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.