C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G
E , M O R T G A G E , A N T I C H E R I S ]| 1 G A R R A T O N N O
T E S U N O - R E C O L E T O S L A WGUARANTY
Guarantyisacontractwherebyaperson,calledtheguarantor,bindshimselftothe
creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so. [Art. 2047]
Whileasuretyundertakestopayiftheprincipaldoesnotpay,theguarantoronlybinds
himself to pay if the principal cannot pay [See benefit of
excussion, Art. 2058].
Suretyshipisarelationwhichexistswhereoneperson(principal)hasundertakenan
obligationandanotherperson(surety)isalsounderadirectandprimaryobligationor
otherdutytoathirdperson(oblige),whoisentitledtobutoneperformance,andas
between the two who are bound, the one rather than the other should
perform.
Ifapersonbindshimselfsolidarilywiththeprincipaldebtor,thecontractiscalled
suretyship and the guarantor is called a surety. GUARANTY
DISTINGUISHED FROM SURETYSHIP GuarantySuretyship
Guarantorsliabilitydependsuponan independentagreementtopaythe
obligation Surety assumes liability as a regular party to the
undertaking Guarantors engagement is a collateral undertaking
Surety is an original Promissory
Guarantorissubsidiarilyliablei.e.only obliged to pay if the
principal cannot pay Suretyisprimarilyliablei.e.boundtopay if the
principal does not pay Guarantornotboundtotakenoticeof default of
his principal Suretyordinarilyheldtoknowevery default of his
principal Guarantoroftendischargedbythemere
indulgenceofthecreditorandisusually
notliableunlessnotifiedoftheprincipals default
Suretynotdischargedeitherbythemere
indulgenceofthecreditororbywantof notice of default of the
principal NATURE AND EXTENT OF GUARANTY (1) A guaranty is generally
gratuitous [2048] (a) General Rule: Guaranty is gratuitous (b)
Exception: When there is a stipulation to the contrary (2) On the
cause of a guaranty contract A guarantor or surety is bound by the
same consideration that makes the contract effective between the
principal parties thereto. [Severino v. Severino] (a) Presence of
cause which supports principal obligation: Cause of the contract is
the same cause which supports the obligation as to the principal
debtor. The consideration
whichsupportstheobligationastotheprincipaldebtorisasufficientconsiderationto
support the obligation of a guarantor or surety.
(b)Absenceofdirectconsiderationorbenefittoguarantor:Guarantyorsurety
agreementisregardedvaliddespitetheabsenceofanydirectconsiderationreceivedby
theguarantororsurety,suchconsiderationneednotpassdirectlytotheguarantoror
surety; a consideration moving to the principal will suffice. (3)A
married woman who is a guarantor binds only her separate property,
generally [2049] C R E D I T T R A N S A C T I O N S[ G U A R A N T
Y , P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 2 G A R
R A T O N N O T E S U N O - R E C O L E T O S L A WExceptions
(a)Withherhusbandsconsent,bindthecommunityorconjugal partnership
property (b) Without husbands consent, in cases provided by law,
such as when the guaranty has redounded to the benefit of the
family. (4) A guaranty need not be undertaken with the knowledge of
the debtor [2050] (a) Guaranty is unilateral exists for the benefit
of the creditor and not for the benefit of the principal
debtor(b)Creditorhaseveryrighttotakeallpossiblemeasurestosecure
paymentofhiscreditguarantycanbeconstitutedevenagainstthewillofthe
principal debtor
However, as regards payment made by a third person: (a) Payment
without the knowledge or against the will of the debtor: (i)
Guarantor can recover only insofar as the payment has been
beneficial to the debtor [Art. 1236]
(ii)Guarantorcannotcompelthecreditortosubrogatehiminhisrights [Art.
1237] (b) Payment with knowledge or consent of the debtor:
Subrogated to all the rights which the creditor had against the
debtor (5) The guaranty must be founded on a valid principal
obligation [2052(1)] Guaranty is an accessory contract: It is an
indispensable condition for its existence
thattheremustbeaprincipalobligation.Hence,iftheprincipalobligationisvoid,itis
also void. (6) A guaranty may secure the performance of a voidable,
unenforceable, and natural obligation [2052(2)] A guaranty may
secure the performance of a: (a) Voidable contract such contract is
binding, unless it is annulled by a proper court action (b)
Unenforceable contract because such contract is not void
(c)Naturalobligationthecreditormayproceedagainsttheguarantor
although he has no right of action against the principal debtor for
the reason that the latters obligation is not civilly enforceable.
When the debtor himself offers a
guarantyforhisnaturalobligation,heimpliedlyrecognizeshisliability,thereby
transforming the obligation from a natural into a civil one. (7) A
guaranty may secure a future debt [2053]Continuing Guaranty or
Suretyship: (a) Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may not be known at
the time the guaranty is executed. This is the basis for contracts
denominated as continuing guaranty or suretyship. [Dio v. CA]
(b)Futuredebts,eveniftheamountisnotyetknown,maybeguaranteedbut
there can be no claim against the guarantor until the amount of the
debt is ascertained or fixed and demandable Rationale: A contract
of guaranty is subsidiary.
(a)Tosecurethepaymentofaloanatmaturitysuretybindshimselfto
guaranteethepunctualpaymentofaloanatmaturityandallotherobligationsof
indebtedness which may become due or owing to the principal by the
borrower. C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P
L E D G E , M O R T G A G E , A N T I C H E R I S ]| 3 G A R R A T
O N N O T E S U N O - R E C O L E T O S L A W(b) To secure payment
of any debt to be subsequently incurred a guaranty shall
beconstruedascontinuingwhenbythetermsthereofitisevidentthattheobjectisto
giveastandingcredittotheprincipaldebtortobeusedfromtimetotimeeither
indefinitelyoruntilacertainperiod,especiallyiftherighttorecalltheguarantyis
expressly reserved.
(c)Tosecureexistingunliquidateddebtsreferstodebtsexistingatthetimeof
theconstitutionof
theguarantybuttheamountthereofisunknownandnottodebtsnot yet
incurred and existing at that
time.(d)Thesuretyagreementitselfisvalidandbindingevenbeforetheprincipal
obligation intended to be secured thereby is born, just like
obligations which are subject
toaconditionprecedentarevalidandbindingbeforetheoccurrenceofthecondition
precedent. Acontinuingguarantyisonewhichisnotlimitedtoasingle
transaction, but which contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time
or until revoked.
Itisprospectiveinitsoperationandisgenerallyintendedtoprovide
securitywithrespecttofuturetransactionswithincertainlimits,and
contemplatesasuccessionofliabilities,forwhich,astheyaccrue,the
guarantor becomes liable.
Acontinuingguarantyisonewhichcoversalltransactions, including those
arising in the future, which are within the description or
contemplationofthecontractofguaranty,untiltheexpirationor
terminationthereof. A guaranty shall be construedas continuing when
bythetermsthereofitisevidentthattheobjectistogiveastanding
credittotheprincipaldebtortobeusedfromtimetotimeeither indefinitely
or until a certain period, especially if theright to recall the
guarantyisexpresslyreserved.Wherethecontractofguarantystates that
the same is to secure advances to be made "from time to time" the
guaranty will be construed to be a continuing one. (8) A guaranty
may secure the performance of a conditional obligation [2053] (a)
Principal obligation subject to a suspensive condition the
guarantor is liable only after the fulfillment of the condition.
(b)Principalobligationsubjecttoaresolutoryconditionthehappeningofthe
condition extinguishes both the principal obligation and the
guaranty (9) A guarantors liability cannot exceed the principal
obligation [2054] General Rule:
Guarantyisasubsidiaryandaccessorycontractguarantorcannotbindhimself
for more than the principal debtor and even if he does, his
liability shall be reduced to the
limitsofthatofthedebtor.Buttheguarantormaybindhimselfforlessthanthatofthe
principal. Exceptions
(a)Interest,judicialcosts,andattorneysfeesaspartofdamagesmaybe
recovered creditors suing on a suretyship bond may recover from the
surety as part of
theirdamages,interestatthelegalrate,judicialcosts,andattorneysfeeswhen
appropriate, even without stipulation and even if the surety would
thereby become liable to pay more than the total amount stipulated
in the bond. C R E D I T T R A N S A C T I O N S[ G U A R A N T Y ,
P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 4 G A R R A
T O N N O T E S U N O - R E C O L E T O S L A WInterest runs from:
(1) Filing of the complaint (upon judicial demand); or
(2)Thetimedemandwasmadeuponthesuretyuntiltheprincipalobligationis
fully paid (upon extra-judicial demand)
Rationale:Suretyismadetopay,notbyreasonofthecontract,butbyreasonofhis
failuretopaywhendemandedandforhavingcompelledthecreditortoresorttothe
courts to obtain payment.
(b)Penaltymaybeprovidedasuretymaybeheldliableforthepenalty provided
for in a bond for violation of the condition therein. Principals
liability may exceed guarantors obligations The amount specified in
a surety bond as the suretys obligation does not limit the extent
of the damages that may be recovered from the principal, the
latters liability being governed by the obligations he assumed
under his contract (10) The existence of a guaranty is not presumed
[2055]
Guarantyrequirestheexpressionofconsentonthepartoftheguarantortobebound.It
cannot be presumed because of the existence of a contract or
principal obligation. Rationale: (a) There be assurance that the
guarantor had the true intention to bind himself;
(b)Tomakecertainthatonmakingit,theguarantorproceededwith
consciousness of what he was doing. (11) Contract of guaranty is
covered by the Statute of Frauds [See Art. 1403(2)(b)] Guaranty
must not only be expressed but must so be reduced into writing.
Hence, it shall be unenforceable by action, unless the same or some
note or memorandum thereof be in writing, and subscribed by the
party charged, or by hisagent; evidence, therefore, of the
agreementcannotbereceivedwithoutthewriting,orasecondaryevidenceofits
contents. However, it need not appear in a public document NATURE
AND EXTENT OF SURETYSHIP (1) Liability is contractual and accessory
but direct (2) Liability is limited by the terms of the contract
(3) Liability arises only if principal debtor is held liable (a) In
the absence of collusion, the surety is bound by a judgment against
the principal even though he was not a party to the proceedings;
(b)Thecreditormaysue,separatelyortogether,theprincipaldebtorand the
surety;(c)Ademandornoticeofdefaultisnotrequiredtofixthesuretys
liabilityException: Where required by the provisions of the
contract of suretyship. (d) A surety bond is void where there is no
principal debtor because such
anundertakingpresupposesthattheobligationistobeenforceableagainst
someone else besides the surety, and the latter can always claim
that it was never his intention to be the sole person obligated
thereby. Note: Surety is not entitled to exhaustion (1) THE
UNDERTAKING IS TO THE CREDITOR, NOT THE DEBTORThe surety makes no
covenant or agreement with the principal that it will
fulfilltheobligationguaranteedforthebenefitoftheprincipal.Thesuretys
undertaking is that the principal shall fulfill his obligation and
that the surety shall be relieved of liability when the obligation
secured is performed. C R E D I T T R A N S A C T I O N S[ G U A R
A N T Y , P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 5
G A R R A T O N N O T E S U N O - R E C O L E T O S L A WException:
Unless otherwise expressly provided.
(2)PRIORDEMANDBYTHECREDITORUPONPRINCIPALNOTREQUIRED.SURETYISNOT
EXONERATED BY NEGLECT OF CREDITOR TO SUE PRINCIPAL. Strictissimi
juris rule applicable only to accommodation surety
Reason:Anaccommodationsuretyactswithoutmotiveofpecuniarygainandhence,
shouldbeprotectedagainstunjustpecuniaryimpoverishmentbyimposingonthe
principal,dutiesakintothoseofafiduciary.Thisrulewillapplyonlyafterithasbeen
definitely ascertained that the contract is one of suretyship or
guaranty. Strictissimi juris rule NOT applicable to compensated
sureties Reasons:
(1)Compensatedcorporatesuretiesarebusinessassociationsorganizedforthe
purposeofassumingclassifiedrisksinlargenumbers,forprofitandonanimpersonal
basis.
(2)Theyaresecuredfromallpossiblelossbyadequatecounter-bondsor
indemnityagreements.Suchcorporationsareinfactinsurersandindeterminingtheir
rights and liabilities, the rules peculiar to suretyship do not
apply.
Thestipulationintheindemnityagreementallowingthesuretytorecovereven
before it paid the creditor is enforceable. In accordance
therewith, the surety may demand from the indemnitors even before
paying the creditors. [Mercantile I nsurance Company v. Ysmael, 169
SCRA 66] EFFECTS OF GUARANTY BETWEEN THE GUARANTOR AND THE CREDITOR
(1) THE GUARANTOR HAS THE RI GHT TO BENEFI T FROM EXCUSSI ON/
EXHAUSTI ON [2058] The guarantor cannot be compelled to pay the
creditor unless the latter has: (a) Exhausted all of the property
of the debtor; and (b) Resorted to all the legal remedies against
the debtor. Exceptions to the benefit of excussion (2059) (a) As
provided in Art. 2059: (i) If the guarantor has expressly renounced
it. (ii)Ifhehasboundhimselfsolidarilywiththedebtor.Here,the
liabilityassumedisthatofasurety.Theguarantorbecomesprimarily liable
as a solidary co- debtor. In effect, he renounces in the contract
itself the benefit of exhaustion. (iii) In case of insolvency of
the debtor guarantor guarantees the solvency of the debtor. If the
debtor becomes insolvent, the liability of the guarantor arises as
the debtor cannot fulfill his obligation (iv) When the debtor has
absconded, or cannot be sued within the Philippines the creditor is
not required to go after a debtor who is hiding
orcannotbesuedinourcourts,andtoincurthedelaysandexpenses incident
thereto. Exception: When the debtor has left a manager or
representative C R E D I T T R A N S A C T I O N S[ G U A R A N T Y
, P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 6 G A R R
A T O N N O T E S U N O - R E C O L E T O S L A W(v) If it may be
presumed that anexecution on the property of the
principaldebtorwouldnotresultinthesatisfactionoftheobligationIf
suchjudicialactionincludingexecutionwouldnotsatisfytheobligation,
theguarantorcannolongerrequirethecreditortoresorttoallsuch remedies
against the debtor as the same would be but a useless formality. It
is not necessary that the debtor be judicially declared insolvent.
SouthernMotors,I nc.v.Barbosa:Therightofguarantorstodemand
exhaustionofthepropertyoftheprincipaldebtor,existsonlywhenapledgeora
mortgagehasnotbeengivenasspecialsecurityforthepaymentoftheprincipal
obligation. Luzon Steel Corp. v.
Sia:Thesuretyinthepresentcasebounditself"jointlyand
severally"(insolidum)withthedefendant;andexcussion(previousexhaustionofthe
propertyofthedebtor)shallnottakeplace"ifhe(theguarantor)hasboundhimself
solidarily with the debtor". (b) In order that the guarantor may
make use of the benefit of excussion, he must: (i) Set it up
against the creditor upon the latters demand for payment from him;
(ii) Point out to the creditor:
(a)Availablepropertyofthedebtortheguarantorshould facilitate the
realization of the excussion since he is the most interested in its
benefit. (b) Within the Philippine territory excussion of property
located
abroadwouldbealengthyandextremelydifficultproceedingandwould not
conform with the purpose of the guaranty to provide the creditor
with the means of obtaining the fulfillment of the obligation. (c)
Sufficient to cover the amount of the debt (c) If he is a judicial
bondsman and sub- surety (2084) (d) Where a pledge or mortgage has
been given by him as a special security (e) If he fails to
interpose it as a defense before judgment is rendered against him.
(2)THECREDI TORHASTHERI GHTTOSECUREAJ UDGMENTAGAI NSTTHEGUARANTOR
PRI OR TO THE EXCUSSI ON
GeneralRule:Anordinarypersonalguarantor(NOTapledgorormortgagor),may
demand exhaustion of all the property of the debtor before he can
be compelled to pay.
Exception:Thecreditormay,priorthereto,secureajudgmentagainstthe
guarantor,whoshallbeentitled,however,toadefermentoftheexecutionofsaid
judgmentagainsthim,untilafterthepropertiesoftheprincipaldebtorshallhavebeen
exhausted, to satisfy the latters obligation. (3)THECREDI
TORHASTHEDUTYTOMAKEPRI ORDEMANDFORPAYMENTFROMTHE GUARANTOR 2060)
(a) The demand is to be made only after judgment on the debt (b)
Joining the guarantor in the suit against the principal debtor is
not the demand intended by law. Actual demand has to be made. (4)
THE GUARANTOR HAS THE DUTY TO SET UP THE BENEFI T OF EXCUSSI ON
[2060]
Assoonasheisrequiredtopay,guarantormustalsopointouttothecreditoravailable
property (not in litigation or encumbered) of the debtor within the
Philippines. (5) THE CREDI TOR HAS THE DUTY TO RESORT TO ALL LEGAL
REMEDI ES [2058, 2061] C R E D I T T R A N S A C T I O N S[ G U A R
A N T Y , P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 7
G A R R A T O N N O T E S U N O - R E C O L E T O S L A WAfter the
guarantor has fulfilled the conditions required for making use of
the benefit of excussion, it becomes the duty of the creditor to:
(a) Exhaust all the property of the debtor pointed out by the
guarantor; (b) If he fails to do so, he shall suffer the loss for
the insolvency of the debtor, but only to the extent of the value
of the said property (6)THECREDI TORHASTHEDUTYTONOTI
FYTHEGUARANTORI NTHEACTI ONAGAI NST THE DEBTOR [2062]
Noticetotheguarantorismandatoryintheactionagainsttheprincipaldebtor.The
guarantor, however, is not duty bound to appear in the case, and
his non- appearance shall not constitute default, w/ its
consequential effects.
Rationale:Togivetheguarantortheopportunitytoallegeandsubstantiatewhatever
defenseshemayhaveagainsttheprincipalobligation,andchancestosetupsuch
defenses as are afforded him by law (7) A COMPROMI SE SHALL NOT
PREJ UDI CE THE PERSON NOT PARTY TO I T [2063]
(a)Acompromisebetweencreditorandprincipaldebtorbenefitstheguarantor
but does not prejudice him.
(b)Acompromisebetweenguarantorandthecreditorbenefitsbutdoesnot
prejudice the principal debtor. (8) CO-GUARANTORS ARE ENTI TLED TO
THE BENEFI T OF DI VI SI ON [2065]
Thebenefitofdivisionappliesonlywhenthereareseveralguarantorsandone
debtorforasingledebt.Exceptwhensolidarityhasbeenstipulated,aco-guarantoris
liableonlytotheextentofhisshareintheobligationasdividedamongalltheco-guarantors.
EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR (1) THE
GUARANTOR WHO PAYS HAS THE RIGHT TO BE SUBROGATED TO THE RIGHTS OF
THE CREDITOR [2067] A guarantor who pays the debt is entitled to
every remedy which the creditor has against the principal debtor,
to enforce every security and all means of payments; to stand
intheplaceofthecreditornotonlythroughthemediumofthecontract,butevenby
means of the securities entered into w/out the knowledge of the
surety; having the right to have those securities transferred to
him though there was no stipulation for it, and to avail himself of
all securities against the debtor
TheneedtoenforcetheprovisionsonindemnityinArticle2066formsthebasis
for the subrogation clause of Article 2067. The assumption,
however, is that the guarantor
whoissubrogatedtotherightsofthecreditor,hastherighttobereimbursedforhis
answeringfortheobligationofthedebtor.Absentthisrightofreimbursement,
subrogation will not be proper.
(2)THEGUARANTORHASTHEDUTYTONOTIFYTHEDEBTORBEFOREPAYINGTHE CREDITOR
[2068].
Shouldpaymentbemadewithoutnotification,andsupposingthedebtorhasalready
madeapriorpayment,thedebtorwouldbejustifiedinsettingupthedefensethatthe
obligationhasalreadybeenextinguishedbythetimetheguarantormadethepayment.
Theguarantorwillthenlosetherightofreimbursementandconsequentlytherightof
subrogation.
(3)THEGUARANTORCANNOTDEMANDREIMBURSEMENTFORPAYMENTMADEBYHIM BEFORE
THE OBLIGATION HAS BECOME DUE [2069]. C R E D I T T R A N S A C T I
O N S[ G U A R A N T Y , P L E D G E , M O R T G A G E , A N T I C
H E R I S ]| 8 G A R R A T O N N O T E S U N O - R E C O L E T O S
L A
WGeneralRule:Sinceacontractofguarantyisonlysubsidiary,theguarantorcannotbe
liablefortheobligationbeforetheperiodonwhichthedebtorsLiabilitywillaccrue.
Anypaymentmadebytheguarantorbeforetheobligationisduecannot
beindemnified by the debtor. Exception: Prior consent or subsequent
ratification by the debtor (4) THE GUARANTOR MAY PROCEED AGAINST
THE DEBTOR EVEN BEFORE PAYMENT HAS BEEN MADE [2071] General Rule:
Guarantor has no cause of actionagainst the debtor until after the
former has paid the obligation. Exceptions (Art. 2071) (a) When he
is sued for the payment; (b) In case of insolvency of the principal
debtor; (c) When the debtor has bound himself to relieve him from
the guaranty within a specified period, and this period has
expired;
(d)Whenthedebthasbecomedemandable,byreasonoftheexpirationofthe
period for payment; (e) After the lapse of 10 years, when the
principal obligation has no fixed period for its maturity, unless
it be of such nature that it cannot be extinguished except within a
period longer than 10 years;
(f)Iftherearereasonablegroundstofearthattheprincipaldebtorintendsto
abscond; (g) If the principal debtor is in imminent danger of
becoming insolvent.
Rationale:Toenabletheguarantortotakemeasuresfortheprotectionofhisinterestin
view of the probability that he would be called upon to pay the
debt. As such, he may, in
thealternative,obtainreleasefromtheguaranty;ordemandsecuritythatshallprotect
him from any proceeding by the creditor, and against the insolvency
of the debtor. EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS When
there are two or more guarantors, one debtor and one debt:
(a)Theonewhopaysmaydemandfromeachoftheotherstheshare proportionally
owing to him
(b)Ifanyoftheguarantorsisinsolvent,hisshareshallbebornebythe
others, including the payer, in the same proportion [Art. 2073] For
purposes of proportionate reimbursement, the other guarantors may
interpose
suchdefensesagainstthepayingguarantorasareavailabletothedebtoragainstthe
creditor, except those that are personal to the debtor [Art. 2074]
Requisites for the applicability of Art. 2073: (1) Payment has been
made by one guarantor; (2) The payment was made because (a) Of the
insolvency of the debtor, or (b) By judicial demand
(3)Thepayingguarantorseekstobeindemnifiedonlytotheextentofhis
proportionate share in the total obligation. EXTINGUISHMENT OF
GUARANTY
(1)Oncetheobligationofthedebtorisextinguishedinanymannerprovidedin
theCivilCode,theobligationoftheguarantorisalsoextinguished[2076].However,
C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E
, M O R T G A G E , A N T I C H E R I S ]| 9 G A R R A T O N N O T
E S U N O - R E C O L E T O S L A Wthere may be instances when,
after the extinguishment of the guarantors obligation (as in the
case of a release from the guaranty), the obligation of the debtor
still subsists.
(2)Althoughtheguarantorgenerallyhastomakepaymentinmoney,anyother
thingofvalue,ifacceptedbythecreditor,isvalidpaymentandthereforereleasesthe
guarantor [dacion en pago] [2077].
(3)Ifoneguarantorisreleasedwithouttheconsentoftheothers,therelease
wouldbenefitthecoguarantorstotheextentoftheproportionateshareoftheguarantor
released [2078].
(4)Aguarantorisreleasedifthecreditor,withouttheguarantorsconsent,
extendsthetimewithinwhichthedebtormayperformhisobligation[2079].Thisisto
protecttheinterestoftheguarantorshouldthedebtorbeinsolventduringtheperiodof
extension and deprive the guarantor of his right to reimbursement.
(5)Theguarantorsarereleasedifbysomeactofthecreditortheycannotbe
subrogated to the rights, mortgages and preferences of the latter.
[2080] In order to constitute an extension discharging the surety,
it should appear that the extension was for (1) a definite period,
(2) pursuant to an enforceable agreement between the principal and
the creditor, and (3) that it was made without the consent of the
surety
orwithareservationofrightswithrespecttohim.(FilipinasTextileMillsv.CA,
November 12, 2003) LEGAL AND JUDICIAL BONDS Bond an undertaking
that is sufficiently secured, and not cash or currency. Bondsman a
surety offered in virtue of a provision of law or a judicial order.
QUALIFICATIONSOFPERSONALBONDSMAN[2082INRELATIONTO ART. 2056] (1) He
possesses integrity; (2) He has capacity to bind himself; (3) He
has sufficient property to answer for the obligation which he
guarantees. PLEDGE OR MORTGAGE IN LIEU OF BOND [2083] (a) Guaranty
or suretyship is a personal security. (b) Pledge or mortgage is a
property or real security. If the person required to give
alegalorjudicialbondshouldnotbeabletodoso,apledgeormortgagesufficientto
cover the obligation shall be admitted in lieu thereof. BONDSMAN
NOT ENTITLED TO EXCUSSION [2084] A judicial bondsman and the
sub-surety are not entitled to the benefit of excussion.(a) Reason:
They are not mere guarantors, butsureties whose liability is
primary and solidary.(b) Effect of negligence of creditor: Mere
negligence on the part of the creditor in collecting from the
debtor will not relieve the surety from liability. PLEDGE Pledge is
a contract byvirtue ofwhich the debtor delivers to the creditoror
to a
thirdpersonamovableordocumentevidencingincorporealrightsforthepurposeof
securingthefulfillmentofaprincipalobligationwiththeunderstandingthatwhenthe
obligationisfulfilled,thethingdeliveredshallbereturnedwithallitsfruitsand
accessions. [Art.2085 in relation to 2093] PROVISIONS APPLICABLE
ONLY TO PLEDGE (1) Transfer of possession to the creditor or to
third person by common agreement is essential [2093]. C R E D I T T
R A N S A C T I O N S[ G U A R A N T Y , P L E D G E , M O R T G A
G E , A N T I C H E R I S ]| 10 G A R R A T O N N O T E S U N O - R
E C O L E T O S L A W(a) Actual delivery is important.
(b)Constructiveorsymbolicdeliveryofthekeytothewarehouseis
sufficient to show that the depositary appointed by common consent
of the parties was legally placed in possession. (2) All movables
within the commerce of man may be pledged as long as they are
susceptible of possession [2094].
(3)Incorporealrightsmaybepledged.Theinstrumentsrepresentingthepledged
rights shall be delivered to the creditor; if negotiable, they must
be indorsed [2095].
(4)Pledgeshalltakeeffectagainst3rdpersonsonlyifthefollowingappearina
public instrument: (a) Description of the thing pledged. (b) Date
of the pledge [2096].
(5)Thethingpledgedmaybealienatedbythepledgororowneronlywiththe
consentofthepledgee.Ownershipofthethingpledgedistransmittedtothevendeeor
transferee as soon as the pledgee consents to the alienation, but
the latter shall continue to have possession [2097].(6) Creditor
has the right to retain the thing in his possession or in that of a
third person to whom it has been delivered, until the debt is paid
[2098].
(7)SpecialLawsapplytopawnshopsandestablishmentsengagedinmaking
loans secured by pledges. Provisions of the Civil Code shall apply
subsidiarily to them. In case of doubt as to whether a transaction
is a pledge or a dation in payment, the
presumptionisinfavorofpledge,thelatterbeingthelessertransmissionofrightsand
interests. (Manila Banking Corp. v. Teodoro, 169 SCRA 95) KINDS (1)
Voluntary or conventional Created by agreement of parties. (2)
Legal Created by operation of law.
ESSENTIALREQUISITESCOMMONTOPLEDGEANDMORTGAGE[ART. 2085] (1)
Constituted to secure the fulfillment of a principal obligation.
(2)Pledgorormortgagormustbetheabsoluteownerofthethingpledgedor
mortgaged. (3) The persons constituting the pledge or mortgage have
the free disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose. (4) Cannot exist
without a valid obligation. (5) Debtor retains the ownership of the
thing given as a security.
(6)Whentheprincipalobligationbecomesdue,thethingpledgedormortgaged
may be alienated for the payment to the creditor. [Art. 2087]
OBLIGATION OF PLEDGEE (1) The pledgee cannot deposit the thing
pledged with a 3rd person, unless there is a contrary stipulation
[2100]. (2) Is responsible for the acts of his agents or employees
with respect to the thing pledged [2100]. (3) Has no right to use
the thing or to appropriate its fruits without authority from the
owner [2104]
(4)Maycausethepublicsaleofthethingpledgedif,withoutfaultonhispart,
thereisdangerofdestruction,impairmentordimunitioninvalueofthething.The
proceeds of the auction shall be a security for the principal
obligation [2108]. RIGHTS OF PLEDGOR (1) Takes responsibility for
the flaws of the thing pledged [2101 in relation to Art. 1951]. C R
E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E , M
O R T G A G E , A N T I C H E R I S ]| 11 G A R R A T O N N O T E S
U N O - R E C O L E T O S L A
W(2)Cannotaskforthereturnofthethingagainstthewillofthecreditor,unless
and until he has paid the debt and its interest, with expenses in a
proper case [2105]. Yuliongsiu vs.
PNB:Thereisauthoritysupportingthepropositionthatthepledgeecan
temporarily entrust the physical possession of the chattels pledged
to the pledgor without
invalidatingthepledge.Insuchacase,thepledgorisregardedasholdingthepledged
propertymerelyastrusteeforthepledgee.Thetypeofdeliverywilldependuponthe
nature and the peculiar circumstances of each case.
PNBvs.Atendido:accordingtolaw,apledgeecannotbecometheownerof,nor
appropriate to himself, the thing given in pledge. If by the
contract of pledge the pledgor continues to be the owner of the
thingpledged during the pendencyof the obligation, it
standstoreasonthatincaseoflossoftheproperty,thelossshouldbebornebythe
pledgor.
(3)Subjecttotherightofthepledgeeunderarticle2108,pledgorisallowedto
substitutethethingwhichisindangerofdestructionorimpairmentwithoutany
faultonthepartofthepledgeewithanotherthingofthesamekindandquality
[2107].
(4)Mayrequirethatthethingbedepositedwitha3rdperson,ifthroughthe
negligenceorwillfulactofthepledgeethethingisindangerofbeinglostor
impaired [2106]. PERFECTION ARTS. 2093, 2096REQUISITES FOR
PERFECTION (1) The thing pledged is placed in the possession of the
creditor or a third person [2093] (2) For the pledge to take effect
as against third persons, a description of the thing pledged and
the date of the pledge should appear in a public instrument [2096]
FORECLOSURE ARTS. 2112, 2115 REQUIREMENTS IN SALE OF THE THING
PLEDGED BY A CREDITOR, IF CREDIT IS NOT PAID ON TIME (ART 2112) (1)
Debt is due and unpaid. (2) Sale must be at a public auction. (3)
Notice to the pledgor and owner, stating the amount due. (4) Sale
must be made with the intervention of a notary public.
(5)Ifatthefirstauctionthethingisnotsold,asecondonewiththesame
formalities shall be held.
(6)Ifatthesecondauction,thereisnosaleeither,thecreditormayappropriate
the thing pledged but he shall give an acquittance (release) for
his entire claim. EFFECT OF THE SALE OF THE THING PLEDGED [Art
2115] (1) Extinguishes the principal obligation, whether the
proceeds of the sale is more or less than the amount due.
(2)Ifthepriceofsaleismorethanamountdue,thedebtorisnotentitledtothe
excess unless the contrary is provided. (3) If the price of sale is
less, the creditor is not entitled to recover the deficiency. A
contrary stipulation is void. PLEDGE BY OPERATION OF LAW ART. 2121-
2122 LEGAL PLEDGES/PLEDGE BY OPERATION OF LAW [Art. 2121] (1)
Necessary expenses shall be refunded to every possessor, but only a
possessor in good faith may retain the thing until he has been
reimbursed.
(a)Usefulexpensesshallberefundedonlytothepossessoringoodfaith
withthesamerightofretention,thepersonwhohasdefeatedhiminthe C R E D
I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E , M O R
T G A G E , A N T I C H E R I S ]| 12 G A R R A T O N N O T E S U N
O - R E C O L E T O S L A
Wpossessionhavingtheoptionofrefundingtheamountoftheexpensesorof
payingtheincreaseinvaluewhichthethingmayhaveacquiredandbyreason
thereof [Art. 546] (2) He who has executed work upon a movable has
a right to retain it byway of pledge until he is paid. This is
called the mechanics lien. [Art. 1731]
(3)Theagentmayretainthethingswhicharetheobjectsofagencyuntilthe
principaleffectsthereimbursementandpaystheindemnity.Thisiscalledtheagents
lien. [Art. 1914]
(4)Thelaborerswagesshallbealienonthegoodsmanufacturedorthework
done. [Art. 1707] Note:
(1)Inlegalpledges,theremainderofthepriceofthesaleshallbedeliveredtothe
obligor. (2) Public auction of legal pledges may only be executed
after demand of the amount for
whichthethingisretained.Itshalltakeplacewithinonemonthafterthedemand,
otherwise the pledger may demand the return of the thing pledged,
provided s/he is able to show that the creditor did not cause the
public sale without justifiable grounds. [Article 2122]
DISTINGUISHED FROM CHATTEL MORTGAGE ARTS. 2140, 1484 Chattel
MortgagerPledge Delivery of Personal Property Not required
Deliveryisrequiredforthevalidityofthe pledge Registration in the
Chattel Mortgage Register NecessaryforvalidityoftheCMagainst third
persons Notnecessary;Publicdocumentisenough to bind third persons
Right to Excess of Proceeds of Sale The excess goes to the debtor/
mortgagorTheexcessgoestothepledgee/creditor, unless otherwise
stipulated Right to Recover Deficiency
Creditor/mortgageecanrecoverfromthe
debtor/mortgagor,exceptifcoveredby Recto Law
Creditor/mortgageeisnotentitledto
recoveranydeficiencyafterthepropertyis sold, notwithstanding
contrary stipulation Note: The provisions of the Civil Code on
pledge, insofar as they are not in conflict with the Chattel
Mortgage Law shall be applicable to chattel mortgages [Art. 2141]
REAL MORTGAGE Mortgage is a contractwherebythe debtor secures tothe
creditor thefulfillment
ofaprincipalobligation,immediatelymakingimmovablepropertyorrealrights
answerabletotheprincipalobligationincaseitisnotcompliedwithatthetime
stipulated. OBJECTS OF REAL MORTGAGE [Art. 2124] (1) Immovables (2)
Alienable real rights over
immovables.(a)Futurepropertycannotbeanobjectofmortgage;however,a
stipulation subjecting to the mortgage improvements which the
mortgagor
maysubsequentlyacquire,installoruseinconnectionwithrealproperty
already mortgaged belonging to the mortgagor is valid.
CHARACTERISTICS C R E D I T T R A N S A C T I O N S[ G U A R A N T
Y , P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 13 G A R
R A T O N N O T E S U N O - R E C O L E T O S L A
W(1)Asageneralrule,themortgagorretainspossessionoftheproperty.Hemay
deliversaidpropertytothemortgageewithoutalteringthenatureofthecontractof
mortgage. (2) It is not an essential requisite that the principal
of the credit bears interest, or
thattheinterestascompensationfortheuseoftheprincipalandtheenjoymentofits
fruits be in the form of a certain percentage thereof.
(3)Mortgagecreatesanencumbranceovertheproperty,butownershipofthe
propertyisnotpartedwith.Itmerelyrestrictsthemortgagorsjusdisponendioverthe
property. The mortgagor may still sell the property, and any
stipulation to the contrary is void [Art. 2130]
(4)Mortgageextendstothenaturalaccessions,totheimprovementsofgrowing
fruits and the rents or income NOT YET RECEIVED when the obligation
becomes DUE,
includingindemnityfrominsurance,and/oramountreceivedfromexpropriationfor
public use [Art. 2127]
(a)Appliesonlywhentheaccessionsandaccessoriessubsequently
introduced belongs to the mortgagor.
(b)Toexcludethem,theremustbeanexpressstipulation,orthefruits must
be collected before the obligation becomes due.
(c)Thirdpersonswhointroduceimprovementsuponthemortgaged property
may remove them at any time The consideration of the accessory
contract of real estate mortgage is the same as that of the
principal contract. [Central Bank v. CA, 139 SCRA 46] KINDS (1)
Voluntary constituted by the will of the owner of the property on
which it is created (2) Legal required by law to be executed in
favor of certain persons:
(a)Personsinwhosefavorthelawestablishesamortgagehavenoother
rightthantodemandtheexecutionandrecordingofthedocumentinwhichthe
mortgage is formalized [Article 2125] (b) The bondsman who is to be
offered in virtue of a provision of law or of
ajudicialordershallhavethequalificationsprescribedinArt2056(integrity,
capacity to bind himself, and sufficient property to answer for the
obligation), and in other laws [Article 2082] (c) If the person
bound to give a bond should not be able to do so, a pledge
ormortgageconsideredsufficienttorecoverhisobligationshallbeadmittedin
lieu thereof [Article 2083] (3) Equitable One which, although
lacking the proper formalities of a mortgage, shows the intention
of the parties to make the property a security for the debt.
(a)Liencreatedthroughequitablemortgageoughtnottobedefeatedby
requiring compliance with formalities necessary to the validity of
a voluntary real estate mortgage. Ex.: Pacto de retro
(b)Provisionsgoverningequitablemortgage:Arts.1365,1450,1454, 1602,
1603, 1604 and 1607.
PRINCIPLEOFINDIVISIBILITYOFPLEDGE/MORTGAGE[ART.2089TO 2090]
(a)Dayrit v.
CA:Amortgagedirectlyandimmediatelysubjectsthepropertyupon
whichitisimposed.Itisindivisibleeventhoughthedebtmaybedivided,andsuch
indivisibility is likewise unaffected by the fact that the debtors
are not solidarity liable. (b) Central Bank v. CA: Where only a
portion of the loan is released, the mortgage becomes enforceable
only as to the proportionate value ofthe loan
Indivisibilityappliesonlyastopledgors/mortgagorswhoarethemselvesdebtorsinthe
principal obligation, and not to accommodation pledgors/mortgagors
C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E
, M O R T G A G E , A N T I C H E R I S ]| 14 G A R R A T O N N O T
E S U N O - R E C O L E T O S L A W
"Whenseveralthingsarepledgedormortgaged,eachthingforadeterminate
portion of the debt, the pledges or mortgage, are considered
separate from each other. But when the several thingsaregiven
tosecure the same debt in its entirety,all of themare liable for
the debt, and the creditor does not have to divide his action
bydistributing the debt among the various things pledged or
mortgaged. Even when only a part of the debt remains unpaid, all
the things are still liable for such balance." [Tolentino]
Thequestioniswhetherornotthewritteninstrumentincontroversywasa
mortgage OR a conditional sale. The correct test, where it can be
applied, is the continued existence of a debt or liability between
the parties. If such exists, the conveyance may be
heldtobemerelyasecurityforthedebtoranindemnityagainsttheliability.(Reyes
v. Sierra, 93 SCRA 473) ESSENTIAL REQUISITES COMMON TO PLEDGE AND
MORTGAGE (1) Constituted to secure the fulfillment of a principal
obligation.
(2)Pledgorormortgagormustbetheabsoluteownerofthethingpledgedor
mortgaged. (3) The persons constituting the pledge or mortgage have
the free disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose.
Note:Thirdpersonswhoarenotpartiestotheprincipalobligationmay secure
the latter by pledging or mortgaging their own property. [Art.
2085] (4) Cannot exist without a valid obligation. (5) Debtor
retains the ownership of the thing given as a security.
(6)Whentheprincipalobligationbecomesdue,thethingpledgedormortgaged
may be alienated for the payment to the creditor. [Art. 2087] (7)
Must be recorded in the Registry of Property in order to be validly
constituted.
Note:Themortgagewouldstillbebindingbetweenthepartieseveniftheinstrumentis
not recorded. FORECLOSURE OF MORTGAGE
Itistheremedyavailabletothemortgageebywhichhesubjectsthemortgaged
property to the satisfaction of the obligation secured by the
mortgage.
(a)InGeneral:Anactionforforeclosureofamortgageislimitedtothe amount
mentioned in the mortgage, EXCEPT when the mortgage contract
intends to secure future loans or advancements (b) BLANKET
mortgage/DRAGNET mortgage that subsumes all debts of past or future
origin (c)Mortgagemaybeusedasacontinuingsecuritywhichsecuresfuture
advancements and is not discharged by the repayment of the amount
in the mortgage(d) Alienation or assignment of mortgage credit is
valid even if it is not registered Acceleration
Clause,orthestipulationstatingthatontheoccasionofthemortgagors
default, the whole sum remaining unpaid automatically becomes due
and demandable, is ALLOWED KINDS OF FORECLOSURE (1) Judicial
Foreclosure (2) Extrajudicial Foreclosure JUDICIAL FORECLOSURE Rule
68, ROC: (a) May be availed of by bringing an action in the proper
court which has
jurisdictionovertheareawhereintherealorpersonal(incaseofchattel
mortgage) property involved or a portion thereof is situated. C R E
D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E , M O
R T G A G E , A N T I C H E R I S ]| 15 G A R R A T O N N O T E S U
N O - R E C O L E T O S L A
W(b)Ifthecourtfindsthecomplainttobewellfounded,itshallorderthe
mortgagor to pay theamount due with interest and other
chargeswithin a period of not less than 90 days nor more than 120
days from the entry of judgment. If the mortgagor fails to pay at
the time directed, the court, upon motion, shall order the property
to be sold to the highest bidder at a public auction. (c) Upon
confirmation of the sale by the court, it shall operate to divest
the rights of all parties to the action and to vest their rights to
the purchaser subject to such rights of redemption as may be
allowed by law. (d) Before the confirmation, the court retains
control of the proceedings (e) Execution of judgment subject to
APPEAL but not annulment
(f)Theforeclosureofthepropertyiscompletedonlywhenthesheriffs
certificate is executed, acknowledged and recorded The Proceeds of
the Sale shall be applied to the Payment of the: (a) Costs of the
sale; (b) Amount due the mortgagee;
(c)Claimsofjuniorencumbrancersorpersonsholdingsubsequent mortgages
in the order of their priority; and (d) Balance, if any shall be
paid to the mortgagor. Nature of Judicial Foreclosure Proceedings
(1) Quasi in rem action. Hence, jurisdiction may be acquired
through publication. (2) Foreclosure is only the result or incident
of the failure to pay debt. (3) Survives death of mortgagor.
EXTRAJUDICIAL FORECLOSURE [ACT NO. 3135]
(1)Appliestomortgageswheretheauthoritytoforecloseisgrantedtothe
mortgagee. (2) Authority is not extinguished by death of mortgagor
or mortgagee. This is an agency coupled with interest. (3) Public
sale should be made after proper notice tothe public, otherwise it
is a jurisdictional defect which could render the sale voidable.
(4)Thereisnoneedtonotifythemortgagor,wherethereisnocontractual
stipulation therefor. Proper notice consists of: (a) Posting notice
in three public places and/or(b) Publication in newspaper of
general circulation Purpose of notice is to obtain the best bid for
the foreclosed property (5) Surplus proceeds of foreclosure sale
belong to the mortgagor.
(6)Debtor(whomustbeaNATURALPERSON)hastherighttoredeemthe property
sold within 1 year from and after the date of sale.
(a)Ifthemortgageeisabankandthedebtorisajuridicalperson,then
thereisnorightofredemption.However,itmayredeemthepropertyBEFORE
theregistrationoftheTCTtothebuyer,whichissimilartotheequityof
redemption.TheTCTmustberegisteredwithinTHREEMONTHSafterthe
foreclosure. (b) The mortgagor can only legally transfer the right
to redeem and the use of the property during the period of
redemption. (7) Remedy of party aggrieved by foreclosure is a
petition to set aside sale and the cancellation of writ of
possession. However, if the mortgagee is a bank, the mortgagor is
required to post a bond equal to the value of the mortgagees claim.
C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E
, M O R T G A G E , A N T I C H E R I S ]| 16 G A R R A T O N N O T
E S U N O - R E C O L E T O S L A
W(8)Republicationofthenoticeofsaleisnecessaryforthevalidityofthe
postponed extrajudicial sale
(9)InforeclosureofrealestatemortgageunderAct3135,thebuyeratauction
maypetitionthelandregistrationcourtforawritofpossessionpendingtheone-year
period of redemption of the foreclosed property. Nature of Power of
Foreclosure by Extrajudicial Sale (1) Conferred for mortgagees
protection. (2) An ancillary stipulation. (3) A prerogative of the
mortgagee. Note: (a) Both should be distinguished from execution
sale governed by Rule 39, ROC. (b) Foreclosure retroacts to the
date of registration of mortgage. (c) A stipulation of upset price,
or the minimum price at which the property shall
besoldtobecomeoperativeintheeventofaforeclosuresaleatpublicauction,isnull
and void. Right of mortgagee to recover deficiency (1) Mortgagee is
entitled to recover deficiency.
(2)Ifthedeficiencyisembodiedinajudgment,itisreferredtoasdeficiency
judgment. (3) Action for recovery of deficiency may be filed even
during redemption
period.(4)Actiontorecoverprescribesafter10yearsfromthetimetherightofaction
accrues. Effect of inadequacy of price in foreclosure sale (1)
Where there is right to redeem, inadequacy of price is immaterial
because the judgment debtor may redeem the property. (a) Exception:
Where the price is so inadequate as to shock the conscience of the
court, taking into consideration the peculiar circumstances. (2)
Propertymaybe sold for less than its fair marketvalue, upon the
theorythat the lesser the price the easier it is for the owner to
redeem.
(3)Thevalueofthemortgagedpropertyhasnobearingonthebidpriceatthe
public auction, provided that the public auction was regularly and
honestly conducted. A suit for the recovery of the deficiency after
the foreclosure of a mortgage is in the nature of a mortgage action
because its purpose is precisely toenforce the mortgage contract.
[Caltex v. IAC, 176 SCRA 741] Waiver of security by creditor
(1)Mortgageemaywaivetherighttoforeclosehismortgageandmaintaina
personal action for recovery of the indebtedness. (2) Mortgagee
cannot have both remedies. This is because he only has one cause of
action, the nonpayment of the mortgage debt. Redemption (1) It is a
transaction by which the mortgagor reacquires the property which
may
havepassedunderthemortgageordiveststhepropertyofthelienwhichthemortgage
may have created (2) Kinds: (a)Equity of
redemption:injudicialforeclosureofrealestatemortgage under the ROC,
it is the right of the mortgagor to redeem the mortgaged property
bypayingthesecureddebtwithinthe120dayperiodfromentryofjudgmentor C
R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E ,
M O R T G A G E , A N T I C H E R I S ]| 17 G A R R A T O N N O T E
S U N O - R E C O L E T O S L A
Waftertheforeclosuresale,butbeforethesaleofthemortgagedpropertyor
confirmation of sale
(i)formaloffertoredeempreservestherightofredemption,e.g., by filing
an action to enforce the right to redeem
(b)Rightofredemption:inextrajudicialforeclosureofrealestate
mortgage,therightofthemortgagortoredeemthepropertywithina certain
period after it was sold for the satisfaction of the debt. (ii) For
natural persons one year from the registration of the TCT (iii) For
juridical persons three months from the foreclosure
(iv)Formaloffertoredeemmustbewithtenderofredemption price to
preserve right of redemption Note: There is no right of redemption
in pledge and chattel mortgage. Medida v. CA: The rule up to now is
that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without
the right being exercised. The title to land sold under mortgage
foreclosure remains, in the mortgagor or his grantee until the
expiration of the redemption period and conveyance by the master's
deed ANTICHRESIS
Antichresisisacontractwherebythecreditoracquirestherighttoreceivethe
fruits of an immovable of the debtor, with the obligation to apply
then to the payment of the interest, if owing, and thereafter to
the principal of the credit [Art 2132] CHARACTERISTICS (1)
Accessory contract it secures the performance of a principal
obligation (2) Formal contract it must be in a specified form to be
valid [Art. 2134] SPECIAL REQUISITES: (1) It can cover only the
fruits of an immovable property
(2)Deliveryoftheimmovableisnecessaryforthecreditortoreceivethefruits,
not to make the contract binding (3) Amount of principal and
interest must be specified in writing [Art. 2134] (4) Express
agreement that debtor will give possession of the property to
creditor
andthatthelatterwillapplythefruitstotheinterest,ifany,thentotheprincipalofhis
credit
NOTE:Theobligationtopayinterestisnottheessenceofthecontractofantichresis;
there being nothing in the Code to show that antichresis is only
applicable to securing the
paymentofinterestbearingloans.Onthecontrary,antichresisissusceptibleof
guaranteeing all kinds of obligations, pure or conditional
OBLIGATIONS OF ANTICHRETIC CREDITOR
(1)Topaytaxesandchargesontheestate,includingnecessaryexpenses[Art.
2135]. Creditor may avoid said obligation by: (a) compelling the
debtor to reacquire enjoyment of the property (b) by stipulation to
the contrary
(2)Toapplyallthefruits,afterreceivingthem,tothepaymentofinterest,if
owing, and thereafter to the principal (3) To render an account of
the fruits to the debtor (4) To bear the expenses necessary for its
preservation and repair REMEDIES OF CREDITOR IN CASE OF NON-PAYMENT
OF DEBT C R E D I T T R A N S A C T I O N S[ G U A R A N T Y , P L
E D G E , M O R T G A G E , A N T I C H E R I S ]| 18 G A R R A T O
N N O T E S U N O - R E C O L E T O S L A W(1) Action for specific
performance(2) Petition for the sale of the real property as in a
foreclosure of mortgage under Rule 68 of the Rules of Court [Art.
2137] (a) The parties, however, may agree on an extrajudicial
foreclosure in the same manner as they are allowed in contracts of
mortgage and pledge [Tavera v. El Hogar Filipino, Inc. 68 Phil 712]
(b)Astipulationauthorizingtheantichreticcreditortoappropriatethe
property upon the non-payment of the debt within the agreed period
is void [Art. 2088] CHATTEL MORTGAGE DEFINITION AND CHARACTERISTICS
Chattel Mortgage is a conditional sale of personal property as
security for the payment of a debt, or the performance of some
other obligation specified therein, the condition being
thatthesaleshallbevoiduponthesellerpayingtothepurchaserasumofmoneyor
doingsomeotheractnamed.Iftheconditionisperformedaccordingtoitsterms,the
mortgageandsaleimmediatelybecomevoid,andthemortgageeistherebydivestedof
his title. [Section 3, Act 1508] CHARACTERISTICS
(1)Itisanaccessorycontractbecauseitsecuresperformanceofaprincipal
obligation (2) It is a formal contract because it requires
registration in the Chattel Mortgage Register for its validity (but
only as against third persons)
(3)Itisaunilateralcontractbecauseitproducesonlyobligationsonthepartof
the creditor to free the thing from the encumbrance on fulfillment
of the obligation. (4) The excess of the proceeds of the sale goes
to the debtor/mortgagor (5) Creditor/mortgagee can recover
deficiency from the debtor/mortgagor, except if covered by the
Recto Law REGISTRATIONPERIODWITHINWHICHREGISTRATIONSHOULDBE MADE
Thelawissubstantiallyandsufficientlycompliedwithwheretheregistrationis
made by the mortgageebeforethe mortgagor has complied withhis
principal obligation and no right of innocent third persons is
prejudiced. EFFECT OF REGISTRATION (1) Creates real rights (2) Adds
nothing to mortgage REGISTRATION OF ASSIGNMENT OF MORTGAGE NOT
REQUIRED (a) A chattel mortgage may be alienated or assigned to a
third person
(b)Thedebtorisprotectedifhepayshiscreditorwithoutactualknowledgethat
the debt has been assigned (c) Affidavit of good faith is required.
AFFI DAVI T OF GOOD FAI TH is an oath in a contract of chattel
mortgage wherein the
partiesseverallyswearthatthemortgageismadeforthepurposeofsecuringthe
obligation specified in the conditions thereof and for no other
purposes and that the same is a just and valid obligation and one
not entered into for the purpose of fraud. Effect of Absence:
Mortgage is vitiated only as against third persons without notice.
VENUE OF REGISTRATION C R E D I T T R A N S A C T I O N S[ G U A R
A N T Y , P L E D G E , M O R T G A G E , A N T I C H E R I S ]| 19
G A R R A T O N N O T E S U N O - R E C O L E T O S L A
W(a)IfheresidesinthePhilippines,intheofficeoftheregisterofdeedsofthe
province in which the mortgagor resides at the time of the making
of the chattel mortgage (b) If he does not reside in the
Philippines, in the province in which the property is situated
(c)Ifthepropertyissituatedinaprovincedifferentfromthatinwhichthe
mortgagor resides, the mortgage shall be recorded in both
provinces. [Sec. 4, Act 1508]
Whenacorporationisapartytoachattelmortgage,theaffidavitmaybemade
andsubscribedbyadirector,trustee,cashier,treasurer,ormanagerthereof,orbya
person authorized to make or receive such mortgage.
Whenapartnershipisaparty,theaffidavitmaybemadeandsubscribedbyone
member thereof. VALIDITY OF CHATTEL MORTGAGE
Chattelmortgageshallnotbevalidagainstanypersonexceptthemortgagor,his
executors or administrators unless:
(1)Thepossessionofthepropertyisdeliveredtoandretainedbythemortgagee
or(2) The mortgage is recorded. (Sec. 4, Act 1508) FORMAL
REQUISITES (a) It should substantially comply with the form
prescribed by law (b) It should be signed by the person/s executing
the same in the presence
oftwowitnesseswhoshallsignthemortgageaswitnessestotheexecution
thereof and (c) Each mortgagor and mortgagee or, in the absence of
the mortgagee, his agent or attorney, shall make and subscribe an
affidavit in the form prescribed by law, which affidavit, signed by
the parties to the mortgage and the two witnesses
andthecertificateoftheoathsignedbythepersonauthorizedtoadministeran
oathshallbeappendedtosuchmortgageandrecordedtherewith.[Sec.5,Act
1508] DESCRIPTION OF PROPERTY
Themortgagedpropertyshouldbedescribedsuchastoenablethepartiestothe
mortgage, or any other person, after reasonable inquiry and
investigation, to identify the same. Large cattle as chattel
mortgageThe description in the mortgage shall contain the brands,
class, sex, age, knots of radiated
haircommonlyknownasremolinosorcowlicks,andothermarksofownershipas
described and set forth in the certificate of ownership of said
animal/s, together with the number and place of issue of such
certificates of ownership. Growing crops as chattel mortgage
Themortgagemaycontainanagreementstipulatingthatthemortgagorbindshimself
properly to tend, care for and protect the crop while growing, and
faithfully and without
delaytoharvestthesame,andthatindefaultoftheperformanceofsuchduties,the
mortgageemayenteruponthepremises,takeallthenecessarymeasuresforthe
protectionofsaidcrop,andretainpossessionthereofandsellthesame,andfromthe
proceeds of such sale payall expenses incurred in caring for,
harvesting, and selling the crop and theamount of the indebtedness
orobligation secured by the mortgage, and the surplus, if any,
shall be paid to the mortgagor or those entitled to the same. C R E
D I T T R A N S A C T I O N S[ G U A R A N T Y , P L E D G E , M O
R T G A G E , A N T I C H E R I S ]| 20 G A R R A T O N N O T E S U
N O - R E C O L E T O S L A WPROPERTY COVERED BY CM
Itisdeemedtocoveronlythepropertydescribedthereinandnotlikeorsubstituted
propertythereafteracquiredbythemortgagorandplacedinthesamedepositoryasthe
property originally mortgaged, anything in the mortgage to the
contrary notwithstanding. [Sec. 8, Act 1508] Breaches Failure of
mortgagee to discharge the mortgageIf the mortgagee, assign,
administrator, executor, or either of them, (1) after performance
of the condition before or after the breach thereof, or (2) after
tender of the performance of the condition, at or after the time
fixed for
theperformance,doesnotwithintendaysafterbeingrequestedtheretobyanyperson
entitledtoredeem,dischargethemortgageinthemannerprovidedbylaw,theperson
entitledtoredeemmayrecoverofthepersonwhosedutyitistodischargethesame,
twenty pesos for his neglect and all damages occasioned thereby in
an action in any court having jurisdiction of the subject-matter
thereof. [Sec. 8]
Whentheconditionofthechattelmortgageisbroken,amortgagororperson
holding a subsequent mortgage, or a subsequent attaching creditor
may redeem the same
bypayingordeliveringtothemortgageetheamountdueonsuchmortgageandthe
reasonablecostsandexpensesincurredbysuchbreachofconditionbeforethesale
thereof.Anattachingcreditorwhosoredeemsshallbesubrogatedtotherightsofthe
mortgagee and entitled to foreclose the mortgage in the same manner
that the mortgagee could foreclose it Foreclosure
Themortgagee,hisexecutor,administratororassignmaycausethemortgagedproperty
or any part thereof to be sold at a public auction by a public
officer: (1) After 30 days from the time of condition broken
(2)Atapublicplaceinthemunicipalitywherethemortgagorresides,orwhere
the property is situated (3) Provided at least 10 day-notice of the
time, place, and purpose of such sale has been posted at 2 or more
public places in such municipality, and
(4)Themortgagee,hisexecutor,administrator,orassignshallnotifythe
mortgagor or person holding under him and the persons holding
subsequent mortgages of the time and place of sale at least 10 days
previous to the sale: (a) either by notice in writing directed to
him or left at his abode, if within the municipality, or(b) sent by
mail if he does not reside in such municipality DISPOSITION OF
PROCEEDS The proceeds of the sale shall be applied to the payment:
(1) First, to the costs and expenses of
mortgage(2)Theresidueshallbepaidtopersonsholdingsubsequentmortgagesintheir
order(3)Thebalance,afterpayingthemortgages,shallbepaidtothemortgagoror
person holding under him on demand ***END OF NOTES*** PRAYER TO ST.
JOSEPH OF CUPERTINO FOR SUCCESS IN EXAMINATIONS O ST. JOSEPH OF
CUPERTINO WHO BY YOUR PRAYER OBTAINED FROM GOD TO BE ASKED AT YOUR
EXAMINATION, THE ONLY PREPOSITION YOU KNEW. GRANT THAT I MAY LIKE
YOU SUCCEED IN THE (HERE MENTION THE NAME OF EXAMINATION EG.
HISTORY PAPER I ) EXAMINATION. IN RETURN I PROMISE TO MAKE YOU
KNOWN AND CAUSE YOU TO BE INVOKED. O ST. JOSEPH OF CUPERTINO PRAY
FOR ME O HOLY GHOST ENLIGHTEN ME OUR LADY OF GOOD STUDIES PRAY FOR
ME SACRED HEAD OF JESUS, SEAT OF DIVINE WISDOM, ENLIGHTEN ME.