CRC-ACE The Professional CPA Review School ain: 3F C. Villaroman Bldg. 873 P. Campast. cor Espana, Sampaloc, Manila (02) 735 8901/735 9031 Branch: Rudel Bldg. V, Lover Mabini cor Diego Siang, Baguio City (074) 422-1440 wun ercace.com email add: erc_aca@yahoo.com BUSINESS LAW ATTY. MARY ANN SAGANA. LECTURE AID - SALES SALE - A contract where one party obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party obligates himse'f to pay for said thing a price certain in money orits equivalent. Requisites to pay on the part of the buyer . Consent or meeting of minds - transfer the ownership of and to deliver on the part of the seller, b. Object or subjact matter — determinate or specific ©. Cause or consideration — price certain in money or its equivalent Elements: a. Essential: 1. Consent or meeting of minds 2. Determinate subject matter Parties: a. vendor/seller b. vendeerbuyer 3. Price certain in money or its equivalent b. Natural: +. warranty against eviction 2. warranty against hidden defects . Accidental: stipulations of the parties, Kinds of Sale: ‘a. Absolute — the contract is not subject {0 any condition and tile passes to the buyer upon delivery of the thing b. Conditional — the contract contemplates a contingency, usually payment of the price Esser Characteristics: ‘a. Consensual b. Bilateralreciprocal c. Onerous, d. Commutative e. Principal f. Nominate SALE DACION EN PAGO 4. no pre-existing credit, 1. there is a pre-existing credit 2. give rise to obligations 2. extinguishes obligations. 3. the cause or consideration here is the rice, from the viewpoint of the seller; or the obtaining of the object, from the view point of the buyer 3. the cause or consideration here, from the viewpoint of the person offering the daton in payment, is the extinguishment of his debt; from the viewpoint of the creditor, it is the acquisition of the object offered in lieu of the original credit 4. there is greater freedom determination of the price in the 4. there is less freedom the determination of the price 5. the giving of the price may generally end the obligation of the buyer 5. the giving of the object in lieu of the credit may extinguish completely or partially the credit (depending on the agreement) RELATED CONCEPTS 1. Pactum ervati Dominil (Contractual Reservation of Title) - A stipulation stating that despite delivery, the ownership of the thing shall remain with the seller until the buyer has fully paid the price.CRC-ACE/BL: Sales, Agency Pledge & Mortgage 2 2. Assignment of Credit - a contract by virtue of which one person transfers to another his rights and actions against a third person in consideration of a price certain in money or its equivalent Barter - One of the parties binds himself to give one thing in consideration of the other's promise to give another thing RULES If the consideration is partly in money and pertly in another thing: a. The manifest intention of the parties; b. If the intention is unclear, it shall be a barter if the value of the consideration exceeds the amount of the money; otherwise, itis a sale. Policitacion ~ An unaccepted unilateral promise to buy or to sell a thing, Option Contract - An accepted unilateral promise to buy or to sell which is not binding upon the promissory unless supported by a consideration separate and distinct from the purchase price EARNEST MONEY ‘OPTION MONEY T. partial payment of the purchase | 1. not part of the purchase price price 2 considered as proof of the | 2 proof of the perfection of the option contract perfection of the sale 3. deductible on the purchase price | 3. not deductible in case the contract of salo is consummated 4. Injured party may file action for | 4. Specific performance only specific performance or rescission 6. Auction sale (perfection) ~ When the auctioneer announces end of bidding by the fall of the hammer, or in any other customary manner. 7. By-bidding or Puffing - persons who have no intention to buy but are employed by the seller in auction sale to raise the price by fictitious bids. 8. Sale or return — property is sold, but the buyer, who becomes the owner of the property upon delivery, has the option to return the same to the seller instead of paying the price 9. Sale on trial, satisfaction or approval — there is delivery to the buyer but he has an option to purchase if the goods prove satisfactory therefore ownership shall be reserved to the seller until acceptance by the buyer 10. Contract for a Plece of Work (Massachusetts Rule) - If the thing is particularly madeimanufactured for a specific person only. PERSONS INCAPACITATED TO ENTER IN A CONTRACT OF SALE: ‘a. Minors and other incapacitated persons. b. Husband and wife, except: +. When separation of property was agreed upon in the marriage settlement 2. When there has been jucicial separation of property ¢. Persons who's position and relation with the owner is fiduciary in nature 4. guardians agents ‘executors and administrators public officers and employees judicial officers and employees lawyers, d. the seller in an auction sale cannot bid unless there has been reservation of the right €. unpaid seller cannot buy the goods sold by him in case of resale REQUISITES BEFORE A THING COULD BE A VALID OBJECT: ‘a. the thing must be existing or have a future or contingent existence perati/speratae — sale of future things = sale of hope or expectancy b. must be licitleaal . must be determinate d. there isa right on the part ofthe vendor to tansfer ownership at the time of delivery CERTAINTY AS TO THE PRICECRC-ACE/BL: Sales, Agency Pledge & Mortgage 3 a. both the seller and the buyer fixed or agreed upon a definite amount b. fixed with reference to another thing certain the determination of the price i left tothe judgment of a specified third person d._ ifthe third person will act in bad faith or by mistake, the court will fix the price NOTE: Ifthe price is simulated, the contract is void, unless it can be shown that it is really a donation or some other contract Deliver thing sold (including fruits and accessories) Transfer ownership Warranties Exercise diligence pending delivery Pay for the expenses of the contract, unless there a stipulation to the contrary KINDS OF DELIVERY (traditio) ‘a. Actual or real — physical transfers of control and possession of the thing b. Constructive Legal formalities or execution of public instrument Quasi-traditio Traditio simbolica Tracitio longa manu Traditio brevi manu Constitutum possesorium LOSS OF THE OBJEC’ 1. Before perfection - seller bear the loss. (res perit domino} 2. Atthe time of perfection - contract is void or inexistent Seller bears the loss. 3. After the perfection but before delivery - buyer bears the loss (exception to the rule of res perit domino) 4. After delivery - buyer bears the loss. OBLIGATIONS OF THE VENDEE: 1. Payment of the price 2. Accept the delivery 3. Pay the expenses of the contract (if stipulated) GENERAL RULE: _ Incase of sale by @ person who is rot the owner, the buyer acquires no ttle even if in good faith and for value. "Nemo dat qui non habet” (you cannot give what you do not have), EXCEPTIONS: In the following cases the buyer acquires a valid ttle: The owner is estopped by his conduct, Under recording laws Sales sanctioned by judicial or statutory authority Purchases in a merchant's store, fairs or markets. Title of the seller was merely voidable/dofective at the time of sale REMEDIES OF AN UNPAID SELLER: a. General Remedies: 1. Action for specific performance with damages 2. Action for rescission with damages b. Special Remedies: 1, Sale of personal property in installment basis [RECTO LAW| a, Specific performance in case the buyer fails to pay, b. Rescission of the sale in case of default of 2 or more installments. ©. Foreclose the chattel mortgage on the thing sold in case of default of 2 or more installments. In this case, the seller shall have no further action for deficiency judgment NOTE: + Aside from the above remedies, the seler can also retain the installments paid provided that the forfeiture was part of the stipulations of the parties and the same is not unconscionable. 3CRC-ACE/BL: Sales, Agency Pledge & Mortgage 4 + The remedies are altemative and not cumulative. + Art. 1484 does not apply in: 1. Sale of real property 2. Mortgage of real property 3. Sale of a personal property on straight terms 2. Sale of goods Unpaid seller of goods — 1. one who has not been paid or tendered the whole price 2. one who has received a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has been broken by reason of the dishonor of the instrument. a. Lien on goods while in his possession Requisites: 1. the seller is unpaid 2. the buyer is insolvent 3. the goods are in the possession of the seller 4, the goods have been sold a. without stipulation as to credit b._with a stipulation as to credit but the term has expired NOTE: Possessory lien will be lost: +. when the goods are delivered to the common carrier or other bailee without reservation of ownership; 2. when the buyer or his agent lawfully obtains possession of the goods 3. when there is waiver on the part of the seller b. Stoppagein transitu (Goods are in transit from the time they ate delivered to the carrier for the purpose of delivery to the buyer or his agent) 4. the seller is unpaid 2. buyer is insolvent 3. the goods are in transit 4. seller will bear the expenses of delivery of the goods after the exercise of the right ©. Resale of thing Requisites: 4. the sellor is unpaid 2. the buyer is in default in the payment of the price 3. the goods are perishable in nature 4. the rightis expressly reserved 5. the seller can either exercise possessory lien or stoppage in transitu d. Rescission of the contract Reauisites: the seller is unpaid the right is expressly reserved the buyer has been in default in the payment of the price for an unreasonable time the seller can exercise right of lien or stoppage in transit 3. Sale of roal estate in installment (R.A. 6552) [MACEDA LAW] a. Right of specific performance - the seller must observe the grace period granted to the buyer to pay, without additonal interest, the unpaid installment. b. Right of rescission - cancellation can only take place after 30 days from receipt of the notice of cancellation or demand for rescission by a notarial act. ¢. Right on installments - seller can retain not more than 50% of the installments pai. But if the installments paid were less than 2 years, the seller can have absolute forfeiture over the installments paid. RULES IN CASE OF DOUBLE SALE: 4. Personal Property - to the first possessor in good faith. 2. Real Property - the person who first recorded the sale in the Registry of Property (Register of Deeds) in good faith, + if not recorded, to the first possessor in good faith; + if none of the above, to the person with the oldest ttle, in good faith. Rules in case areainumber is greater/lesser than that stated in the contract 1. Ifarea was stated at the rate of a certain price for a unit or number a. Incase of excess the buyer may choose to: 4CRC-ACE/BL: Sales, Agency Pledge & Mortgage 2 4. pay for the agreed area and refuse the rest 2. accept everything but will pay for the excess. b. Incase of deficiency the buyer may choose: 4. proportional reduction of the price 2. cancellation of the contract if deficiency is at last 10% of that stated If the sale was made for alump sum: no decrease or increase in the price WARRANTY = A statement or representation made by the seller of goods, contemporaneously and as a part of the contract of sale, having reference to the character. 1 quality or ttle of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then represents. Kinds of warranty: 4. Express 2. Implied Kinds of Implied Warranties: 1. Warranty against eviction Elements: a, Vendee is deprived of the thing purchased; b. The deprivation is by virtue ofa final judgment; . The judgment is base on a prior right to the sale or an act imputable to the vendor; d. The vendor was summoned in the suit for eviction at the instance of the vendes; e. No waiver of warranty by the vende. 1. Total eviction - the vendee can demand the following: a. Value of the thing at the time of eviction; b. Income or fruits if he has been ordered to deliver them to the party who won the suit; c. Costs of the suit; d. Expenses of the contract; e. Damages and interest if the sale was in bad faith. 2. Partial eviction a. The vendee can rescind the contract; b. The vendee can demand the following: 1. Value of the thing at the time of eviction; 2. Income or fruits if he has been ordered to deliver them to the party who won the suit; 3. Costs of the suit; 4. Expenses of the contract: 5. Damages and interest ifthe sale was in bad faith Waiver of eviction: 1. Consciente - waiver without knowledge of the risk of eviction 2. Intencionada - waiver with knowledge of the risks of eviction coupled with an assumption of its consequences 2. Warranty against hidden defects Elements: ‘a, defect must be serious or important; b. it must be hidden: ©. _ it must exist at the time of the sale; d. vende must give notice of the defect to the vendor within a reasonable time: ©. _ no prescription yet (6 months from deivery of thing or 40 days in case of animals) 1. nowaiver of warranty Remi the Ver ‘a. Accion redhibitoria (rescission) b. —Accion quanti minoris (reduction of the price) 5CRC-ACE/BL: Sales, Agency Pledge & Mortgage 6 Redhibition; the avoidance of a sale on account of some vice or defect in the thing sold 3. Warranty as to Fitness or Merchantability - goods are reasonably fit for the purpose for which they are sold. EXTINGUISHMENT OF SALE 1. Same causes as all other obligations 2. Conventional Redemption - The vendor reserved the right to reacquire the property sold When to exercise the right of redemption: 1. if there is no agreement to redeem —~ there is no right to redeem (sale is absolute} 2. if there is an agreement to redeem a. but no express stipulation as to time ——-4 years form date of contract b. period was fixed or intended -— not to excaed 10 years NOTE: period of redemption may be extended ONLY before its expiration but the extension plus the original term should not exceed 10 years HOWEVER, the vendor may still exercise the right to repurchase within 30 days from the time the final judgment was rendered in a civil action on the basis that the contract was 2 true sale with right of repurchase. 3. Legal Redemption - the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or donation in payment, or by any other transaction whereby ownership is transferred by onerous tite. 1. Price of sale is unusually inadequate; 2. Vendor remains in possession; 3. Period of redemption is extended after expiration; 4, Purchaser retains part of the purchase price; 5. Vendor binds himself to pay the taxes of the thing sold: 6. Other cases where the parties really intended that the transaction shall secure the payment of a debt or the performance of any obiigation. Vendor should pay the following in case of redemption: 1. Price of the sale 2. Expenses of the contract 3. necessary and useful expenses made upon the thing sold INSTANCES OF REDEMPTION: + Under the Civil Code (iegal redemption) a. Sale of co-owner by his share to a stranger b. When a credit or other incorporeal right in tigation is sold c. Sale of an heir of his hereditary rights to a stranger d. Sale of adjacent rural lands not exceeding 1 hectare e. Sale of small urban lands bought merely for speculation. 2. Under special laws a. An equity of redemption in case of judicial foreclosures; b. Aright of redemption in cases of extra-ludicial foreclosures. LECTURE AID IN AGENCYCRC-ACE/BL: 's, Agency Pledge & Mortgage 7 AGENCY - a contract wherein a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Gharacteristics: Purpose: to extend the personality of the principal 1. Consensual Basis: representation 2. Principal Nature: fiduciary 3. Preparatory 4. Bilateral Parties: 1. Principal 5. Nominate 2. Agent 6. Onerous (KINDS OF PRINCIPAL ‘KINDS OF AGENT: 4. Disclosed principal 4. Universal 2. Partially disclosed principal 2. General 3. Undisclosed principal 3. Special Acts that may be delegated: All acts that the principal may do Exceptions: 4. Personal acts, 2. Criminal acts RELATED TERMS ‘. Commission Agent/Factor - one engaged in the purchase and sale for a principal of personal property, which for this purpose, has to be placed in his possession and at his disposal. 2. Broker -a middleman or intermediary who, in behatf of athers and for a commission or fee, negotiates contracts/transactions relating to real or personal property. 3. Factorage - compensation of a factor or commission agent. 4. Ordinary commission - compensation for the sale of goods which are placed at the possession or disposal of the agent. 5. Guaranty commission (Del credere) - fee that is given in return for the risk which the agent has to bearin the collection of credits. 6. Agency by operation of law - the heirs of the agent are constituted as temporary agents for the purpose of consummating the obligation ofthe agent. 7. Sub-agent (substitute) - a person authorized by the agent to act as his agent in the performance of an act for the agent's principal NOTE: + The agent may appoint a substitute, except when he has been prohibited by the principal * The agent shall be responsible for the acts of the substitute: 4. when he wes not given any power to appoint 2. when he was given such power but without designating the person and the person appointed as notoriously incompetent or insolvent. RULES: 1. Responsibility of two or more agents is not solidary unless it is expressly stipulated 2. Responsibility of two persons appointing an agent for a single transaction is solidary AUTHORITY - the right of an agent to effect the legal relations to his principal by the performance of ‘acis effectuated in accordance with the principal's manifestation of consent ‘Authority of an Agent Power of an Agent 7. Mandate given to the agent by his | 7. Extent of the mandate or agency principal 2. The ‘Cause’ 2 The’ Effect Communication of existence of agency: +. Special information - the person appointed as agent is considered such with respect to the person to whom it was given (e.g. by letter) 2. Public advertisement - agent is considered such with regard to any person (through newspaper, radio, etc.) Kinds of Authority 1. Express - clearly defined 2. Implied - includes necessary acts to accomplish purpose 7CRC-ACE/BL: Sales, Agency Pledge & Mortgage 8 3. General - agent's discretion is complete 4. Special - particular instructions are given 5. Apparent - agent or third person was led by the principal's conduct or word to believe that the agent was indeed authorized, when in fact he was not. Implied Agency Agency by Estoppel 1. De Jure Agent 1. Not really an agent [2 Binds the principal for acts within the | 2. Only the purported agents lable scope of his authority GENERAL RULE: Knowledge of the agent is knowledge of the principal EXCEPTIONS: 4. Agent's interests are adverse to those of the principal 2. Agent’s duly is not to disclose the information as when he is informed by way of confidential information 3. Where the person claiming the benefit of the rule colludes with the agent to defraud the principal EFFECTS OF AGENT'S ACT: 1. With authority a. in principals’ name - valid b. in his own name - not binding on the principal: agent and stranger are the only parties, ‘except regarding things belonging to the principal or when the principal ratifies the contract or derives benefit there from. 2. Without authority a. in principal's name - unauthorized and unenforceable but may be ratfied, in which case, may be validated retroactively from the beginning, b. in his own name - valid as between the agent and the third person. AGENCY COUCHED IN GENERAL TERMS = May be a general agency or a special agency. It includes only acts of administration and express power is necessary to perform any act of strict ownership even if the principal states that; 4. he withholds no power, 2. the agent may execute such acts as he may consider appropriate: 3.authorizes a generel or unlimited management Special powers of altomey are-recessary in the folowing eases: (Ace of abet domi . Tomake such payments as are not usually considered as acts of administration 2. To effect novations. hich put an end to obligations already in existence at the time the agency was constituted 3. To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired To waive any obligation gratuitously 5. To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration 6. To make gifts, except customary ones for charity or those made to employees in the business managed by the agent 7. To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration 8. To lease any real property to another person for more than one veat 9. Tobind the principal to render some service without compensation 10. To bind the principal ina contract of partnership 11. To obligate the principal as @ guarantor or surety 12. To create or convey real rights over immovable property 13. To accept or repudiate an inheritance 14. To ratify or recognize obligations contracted before the agency 45. Any other act of strict domi ion) NOTE: 1. the power to sell does not include the power to mortgage; and the power to mortgage does not include the power to sell 2. the power to compromise does not include the power to submit the dispute to arbitration. 3. the agent cannot borrow if the authority is to lend 8CRC- ACE/BL: Sales, Agency Pledge & Mortgage 9 4. if the authority is to sell 2 land, the authority must be in writing otherwise the contract of sale is void Fundamental obligations of an agent: 1 Carry out the agency in accordance with its terms Act within the scope of his authority Act in behalf of the principal Answer for the damages which through his non-performance the principal may suffer 2 3 4 5. Exercise diligence 6 7 8 9 1 Not to carry out the agency if its execution would result in loss or damage to the principal - Not to prefer his own intarast to that of his principal . Render an account of his transactions Answer for his fraud or negligence (0. Pay interest on funds he has applied to his own use ‘comply with all the obligations which the agent may have contracted within the scope of his authority advance to the agent sums necessary for the execution of the agency reimburse the agent ‘or all advances made indemnify the agent for all the damages which the agent may suffer ay the agent the compensation agreed upon MODES OF EXTINGUISHMENT OF AGENCY (RWDEAD?) Revocation Withdrawal of the agent Death, civil interdiction, insanity or insolvency of the principal or of the agent ‘olution of the firm or corporation which entrusted or accepted the agency ‘Accomplishment of the object or purpose of the agency 6. Expiration of the period for which the agency was constituted Other Modes: 4, mutual consent of the parties 2. novation 3. loss ofthe subject matter of the agoncy 4. outbreak of war if inconsistent with te agency GENERAL RULE: Agency is revocable at will of the principal ‘EXCEPTIONS: 1. if bilateral contract depends upon it 2. if itis the moans of fulfiling an obligation already contracted 3. if partner s appointed manager of a partnership and his termination is unjustifiable 4. ifitis created not only for the interest of the principal but also for the interest of third persons 5. if there is a stipulationCRC-ACE/BL: les, Agency Pledge & Mortgage 10 LECTURE AID IN PLEDGE AND MORTGAGE ‘RELATED LAWS AND CONCEPTS LOAN - By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and retum it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum essentially gratuitous, otherwise itwill be another contract bailor/iender retains the ownership of the thing loaned perfected upon delivery of the thing ‘consumable goods may be the subject of commodatumn if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition movable orimmovable property may be the object of commodatum the bailor in commodatum need not be the ovmer of the thing loaned 9. commodatum is purely personal in character. Consequently (1) The death of either the bailor or the bailee extinguishes the contract; (2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the bailee's household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use. h. a stipulation that the bailee may make use of the fruits of the thing loaned is valid i. the bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases: (1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or (2) If the use of the thing is merely tolerated by the owner i. when there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily Mutuum a. Simple loan may be gratuitous or with a stipulation to pay interest. b. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality Guaranty - a person, called the guarantor, binds himselfto the creditor to fulfil the obligation of the principal debtor in case the latter should fail to do so. a. If a person binds himself solidarily with the principal debtor, the contract is called a suretyship. b. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. Deposit - A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeoping of tho thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. a. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing. b. A doposit is a gratuitous contract, except when there is an agreement to the contrary, or Unless the depositary is engaged in the business of storing goods. ¢. Only movable things may be the abject of a deposit Antichresis - the creditor acquires the right to receive the fruits of an immovable of his debtor. with the ‘obligation to apply them to the payment of the interest, if owing, and thereatter to the principal of his credit ‘a. 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. b. The amount of the principal and of the interest shall be specfied in writing; otherwise, the contract of antichresis shall be void 10CRC-ACE/BL: Sales, Agency Pledge & Mortgage 1 ¢. The creditor, unless there isa stipulation to the contrary, is obliged to pay the taxes and charges upon the estate. * d. The creditor is also bound to bear the expenses necessary for its preservation and repair and shall be deducted from the fruits. PLEDGE -a contract by virtue of which the debtor or a third person delivers to the creditor or to a third person a movable or document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled the thing delivered shall be returned with all the fruits and accessions. + Characteristics: Kinds: a. accessory a. voluntary or conventional b. real b. legal ©. unilateral PLEDGE, REAL MORTGAGE CHATTEL MORTGAGE. 7. accessory contract 2. pledgorimortgagor mustbe absolute owner of property pledgedimortgaged 3. pledgor/morigagor must have free disposal or be authorized 4. thing pledged/morigaged may be alienated when principal obligation becomes due for payment 5. 3" persons NOT parties may be the pledgor/morigagor, 6. can secure pure, conditional, natural obligations, voidable and unenforceable contracis 7. indivisible 4. Real contract 7, Consensual contract 4. Consensual contract 2. constituted on 2. constituted on 2. consttuted on movabies movables immovables 3. property is delivered | 3. deliveryis notnecessary | 9. delivery is nol necessary to pledgee!3" person 4, net valid against 3rd_| 4. nat valid against 3 “. Ragistration in Chattel Mortgage Register is persons unless @ persons ifnot registered —_| necessary for validity ‘description of the thing pledged and the date of the pledge appear in public instrument 5. Debior not entitled to | 5. If propertyis foreclosed, | 5. Ifproperty is foreclosed, the excess over the amount excess unless the excess over the amount | due goes to the debtor otherwise agreed or | due goes to the debtor ‘except in case of legal pledge 6. Creditornot entitled | 6. if property is foreclosed _ | 6. If property is foreclosed and there is deficiency, to deficiency and there is deficiency, Creditor is entitled to recover the deficiency from the notwithstanding creditor is entitled to recover | debtor stipulation to the the deficiency from the contrary debtor Related Rules on Indivisibilty: 1. The debtors 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. 2. The creditor's heir who received his share of the debt cannot return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid, 3. In case there are several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit. 4. The indivisibilty of a pledge or mortgage is not affected by the fect that the debtors are not solidariy liable. Pactum commissorium —_- a stipulation whereby the thing pledged or mortgaged or under ‘antichresis shall automatically become the property of the creditor (appropriation of the thing) in the event of non-payment of the debt within the term fixed. Such stipulation is. null and void. Note: _Dacion en pago is not pactum commissorium Rules: 4. The thing pledged cannot be deposited with a third person without the consent of the pledgor Pledgor retains ownership of the thing pledged. Pledgor transmits possession not ownership BEN u Debior cannot demand the return of the thing pledged until the debt secured by itis paidCRC-ACE/BL: Sales, Agency Pledge & Mortgage 12 5. The pledgee who is in possession of the permission from the owner. 6. Pledge shall extend to offsprings of the animals pledged. unless otherwise stipulated 7. The pledgee shall apply the fruits and earnings pledged in payment of the expenses Incurred, interest If any, and the principal obligation. 19 pledged has no right to make use of it without RIGHTS OF THE PLEDGOR: 1. To continue to be the owner of the thing pledged, unt its sale, unless it is expropriated 2. To demand the deposit of the thing pledged should the creditor use it without authority, or misuse tt in any other way 3. To substitute the thing pledged # it is endangered without fault of the pledge without prejudice to pledgee’s right to have the thing sold at public sale 4. To bid and have preference at the foreclosure sale if he should offer the same tarms as the bidder 5. To demand the return of the thing pledged upon the extinction of the principal obligation RIGHTS OF THE PLEDGEE: 1. To retain the thing in his possession or in that of a third person to whom it has been delivered, until he debt is paid 2. To bereimbursad for expenses incurred in its preservation 3. To compensate (set-off) the fruits, income, dividends, or interests earned or produced by the thing pledged and received with those which are due to him 4. To bring the actions which pertain to the owner of the thing pledged in order to recover it from, or defend it against a third person 5. To sall the thing pledged at public auction, if without his fault, there is danger of destruction, impairment or diminution in the value of the thing 6. To claim a substitute or demand immediate payment. if he is deceived in the substance or quality of the thing pledged 7. To sell the thing pledged at public auction ifthe obligation secured is not paid 8. Tobid at the public sale 9. To collect the amount that becomes due on a credit pledged before such credit is redeemed 10. To choose which one of several things pledged shall be sold OBLIGATIONS OF THE PLEDGOR: 1. To notify the pledgee of any flaw or defect of the thing pledged known to him; otherwise, he answers for damages suffered by the pledge 2. To reimburse the pledgee for expenses made for its preservation 3. To fulfil his principal obligation. OBLIGATIONS OF THE PLEDGEE: 1. To take care of the thing pledged with the diligence of a good father of a family 2. To_answer for its loss or deterioration in the proper case 3. Not to denosit the thing pledged with a third person unless authorized 4. To be responsible for the acts of his agents or employees with respect to the thing pledged 5. Not to use the thing pledged unless authored or its preservation so requires 6. To advise the pledgor or owner in case of sale at public auction of the result thereof T. To retum the thing pledged when the principal obligation is paid. EXTINGUISHMENT OF PLEDGE: 1 retum of the thing pledged to the pledgor 2. statement in writing by the pledgee that pledge is renounced or abandoned. 3. public sale of the thing when credit was not satisfied in due time Rules: a. the pledgee has the right to sell the thing pledged in an auction sale done through a notarial act b. the pledgor/owner may bid at public auction ©. the pledgor will be preferred over other highest bidders offering the same terms d. the pledgee can bid but if he is the only bidder the bid is not valid exception: failure to sell the thing after 2 auction sales effect: the thing will be appropriated in favor of the pledge 2CRC-ACE/BL: Sales, Agency Pledge & Mortgage 13 IMPORTANT: after the foreclosure sale the obligation is extinguished whether or not the proceeds of the sale is sufficient to cover the debt secured. Contrary stipulation is, always VOID. 4, destruction or loss of the thing pledged 5. extinction of the principal obligation by payment 6. other causes of extinguishment of ordinary obligations MORTGAGE - a contract whereby the debtor secures to the creditor the fulfllment of a principal obligation, especially subjecting to such security immovable properly or real rights over immovable property in case the principal obligation is not complied with at the time stipulated. Characteristics: Object of mortgage: 1. real right 1. immovables 2. accessory contract 2. _alienable real rights upon immovables 3. indivisble 3. movables ~ chattel mortgage 4. inseparable 5. real property 6. limitation on ownership 7. can secure all kinds of obligations 8. property cannot be appropriated 9. lien Kinds of Real Mortgage: 4. Voluntary or Conventional - created by the partios, 2. Legal - one required by law to guarantee performance 3. Equitable - one which reveals an intent to make the property a security, even if the contract lacks the proper formalities of a real estate mortgage. NOTE: * Future property cannot be the object of a contract of mortgage * Contract of mortgage must appear in a public document duly recorded in the Registry of Property in order to bind third persons * Registration is not a requirement for the validity of the contract or alienation or assignment of the mortgage * Stipulation forbidding the owner from alien: ing the immovable mortgaged shall be void EXTENT OF MORTGAGE: natural accessions, improvements, growing fruits and rents or income not yet received when the obligation becomes due. FORECLOSURE - remedy aveilable to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given through the sale of the property at public auction and the application of the proceeds thereof to the payment of his claims, Stipulation of upset price (TIPO) - minimum price at vihich the property shall be sold is null and void. REDEMPTION -a transaction by which the morigagor reacquires or buys back the property which may have passed under the mortgage or civests the property of the lien which the mortgage may have created ows Redemption is allowed: 1. Foreclosure in favor of banking or credit institutions 2. Extra-judicial foreclosures Kinds of Redemption, 1. Equity of Redemption - right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortcage but before the sale of the mortgaged property or confirmation of the sale. 2. Right of Redemption - right of mortgagor to redeem the mortgaged property within a ceriain period after it was sold for the satisfaction of the mortgage debt (exercised within 1 year from registration of the sale). B