clerk of Court shall. to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Sec. 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. 00-2-01SC. No. 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. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or a notary public.M. if the purchaser occupied the property as his own dwelling. subject to the approval of the Executive Judge. the registration of the certificate of foreclosure sale which in no case shall be more than three (3) months after foreclosure. upon the filing of such petition. petition that the sale be set aside and the writ of possession cancelled. 00-2-01-SC. in case of real estate mortgage foreclosure. as amended by A. and Act 1508. or used it gainfully. whichever is earlier. only one filing fee corresponding to such indebtedness shall be collected. specifying the damages suffered by him. dated June 30. Res. Of August 7. after which. Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness. 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. that in no case shall the amount payable under Rule 141. 1975. 8. shall be filed with the Executive Judge. for the management of courts within his administrative area. upon approval of the bond. Notwithstanding the foregoing provision. the Vice-Executive Judge. furnishing bond in an amount equivalent to the use of the property for a period of twelve months. 99-10-05-0 August 7. 8791 (as amended. No. Section 7(c). because the (1) mortgage was not violated or the (2) sale was not made in accordance with the provisions hereof. Section 9(1). The debtor may. 10. collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six.000. issue a certificate of . Upon receipt of an application for extra-judicial foreclosure of mortgage. as amended by Act 4118. Sec. the following procedures are hereby prescribed in extrajudicial foreclosure of mortgages: 1. as amended. Provided. 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. exceed P100. 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. Section 9(1).

and non-compliance therewith shall constitute a violation of Section 6 thereof. dated January 2.) 2. MTC judge is not precluded from conducting foreclosure sale as the law Act 3135 prevails over AM 99-10-05-0. 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. in that. 3. PROCEDURAL STEPS IN EJ FORECLOSURE STEP 1: STEP 2: 1. Conditions of the Foreclosure of Mortgage: • There is a violation or breach on the mortgage contract such as default in the payment of principal. o In a judicial foreclosure. Presidential Decree No. √ correct Tax Declaration Mortgagor NEED NOT BE NOTIFIED. with the assistance of the Clerk of Court. 3135. 3135: If the property is valued more than Php 400.11 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits payment indicating the amount of indebtedness. 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. there must be publication in a newspaper of general circulation once every 3 consecutive weeks. the real estates and/or chattels mortgaged and their respective locations. 1977. raffle applications for extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs. 5. unless provided in the mortgage contract. When: Under Act No. which certificate shall 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. 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. There is NO REQUIREMENT to schedule another foreclosure sale if there is only 1 BIDDER. it must be conducted between the hours of 9:00 AM to 4:00 PM . the mortgages sought to be foreclosed. the filing fees collected. there will be no trial conducted. 4.) 3. o Otherwise. the proper recourse is made on JUDICIAL FORECLOSURE. What is stated in the notice: √ correct description of the property √ correct TCT No. 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. The Executive Judge shall. 1079. 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. 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.) Pay the filing fee. including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the branches.

ACTIONS DURING THE INTERREGNUM Petition for Issuance of Writ of Possession A. (20 years or so) .12 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits STEP 4: Judge. - A Certificate of Sale is now issued by the CLERK OF COURT. 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. STEP 5: Posting Petition to Cancel Sale 20 days Sale of Absolute Sale Registration of CoS Writ of Possession Actual Possession 30 Days 1 Yr. 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. 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. Confirmatory Deed Right of Redemption Assumption: The mortgagee is not a banking institution & the mortgagor is a natural person. posting. C. ACCION REINVINDICATORIA B. w/ the approval of the Executive Regardless of whether or not the sheriff or the notary public will conduct the sale. Appeal - If the court grants the petition to cancel the sale [Order Cancelling the Sale]. Writ of Possession  Petition to Cancel Sale  Appeal - 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 purchaser still continues possession since he can still appeal the decision. but the order of possession shall continue in effect during the pendency of the appeal. - 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. 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. Petition to Cancel Sale proper title accdg. 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.

can the creditor still file an ordinary civil case for a sum of money for the deficiency? o Yes. 3. should the buyer fail to pay cover two or more installments. In this case. If the Certificate of Sale is not registered. Exact fulfillment of the obligation.e. RULES ON REDEMPTION Natural Juridical Until but Not Later Than Registration. He may file it within 4 years from the registration of CoS. since there was no demand made by DBP. in a contract of sale of personal property the price of which is payable in installments.Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments. 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. then he needs to surrender possession of the property. the mortgagee has the right to recover the deficiency from the debtor. should the buyer fail to pay cover two or more installments. Cancel the sale. Illustration B: Judicial Foreclosure Finality of Judgment Juridical Persons (not > 90 d) Natural & Juridical Persons . 90 – 120 days from Finality of Judgment & before Sale Judicial Illustration A: EJ Foreclosure Sale Sale Registration 1 Yr. under the RECTO LAW SIDEBAR: RECTO LAW . o In DBP vs.13 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits - If on appeal. If there is no appeal raised by the purchaser. the decision is affirmed. 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. then the purchaser needs to surrender possession of the property. should the buyer fail to pay any installment 2. The duty to register is incumbent upon the purchaser. 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. the creditor may file a DEFICIENCY CLAIM EXC. Licuanan cannot be held liable for the deficiency given the lack of cause of action of DBP. Under Article 1484 of the New Civil Code. 90 – 120 days from Finality of Judgment & before Sale Extrajudicial Right of Redemption 1 Year from Registration of Sale Equity of Redemption i. namely – an act or omission violative of the plaintiff’s right. if one has been constituted. Thus. Foreclose the chattel mortgage on the thing sold. the vendor may exercise any of the following alternative remedies: 1. • • •  If the proceeds of the sale is not enough to satisfy the obligation. this presupposes that the foreclosure must first be valid. then the 1-year redemption period WILL NOT RUN. Not More Than 90 days from Foreclosure (whichever is earlier) Equity of Redemption i.e. the 3rd essential element of a cause of action (COA) is missing. 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. Licuanan: While it is true that in extrajudicial foreclosure of mortgage. If no redemption is made.

14 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits judgment Natural Persons Right of Redemption Equity of Redemption 90 – 120 days after finality of but before sale [Huerta Alba Resort vs. with interest thereon at rate specified in the mortgage. 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. CA]: Right of Redemption vs. whether judicially or extrajudicially. RIGHT OF REDEMPTION . The statement of intention must be accompanied by an actual and simultaneous tender of payment. 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. EQUITY OF REDEMPTION .Prerogative to reacquire the mortgaged property after registration of the foreclosure sale . The difference is with regard judicial foreclosure concerning banking institutions. Natural Extrajudicial Judicial Right of Redemption from Sale 1 Year from Foreclosure Sale Juridical Until but Not Later Than Registration. This constitutes the exercise of the right to repurchase.  What is the effect of tender of less than the purchase price? BPI vs. 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. Not More Than 90 days from foreclosure (whichever is earlier) 1 Year from Foreclosure Sale • • For extrajudicial foreclosure. 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. shall have the right to redeem the property in accordance with this provision until. 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. There is a RIGHT OF REDEMPTION whether the mortgagor is a natural or juridical persons. but not after. to redeem the property by paying the amount due under the mortgage deed.Exists only in EJ Foreclosure of Mortgage & when the mortgagee is PNB or a banking institution B. Foreclosure of Real Estate Mortgage. 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. 47 dealing with a banking institution Section 47.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 . 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. of any mortgage on real estate which is security for any loan or other credit accommodation granted. juridical persons whose property is being sold pursuant to an extrajudicial foreclosure. .In accordance with Rule 68 of the Rules of Court on Judicial Foreclosure of Mortgage Under the General Banking Law of 2000 – Sec. . Equity of Redemption A. there are basically SIMILAR RULES. Notwithstanding Act 3135.In the event of foreclosure.Within 1 year from the registration of the certificate of sale . However.

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.000 on August 27. When the period of redemption has LAPSED in an Sale A Retro. the amount to be paid must be the AMOUNT DUE under the MORTGAGE DEED. Was there a valid offer of redemption despite the fact that only a partial payment was made? SC: None. 3.000. Raise it as a DEFENSE against the SELLER that it is actually a mortgage and not a sale. A judgment creditor is one who has a lien on the property subsequent to the judgment under which the property was sold. 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. and (4) interest of 1% per month on such assessments and taxes. W/N respondents were diligent in asserting their willingness to pay is irrelevant.500. • You cannot delay payment by making an offer to redeem and paying the price × NEXT YEAR × IN INSTALLMENTS × OFFERING A SURETY BOND In effect.66 paid by the highest bidder/purchaser of the properties during the auction sale. . (2) interest of 1% per month on the purchase price. you are extending the period of redemption which is NOT ALLOWED. the offer by respondents on July 24.554. you must also tender the full redemption price.15 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Bona fide redemption necessarily implies a reasonable and valid tender of the entire repurchase price. • In addition to the offer to redeem. 2. REDEMPTIONER • It’s not only the debtor who is entitled to redeem. Even a JUDGMENT CREDITOR of the DEBTOR can redeem. 1986 (less than 1 month before the period of redemption expires) to redeem the foreclosed properties for P1. 1986. 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. File an action for the REFORMATION OF THE INSTRUMENT. In order to effect a redemption. Facts: Consequently. while made within the period of redemption.935 and the subsequent consignation in court of P1. He is also called a REDEMPTIONER who is entitled to make an offer to redeem.872. 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. (3) the amount of any assessments or taxes which the purchaser may have paid on the property after the purchase. in this case. The consigned amount was even withdrawn and replaced with a surety bond amounting to P 100.782. otherwise the rule on the redemption period fixed by law can easily be circumvented.

4. a resident of the municipality of ___________. or the performance of some other obligation specified therein. CHAPTER 5: CHATTEL MORTGAGE LIBRARY OF LAWS Art. Sec. The provisions of this Code on pledge. If the movable. All personal property shall be subject to mortgage. ACT NO. is delivered to the creditor or a third person. 1. — A chattel mortgage is a conditional sale of personal property as security for the payment of a debt. and the mortgagee is thereby divested of his title. signed by the parties to the mortgage as above stated. By a chattel mortgage. The short title of this Act shall be "The Chattel Mortgage Law. Sec. Chattel mortgage defined. 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. however. 2140. in the province in which the property is situated: Provided. 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. Province of ______________. Province of ____________. 5. Philippine Islands mortgagor. who shall sign the mortgage as witnesses to the execution thereof. and each mortgagor and mortgagee. That if the property is situated in a different province from that in which the mortgagor resides. his agent or attorney.AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL PROPERTY AND FOR THE REGISTRATION OF THE MORTGAGES SO EXECUTED Sec. shall make and subscribe an affidavit in substance as hereinafter set forth. the contract is a pledge and not a chattel mortgage. and a mortgage executed in pursuance thereof shall be termed chattel mortgage. 2. shall be appended to such mortgage and recorded therewith. and for the purposes of this Act the city of Manila shall be deemed to be a province. He has to get a court declaration of absolute ownership for the consolidation of his ownership. in the presence of two witnesses. Form. FORM OF CHATTEL MORTGAGE AND AFFIDAVIT "This mortgage made this ____ day of ______19____ by _______________. Art. and the certificate of the oath signed by the authority administering the same. instead of being recorded. Sec. or. If the condition is performed according to its terms the mortgage and sale immediately become void. 1508 .) ." Sec. to ____________. Validity. to wit: (Here insert specific description of the property mortgaged. his executors or administrators. and shall be signed by the person or persons executing the same. insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to chattel mortgages. The vendor a retro can then raise an objection in the judicial proceeding in the consolidation of the his ownership. 2141. witnesseth: "That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the followingdescribed personal property situated in the municipality of ______________. mortgagee. or. Philippine Islands. — A chattel mortgage shall be deemed to be sufficient when made substantially in accordance with the following form. — A chattel mortgage shall not be valid against any person except the mortgagor. 3. Province of ____________ and now in the possession of said mortgagor. which affidavit. agreeably to the provisions of this Act. a resident of the municipality of ______________. 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. personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation.16 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits o Title will not be absolutely conferred on the vendee a retro. if he resides without the Philippine Islands. in the absence of the mortgagee.

as the case may be) interest thereon at the rate of ___________ per centum per annum. or administrators shall well and truly perform the full obligation (or obligations) above stated according to the terms thereof. If the property mortgaged be large cattle. "(If the mortgage is given for the performance of some other obligation aside from the payment of promissory notes. describe correctly but concisely the obligation to be performed. and faithfully and without delay to harvest the same. If growing crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend. Sec. treasurer. as the case may be.) Sec. or by a person authorized on the part of such corporation to make or to receive such mortgage. and that in default of the performance of such duties the mortgage may enter upon the premises. Descriptions of property. 7. then this obligation shall be null and void. justice of the peace. personally appeared ____________. "Executed at the municipality of _________. with (or without. knots of radiated hair commonly known as remolinos. "_____________________________" (Notary public. this _____ day of 19_____ ____________________ (Signature of mortgagor. class. to identify the same.17 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits "This mortgage is given as security for the payment to the said ______. 6. Corporations. "At ___________. When a partnership is a party to the mortgage the affidavit may be made and subscribed by one member thereof. or manager thereof. and the surplus thereof. "We severally swear that the foregoing mortgage is made for the purpose of securing the obligation specified in the conditions thereof. and retain possession thereof and sell the same. age. his heirs. or any other person. harvesting. or cowlicks." FORM OF CERTIFICATE OF OATH. 1 or other officer. take all the necessary measures for the protection of said crop. and other marks of ownership as described and set forth in the certificate of ownership of said animal or animals. care for and protect the crop while growing. 2 and the amendments thereof. if any shall be paid to the mortgagor or those entitled to the same. mortgagee. the parties who signed the foregoing affidavit and made oath to the truth thereof before me. the description of said property in the mortgage shall contain the brands. in the Province of _________. according to the terms of __________." as defined by section one of Act Numbered Eleven and fortyseven. certain promissory notes.) "The conditions of this obligation are such that if the mortgagor. and in the words and figures following (here insert copy of the note or notes secured). trustee. dated _________. and for no other purpose. in the Province of ________. — The description of the mortgaged property shall be such as to enable the parties to the mortgage. and selling the crop and the amount of the indebtedness or obligation secured by the mortgage. together with the number and place of issue of such certificates of ownership. of promissory notes for the sum of ____________ pesos. and one not entered into for the purpose of fraud.) "In the presence of "_________________ "_________________ (Two witnesses sign here. and from the proceeds of such sale pay all expenses incurred in caring for. — When a corporation is a party to such mortgage the affidavit required may be made and subscribed by a director. after reasonable inquiry and investigation.) FORM OF OATH. cashier. sex. A chattel mortgage shall be deemed to cover only the property described therein and not like or . and that the same is a just and valid obligation. executors.

If the sale includes any "large cattle. Sec. — If the mortgagee. his executor. which the officer shall pay to the register of deeds. or sent by mail if he does not reside in such municipality. — A chattel mortgage is a conditional sale of personal property as security for the payment of a debt. Enacted. If the movable. or any part thereof. and (3) purpose of such sale has been posted at two or more public places in such municipality. at or after the time fixed for the performance. either by notice in writing directed to him or left at his abode. 9-12. or the performance of some other obligation. if within the municipality. 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. his executor. administrator. (2) place. of the costs and expenses of keeping and sale. and the register of deeds shall record the same. executor. 1906 CONFLICT BETWEEN CIVIL CODE & ACT 1508 Act 1508 Sec. and then to the payment of the demand or obligation secured by such mortgage. after thirty days from the time of condition broken (default). 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. 13. By a chattel mortgage. cause the mortgaged property. provided at least ten days' notice of the (1) time. 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. 2140. The proceeds of such sale shall be applied to the payment. is delivered to the creditor or a third person. after paying the mortgages. 8. shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale. anything in the mortgage to the contrary notwithstanding. and the mortgagee. the person entitled to redeem may recover of the person whose duty it is to 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. 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. (inclusive) 3 Sec.18 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged. Chattel mortgage defined. Civil Code Art. 3 Sec. administrator. nineteen hundred and six. Failure of mortgagee to discharge the mortgage. shall be paid to the mortgagor or person holding under him on demand. first. Fees. at least ten days previous to the sale. and the balance. Sec. 16. This Act shall take effect on August first. and state the amount received for each article. 2140 Art. 14. discharge the mortgage in the manner provided by law. 3. or after tender of the performance of the condition. Sale of property at public auction. Disposition of proceeds. to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides. or assign. personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. — The mortgagee. instead of being recorded. the contract is a pledge and not a . The officer making the sale shall. assign. 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. 4 and the amendments thereto. does not within ten days after being requested thereto by any person entitled to redeem. and shall operate as a discharge of the lien thereon created by the mortgage. within thirty days thereafter." 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. administrator. a mortgagor or person holding a subsequent mortgage. or either of them. July 2. or where the property is situated. Sec. or assign. The return shall particularly describe the articles sold. after performance of the condition before or after the breach thereof. When the condition of a chattel mortgage is broken. and the residue shall be paid to persons holding subsequent mortgages in their order. may. Officer's return. Sec.

the creditor can demand the (1) execution or (2) amendment of the Deed of Chattel Mortgage. - The creditor has the right to enforce the promise. according to Art. What kind of obligations may be secured by a Chattel Mortgage? - In REM & Pledge. But if there is promise to secure future obligations through the Chattel Mortgage executed now. 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. 4. one can secure future obligations through a “Continuing Guaranty. o o Once the future obligation is incurred. That if the property is situated in a different province from that in which the mortgagor resides. 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. But there are instances when the parties agree to DELIVER the property in a real estate mortgage. 2140 NCC. there is NO DELIVERY required in Chattel Mortgage. he has the rights & obligations of an antichretic creditor. it’s only available to REM. then the later provision prevails as it expresses the latest intention of the lawmakers. in the province in which the property is situated. his executors or administrators. only √ PRESENT OBLIGATIONS can be secured. 1198: When the debtor loses right to make use of the period . o o Civil Code Provision PREVAILS because in case of conflicting provisions of law. Therefore. DRAG NET CLAUSE is not applicable to Chattel Mortgage. In order to be valid. 2140 NCC. if he resides without the Philippine Islands. Is DELIVERY of personal property necessary to perfect a contract of Chattel Mortgage? No. If you cannot harmonize both. Validity. o Mortgagee in possession cannot appropriate the fruits. according to Act 1508 Sec. chattel mortgage. o Rather. × FUTURE OBLIGATIONS cannot be secured. possession of the property must be delivered to & mortgagee. √ It’s still a real estate mortgage & the mortgagee is referred to as MORTGAGEE IN POSSESSION.19 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Sec. the later provision prevails – Art. PROVISION A: PROVISION B: retained by If the property is delivered to the creditor. Provided. it is not a mortgage but a pledge. or. and for the purposes of this Act the city of Manila shall be deemed to be a province.  Art. 3. — A chattel mortgage shall not be valid against any person except the mortgagor.” But in Chattel 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. however.

a chattel mortgage. of course. Rubber & Plastic Co. What can be the objects of Chattel Mortgage? A. carabao. ass or other domesticated member of the bovine family. real estate mortgage. Example 1 1/1/11 Chattel Mortgage A & B Example 2 1/1/11 Chattel Mortgage A & B Example 3 1/1/11 REM A & B Example 4 1/1/11 Chattel Mortgage A & B . He must be the absolute owner of the property. IMMOVABLES: by agreement of the parties such as one constituted on a building .20 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits (2) When he does not furnish to the creditor the guaranties or securities which he has promised. From the harvest.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. 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. by the principle of ESTOPPEL.  In effect. ACME Shoe. horse. 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. it will not bind 3rd persons. or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described. The mortgagor must be legally-capacitated to enter into a contract.Even if the mortgage is registered. to the rule that only future things may be the subject of Chattel Mortgage] • • PD 533 Sec. CA While a pledge. SAMPLE CASE: Who has the RIGHT TO FORECLOSE? Assuming that subject property is a REAL PROPERTY. 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. MOVABLES: √ ungathered/growing crops cattle √ vessel √ shares of stock √ large √ REVOLVING STOCK IN TRADE (merchandise inventory in your retail establishment) • [EXC. mule. 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. the following transactions transpired. 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. the security itself. can only cover obligations existing at the time the mortgage is constituted. [SWINE IS NOT INCLUDED.] Mortgagee can even take care of the growing crops and harvest them. . however. creditor can demand payment obligation now. Who can constitute a Chattel Mortgage? 1. however. 2. vs. He must have free disposal of the property subject of the Chattel Mortgage. 3: Large cattle as herein used shall include the cow. 3.

As between B & C. unlike example 2. Affidavit of Good Faith B. The remedy of B is to recover from the residue as he is treated a subsequent mortgagee. 5 of Act 1508. In effect. intended to treat the same as such. the mortgagee must comply with the foreclosure proceedings required by law for foreclosure of REM. A cannot object on the ground that real property is not a proper subject of Chattel Mortgage. Tumalad vs. the real estate mortgagee has a better right to foreclose the property if A cannot pay his debt or cannot fulfill his obligation. The description of the mortgaged property shall be such as to enable the parties to the mortgagee or any other person. Example 2: Even if the first Chattel Mortgage is registered. A is estopped from questioning the validity of the Chattel Mortgage. selling or transferring a property by way of chattel mortgage. PUBLICATION IS REQUIRED! Manarang vs. What is the FORM required? √ It must be based on the form prescribed under Sec.defined regulation for official and public guidance and which would prevent confusion and misunderstanding. Phil Guaranty. defendants-appellants could only have meant to convey the house as chattel. Sec. C. or at least. √ There must be SUFFICIENT DESCRIPTION of the property. [Even though] there is no specific statement referring to the subject house as personal property. 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. In this case. It is based. Properly. that mortgage is valid only between the parties. REASONABLE DESCRIPTION RULE as termed in Saldana vs. This ruling is demanded by the need for a definite. after reasonable inquiry & investigation. √ In order to BIND 3rd PERSONS. orderly and well. Because when a real property is the subject of a Chattel Mortgage. Registration  Was the subject matter sufficiently described in this case? . it is not binding against C. the following are required: A. yet by ceding. Notice Requirement (for property > P400): PUBLICATION in a newspaper of general circulation once a week for two consecutive weeks. But B. partly. upon the principle of estoppel. to identify the same. a 3rd party. Example 3 & 4: The first mortgage recorded shall prevail if they are of the same nature. a real property is not the subject of a Chattel Mortgage. is good only insofar as the contracting parties are concerned. B can foreclose in both.21 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits 3/1/11 REM A & C 3/1/11 REM A & C 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. so that they should not now be allowed to make an inconsistent stand by claiming otherwise. 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. NO 3rd parties are concerned. 7. not C. He cannot make an inconsistent stand when there is an agreement to treat the real property such as a building as a personal property.

or any other person. credits receivable belonging to Motoomul & Co. On the same day also. was becoming financially insolvent. is required only for the purpose of transforming an already valid mortgage into a "preferred mortgage.  Is there a sufficient description of the property if there exists a “catch-all phrase?” . because of the diminishing payments on account of a debt. what is the effect of a special affidavit of good faith? CIFC vs. Jureidini Bros. on May 24. on the other hand." Thus. 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. includes the requirements of an affidavit of good faith appended to the mortgage and recorded therewith. Still later.  Was the subject matter sufficiently described in this case? Jaca vs. 1921. in describing what shall be deemed sufficient to constitute a good chattel mortgage. SC: The Chattel Mortgage Law. became aware of the precarious condition of the latter.  If there is a chattel mortgage on a vessel. Inc. on June 13. honestly due and owing from the mortgagor to the mortgagee. Motoomul & Co. Facts: H. CA The special affidavit of good faith. 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. In effect. a larger creditor of Motoomul & Co. In the case of Belgian Catholic Missionaries vs.. in its Section 5.22 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Giberson vs. Absence of Affidavit of Good Faith does not vitiate or does not invalidate the Chattel Mortgage insofar as the parties are concerned. Motoomul & Co. A. one of the debtor's Iloilo stores known as Bazar Aguila de Oro. 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. Where the statute provides that the parties to a chattel mortgage must make oath that the debt is a just debt. then the mortgagee is only a SUBSEQUENT MORTGAGEE." Identification of the mortgaged property would be impossible in this case. Ultimately. 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. delivered to Jureidini Brothers. Inc. N. Jureidini Bros. it is obvious that a valid mortgage cannot be made to secure a debt to be thereafter contracted. were transferred to Jureidini Bros. 1921. Magallanes Press. passes to Jureidini Bros. after reasonable inquiry and investigation.. K. another stock of goods belonging to Motoomul & Co.. if there is no special affidavit of good faith. the abovementioned affidavit is not necessary for the validity of the chattel mortgage itself but only to give it a preferred status.  referring to the Iloilo store! RULE: Affidavit of Good Faith is required only to bind 3rd persons. to identify the same.

used for restaurant business. 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. we believe. that the phrase in question is found after an enumeration of other specific articles. cabinet type etc. 1508. 2. We may notice in the agreement. not to those already existing and originally included at the date of the constitution of the chattel mortgage. 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. 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. SUBJECT MATTER OF THE CHATTEL MORTGAGE: √ √ × CLAUSE. moreover. 3. Guaranty A Chattel Mortgage was made on the following properties: a building of strong materials. Mortgagee filed a third-party claim asserting that some of the properties levied are subject of his chattel mortgage.) If the subject of the Chattel Mortgage is a motor vehicle. SC: Section 7 of Act No. or any other person. fixtures or equipment found in the said premises. 1. 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. Note that the limitation found in the last paragraph of section 7 of the Chattel Mortgage Law1 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". commonly and better known as the Chattel Mortgage Law. CM is unlike REM w/c can be constituted on FUTURE OBLIGATIONS  DRAG NET . after reasonable inquiry and investigation to identify the same. It can thus be reasonably inferred therefrom that the "furnitures. Subsequently. And all other furniture's. In the province where the mortgagor resides B. Pasay City. are in substantial compliance with the "reasonable description rule" fixed by the Chattel Mortgage Act. 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. similarly situated or similarly used in the restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard. Phil. fixture and equipment" referred to are properties of like nature.23 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Saldana vs. It is not required that the Chattel Mortgage be registered in the × Securities & Exchange Commission (SEC).) If the subject of the Chattel Mortgage is a vessel. located in front of the San Juan de Dios Hospital at Dewey Boulevard. 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. 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. In the province in which the property is situated Sample Case: If the subject of the Chattel Mortgage includes PLDT shares of stocks." The specifications in the chattel mortgage contract in the instant case. Pasay City.  Place of Registration: A. Zenith. which articles can be definitely pointed out or ascertain by simple inquiry at or about the premises.) If the subject of the Chattel Mortgage is a public utility vehicle like a jeepney. and the following personal properties therein contained: 1 Radio.

C may pay the obligation of A.000. .J.M. foreclosure of REM does not prescribe the period to cause the foreclosure sale. . 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 . the debtor/ mortgagor to B. The Chattel Mortgage becomes void upon the fulfillment of the obligation.In effect. in the foreclosure of chattel mortgage. the most common form of foreclosure of chattel mortgage is extrajudicial. Foreclosure of Chattel Mortgage. the chattel mortgagee MAY OPT to resort to JUDICIAL FORECLOSURE. the preferred creditor/ first mortgagee. While the E.J. or Judicial Demand) √ In REM. 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. 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. 2001) on E. Rule 68 only applies to judicial foreclosure of a Real Estate Mortgage (REM). Foreclosure of REM applies to E. The first mortgagee cannot refuse redemption. the foreclosure must be made within 30 days from default. NOTE: Although. C is now the creditor of A for 200. 99-10-05-0 (August 7. Consequently. the accessory contract is extinguished. may foreclose the property thereafter. preferred creditor/ first mortgagee. (“from breach of mortgage”) .24 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits INVALID Stipulation: “Chattel Mortgage covers the following properties & such other similar properties of the mortgagor to be acquired in the future.J.C. foreclosure only happens (a) after default (E. .” EXCEPTION: Revolving Stock In Trade – future merchandise w/c is constantly replenished Whatever is the replacement is the subject of the Chattel Mortgage. No. However. The same procedure laid down in A. There was no instance of extraordinary inflation in the Philippines. The law expressly allows the subsequent mortgagee to redeem. This extinguishes the principal obligation. the subsequent mortgagee. REDEMPTION PRIOR TO FORECLOSURE (in Chattel Mortgage) Perfection of Chattel Mortgage 1st: A <-> B for 100k OF REDEMPTION nd 2 : A <-> C for 100k DEFAULT Foreclosure NO RIGHT Redemption Prior to Foreclosure √ In Chattel Mortgage.J.  VALID DISCHARGE – mortgagor is entitled to a “discharge” when the obligation has already been paid.C now steps into the shoes of the B.

administrator. or any part thereof.In CM. Fees. Sale of property at public auction. Possession is immediately delivered to the buyer in foreclosure of Chattel Mortgage. But you cannot cause the foreclosure sale if you are NOT IN POSSESSION of the personal property. cause the mortgaged property. at least ten days previous to the sale. after thirty days from the time of condition broken (default).  Foreclosure sale will be conducted by a public officer under Act 1508 or by a justice of the peace under Act 3135. Disposition of proceeds. and (3) purpose of such sale has been posted at two or more public places in such municipality. may. to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides. . Officer's return. (2) place.In REM. administrator. if within the municipality. No. 14. NOTICE REQUIREMENTS REM  @ least 20 days notice with publication once a week for 2 consecutive weeks CM  @ least 10 days notice of the time. The proper remedy is to file a REPLEVIN suit before you can sell the property because in foreclosure sale of Chattel Mortgage. the creditor can recover the deficiency. or assign. his executor. provided at least ten days' notice of the (1) time. shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale. — The mortgagee. 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? . and the mortgagee. .25 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Sec. his executor. you need to immediately deliver the movable property to the purchaser/bidder. REPLEVIN There is no requirement to deliver the movable in Chattel Mortgage. public officer refers to the (a) notary public and the (b) sheriff. or where the property is situated. either by notice in writing directed to him or left at his abode. or assign. or sent by mail if he does not reside in such municipality. 2001). 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. Under A.  Registered mail if the mortgagor and subsequent mortgagees do not reside in the same municipality.M. the creditor can recover the deficiency by filing an ordinary action for the recovery of the deficiency. 99-10-05-0 (August 7. You first have to initiate proceedings to recover property from the debtor.  Personal service if the mortgagor and subsequent mortgagees reside in the same municipality. 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.

Art. With regard to redemption of chattel mortgage. the Rules of Court on the foreclosure of mortgages shall apply. CHAPTER 4: ANTICHRESIS LIBRARY OF LAWS Art. . if the purchaser is able to secure from the court the issuance of a writ of possession. By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor. The last paragraph of Article 2085. Art. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. Debtor is. with the obligation to apply them to the payment of the interest. The sums spent for the purposes stated in this article shall be deducted from the fruits. redemption only happens after default & prior to foreclosure. 2133. CA: In Chattel Mortgage. But the latter. more precisely. 2134. 2138. therefore. may always compel the debtor to enter again upon the enjoyment of the property. The right of redemption. otherwise. In this case. 2135. REM: It is NOT REQUIRED (for perfection) that the property be DELIVERED to the CREDITOR. 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. EXC. 2137. execution sales of real property. Art. there is NO RIGHT OF REDEMPTION. Art. The creditor. 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. and thereafter to the principal of his credit. if owing. The amount of the principal and of the interest shall be specified in writing.26 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits PAMECA Wood Treatment Plant vs. unless there is a stipulation to the contrary. except when there is a stipulation to the contrary. 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. The creditor does not acquire the ownership of the real estate for non-payment of the debt within the period agreed upon. He is also bound to bear the expenses necessary for its preservation and repair. Art. 2136. as affirmed by Rule 39. 2139. in foreclosure of chattel mortgage. No law or jurisprudence establishes or affirms such right. in order to exempt himself from the obligations imposed upon him by the preceding article. obliged to pay the deficiency. the contract of antichresis shall be void. provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury. Paray vs. Art. Purchaser of real property in REM is not immediately placed in the possession of the property. is obliged to pay the taxes and charges upon the estate. applies only to execution sales. the excess shall be applied to the principal. But the creditor may petition the court for the payment of the debt or the sale of the real 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. and Articles 2089 to 2091 are applicable to this contract. Art. 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. Rodriguez: No right of redemption exists over personal property such as shares of stock. Every stipulation to the contrary shall be void. if the creditor is not permitted to retain the excess and that the mortgagor is entitled thereto.

Art. 2085 LAST PARAGRAPH is APPLICABLE to ANTICHRESIS: × × mortgaged. however. 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. be they pure or subject to a suspensive or resolutory condition. whoever the owner may be. What is required is that the person constituting the antichresis has the RIGHT TO ENCUMBER the property. Therefore. Art. 2091. for as long as it is REGISTERED. The contract of pledge or mortgage may secure all kinds of obligations. 2090. Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage. to the prejudice of the other heirs who have not been paid. Art. POSSESSION IS NOT REQUIRED TO BE TRANSFERRED TO THE CREDITOR • • One can receive the fruits even without possessing the fruit-bearing real property itself. A pledge or mortgage is indivisible. the creditor can file a petition for the foreclosure of the property. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. 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. The debtor can remain in possession of the property but the creditor receives the fruits. the mortgagee is called a MORTGAGEE IN POSSESSION. 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. In the 2nd case. 2089. Correct View: Separate undertaking. . Art. that they be legally authorized for the purpose. 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. The debtor. if any. 2089 – 2091 are APPLICABLE to ANTICHRESIS: Art. ANTICHRESIS CREATES A REAL RIGHT • Right to receive the fruits follows the property. even though the debt may be divided among the successors in interest of the debtor or of the creditor. there being several things given in mortgage or pledge. Manresa: It is not an accessory undertaking but a separate undertaking because the fruits received are used as payment to the interest and principal. be DELIVERED to the CREDITOR. √ Third parties who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. • The creditor is not deprived to receive the fruits if there was a subsequent sale/transfer on the property. in this case. IF THEY SO AGREE. the balance paid to the payment of the principal. in the sense that when the debtor defaults. • Registration is NOT REQUIRED for VALIDITY. From these provisions is expected the case in which. property and × That they be constituted to secure fulfillment of a principal obligation.27 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits The property may. each one of them guarantees only a determinate portion of the credit.

the creditor is entitled to receive the fruits from the immovable property?” A: NO. In this case. .) Pay the taxes and charges upon the estate – unless there is a contrary stipulation 2. Q: Can the parties stipulate that: “Upon maturity of the obligation. FOR ENFORCEABILITY: To bind the parties. 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. it must be registered under PD 1529. In actuality. REGISTRATION is the operative act that will bind 3rd persons. he has 2 options:  Sue for specific performance  File petition for judicial foreclosure (right to cause the sale following Rule 68) B.) Right to receive fruits o 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. OBLIGATIONS OF THE ANTICHRETIC CREDITOR 1. industrial fruits × BARREN LAND OVER W/C THE OWNER HAS NO PLANS OF DEVELOPING FOR VALIDITY: PRINCIPAL + INTEREST must be IN WRITING. 2138. a contrary stipulation is provided such as when the debtor is required to pay them. 2. it is not a valid agreement. RIGHTS OF THE ANTICHRETIC CREDITOR 1. provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury. Implication: The fruits received by the creditor were not considered in the payment of interest & principal.28 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits OBJECT OF ANTICHRESIS: “fruit-bearing real property”  natural. in order to bind 3rd parties. civil.) Pay the necessary expenses for the preservation and repair o Unless. the antichretic creditor may file a petition for judicial foreclosure.) Right of foreclosure = JUDICIAL FORECLOSURE under Rule 68 o o Upon default by the debtor. A. 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. 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. × VERBAL AGREEMENT o It can be another contract but not antichresis. the debtor is obliged to pay the FULL AMOUNT of the obligation. Art. it must be in writing. the excess shall be applied to the principal. Unless debtor pays the full amount of the obligation.

and thereafter to the principal of his credit. may always compel the debtor to enter again upon the enjoyment of the property. the contract is a mortgage and not antichresis.  Remedy for creditor if doesn’t want to perform these obligations: Art. The sums spent for the purposes stated in this article shall be deducted from the fruits. without stating that said fruits are to be applied to the payment of interest. But the latter.) 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. if owing. Appellant. To be antichresis. 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. 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. it is not an essential requisite of a mortgage that possession of the mortgaged premises be retained by the mortagagor.  What is the effect on the creditor if he is a MORTGAGEE IN POSSESSION? Diego vs. is obliged to pay the taxes and charges upon the estate. b. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. If the fruits are not enough to cover the taxes & other necessary expenses. what is the liability of the creditor? He shall be held liable for DAMAGES. But as correctly pointed out by appellee and the lower court. The creditor. coupled with the transfer of the possession of the properties mortgaged to the mortgagee. 2136. having been given possession of the properties given as security. therefore. “A mortgagee in possession has the obligations of an antichretic creditor. reveals that the true transaction between him and appellee was one of antichresis. 2135. Fernando Facts: The main issue raised is whether the contract between the parties is one of mortgage or of antichresis. unless there is a stipulation to the contrary.” o Mortgagee in possession needs to account for the fruits and apply it to the interest owing to the principal. in order to exempt himself from the obligations imposed upon him by the preceding article. This was his contention. the creditor is still obliged. in order that the latter may gather its fruits. the creditor is NOT OBLIGED TO ACCOUNT for the fruits. did not err in . contends that the admitted fact that the loan was without interest. But if he does not want to take the expenses out of his pocket. and afterwards that of the principal.) 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.29 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits o o o The sum paid for these expenses shall be deducted from the fruits. then he can demand the debtor to take over possession of the property. He is also bound to bear the expenses necessary for its preservation and repair. it must be expressly agreed between creditor and debtor that the former. a. if any. except when there is a stipulation to the contrary. Art. is to apply their fruits to the payment of the interest. while admitting that the contract Exhibit "A" shows a deed of mortgage. The lower court. however. the creditor is OBLIGED TO ACCOUNT for the fruits. Q: A: If the creditor failed to pay the taxes.

) 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. or an individual debtor who has become insolvent as defined herein. and yet. Liquidity means the ability to satisfy an obligation when they become due. industries in a common fund with intention of dividing the profits among themselves. In this case. his rights and obligations are similar to those of an antichretic creditor. cannot be readily converted to cash. ASSETS Cash Accounts Receivables Real Estate Property 0. 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. unless specifically excluded by a provision of this Act.30 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits holding that the contract Exhibit "A" is a true mortgage and not an antichresis.500. if he expressly waives his right to receive the fruits.000. Corollarily.000. then. 2 Meanings of “Insolvent” a. however. RA # 10142: FINANCIAL REHABILITATION & INSOLVENCY ACT OF 2010 (FRIA) Section 4: Definition of Terms (k) Debtor shall refer to. but many land & buildings.00 11.00 .000. a partnership duly registered with the Securities and Exchange Commission (SEC). the mortgagee in possession has the same obligations of an antichretic creditor.00 20." As such mortgagee in possession. The true position of appellee herein under his contract with appellant is a "mortgage in possession. Note: This is a Real Estate Mortgage (REM) where the creditor is given possession of the mortgaged property like a coconut plantation.00 550. by implication. cannot pay outstanding debts now. a sole proprietorship duly registered with the Department of Trade and Industry (DTI). NO CASH.00 LIABILITIES Short Term Liabilities Long Term Liabilities EQUITY 2. therefore. a corporation duly organized and existing under Philippine laws.000. he is obliged to account for the fruits.000. SC: The doctrine laid down in this case is that: If the debtor did not expressly waive his right to receive the fruits. 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. there is no obligation to account for the fruits and the debtor is still obliged to pay the full amount of the obligation.000.

050.00 Capital Stock TOTAL LIAB. This is the Court-Supervised Rehabilitation. Rehabilitation measures may include dacion en pago or conversion of debt to equity. 4. more if the debtor continues as a going concern than if it is immediately liquidated. 3. . o o In rehabilitation.550. In liquidation.) His/its creditors can file INVOLUNTARY PETITION FOR REHABILITATION. in the strict technical & traditional sense. It is initiated by the creditor.170. the court may.00 4 REMEDIES FOR INSOLVENCY: 1.00 2. 5. Action on the Petition. who will study the rehabilitation plan whether or not it is feasible. 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.000. converting debt to equity. Upon the issuance of Commencement Order. The assets are clearly not sufficient to answer all the liabilities. within the same period.000.000. if it has difficulty in meeting its obligations. occurs when your liabilities exceed your assets. the court finds the petition deficient in form or substance.550.000.) Juridical debtor may not seek the assistance of the court.000.000.000. issue a Commencement Order. they will just file a petition in court for the approval of this plan. which is why creditors object to liquidation and prefer rehabilitation. a rehabilitation receiver is appointed. ASSETS Cash Accounts Receivables Real Estate Property Prepaid Expenses TOTAL ASSETS 20.000.00 b.00 25. or to submit such documents as may be necessary or proper to put the petition in proper order.000.000. within five (5) working days from the filing of the petition. (gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency.00 25. 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. the creditor cannot recover the full amount of the obligation. not just rehabilitation o o Liquidation involves the sale & distribution of assets.000. it shall. 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. give the petitioner/s a reasonable period of time within which to amend or supplement the petition.00 5. It can meet with its creditors and decide on a REHABILITATION PLAN called a PRE-NEGOTIATED REHABILITATION PLAN. the court will also issue a Stay Order in rehabilitation.) LIQUIDATION. .00 LIABILITIES Long Term Liabilities TOTAL LIAB.If the court finds the petition for rehabilitation to be sufficient in form and substance.00 100.000.00 2. in its discretion. 2.00 50.000. In such case. Section 15.000.000. If.) Liabilities greater than his assets o o TOTAL LIABILITIES > TOTAL ASSETS Insolvency. If agreed upon.) An insolvent.31 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Goodwill TOTAL ASSETS 5. + EQUITY 12.

and state that the movants are seeking the immediate liquidation of the debtor.00) or at least twenty-five percent (25%0 of the subscribed capital stock or partner's contributions of the debtor. whichever is higher. Involuntary Liquidation. whichever is higher.Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1.. may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court.000. shall contain or set forth the same matters required in the preceding paragraph.32 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Liquidation of Insolvent Juridical Debtor: The juridical debtor himself may file a VERIFIED PETITION FOR LIQUIDATION. . in effect. there are 2 modes for Voluntary Liquidation: 1.” 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. and . The petition shall show that: (a) there is no genuine issue of fact or law on the claims/s of the petitioner/s. If the petition or motion is sufficient in form and substance. At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings.000.) Verified Motion to convert the pending rehabilitation into liquidation For Involuntary Liquidation: Section 91.00) or at least twenty-five percent (25%) of the subscribed capital or partner's contributions of the debtor. 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. three (3) or more creditors whose claims is at least either One million pesos (Php1.000. o o o o Verification – “that I am the President of XYZ Corp. I have read the contents and all the material facts alleged are true based on my personal knowledge or based on authentic documents. 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. The motion shall be verified. and (b) there is no substantial likelihood that the debtor may be rehabilitated. 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. Debtor also needs to submit 3 names/nominees to be appointed by the court as LIQUIDATOR.000. 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.) Verified Petition if there is no pending proceeding for rehabilitation 2.

000. 2.) There must be @ least 3 creditors with an aggregate credit of @ least 25% of the subscribed capital stock/ partner’s contributions. Requirements before creditors can file a petition for Involuntary Liquidation: 1. after considering the comments filed.00 1.00.500.000. 25% of 2. then the 3 creditors cannot file a petition for involuntary liquidation.00 They CAN file a petition for involuntary liquidation.000.000.000 is 625.00 700.000.000.000.00 500.000.000. Example B Php 10.000.000. WHICHEVER IS HIGHER !!! Sidenote: Atty. not on subscribed capital stock.000. 2 ORDERS WILL BE ISSUED: 1. Only @ least 25% of ACS is subscribed capital stock which is bought by the stockholders.00 2.000. Since the aggregate credit is 700.000.000.000. Court will order the creditors to file their comments. If. 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. the court determines that the petition or motion is meritorious. . Court will order the publication in a newspaper of general circulation once a week for 2 consecutive weeks.000 is 1.00 625.000.000.33 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits (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.) There must be @ least 3 creditors with an aggregate credit of @ least Php 1. During the pendency of rehabilitation.500.000. In example B. these three creditors may file a VERIFIED MOTION only in the same rehabilitation proceedings to convert rehabilitation into liquidation.00 4.000.000. Even under the Corporation Code.000.00 1. Adviento believes this should be outstanding capital stock because outstanding capital stock excludes treasury shares. 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. (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. SUFFICIENT IN FORM & SUBSTANCE.00 They CAN NOT file a petition for involuntary liquidation. voting requirements are based on outstanding capital stock. 25% of 4. Paid up capital stock is the amount actually paid by the purchasers. 2. Aggregate Credit must be @ least 25% of the subscribed capital stock. then the 3 creditors can file a petition for involuntary liquidation. it shall issue the Liquidation Order mentioned in Section 112 hereof.000. Treasury shares are those shares sold to 3rd persons and bought back by the corporation. Since the aggregate credit is only 500. o o o o Authorized capital stock (ACS) is the maximum capital stock that the stockholders can purchase or subscribe from the corporation.00 1.   In example A.

(d) That he conceals. made any payment. Liquidation Order w/in 5 days from filing 1. or is removing.34 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits o If the court finds the petition for liquidation meritorious. (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. sale. (j) That he has. (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. Liquidation Order Verified Petition for Liquidation against Individual Debtor for ACTS OF INSOLVENCY: Section 105. Act of Filing = Act of Insolvency (if sufficient in form & substance) 2. • 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. The following shall be considered acts of insolvency. Order by the court to direct the creditors to file their comments 3.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides. gift. conveyance or transfer of his estate. rights or credits with intent to hinder or delay the liquidation or defraud his creditors. Petition. Order by the court requiring the publication once a week for 2 consecutive weeks 2. sale. INDIVIDUAL DEBTOR: Individual Debtor Juridical Debtor 1. property. it will now issue a Liquidation Order. in contemplation of insolvency. Acts of Insolvency. (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. . • 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. gift. grant.Any creditor or group of creditors with a claim of.000. 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. he remains absent. INDIVIDUAL DEBTOR – can also file a PETITION FOR VOLUNTARY LIQUIDATION • If his properties are not enough to cover his debts amounting to Php 500. JURIDICAL DEBTOR vs. he can file such petition. conveyance or transfer of his estate.000. . (i) That he has made any assignment. rights or credits. property. (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. (b) That being absent from the Republic of the Philippines. (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. or with claims aggregating at least Five hundred thousand pesos (Php 500. with intent to defraud his creditors. any of his property to avoid its being attached or taken on legal process. with intent to defraud his creditors.

where there is a submission of nominees of the liquidator.35 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits (k) That being a merchant or tradesman. and whose claims are not barred by the statute of limitations.Only creditors who have filed their claims within the period set by the court. If the debtor fails to answer because he cannot pay a lawyer so he was not able to file an answer. The petitioning creditor/s shall post a bond in such as the court shall direct. or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs.) Prohibiting payments of other obligations/debts.Upon the filing of such creditors' petition. 3. the court will appoint the liquidator unlike in a juridical entity. nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms. A secured creditor will not be allowed to vote. Order of the Court in involuntary liquidation of individual debtor: 1.) Prohibiting transfers of properties. he shall have been found to be without sufficient property subject to execution to satisfy the judgment. at a time and place to be fixed by the said court. will be allowed to vote in the election of the liquidator. ad who is qualified pursuant to Section 118 hereof. The creditors entitled to vote will elect the liquidator in open court. LIQUIDATOR will submit within 3 months after appointment a LIQUIDATION PLAN. after demand. after trial. Who has the right to vote for the liquidator in juridical entities? (a) petitioning creditor & (b) other creditors who filed their claims. 115) Section 115. conditioned that if the petition for liquidation is dismissed by the court. the issues are found in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof. . Election of Liquidator. NOTE: NO MENTION OF “REHABILITATION” OF INDIVIDUAL DEBTOR IN THE FRIA SECURED CREDITORS - may be a (a) MORTGAGEE or (b) PLEDGEE . However. the court shall issue an Order requiring the individual debtor to show cause. or withdrawn by the petitioner. the court may issue an Order forbidding the individual debtor from making payments of any of his debts. expenses. (l) That for a period of thirty (30) days. then the court will issue a LIQUIDATION ORDER. may vote for the liquidator. 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 Section 106. For individual debtors. he has generally defaulted in the payment of his current obligations for a period of thirty (30) days. or (b) has the value of the property subject of his security or lien fixed by agreement with the liquidator. and transferring any property belonging to him. It will also issue an order APPOINTING A LIQUIDATOR. by majority.If the individual debtor shall default or if. 2. he has failed. Default. Order to Individual Debtor to Show Cause. Upon good cause shown. to pay any moneys deposited with him or received by him in a fiduciary. .) Directing the debtor to show cause why he should not be adjudged insolvent. (Sec. The nominee receiving the highest number of votes cast in terms of amount of claims. such as claims of defenses of legal compensation or condonation. . and is admitted for the balance of his claim. damages occasioned by the proceedings and attorney's fees. why he should not be adjudged an insolvent. Section 107. shall be appointed as the liquidator. and (m) That an execution having been issued against him on final judgment for money. unless: (a) he waives his security or lien.

If it is the husband who is insolvent. Art. 2238.  SEC. o The secured creditor can agree with the liquidator as to the valuation of the property. (2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the sale.) LIQUIDATOR can sell the property mortgaged and PAY the secured creditor the entire amount. 2236. . 2237. . PREFERENCE & ORDER OF CREDITS Library of Laws Art. So long as the conjugal partnership or absolute community subsists.) FORECLOSE the mortgage or enforce the lien. Liquidator will receive the excess & waive the right of redemption of the debtor. (b) If its value exceeds the claim secured. Art. present and future. be transferred to the wife or to a third person other than the assignee. except insofar as the latter have redounded to the benefit of the family. .The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. .Creditor will pay the liquidator the excess. 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.Liquidator will deliver the property to the creditor. 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.Deficiency will be treated as an ordinary claim. A secured creditor may: (a) waive his right under the security or lien. 3. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code. o Full amount of the principal obligation secured by a mortgage filed as an ordinary claim. CONCURRENCE. the administration of the conjugal partnership of absolute community may.36 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits - a liquidation order will NOT AFFECT a secured creditor Section 114. Rights of Secured Creditors.Liquidator will deliver the property to the creditor. prove his claim in the liquidation proceedings and share in the distribution of the assets of the 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. by order of the court. 2. or (3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws. The debtor is liable with all his property. VALUE OF THE PROPERTY > CREDIT . for the fulfillment of his obligations.) WAIVE his lien over the real property and file his claim to the liquidator like an ORDINARY CLAIM. (a) When the value of the property is less than the claim it secures. 4. VALUE OF THE PROPERTY < CREDIT . the liquidator may convey the property to the creditor and waive the debtor's right of redemption upon receiving the excess from the creditor. 114 EXPLAINED: IF DEBTOR IS INSOLVENT + LIQUIDATION ORDER + LIQUIDATION PLAN WHAT IS THE RIGHT OF THE MORTGAGEE? 1. 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.) MAINTAIN his right under the mortgage. subject to the exemptions provided by law.

within thirty days from the unlawful seizure. (8) Credits between the landlord and the tenant. . but not for money loaned to the guests. (13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited. 2244. With reference to specific immovable property and real rights of the debtor. one of whom is the insolvent debtor. on the movable thus made. when the price thereof can be determined proportionally. canals or other works. upon the property insured. if the movables to which the lien or preference attaches have been wrongfully taken.37 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Art. engineers and contractors. (10) Credits for lodging and supplies usually furnished to travellers by hotel keepers. (8) Claims of co-heirs for warranty in the partition of an immovable among them. upon the immovable sold. (12) Credits for rent for one year. money or securities obtained by them. Art. this right is not lost by the immobilization of the thing by destination. upon the real property thus divided. masons. repaired. 2243. Art. (3) Claims for the unpaid price of movables sold. but not on money or instruments of credit. or malfeasance by public officials committed in the performance of their duties. 2240. Article 2242. upon the real estate mortgaged. or those guaranteed by a chattel mortgage. upon the goods carried. (4) Claims of furnishers of materials used in the construction. safekeeping or preservation of personal property. up to the value of the same. for the price of the contract and incidental expenses. 1. for the insurance premium for two years. other than that mentioned in the preceding article. reconstruction or repair of buildings. upon the goods salvaged. on the movables belonging to the guest as long as such movables are in the hotel. (7) Credits annotated in the Registry of Property. and if the movable has been resold by the debtor and the price is still unpaid. upon said buildings. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property. substance and identity. until their delivery and for thirty days thereafter. 2241. upon the fruits harvested. reconstruction. so long as they are in the possession of the debtor. or liens within the purview of legal provisions governing insolvency. Article 2241. (5) Credits for the making. by attachments or executions. as well as of architects. (2) Claims arising from misappropriation. the following claims or credits shall be preferred in the order named: FREE PROPERTY (1) Proper funeral expenses for the debtor. With reference to specific movable property of the debtor. upon the personal property of the lessee existing on the immovable leased and on the fruits of the same. engaged in the construction. up to the value thereof. or repair of buildings. laborers. upon the things pledged or mortgaged. Taxes mentioned in No. real and personal. and No. the following claims or liens shall be preferred: SPECIFIC PERSONAL PROPERTY (1) Duties. 1. upon the price of the sale. neither is the right lost by the sale of the thing together with other property for a lump sum. on the movables. In the foregoing cases. (11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor. canals or other works. (2) For the unpaid price of real property sold. (7) For expenses of salvage. (5) Mortgage credits recorded in the Registry of Property. canals or other works. or children under his or her parental authority who have no property of their own. mechanics and other workmen. If there is property. kept or possessed. arising from the contract of tenancy on shares. the lien may be enforced on the price. Art. on the goods manufactured or the work done. (2) Credits for services rendered the insolvent by employees. upon the property affected. 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. 2242. Art. and only as to later credits. (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor. or household helpers for one year preceding the commencement of the proceedings in insolvency. (9) Credits for transportation. Art. provided it has not lost its form. the following claims. upon the immovable donated. breach of trust. (6) Claims for laborers' wages. in virtue of a judicial order. With reference to other property. (9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee. (3) Claims of laborers. repair. 2239. taxes and fees due thereon to the State or any subdivision thereof. and shall constitute an encumbrance on the immovable or real right: SPECIFIC REAL PROPERTY (1) Taxes due upon the land or building. shall be excluded from the insolvency proceedings. upon said buildings. (10) Credits of insurers. on said movables. canals or other works. upon the immovable preserved or improved. the creditor may demand them from any possessor. of the debtor. (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement. Property held by the insolvent debtor as a trustee of an express or implied trust. when approved by the court. mortgages and liens shall be preferred. owned by two or more persons. on the share of each in the fruits or harvest. shall first be satisfied.

Credits of any other kind or class. or (b) in a final judgment. they shall be satisfied pro rata. they shall be satisfied pro rata. (10) Taxes and assessments due any province. and 2242. respectively. Art. 1. (5) Credits and advancements made to the debtor for support of himself or herself.) Absolutely Preferred No. 2. and for three months thereafter. 1. real or personal. 1. If there are two or more credits with respect to the same specific movable property. (4) Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident. 2250. as to the amount not paid. THEY CONCUR. exclude all others to the extent of the value of the immovable or real right to which the preference refers. 2241: (1) Duties. exclude all others to the extent of the value of the personal property to which the preference refers. after the payment of duties. during the last year preceding the insolvency. No. (13) Gifts due to public and private institutions of charity or beneficence. and those which enjoy preference. No. The excess. if they have no property of their own. 1. 1. 1 of Art.) Specially Preferred Art. Art. 2249. Those credits which enjoy preference in relation to specific real property or real rights. 2242: (1) Taxes due upon the land or building. Those credits which enjoy preference with respect to specific movables. or illness resulting from the nature of the employment. and expenses incurred in the administration of the insolvent's estate for the common interest of the creditors. other than those indicated in Articles 2241. 2242 A. 2251. or malfeasance (3) unpaid price of movables sold (4) credits guaranteed with a pledge or chattel mortgage (5) credits for the making. after the payment of the taxes and assessments upon the immovable property or real right.38 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits (3) Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority. Art. and 2242. for the payment of the other credits. when properly authorized and approved by the court. No. (8) Legal expenses. breach of trust. 2245. shall be added to the free property which the debtor may have. or by any other right or title not comprised in the four preceding articles. Specific Real Property Art. No. if they have been the subject of litigation. Art. . 2241 & Art. 2242 Art. (7) Fines and civil indemnification arising from a criminal offense. 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. 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. other than those referred to in Articles 2241. taxes and fees due thereon to the State or any subdivision thereof. shall be satisfied according to the following rules: (1) In the order established in Article 2244. and family. appear in (a) a public instrument. Art. without special privilege. (11) Taxes and assessments due any city or municipality. B. 4 ORDERS OF PREFERENCE 1. 2247. taxes and fees due the State or any subdivision thereof. 2241 & Art. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments. Those credits which do not enjoy any preference with respect to specific property. 2248. (9) Taxes and assessments due the national government. (6) Support during the insolvency proceedings. repair. if any. 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. (14) Credits which. shall enjoy no preference. If there are two or more credits with respect to the same specific real property or real rights. No. Art. 2241 for Specific Personal Property (2) misappropriation. (12) Damages for death or personal injuries caused by a quasi-delict. 1. 2246. Art. after the payment of the credits which enjoy preference with respect to specific property. Specific Personal Property: Art. (2) Common credits referred to in Article 2245 shall be paid pro rata regardless of dates. other than those mentioned in Articles 2241. No. and 2242.

PREFERENCE A. if they have been the subject of litigation.000) (20. SAMPLE CASE: A. . Preference: When the asset is disposed. But there is one ABSOLUTE PREFERRED CREDIT  CUSTOMS DUTIES (not taxes) B. Concurrence: A car with several creditors which has legal pledges or liens or claims over the property.000 (28. without special privilege. 2244 MAHARLIKA (1) Proper funeral expenses (2) Credits for services rendered by employees.000 = (20/70) X 40. there is no problem as the proceeds of the asset is more than enough to pay the claims/credits.) Ordinary Preferred Art. The car was repaired due to damages. 4.) Common Credits COMMON TAO For example. - Car is imported from Japan which required the payment of customs duties. laborers.000 Php 50.000) 20.  Mortgage and Mechanic’s Lien concur pro rata. Preference is not a lien or charge on the property. there are several creditors which have liens or claims over specific properties over the INSOLVENT debtor. The owner of the car may have contracted a loan & subjected the car to a recorded chattel mortgage. or (b) in a final judgment.39 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits Sharing will be PRO RATA. Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in proportion. preference refers to the application of the proceeds.000 In the first instance.571) (11.   These are all PREFERRED CREDIT with respect to the car. Remember that order and preference of credits is only applicable when debtor is INSOLVENT (liabilities > assets) CONCURRENCE VS.000 (10.000 (10. 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. It refers to the order of payment once property is sold.000) (50. 3.000) 40. Specific Personal Property Customs Duties Chattel Mortgage (registered) Mechanic’s Lien Balance Php 100.429) 0 ABSOLUTE PREFERRED = (50/70) X 40. appear in (a) a public instrument. The purchase price was not yet fully paid.

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.000) (2.600.703) (1. laborers.000) (120. o wages must be paid first under Art. 133 FRIA) (1) Proper funeral expenses (2) Credits for services rendered by employees.000 (180.220) X 1.220) X 1. . 133 of FRIA.000 = (2.000.000) 1. C.910. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments.900.000) 2. appear in (a) a public instrument. TWO INSTANCES: (a) embodied in a public instrument but not recorded (b) embodied in a final judgment Hence. 2244 NCC and Sec.797. 2242 PROPER ORDER: (0) Wages of Laborers (synchronizing Art.000) goes to the FREE PROPERTY. 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. without special privilege. if any.100.  Insurer for the premiums and the Vendor for the unpaid price concur pro rata. 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.000. (referring to 20.000 (90. 2241 & Art. 2244 if the wages are not preferred under Art. According to Sec.100/2. following that exact sequential order. Specific Real Property Real Property Taxes Insurance Premiums Unpaid Price Balance Php 5. or (b) in a final judgment.000 Php 2.900. B. the unregistered mortgagee still joins in the MAHARLIKA (3rd Order) not on the COMMON TAO (4th Order).297) 0 ABSOLUTE PREFERRED = (120/2. Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in proportion.000 (102.000 In the first instance. 2244. Free Property The FREE PROPERTY is subject to Art. respectively.40 CREDIT TRANSACTIONS FINALS Mortgage To Preference of Credits The BALANCE.

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