Property is delivered to the Debtor usually retains

Credit Transactions creditor possession of the property

Hector De Leon Creditor only acquires only the Creditor does not have the
right to the fruits of the right to receive the fruits;
property; does not create real creates real right
right
Title XVI: PLEDGE, MORTGAGE AND Obliged to pay the taxes and Creditor not required to pay
ANTICHRESIS charges upon the estate in taxes
absence of contrary
CHAPTER 4: ANTICHRESIS stipulation
Fruits to apply first to interest No stipulation as to
Article 2132. By the contract of antichresis the creditor (if owing), then to principal application of fruits for the
acquires the right to receive the fruits of an immovable of payment of the principal
his debtor, with the obligation to apply them to the obligation
payment of the interest, if owing, and thereafter to the Subject matter is real property
principal of his credit. (1881) Gives real right if registered in the Registry of Property

Definition (Elements)
Application of the Fruits to Interest and then to Principal
1. The creditor acquires the right to receive the fruits
2. Of an immovable of his debtor  Must be expressly agreed upon
3. Obligation is to apply them to the payment of interest, if  Contract is one of mortgage if contract does not stipulate
owing the payment of interest but provides for the delivery of
4. And thereafter, to the principal of his credit the creditor by the debtor of the real property
constituted as security for the payment therefor, in order
Characteristics that the creditor may administer the same and avail
himself of its fruits, without stating that said fruits are to
1. Accessory: secures the performance of a principal
be applied to the payment of interest, then principal
obligation
2. Formal: must be in a specified form to be valid (e.g. in
writing)
Article 2133. The actual market value of the fruits at the
Delivery of Property
time of the application thereof to the interest and principal
 Required only in order that the creditor may receive the shall be the measure of such application. (n)
fruits
Measure of Application of Fruits to Interest and Principal
 Not in order for the contract to be binding or perfected
 Does not cover the immovable, only the fruit  Does not cover the immovable but only its fruits
 Fruits must be appraised at their actual market value at
Right of Creditor to the Fruits
the time of application
 Normally covers all the fruits of the encumbered property  Purpose is to forestall the use of antichresis for purposes
 Law, however, gives the parties to stipulate otherwise of ususry (Report of the Code Commission)
 Reduction of the fruits does not vary the nature of the
contract
Article 2134. The amount of the principal and of the
Obligation to Pay Interest Not Essential
interest shall be specified in writing; otherwise, the
 The words “if owing” reveal that it is not essential that contract of antichresis shall be void. (n)
the loan should earn interest in order that it can be
guaranteed with a contract of antichresis Form of the Contract
 Antichresis is susceptible of guaranteeing all kinds of
 Must be in writing
obligations, pure and conditional
 Even if antichresis is void, principal obligation is still valid
Antichresis vs Pledge
Notes (Clemente)
Antichresis Pledge
 Antichresis not a formal contract
Real Property Personal Property
 Writing refers to principal obligation (See however,
Perfected by mere consent Perfected by delivery of the Filipinas Marble Inc vs IAC)
thing pledged
Consensual Real
Debtor loses control of the subject matter of contract
Article 2135. The creditor, unless there is a stipulation to
the contrary, is obliged to pay the taxes and charges upon
Antichresis vs Real Mortgage the estate.
Antichresis Real Mortgage He is also bound to bear the expenses necessary for its
preservation and repair.
The sums spent for the purposes stated in this article shall
be deducted from the fruits. (1882)
Obligations of the Antichretic Creditor
1. Payment of taxes and charges upon the estate
 Creditor is required to pay indemnity if he does
not pay such
 May not be paid by the creditor if there is
express agreement to the contrary
 Where debtor paid for such, the amount is to
be applied to the payment of debt
2. Application of the fruits
 Render an account of said fruits to the debtor
 And apply such to the debt
 Sums spent buy the creditor in fulfilment of the
obligations under the article shall be charged
against the fruits of the property
Article 2138. 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,
provided that if the value of the fruits should exceed the
amount of interest allowed by the laws against usury, the
excess shall be applied to the principal. (1885a)
Interest in Antichresis Subject to Usury Law
 Fruits must be appraised on the basis of their actual
market value at the time of application
 Note: the rate of interest on loan or forbearance of
money no longer has ceiling
Article 2139. The last paragraph of article 2085, and articles
2089 to 2091 are applicable to this contract. (1886a)

Applicability of Certain Articles

Article 2136. The debtor cannot reacquire the enjoyment of
the immovable without first having totally paid what he
owes the creditor.
But the latter, in order to exempt himself from the
obligations imposed upon him by the preceding article,
may always compel the debtor to enter again upon the
enjoyment of the property, except when there is a
stipulation to the contrary. (1883)
Right of Antichretic Creditor to Reacquire Enjoyment of Property
 GR: Debtor cannot demand payment until the debt is
totally paid
 EXPN: if the creditor does not want to pay the taxes and
incur the necessary expenses for the preservation and
repair of the property, debtor may reacquire the
enjoyment of the same
 EXPN to EXPN: contrary stipulation
 See notes on Arts. 2085, 2089, and 2091
CHAPTER 5: CHATTEL MORTGAGE
Article 2140. By a chattel mortgage, personal property is
recorded in the Chattel Mortgage Register as a security for
the performance of an obligation. If the movable, instead
of being recorded, is delivered to the creditor or a third
person, the contract is a pledge and not a chattel mortgage.
(n)
Definition of Chattel Mortgage
 That contract by virtue of which personal property is
recorded in the Chattel Mortgage Register as security for
the performance of an obligation
Characteristics

1. Accessory: for the purpose of securing the performance

of a principal obligation
Article 2137. The creditor does not acquire the ownership 2. Formal: registration in the Chattel Mortgage Register is
of the real estate for non-payment of the debt within the indispensable
period agreed upon. 3. Unilateral: produces obligations only on the part of the
creditor to free the thing from encumbrance on
Every stipulation to the contrary shall be void. But the fulfilment of the obligation
creditor may petition the court for the payment of the debt
or the sale of the real property. In this case, the Rules of Chattel Mortgage vs Pledge
Court on the foreclosure of mortgages shall apply. (1884a) Chattel Mortgage Pledge
Delivery not necessary Delivery necessary
Remedy of Creditor in Case of Non-payment of Debt
Registration in the Chattel Registration not necessary
 Creditor does not acquire ownership of the real estate Mortgage necessary
 Bring an action for specific performance Procedure found in Sec. 14 Act Procedure in Art. 2112 Civil
 To petition the sale of the real property as in foreclosure No 1508 Code
mortgages under Rule 68 ROC If property is foreclosed, the If property sold, the debtor is
excess amount goes to the not entitled to excess unless
Acquisition by Creditor of Property by Prescription debtor otherwise agreed upon
If the property foreclosed has Creditor not entitled to
 Void
deficiency, the creditor is recover deficiency once
 Possession for the purpose of acquisitive prescription
entitled to recover deficiency; property is sold
must be in the concept of an owner
except if chattel mortgage is a
 Antichretic creditor only a mere holder of the land
security for the purchase of
personal property in
instalments
Similarities Between Chattel Mortgage and Pledge
1. Executed to secure performance of principal contract
2. Constituted only on personal property
3. Indivisible
4. Constitutes lien on the property
5. Creditor cannot appropriate the property to himself in
payment of the debt
6. If debtor defaults, the property must be sold for the
payment of the creditor
7. Both extinguished by the fulfilment of the principal
obligation or by the destruction of the property pledged
or mortgaged
Article 2141. The provisions of this Code on pledge, insofar
as they are not in conflict with the Chattel Mortgage Law
shall be applicable to chattel mortgages. (n)
Laws Governing Chattel Mortgage
1. Chattel Mortgage Law as amended (Act No. 1508)
2. Civil Code
3. Revised Administrative Code
4. Revised Penal Code
5. Ship Mortgage Decree (PD No. 1521)
Offenses Involving Chattel Mortgage
1. Any person who shall knowingly remove any personal
property mortgaged under the Chattel Mortgage Law to
any province or city other than the one in which it was
located at the time of the execution of the mortgage,
without the written consent of the mortgagee, or his
executors, administrators or assigns.
2. Any mortgagor who shall sell or pledge personal property
already pledged, or any part thereof, under the terms of
the Chattel Mortgage Law, without the consent of the
mortgagee written on the back of the mortgage and
noted on the record hereof in the office of the Register of
Deeds of the province where such property is located.
Applicability of Provisions on Pledge
 Only insofar as it is not in conflict with the Chattel
Mortgage Law
Subject Matter of Chattel Mortgage
1. GR: Personal or movable property
2. Others:
a. Shares of stock in a corporation:
b. Interest in business
c. Machinery treated by the parties as personal
property
d. Vessels
e. Motor Vehicles
f. House of mixed materials
g. House intended to be demolished
Mortgage of Improvements on Land
1. Chattel Mortgage: e.g. growing crops and large cattle
2. Real Estate Mortgage: parties may treat improvements
and crops as chattels; such are considered immovable in
the Civil Code
No Absolute Criterion Between Personal and Real Property
1. Under given conditions, property may have character
different from that imputed to it in the said articles
2. Parties to a contract may treat as personal property
which would be by nature a real property
Subject Matter to be Described and Identified
 Minute and specific description not necessary
 Only requires that the description of the mortgaged
property be such as to enable the parties of the mortgage
or any other person to identify the same after a
reasonable inquiry and investigation
Extent of Chattel Mortgage
1. Coverage extends only to property described therein
 Makes reference to like or substituted property
thereafter acquired
 Not to those already existing and originally
included at the date of the constitution of the
mortgage
2. Stipulation including after-acquired property
 Valid and binding
 Where the after-acquired property is in
renewal of, or in substitution for, goods, etc.
Chattel Mortgage of After-Incurred Obligations
 Chattel mortgage can only cover obligations existing at
the time the mortgage is constituted
 A promise expressed in a Chattel Mortgage to include
debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security
itself will not come to existence or arise until a chattel
mortgage agreement covering the newly contracted debt
is executed by concluding a fresh chattel mortgage or by
amending the old contract
Creation of a Chattel Mortgage
 By registration of the personal property in the Chattel
Mortgage Register
 If the property is situated in a different province form
that in which the mortgagor resides, the registration
must be in both registers
 Otherwise registration void
 If not registered, Chattel Mortgage is still binding
between the parties (Filipinas Marble Corp vs IAC)
Period Within Which Registration Should be Made
 No specific time provided for in the law
Effect of Registration
1. Creates real right
 Effective and binding notice to other creditors
of its existence
 Creates a lien which follows the chattel
wherever it goes
2. Adds nothing to mortgage
 Chattel Mortgage only acts as a constructive
notice of the existence of the contract
 Affects nobody’s rights except as a species of
notice
Registration Assignment of Mortgage not Required
  While assignment may be recorded, it is merely
permissive and not mandatory
 Debtor is still protected even if he pays the creditor not
knowing that there already was an assignment
Duty of Register of Deeds Ministerial
 No law confers upon the Register of Deeds any judicial or
quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel
mortgage
Affidavit of Good Faith Required
1. Effect of absence
 Vitiates a mortgage only as against third
persons without notice like creditors
 Special affidavit required only for the purpose
of transforming mortgage into a “preferred
mortgage”
2. Where mortgage includes thereafter to be contracted
 Void
 Will only be valid from the date the same is
made and not from the date of mortgage
Right of Redemption
1. The following may redeem:
a. Mortgagor
b. Person holding a subsequent mortgage
c. A subsequent attaching creditor
2. An attaching creditor who so redeems shall be
subrogated to the rights of the mortgagee and entitled to
foreclose the mortgage
3. Redemption is made by paying
Right Acquired by Second Mortgagee and Subsequent Purchaser
1. Before payment of debt
 Only the second mortgagee can recover the
property from the first mortgagor by paying
him the mortgage debt
 The purchaser acquires no more right than the
first mortgagor
2. After payment of debt
 The judgment or attaching creditor who
purchased the property at the execution sale
could not acquire anything except the right of
redemption
 He is not entitled to actual possession and
delivery of the property without paying first
the mortgage debt
Rights of Mortgagee to Possession
1. After default
 Gives mortgagee right to sell
2. Before default
 Mortgagee not entitled to possession of the
property
 Otherwise, the contract becomes a pledge
3. Where mortgagor refuses to surrender possession
 Institute an action to effect a judicial
foreclosure directly; or
 To secure possession as preliminary to sale
contemplated
4. Where right of mortgagee conceded/disputed
 The action need only be maintained against
him who possesses the property
 Once the object of replevin is traced to his
possession, one can properly be a defendant in
an action for replevin
5. Where third-party claims title
 Third party must make an affidavit showing
that he has title thereto or right to the
possession thereof
6. Where claimant is an unpaid seller
 Remedy is not against the mortgagee but
against the mortgagor
Foreclosure of Chattel Mortgage
1. Public Sale
2. Private Sale
Period to Close Chattel Mortgage
1. Chattel Mortgage
 After 30 days from the time of the condition
broken, caused the property to be sold at
public auction by a public officer
2. Real Estate Mortgage
 Grace period for the mortgagor is not less than
90 days but not more than 120 days from the
entry of judgment on foreclosure
Civil Action to Recover Credit
1. Independent action for enforcement of credit not
required
 Mortgagor is the one that is primarily liable and
not the mortgagee
 It is not a defense that possession has
transferred
2. Mortgage lien deemed abandoned by obtaining a
personal judgment
 For he thereby clearly manifests his lack of
desire to go after the mortgaged property as
security for the principal obligation
Ordinary Action to Recover Possession of Chattel
 Instead of merely asking for a writ of possession
 In order to give the mortgagor the opportunity to be
heard not only regarding possession but also regarding
the obligation covered by the mortgage
Action for Replevin as Remedy
1. Nature
 Both a principal remedy and a provisional relief
 Purpose is to regain possession of personal
chattels being wrongfully detained from the
plaintiff by another
 Partly in rem and partly in personam
2. Where right of possession is not disputed
 Action be maintained against him who
possesses the property
3. Where right of possession disputed
 It could become essential that such be resolved
first and have other persons impleaded for a
complete determination and resolution of the
controversy
4. Matters to be established
 The existence of the mortgagor’s default
  Establish for a valid justification for the action

Right of Mortgagee to Recover Deficiency

1. Where mortgage foreclosed

 Creditor may maintain an action for the
deficiency (De Leon)
 Law silent on this point
 Action may be brought within 10 years from the
time the cause of action accrues even if not on
a written contract
2. Where mortgage constituted as security for purchase of
personal property payable in instalments
 No deficiency judgment can be asked
 Any agreement to contrary void
3. Where property subsequently attached and sold
 The execution in such sale is not a foreclosure
sale

Application of Proceeds of Sale

1. Cost and expenses of keeping and sale

2. Payment of the obligation secured by the mortgage
3. Claims of persons holding subsequent mortgages in their
order
4. The balance, if any, shall be paid to the mortgagor, or the
person holding under him