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IMMOVABLES
TANGIBLES
ALIENABLE REAL RIGHTS
INTANGIBLES
FUTURE PROPERTIES
a piece of land w/c I intend to purchase 2 weeks from now
a piece of land w/c is the subject of a contract to sell
Q: What if there is a provision that the mortgage includes such properties which may be acquired
in the future?
A: It is INVALID insofar as the properties, to be acquired in the future, are concerned.
Effect of invalidity: If the debtor defaults in the performance of the obligation or commits a
breach in the condition of the mortgage (non-payment), the mortgagee cannot sell or foreclose all
the properties subsequent to the mortgage being future properties.
Perfection:
contract.
Accessory Contract:
When the principal obligation is void, the mortgage is also void.
The three essential elements of a contract must be present.
CONSENT by BOTH MORTGAGOR
MORTGAGEE CREDITOR
CONSIDERATION: The causa or consideration which supports the principal
obligation is the same as that which supports the accessory contract of
mortgage.
Just like pledge:
1.) The mortgage is constituted to secure fulfillment of the principal obligation.
2.) The mortgagor must be the absolute owner of the mortgaged property.
3.) The mortgagor must have free disposal of the thing & he is legally authorized to constitute the
mortgage.
Parties:
MORTGAGOR owner of the property or the person who constituted the mortgage.
MORTGAGEE to whose favor the mortgage was constituted; otherwise known as
CREDITOR.
IMPORTANT PRINCIPLES:
Q: If the mortgagee is the creditor, is the mortgagor always the debtor?
A: Not necessarily. A 3rd person may validly constitute a mortgage. Mortgagor is not always the
debtor.
Q: If a person, who is not the absolute owner, mortgages a property and duly records it in the
Registry of Property, is there a valid mortgage constituted?
A: No. REGISTRATION does not confer validity to an invalid mortgage.
Formal Contract: It must be in writing and recorded in the Registry of Property.
To bind both parties, it must be embodied in a public document.
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CUYCO vs. CUYCO: A provision in a private document, although denominating the agreement as one
of mortgage, cannot be considered as such as it is not susceptible of inscription in the property registry.
A mortgage in legal form is not constituted by a private document, even if such mortgage be
accompanied with delivery of possession of the mortgage property.
-
Under Act 496, there is a required form in order for a mortgage to be valid. It must be
ACKNOWLEDGED. ACKNOWLEDGEMENT JURAT
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Acknowledgment: [Before me, a notary public, personally appear Mr. X who presented his CTC
Community Tax Certificate # 1234. Known to me and to me, known as the same person who
executed the document as a free and voluntary act and deed.]
Jurat: [Subscribed to & sworn by me]
Implication of CUYCO Case: A mortgage, to be valid between parties, must be in a PUBLIC
INSTRUMENT.
Q: A is indebted to B in the amount of Php 100,000. The obligation is secured by a mortgage where A signs
a public document, acknowledged before a notary public, in favor of B. It was duly recorded in the Register
of Deeds. Thereafter, the property is sold to C. The title is transferred to C who is now the owner.
Afterwards, A defaulted in the obligation. Can B foreclose the mortgage?
A: Yes, because the mortgage is binding as it was registered. Not only was the mortgage recorded in the
(1) Day Book, it was also (2) annotated in the dorsal portion of the title so that 3rd persons will
know that it is burdened. 3rd persons can no longer invoke the defense of being a purchaser in good faith.
Note: The subsequent sale to C is valid. If the mortgaged property is transferred to C, the mortgage will
still be reflected to the new title issued to C. Mortgage follows the property, regardless of the owner!
(Creation of a REAL RIGHT!)
Effect of Acknowledgment & Registration
Valid Between Parties
Public Document
Public Document
Private Document
Private Document
+
+
+
+
Registered
Unregistered
Registered
Unregistered
Library of Laws
Art. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage
may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If
the instrument is not recorded, the mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to demand the
execution and the recording of the document in which the mortgage is formalized.
Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in part, with
the formalities required by law.
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Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the
payment of the part of the credit secured by the property which said third person possesses, in the terms
and with the formalities which the law establishes.
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this Chapter, shall be governed by the provisions
of the Mortgage Law and of the Land Registration Law.
Kinds of Mortgages:
1.) Voluntary or Conventional Mortgage created by the parties; w/ meeting of minds
2.) Legal Mortgage one required by law to guarantee performance
3.) Equitable Mortgage one which reveals an intent to make the property a security, even if the
contract lacks the proper formalities of a real estate mortgage.
The intention of the properties is to subject the property for the fulfillment of an
obligation but the document executed is either a:
(a) PACTO DE RETRO SALE or Sale with Right to Repurchase (subject to conventional
redemption)
(b) ABSOLUTE SALE
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.
When these circumstances are present, the presumption is that what is entered into is an EQUITABLE
MORTGAGE.
- It is the seller who is interested in treating the contract as a mortgage rather than a sale.
- It is the buyer who is interested in treating the contract as a sale rather than a mortgage.
REMEDY OF THE SELLER: REFORMATION of INSTRUMENT, not of the contract!!!
-
EFFECTS OF MORTGAGE:
The mortgage directly & immediately subjects the property to the fulfillment of the obligation
secured.
-
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Is the court empowered to order the cancellation of mortgage in lieu of surety bond?
Mortgagee cannot be forced to file his claim in the estate as the Rules expressly grants him 3
alternatives.
Mortgagee is a preferred creditor with regard to the mortgaged property.
There may also be first or second mortgages. The subsequent mortgages become junior
mortgage liens.
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A subject of a mortgage may be an undivided portion (pro indiviso share) if there is no partition
effected in a co-owned property.
Mortgage extends to accessions & accessories or improvements of the real property.
If the property mortgaged has growing fruits not yet harvested @ the time of maturity, the
fruits are deemed included in the mortgage. They may be foreclosed.
Industrial fruits like uncollected rent may also be foreclosed. The mortgagee cannot demand
collected rent.
Whatever may be found in the property like a steam sugar mill fitted with a portable 8 HP
boiler with all its attachments and a complete tramway with rails & other fittings and 15
small cars located in Hacienda San Jose, are deemed included in the mortgage UNLESS there is
an expression stipulation between the parties excluding them. [Bischoff vs. Pomar]
OTHER SCENARIOS:
A. What if another party, not the mortgagor, introduces the improvements?
o
o
o
B. Can there be a stipulation absolutely prohibiting the mortgagor from selling the
property?
o
o
void.
C. Can the mortgagee ASSIGN OR TRANSFER his credit or his right under the mortgage?
Customary Business Scenario: Primary Structures (a real estate company) sells condominium
units on installments and the buyer executes a real estate mortgage over the condominium unit to
secure payment of the purchase price. Granting that there is already transfer of ownership, as in a
conditional contract of sale, if the seller needs money now, the seller may assign the credit (right to
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collect) to a financing company like Radiowealth Finance Co. What is transferred to the financing
company is not merely the right to collect from the condominium buyer but also the accessory
contract of real estate mortgage. Radiowealth may then foreclose the condominium upon default of
the buyer.
-
NO NEED TO SECURE THE CONSENT of the MORTGAGOR for the mortgagee to validly assign
his right.
D. Can the parties stipulate that the mortgagee may take possession of the property?
o
o
This is the scenario of a prenda where the mortgagee may possess a coconut
plantation for instance. The mortgagor now assumes the obligations of an antichretic
creditor.
The fruits may be applied to the payment of interest. (antichresis)
2nd mortgagor cannot foreclose even if his maturity date is EARLIER than the 1st
mortgage.
His right is SUBORDINATE to the 1st mortgagee.
Remedy: In order to foreclose the mortgage, he has to redeem the property.
He needs to pay the mortgagors obligation to the 1st mortgagee.
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MODES OF FORECLOSURE
A. JUDICIAL FORECLOSURE under Rule 68 of the Rules of Court
[to be discussed in 3rd Year Subject on Special Civil Actions]
RULE 68
FORECLOSURE OF REAL ESTATE MORTGAGE
Section 1. Complaint in action for foreclosure.
In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the
date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the
mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary
evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and
residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the
mortgage, all of whom shall be made defendants in the action.
Sec. 2. Judgment on foreclosure for payment or sale. Period for EQUITY OF REDEMPTION
If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the
amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as
approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid
to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one
hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall
be sold at public auction to satisfy the judgment.
Sec. 3. Sale of mortgaged property; effect. WRIT OF POSSESSION
When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of
the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the
manner and under the provisions of Rule 39 and other regulations governing sales of real estate under
execution. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part
thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the
property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption
as may be allowed by law.
Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law,
the purchaser at the auction sale or last redemptioner, if any, shall be entitled to the possession of the property
unless a third party is actually holding the same adversely to the judgment obligor. The said purchaser or
last redemptioner may secure a writ of possession, upon motion, from the court which ordered the foreclosure.
Sec. 4. Disposition of proceeds of sale.
The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale,
be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the
mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained
by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the
mortgagor or his duly authorized agent, or to the person entitled to it.
Sec. 5. How sale to proceed in case the debt is not all due.
If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment, as soon as a
sufficient portion of the property has been sold to pay the total amount and the costs due, the sale shall terminate;
and afterwards, as often as more becomes due for principal or interest and other valid charges, the court may, on
motion, order more to be sold. But if the property cannot be sold in portions without prejudice to the parties, the whole
shall be ordered to be sold in the first instance, and the entire debt and costs shall be paid, if the proceeds of the sale
be sufficient therefor, there being a rebate of interest where such rebate is proper.
Sec. 6. Deficiency judgment.
See the case of DBP vs. Licuanan: Recovery of Deficiency Claim Provided that the Foreclosure is Valid
If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff
after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any
such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which
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execution may issue immediately if the balance is all due at the time of the rendition of the judgment; otherwise, the
plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the
original contract, which time shall be stated in the judgment.
Sec. 7. Registration. Confirmatory Certificate or Deed of Absolute Sale
A certified copy of the final order of the court confirming the sale shall be registered in the registry of deeds. If no right
of redemption exists, the certificate of title in the name of the mortgagor shall be cancelled, and a new one issued in
the name of the purchaser.
Where a right of redemption exists, the certificate of title in the name of the mortgagor shall not be cancelled, but the
certificate of sale and the order confirming the sale shall be registered and a brief memorandum thereof made by the
registrar of deeds upon the certificate of title. In the event the property is redeemed, the deed of redemption shall be
registered with the registry of deeds, and a brief memorandum thereof shall be made by the registrar of deeds on said
certificate of title.
If the property is not redeemed, the final deed of sale executed by the sheriff in favor of the purchaser at the
foreclosure sale shall be registered with the registry of deeds; whereupon the certificate of title in the name of the
mortgagor shall be cancelled and a new one issued in the name of the purchaser.
Sec. 8. Applicability of other provisions.
The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate
mortgages under this Rule insofar as the former are not inconsistent with or may serve to supplement the provisions of
the latter.
B. EXTRAJUDICIAL FORECLOSURE under Act 3135 & A.M. No. 99-10-05-0 August 7, 2001
ACT NO. 3135 - AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR
ANNEXED TO REAL-ESTATE MORTGAGES
Sec. 1. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as
security for the payment of money or the fulfillment of any other obligation, the provisions of the following election shall
govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made
in the power.
Sec. 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the
place within said province in which the sale is to be made is subject to stipulation, such sale shall be made in said place or in
the municipal building of the municipality in which the property or part thereof is situated.
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public
places of the municipality or city where the property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city.
Sec. 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon;
and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the
municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a
fee of five pesos each day of actual work performed, in addition to his expenses.
Sec. 5. At any sale, the creditor, trustee, or other persons authorized to act for the creditor, may participate in the bidding
and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the
mortgage or trust deed under which the sale is made.
Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in
so far as these are not inconsistent with the provisions of this Act.
Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is situated, to give him possession thereof during the redemption
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period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or
cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the
Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and
in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight
hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to
the sheriff of the province in which the property is situated, who shall execute said order immediately.
Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the
purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled,
specifying the damages suffered by him, because the (1) mortgage was not violated or the (2) sale was not made in
accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary
procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the
complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained
possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act
Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of
the appeal.
Sec. 9. When the property is redeemed after the purchaser has been given possession, the redeemer shall be entitled to
deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any
part thereof was rented; if the purchaser occupied the property as his own dwelling, it being town property, or used it
gainfully, it being rural property, the redeemer may deduct from the price the interest of one per centum per month
provided for in section four hundred and sixty-five of the Code of Civil Procedure.
Sec. 10. This Act shall take effect on its approval. Approved: March 6, 1924
A.M. No. 99-10-05-0
August 7, 2001
PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE
In line with the responsibility of an Executive Judge under Administrative Order No. 6, dated June 30, 1975, for the
management of courts within his administrative area, included in which is the task of supervising directly the work of
the Clerk of Court, who is also the Ex-Officio Sheriff, and his staff, and the issuance of commissions to notaries
public and enforcement of their duties under the law, the following procedures are hereby prescribed in extrajudicial
foreclosure of mortgages:
1. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or
a notary public, pursuant to Act 3135, as amended by Act 4118, and Act 1508, as amended, shall be filed
with the Executive Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.
2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the duty of the Clerk
of Court to:
a) receive and docket said application and to stamp thereon the corresponding file number, date and
time of filing;
b) collect the filing fees therefore pursuant to rule 141, Section 7(c), as amended by A.M. No. 00-2-01SC, and issue the corresponding official receipt;
c) examine, in case of real estate mortgage foreclosure, whether the applicant has complied with all
the requirements before the public auction is conducted under the direction of the sheriff or a notary
public, pursuant to Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the approval of the Executive Judge, or in his
absence, the Vice-Executive Judge. No certificate of sale shall be issued in favor of the highest bidder
until all fees provided for in the aforementioned sections and in Rule 141, Section 9(1), as amended by
A.M. No. 00-2-01-SC, shall have been paid; Provided, that in no case shall the amount payable under
Rule 141, Section 9(1), as amended, exceed P100,000.00;
e) after the certificate of sale has been issued to the highest bidder, keep the complete records, while
awaiting any redemption within a period of one (1) year from date of registration of the
certificate of sale with the Register of Deeds concerned, after which, the records shall be
archived. Notwithstanding the foregoing provision, juridical persons whose property is sold pursuant
to an extra-judicial foreclosure, shall have the right to redeem the property until, but not after, the
registration of the certificate of foreclosure sale which in no case shall be more than three
(3) months after foreclosure, whichever is earlier, as provided in Section 47 of Republic Act No.
8791 (as amended, Res. Of August 7, 2001).
Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in
different locations covering one indebtedness, only one filing fee corresponding to such indebtedness shall be
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collected. The collecting Clerk of Court shall, apart from the official receipt of the fees, issue a certificate of
payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be
foreclosed, the real estates and/or chattels mortgaged and their respective locations, which certificate shall
serve the purpose of having the application docketed with the Clerks of Court of the places where the other
properties are located and of allowing the extrajudicial foreclosures to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a notary public
shall be published in a newspaper of general circulation pursuant to Section 1, Presidential Decree No. 1079,
dated January 2, 1977, and non-compliance therewith shall constitute a violation of Section 6 thereof.
4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle applications for extrajudicial
foreclosure of mortgage under the direction of the sheriff among all sheriffs, including those assigned to the
Office of the Clerk of Court and Sheriffs IV assigned in the branches.
5. The name/s of the bidder/s shall be reported by the sheriff or the notary public who conducted the sale to
the Clerk of Court before the issuance of the certificate of sale.
EJ Foreclosure applied before the EXECUTIVE JUDGE through the Clerk of Court (Ex-Officio Sheriff)
It is not a litigated action, in that, there will be no trial conducted.
Conditions of the Foreclosure of Mortgage:
There is a violation or breach on the mortgage contract such as default in the payment of
principal.
PROCEDURAL STEPS IN EJ FORECLOSURE
STEP 1:
STEP 2:
Post notices in 3 public places @ least 20 days before the sale of the property
1.)
2.)
3.)
Act No. 3135: If the property is valued more than Php 400, there must be publication in a newspaper of
general circulation once every 3 consecutive weeks.
What is stated in the notice:
correct description of the property
correct TCT No.
correct Tax Declaration
Mortgagor NEED NOT BE NOTIFIED, unless provided in the mortgage contract.
STEP 3:
(a)
(b)
located
(a)
Sheriff
Notary Public
Justice of Peace or Auxiliary Justice of Peace (MTC Judge)
You still need to pay the commissions of the sheriff even if sale is conducted by notary public.
MTC judge is not precluded from conducting foreclosure sale as the law Act 3135 prevails over AM 99-10-05-0.
There is NO REQUIREMENT to schedule another foreclosure sale if there is only 1 BIDDER.
When: Under Act No. 3135, it must be conducted between the hours of 9:00 AM to 4:00 PM
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STEP 4:
A Certificate of Sale is now issued by the CLERK OF COURT, w/ the approval of the Executive Judge.
Regardless of whether or not the sheriff or the notary public will conduct the sale.
STEP 5:
Posting
20 days Sale
Absolute Sale
Registration
of CoS
Writ of
Possession
Actual
30 Days
1 Yr.
Confirmatory Deed of
Possession
Right of Redemption
Assumption: The mortgagee is not a banking institution & the mortgagor is a natural person.
Appeal
A. Writ of Possession
-
proper title accdg. to Act 3135: petition that the sale be set aside and the writ of possession
cancelled
(2)
(1)
there was NO VIOLATION of the mortgage
IMPROPER CONDUCT of the sale (lack of notice, posting,
filed within 30 days from the time purchaser is granted possession of property by virtue of writ of
possession
filed by the mortgagor-debtor to question the sale in the SAME proceedings
purchaser continues in possession of the property even if there is pending period of redemption
Act 3135 Sec. 8: Either of the parties may appeal from the order of the judge in accordance with section 14
of Act 496; but the order of possession shall continue in effect during the pendency of the appeal.
C. Appeal
-
If the court grants the petition to cancel the sale [Order Cancelling the Sale], the purchaser
still
continues possession since he can still appeal the decision.
He is entitled to possession until finality of judgment. (20 years or so)
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If on appeal, the decision is affirmed, then the purchaser needs to surrender possession of the
property.
If there is no appeal raised by the purchaser, then he needs to surrender possession of the
property.
If the Certificate of Sale is not registered, then the 1-year redemption period WILL NOT RUN.
The duty to register is incumbent upon the purchaser.
If no redemption is made, then the purchaser is issued a Confirmatory Deed of Sale w/c is to be
used by the
purchaser in registering the property in the Register of Deeds.
NOTE: If there is no writ of possession issued by the court because the purchaser did not ask to be given
possession AND the mortgagor filed a petition to cancel sale, he can file that action in the same
proceeding but not strictly within the 1 year period. He may file it within 4 years from the registration of
CoS.
If the proceeds of the sale is not enough to satisfy the obligation, can the creditor still file an
ordinary civil case for a sum of money for the deficiency?
o Yes, the creditor may file a DEFICIENCY CLAIM EXC. under the RECTO LAW
SIDEBAR: RECTO LAW - Article 1484 of the Civil Code
provides for the remedies of a seller in contracts of
sale of personal property by installments.
RATIONALE: The object of Recto Law was to remedy
the abuses committed in connection with the
foreclosure of chattel mortgages and was meant to
prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price
and then bringing suit against the mortgagor for a
deficiency judgment.
In DBP vs. Licuanan: While it is true that in extrajudicial foreclosure of mortgage, the
mortgagee has the right to recover the deficiency from the debtor, this presupposes
that the foreclosure must first be valid. In this case, since there was no demand
made by DBP, the 3rd essential element of a cause of action (COA) is missing, namely
an act or omission violative of the plaintiffs right. Thus, Licuanan cannot be held
liable for the deficiency given the lack of cause of action of DBP.
RULES ON REDEMPTION
Natural
Extrajudicial
Judicial
Right of Redemption
1 Year from Registration of Sale
Equity of Redemption
i.e. 90 120 days from Finality of
Judgment & before Sale
Illustration A: EJ Foreclosure
Sale
Sale
Registration
Juridical
Until but Not Later Than
Registration;
Not More Than 90 days from
Foreclosure
(whichever is earlier)
Equity of Redemption
i.e. 90 120 days from Finality of
Judgment & before Sale
Finality of Judgment
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Mortgage To Preference of Credits
Natural Persons
judgment
Right of Redemption
RIGHT OF REDEMPTION
Prerogative to reacquire the mortgaged property after registration of the foreclosure sale
Within 1 year from the registration of the certificate of sale
Exists only in EJ Foreclosure of Mortgage & when the mortgagee is PNB or a banking institution
B. EQUITY OF REDEMPTION
- Right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying
the secured debt within 90 day period after judgment becomes final but before the sale or the
order confirming the sale
- In accordance with Rule 68 of the Rules of Court on Judicial Foreclosure of Mortgage
Under the General Banking Law of 2000 Sec. 47 dealing with a banking institution
Section 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the
mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the
right within one year after the sale of the real estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred
by the bank or institution from the sale and custody of said property less the income derived therefrom. However,
the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with
this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their
redemption rights until their expiration.
Natural
Extrajudicial
Judicial
Juridical
Until but Not Later Than
Registration;
Not More Than 90 days from
foreclosure
(whichever is earlier)
1 Year from Foreclosure Sale
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Bona fide redemption necessarily implies a reasonable and valid tender of the entire
repurchase price, otherwise the rule on the redemption period fixed by law can easily be
circumvented.
Facts: Consequently, in this case, the offer by respondents on July 24, 1986 (less than 1 month before the
period of redemption expires) to redeem the foreclosed properties for P1,872,935 and the subsequent
consignation in court of P1,500,000 on August 27, 1986, while made within the period of redemption, was
ineffective since the amount offered and actually consigned not only did not include the
interest but was in fact also way below the P2,782,554.66 paid by the highest bidder/purchaser
of the properties during the auction sale. The consigned amount was even withdrawn and replaced with a
surety bond amounting to P 100,000. Was there a valid offer of redemption despite the fact that only a
partial payment was made?
SC: None. In order to effect a redemption, the judgment debtor must pay the purchaser the redemption
price composed of the following:
(1) the price which the purchaser paid for the property;
(2) interest of 1% per month on the purchase price;
(3) the amount of any assessments or taxes which the purchaser may have
paid on
the property after the purchase; and
(4) interest of 1% per month on such assessments and taxes.
W/N respondents were diligent in asserting their willingness to pay is irrelevant. Redemption w/in the
period allowed by law is not a matter of intent but a question of payment or valid tender of the full
redemption price w/in said period.
REDEMPTIONER
Its not only the debtor who is entitled to redeem. Even a JUDGMENT CREDITOR of the
DEBTOR can redeem. A judgment creditor is one who has a lien on the property subsequent to
the judgment under which the property was sold. He is also called a REDEMPTIONER who is
entitled to make an offer to redeem.
In addition to the offer to redeem, you must also tender the full redemption price.
You cannot delay payment by making an offer to redeem and paying the price
NEXT YEAR
IN INSTALLMENTS
OFFERING A SURETY BOND
In effect, you are extending the period of redemption which is NOT ALLOWED.
RULE: OFFER TO REDEEM + ACTUAL TENDER OF FULL REDEMPTION PRICE
Full Redemption Price
=
+
+
+
+
If the mortgagee is a banking institution, the amount to be paid must be the AMOUNT DUE
under the MORTGAGE DEED. This means the full obligation of the mortgagor to the bank
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Title will not be absolutely conferred on the vendee a retro. He has to get a court
declaration of absolute ownership for the consolidation of his ownership. The vendor a
retro can then raise an objection in the judicial proceeding in the consolidation of the his
ownership.
CHAPTER 5: CHATTEL MORTGAGE
LIBRARY OF LAWS
Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as a
security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the
creditor or a third person, the contract is a pledge and not a chattel mortgage.
Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the Chattel
Mortgage Law shall be applicable to chattel mortgages.
ACT NO. 1508 - AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL PROPERTY AND FOR
THE REGISTRATION OF THE MORTGAGES SO EXECUTED
Sec. 1. The short title of this Act shall be "The Chattel Mortgage Law."
Sec. 2. All personal property shall be subject to mortgage, agreeably to the provisions of this Act, and a
mortgage executed in pursuance thereof shall be termed chattel mortgage.
Sec. 3. Chattel mortgage defined. A 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 that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named. If the condition is performed according to its terms the mortgage
and sale immediately become void, and the mortgagee is thereby divested of his title.
Sec. 4. Validity. A chattel mortgage shall not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the property is delivered to and retained by the
mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in
which the mortgagor resides at the time of making the same, or, if he resides without the Philippine
Islands, in the province in which the property is situated: Provided, however, That if the property is situated
in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the
office of the register of deeds of both the province in which the mortgagor resides and that in which the
property is situated, and for the purposes of this Act the city of Manila shall be deemed to be a province.
Sec. 5. Form. A chattel mortgage shall be deemed to be sufficient when made substantially in
accordance with the following form, and shall be signed by the person or persons executing the same, in
the presence of two witnesses, who shall sign the mortgage as witnesses to the execution thereof, and
each mortgagor and mortgagee, or, in the absence of the mortgagee, his agent or attorney, shall make
and subscribe an affidavit in substance as hereinafter set forth, which affidavit, signed by the parties to the
mortgage as above stated, and the certificate of the oath signed by the authority administering the same,
shall be appended to such mortgage and recorded therewith.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT
"This mortgage made this ____ day of ______19____ by _______________, a resident of the municipality of
______________, Province of ____________, Philippine Islands mortgagor, to ____________, a resident of the
municipality of ___________, Province of ______________, Philippine Islands, mortgagee, witnesseth:
"That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the followingdescribed personal property situated in the municipality of ______________, Province of ____________ and now
in the possession of said mortgagor, to wit:
(Here insert specific description of the property mortgaged.)
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"This mortgage is given as security for the payment to the said ______, mortgagee, of promissory notes for
the sum of ____________ pesos, with (or without, as the case may be) interest thereon at the rate of
___________ per centum per annum, according to the terms of __________, certain promissory notes, dated
_________, and in the words and figures following (here insert copy of the note or notes secured).
"(If the mortgage is given for the performance of some other obligation aside from the payment of
promissory notes, describe correctly but concisely the obligation to be performed.)
"The conditions of this obligation are such that if the mortgagor, his heirs, executors, or administrators
shall well and truly perform the full obligation (or obligations) above stated according to the terms thereof,
then this obligation shall be null and void.
"Executed at the municipality of _________, in the Province of ________, this _____ day of 19_____
____________________
(Signature of mortgagor.)
"In the presence of
"_________________
"_________________
(Two witnesses sign here.)
FORM OF OATH.
"We severally swear that the foregoing mortgage is made for the purpose of securing the obligation
specified in the conditions thereof, and for no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, in the Province of _________, personally appeared ____________, the parties who signed the
foregoing affidavit and made oath to the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the case may be.)
Sec. 6. Corporations. When a corporation is a party to such mortgage the affidavit required may be
made and subscribed by a director, trustee, cashier, treasurer, or manager thereof, or by a person
authorized on the part of such corporation to make or to receive such mortgage. When a partnership is a
party to the mortgage the affidavit may be made and subscribed by one member thereof.
Sec. 7. Descriptions of property. The description of the mortgaged property shall be such as to enable
the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the
same.
If the property mortgaged be large cattle," as defined by section one of Act Numbered Eleven and fortyseven, 2 and the amendments thereof, the description of said property in the mortgage shall contain the
brands, class, sex, age, knots of radiated hair commonly known as remolinos, or cowlicks, and other marks
of ownership as described and set forth in the certificate of ownership of said animal or animals, together
with
the
number
and
place
of
issue
of
such
certificates
of
ownership.
If growing crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor
binds himself properly to tend, care for and protect the crop while growing, and faithfully and without delay
to harvest the same, and that in default of the performance of such duties the mortgage may enter upon
the premises, take all the necessary measures for the protection of said crop, and retain possession
thereof and sell the same, and from the proceeds of such sale pay all expenses incurred in caring for,
harvesting, and selling the crop and the amount of the indebtedness or obligation secured by the
mortgage, and the surplus thereof, if any shall be paid to the mortgagor or those entitled to the same.
A chattel mortgage shall be deemed to cover only the property described therein and not like or
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substituted property thereafter acquired by the mortgagor and placed in the same depository as the
property originally mortgaged, anything in the mortgage to the contrary notwithstanding.
Sec. 8. Failure of mortgagee to discharge the mortgage. If the mortgagee, assign, administrator,
executor, or either of them, after performance of the condition before or after the breach thereof, or after
tender of the performance of the condition, at or after the time fixed for the performance, does not within
ten days after being requested thereto by any person entitled to redeem, discharge the mortgage in the
manner provided by law, the person entitled to redeem may recover of the person whose duty it is to
discharge the same twenty pesos for his neglect and all damages occasioned thereby in an action in any
court having jurisdiction of the subject-matter thereof.
Sec. 9-12. (inclusive) 3
Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or person holding a subsequent
mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the
mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such
breach of condition before the sale thereof. An attaching creditor who so redeems shall be subrogated to
the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the
mortgagee could foreclose it by the terms of this Act.
Sec. 14. Sale of property at public auction; Officer's return; Fees; Disposition of proceeds. The
mortgagee, his executor, administrator, or assign, may, after thirty days from the time of condition
broken (default), cause the mortgaged property, or any part thereof, to be sold at public auction by a
public officer at a public place in the municipality where the mortgagor resides, or where the property is
situated, provided at least ten days' notice of the (1) time, (2) place, and (3) purpose of such sale
has been posted at two or more public places in such municipality, and the mortgagee, his executor,
administrator, or assign, shall notify the mortgagor or person holding under him and the persons holding
subsequent mortgages of the time and place of sale, either by notice in writing directed to him or left at
his abode, if within the municipality, or sent by mail if he does not reside in such municipality, at least ten
days previous to the sale.
The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and
file the same in the office of the register of deeds where the mortgage is recorded, and the register of
deeds shall record the same. The fees of the officer for selling the property shall be the same as in the
case of sale on execution as provided in Act Numbered One hundred and ninety, 4 and the amendments
thereto, and the fees of the register of deeds for registering the officer's return shall be taxed as a part of
the costs of sale, which the officer shall pay to the register of deeds. The return shall particularly describe
the articles sold, and state the amount received for each article, and shall operate as a discharge of the
lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of
the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured
by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order,
and the balance, after paying the mortgages, shall be paid to the mortgagor or person holding under him
on demand.
If the sale includes any "large cattle," a certificate of transfer as required by section sixteen of Act
Numbered Eleven hundred and forty-seven 5 shall be issued by the treasurer of the municipality where the
sale
was
held
to
the
purchaser
thereof.
Sec. 16. This Act shall take effect on August first, nineteen hundred and six. Enacted, July 2, 1906
CONFLICT BETWEEN CIVIL CODE & ACT 1508
Act 1508 Sec. 3
Sec. 3. Chattel mortgage defined. A chattel
mortgage is a conditional sale of personal
property as security for the payment of a
debt, or the performance of some other
obligation.
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Civil Code Provision PREVAILS because in case of conflicting provisions of law, the later
provision prevails Art. 2140 NCC. If you cannot harmonize both, then the later
provision prevails as it expresses the latest intention of the lawmakers.
Therefore, there is NO DELIVERY required in Chattel Mortgage.
But there are instances when the parties agree to DELIVER the property in a real estate mortgage.
Its still a real estate mortgage & the mortgagee is referred to as MORTGAGEE IN POSSESSION.
o Mortgagee in possession cannot appropriate the fruits.
o Rather, he has the rights & obligations of an antichretic creditor.
What kind of obligations may be secured by a Chattel Mortgage?
-
In REM & Pledge, one can secure future obligations through a Continuing Guaranty.
DRAG NET CLAUSE is not applicable to Chattel Mortgage, its only available to REM.
But if there is promise to secure future obligations through the Chattel Mortgage executed
now,
-
Once the future obligation is incurred, the creditor can demand the (1) execution or (2)
amendment of the Deed of Chattel Mortgage.
Effect if the debtor refuse to execute the new deed of chattel mortgage or amend it:
Consider the debtor IN DEFAULT because of the failure to put up the security
promised.
Art. 1198: When the debtor loses right to make use of the period
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(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.
In effect, creditor can demand payment obligation now.
vessel
shares of stock
large
PD 533 Sec. 3: Large cattle as herein used shall include the cow, carabao, horse, mule, ass
or other domesticated member of the bovine family. [SWINE IS NOT INCLUDED.]
Mortgagee can even take care of the growing crops and harvest them. From the harvest, he
can apply the proceeds in the following order:
(1) reimbursable necessary expenses
(2) principal obligation
(3) the residue to subsequent mortgagees
(4) the balance to mortgagor
Example 2
1/1/11 Chattel Mortgage A & B
Example 3
1/1/11 REM A & B
Example 4
1/1/11 Chattel Mortgage A & B
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Example 1: B can foreclose the mortgage if he fails to pay his debt or to fulfill his obligation. A cannot object on the
ground that real property is not a proper subject of Chattel Mortgage. A is estopped from questioning the validity of
the Chattel Mortgage. He cannot make an inconsistent stand when there is an agreement to treat the real property
such as a building as a personal property. In this case, NO 3rd parties are concerned, unlike example 2.
But B, the mortgagee must comply with the foreclosure proceedings required by law for foreclosure of REM.
In effect, PUBLICATION IS REQUIRED!
Manarang vs. Ofilada: The mere fact that a house was the subject of a chattel mortgage and was considered
as personal property by the parties does not make said house personal property for purposes of the notice
to be given for its sale at public auction. This ruling is demanded by the need for a definite, orderly and welldefined regulation for official and public guidance and which would prevent confusion and misunderstanding.
Tumalad vs. Vicencio: The view that parties to a deed of chattel mortgage may agree to consider a house as
personal property for the purposes of said contract, is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel.
[Even though] there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage, defendants-appellants could
only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.
Example 3 & 4: The first mortgage recorded shall prevail if they are of the same nature. B can foreclose in both, not
C.
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RULE: Affidavit of Good Faith is required only to bind 3rd persons. Absence of Affidavit of Good
Faith does not vitiate or does not invalidate the Chattel Mortgage insofar as the parties are
concerned.
Was the subject matter sufficiently described in this case?
CIFC vs. CA
The special affidavit of good faith, on the other hand, is required only for the purpose of transforming
an already valid mortgage into a "preferred mortgage." Thus, the abovementioned affidavit is not
necessary for the validity of the chattel mortgage itself but only to give it a preferred status.
In effect, if there is no special affidavit of good faith, then the mortgagee is only a SUBSEQUENT
MORTGAGEE.
Is there a sufficient description of the property if there exists a catch-all phrase?
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Place of Registration:
A. In the province where the mortgagor resides
B. In the province in which the property is situated
Sample Case: If the subject of the Chattel Mortgage includes PLDT shares of stocks. The mortgage
should be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the
Register of Deeds in Makati where the principal office of PLDT is located. It is not required that the Chattel
Mortgage be registered in the Securities & Exchange Commission (SEC).
1.) If the subject of the Chattel Mortgage is a vessel, the mortgage must be registered in (1) the
Register of Deeds of the province where the mortgagor resides and (2) the MARINA or Maritime
Industry Authority where the vessel is registered.
2.) If the subject of the Chattel Mortgage is a motor vehicle, the mortgage must be registered in (1)
the Register of Deeds of the province where the mortgagor resides and (2) the LTO or the Land
Transportation Office.
3.) If the subject of the Chattel Mortgage is a public utility vehicle like a jeepney, the mortgage must
be registered in (1) the Register of Deeds of the province where the mortgagor resides and (2) the
LTFRB or the Land Transportation Franchising & Regulatory Board.
SUBJECT MATTER OF THE CHATTEL MORTGAGE:
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Mortgage To Preference of Credits
DEFAULT
Foreclosure
NO RIGHT
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Mortgage To Preference of Credits
While the E.J. foreclosure of REM does not prescribe the period to cause the foreclosure sale, in the
foreclosure of chattel mortgage, the foreclosure must be made within 30 days from default. (from
breach of mortgage)
Sec. 14. Sale of property at public auction; Officer's return; Fees; Disposition of proceeds. The mortgagee,
his executor, administrator, or assign, may, after thirty days from the time of condition broken (default),
cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public
place in the municipality where the mortgagor resides, or where the property is situated, provided at least
ten days' notice of the (1) time, (2) place, and (3) purpose of such sale has been posted at two or more
public places in such municipality, and the mortgagee, his executor, administrator, or assign, shall notify the
mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place
of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail
if he does not reside in such municipality, at least ten days previous to the sale.
NO PERIOD
REAL
PROPERTY
PERSONAL PROPERTY
*** The difference may be due to the generally perishable nature of movables compared to real
property.
REPLEVIN
There is no requirement to deliver the movable in Chattel Mortgage. But you cannot cause the foreclosure
sale if you are NOT IN POSSESSION of the personal property. You first have to initiate proceedings to
recover property from the debtor. The proper remedy is to file a REPLEVIN suit before you can sell the
property because in foreclosure sale of Chattel Mortgage, you need to immediately deliver the
movable property to the purchaser/bidder. Possession is immediately delivered to the buyer in
foreclosure of Chattel Mortgage.
NOTICE REQUIREMENTS
REM @ least 20 days notice with publication once a week for 2 consecutive weeks
CM @ least 10 days notice of the time, place and purpose of such sale to be posted in 2 or more
public places
Personal service if the mortgagor and subsequent mortgagees reside in the same
municipality.
Registered mail if the mortgagor and subsequent mortgagees do not reside in the same
municipality.
Foreclosure sale will be conducted by a public officer under Act 1508 or by a justice of
the peace
under Act 3135. Under A.M. No. 99-10-05-0 (August 7, 2001), public officer refers to
the (a)
notary public and the (b) sheriff.
Where is the foreclosure sale of Chattel Mortgage conducted?
Either in
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With regard to redemption of chattel mortgage, redemption only happens after default & prior to
foreclosure.
CHAPTER 4: ANTICHRESIS
LIBRARY OF LAWS
Art. 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and
thereafter to the principal of his credit.
Art. 2133. The actual market value of the fruits at the time of the application thereof to the interest and
principal shall be the measure of such application.
Art. 2134. The amount of the principal and of the interest shall be specified in writing; otherwise, the
contract of antichresis shall be void.
Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes and
charges upon the estate. He is also bound to bear the expenses necessary for its preservation and repair.
The sums spent for the purposes stated in this article shall be deducted from the fruits.
Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid
what he owes the creditor. But the latter, in order to exempt himself from the obligations imposed upon
him by the preceding article, may always compel the debtor to enter again upon the enjoyment of the
property, except when there is a stipulation to the contrary.
Art. 2137. The creditor does not acquire the ownership of the real estate for non-payment of the debt
within the period agreed upon. Every stipulation to the contrary shall be void. But the creditor may petition
the court for the payment of the debt or the sale of the real property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply.
Art. 2138. The contracting parties may stipulate that the interest upon the debt be compensated with the
fruits of the property which is the object of the antichresis, provided that if the value of the fruits should
exceed the amount of interest allowed by the laws against usury, the excess shall be applied to the
principal.
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Art. 2139. The last paragraph of Article 2085, and Articles 2089 to 2091 are applicable to this contract.
REM:
It is NOT REQUIRED (for perfection) that the property be DELIVERED to the CREDITOR.
The property may, however, be DELIVERED to the CREDITOR, IF THEY SO AGREE.
In the 2nd case, the mortgagee is called a MORTGAGEE IN POSSESSION.
Antichresis: The creditor is entitled to receive the fruits from an immovable so that he can apply the
fruits to the payment of the interest, if any, the balance paid to the payment of the principal.
Manresa:
Correct View:
Separate undertaking, in the sense that when the debtor defaults, the
creditor can file a
petition for the foreclosure of the property.
ANTICHRESIS CREATES A REAL RIGHT
Right to receive the fruits follows the property, whoever the owner may be, for as long as it is
REGISTERED.
The creditor is not deprived to receive the fruits if there was a subsequent sale/transfer on the
property.
Registration is NOT REQUIRED for VALIDITY.
One can receive the fruits even without possessing the fruit-bearing real property itself.
The debtor can remain in possession of the property but the creditor receives the fruits.
mortgaged.
property and
That the persons constituting the pledge or mortgage have the free disposal of their
in the absence thereof, that they be legally authorized for the purpose.
Third parties who are not parties to the principal obligation may secure the
latter by
pledging or mortgaging their own property.
Art. 2089 2091 are APPLICABLE to ANTICHRESIS:
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in
interest of the debtor or of the creditor. Therefore, the debtor's heir who has paid a part of the debt cannot ask for
the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid.
From these provisions is expected the case in which, there being several things given in mortgage or pledge, each
one of them guarantees only a determinate portion of the credit. The debtor, in this case, shall have a right
to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially
answerable is satisfied.
Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily
liable.
Art. 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure or subject to a
suspensive or resolutory condition.
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What is required is that the person constituting the antichresis has the RIGHT TO ENCUMBER the
property.
OBJECT OF ANTICHRESIS: fruit-bearing real property natural, civil, industrial fruits
FOR ENFORCEABILITY:
To bind the parties, it must be in writing; in order to bind 3rd parties, it must be registered under PD 1529.
A. RIGHTS OF THE ANTICHRETIC CREDITOR
1.) Right to receive fruits
o
o
Fruits shall be compensated for the interest w/o mentioning the specific amount of interest is
not valid because interest must be stipulated in writing in the agreement evidencing the
antichresis.
Art. 2138. The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis, provided
that if the value of the fruits should exceed the amount of interest allowed by the laws
against usury, the excess shall be applied to the principal.
In this case, the debtor may ask the court to reduce the interest for being unconscionable
(as Usury Law is suspended) w/c the court may or may not grant.
Q:
Can the parties stipulate that: Upon maturity of the obligation, the debtor is obliged to pay
the FULL
AMOUNT of the obligation. Unless debtor pays the full amount of the obligation, the creditor is
entitled to
receive the fruits from the immovable property?
A:
NO, it is not a valid agreement. It defeats the purpose of the antichresis agreement if the
debtor is still
obliged to pay the full amount of the obligation when the interest & the principal were supposed
to be paid
already from the fruits.
Implication: The fruits received by the creditor were not considered in the payment of interest
& principal.
2.) Right of foreclosure = JUDICIAL FORECLOSURE under Rule 68
o
o
Upon default by the debtor, the antichretic creditor may file a petition for judicial
foreclosure.
In actuality, he has 2 options:
Sue for specific performance
File petition for judicial foreclosure
(right to cause the sale following Rule 68)
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o
o
o
Unless, a contrary stipulation is provided such as when the debtor is required to pay
them.
The sum paid for these expenses shall be deducted from the fruits.
Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay
the taxes and charges upon the estate. He is also bound to bear the expenses necessary
for its preservation and repair. The sums spent for the purposes stated in this article shall
be deducted from the fruits.
If the fruits are not enough to cover the taxes & other necessary expenses, the creditor is
still obliged. But if he does not want to take the expenses out of his pocket, then he can
demand the debtor to take over possession of the property.
If the creditor failed to pay the taxes, what is the liability of the creditor?
He shall be held liable for DAMAGES.
REM + CREDITOR GIVEN POSSESSION OF THE PROPERTY + RIGHT TO ENJOY THE FRUITS
Q:
A:
Mortgagee in possession needs to account for the fruits and apply it to the interest owing to
the principal.
a.) If there is an express waiver in the mortgage contract of the creditors right over
the fruits & there is no stipulation whether or not the fruits shall be applied to the
payment of interest, the creditor is NOT OBLIGED TO ACCOUNT for the fruits.
b.) If there is no express waiver in the mortgage contract of the creditors right over
the fruits & there is no stipulation whether or not the fruits shall be applied to the
payment of interest, the creditor is OBLIGED TO ACCOUNT for the fruits.
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creditor by the debtor of the property given as security, in order that the latter may gather its fruits,
without stating that said fruits are to be applied to the payment of interest, if any, and afterwards that of
the principal, the contract is a mortgage and not antichresis. The lower court, therefore, did not err in
holding that the contract Exhibit "A" is a true mortgage and not an antichresis. The true position of
appellee herein under his contract with appellant is a "mortgage in possession." As such mortgagee in
possession, his rights and obligations are similar to those of an antichretic creditor.
SC: The doctrine laid down in this case is that: If the debtor did not expressly waive his right to
receive the fruits, therefore, he is obliged to account for the fruits. Corollarily, by implication, if he
expressly waives his right to receive the fruits, then, there is no obligation to account for the fruits and the
debtor is still obliged to pay the full amount of the obligation.
Note: This is a Real Estate Mortgage (REM) where the creditor is given possession of the mortgaged
property like a coconut plantation. In this case, the mortgagee in possession has the same obligations of
an antichretic creditor.
Partnership juridical entity exists at the time of the agreement to contribute CONSENSUAL
CONTRACT
o Where two or two or more persons contribute money, industries in a common fund with
intention of dividing the profits among themselves.
Corporation acquires juridical personality from the time it is registered in the Securities & Exchange
Commission
o Issuance of the certificate of incorporation active intervention of the State
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or
his liabilities as they fall due in the ordinary course of business or has liabilities that are greater
than its or his assets.
2 Meanings of Insolvent
a.) Unable to pay its/his liabilities as they fall due in the ordinary course of business
o
o
o
When the debtor has LIQUIDITY problems although he has other assets such as real
property which, however, cannot be readily converted to cash.
Liquidity means the ability to satisfy an obligation when they become due.
NO CASH, but many land & buildings, and yet, cannot pay outstanding debts now.
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ASSETS
Cash
Accounts Receivables
Real Estate Property
Goodwill
TOTAL ASSETS
0.00
550,000.00
20,000,000.00
5,000,000.00
25,550,000.00
LIABILITIES
Short Term Liabilities
Long Term Liabilities
EQUITY
Capital Stock
TOTAL LIAB. + EQUITY
2,000,000.00
11,500,000.00
12,050,000.00
25,550,000.00
20,000.00
100,000.00
2,000,000.00
50,000.00
2,170,000.00
LIABILITIES
Long Term Liabilities
TOTAL LIAB.
5,000,000.00
5,000,000.00
Many creditors would object rehabilitation since they are forced to give concessions such as
waiving interests, converting debt to equity.
2.) His/its creditors can file INVOLUNTARY PETITION FOR REHABILITATION. It is initiated by the
creditor. This is the Court-Supervised Rehabilitation.
3.) Juridical debtor may not seek the assistance of the court. It can meet with its creditors and
decide on a REHABILITATION PLAN called a PRE-NEGOTIATED REHABILITATION PLAN. If
agreed upon, they will just file a petition in court for the approval of this plan.
4.) LIQUIDATION, not just rehabilitation
o
o
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically feasible
and its creditors can recover by way of the present value of payments projected in the plan,
more if the debtor continues as a going concern than if it is immediately liquidated.
o
o
In rehabilitation, a rehabilitation receiver is appointed, who will study the rehabilitation plan
whether or not it is feasible. Rehabilitation measures may include dacion en pago or
conversion of debt to equity.
Upon the issuance of Commencement Order, the court will also issue a Stay Order in
rehabilitation.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of
the petition, issue a Commencement Order. If, within the same period, the court finds the
petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a
reasonable period of time within which to amend or supplement the petition, or to submit such
documents as may be necessary or proper to put the petition in proper order. In such case, the
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five (5) working days provided above for the issuance of the Commencement Order shall be
reckoned from the date of the filing of the amended or supplemental petition or the submission
of such documents.
Liquidation of Insolvent Juridical Debtor:
The juridical debtor himself may file a VERIFIED PETITION FOR LIQUIDATION.
o
o
o
o
Verification that I am the President of XYZ Corp., I have read the contents and all the
material facts alleged are true based on my personal knowledge or based on authentic
documents.
Debtor will allege and include in the petition:
(a) a schedule of debts
(b) list of creditors
(c) amount owing to them
(d) the date when they become due
(e) any collaterals or security and
(f) an inventory of assets including accounts receivables.
Debtor also needs to submit 3 names/nominees to be appointed by the court as
LIQUIDATOR.
Under the Civil Code provision on Concurrence & Preferrence of Credits
Civil Code Provisions
ASSIGNEE
RA # 10142 FRIA
LIQUIDATOR
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(1) directing the publication of the petition or motion in a newspaper of general circulation once a
week for two
(2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the
petition or
motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is meritorious, it
shall issue the Liquidation Order mentioned in Section 112 hereof.
Requirements before creditors can file a petition for Involuntary Liquidation:
1.) There must be @ least 3 creditors with an aggregate credit of @ least Php 1,000,000.
2.) There must be @ least 3 creditors with an aggregate credit of @ least 25% of the subscribed
capital stock/ partners contributions.
WHICHEVER IS HIGHER !!!
Sidenote: Atty. Adviento believes this should be outstanding capital stock because
outstanding capital stock excludes treasury shares. Treasury shares are those shares sold to 3rd
persons and bought back by the corporation. Even under the Corporation Code, voting
requirements are based on outstanding capital stock, not on subscribed capital stock.
SAMPLE COMPUTATION: to determine eligibility for petition for involuntary liquidation
Authorized Capital Stock
Subscribed Capital Stock
Paid Up Capital Stock
Aggregate Credit of 3 Creditors ACTUAL
Aggregate Credit of 3 Creditors
REQUIRED
which is 25% of the Subscribed Capital
Stock
o
o
o
o
Example A
Php 10,000,000.00
4,000,000.00
1,000,000.00
500,000.00
Example B
Php 10,000,00.00
2,500,000.00
1,000,000.00
700,000.00
1,000,000.00
625,000.00
Authorized capital stock (ACS) is the maximum capital stock that the stockholders can
purchase or subscribe from the corporation.
Only @ least 25% of ACS is subscribed capital stock which is bought by the stockholders.
Paid up capital stock is the amount actually paid by the purchasers.
Aggregate Credit must be @ least 25% of the subscribed capital stock.
During the pendency of rehabilitation, these three creditors may file a VERIFIED MOTION only in the
same rehabilitation proceedings to convert rehabilitation into liquidation.
Note: The courts cannot compel the creditors to file their claims as it is in contravention with the
constitutional guarantee of non-impairment of obligations.
SUFFICIENT IN FORM & SUBSTANCE, 2 ORDERS WILL BE ISSUED:
1. Court will order the publication in a newspaper of general circulation once a week for 2
consecutive weeks.
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(ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
2. Court will order the creditors to file their comments.
o If the court finds the petition for liquidation meritorious, it will now issue a Liquidation
Order.
INDIVIDUAL DEBTOR can also file a PETITION FOR VOLUNTARY LIQUIDATION
If his properties are not enough to cover his debts amounting to Php 500,000, he can file such
petition.
Debtor will allege and include in the petition:
(a) a schedule of debts
(b) list of creditors
(c) amount owing to them
(d) the date when they become due
(e) any collaterals or security and
(f) an inventory of assets including accounts receivables.
Where to file: in the court of the province/city in w/c he has resided for 6 months prior to filing of
this petition.
Verified Petition for Liquidation against Individual Debtor for ACTS OF INSOLVENCY:
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos (Php 500,000.00) may file a verified petition
for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege
at least one of such acts:
ACTS OF INSOLVENCY
(a) That such person is about to depart or has departed from the Republic of the Philippines, with
intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he
remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or
delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on
legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days
for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a
preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud
any one of his creditors;
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(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property,
rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or
transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited
with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall have
been found to be without sufficient property subject to execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the
petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the
debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses,
damages occasioned by the proceedings and attorney's fees.
BOND FURNISHED BY THE CREDITOR:
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SECURED CREDITORS
-
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a secured creditor to enforce
his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the
distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
(a) When the value of the property is less than the claim it secures, the liquidator may convey the property
to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the
balance.
(b) If its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive
the debtor's right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of the
sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
3.) LIQUIDATOR can sell the property mortgaged and PAY the secured creditor the entire
amount.
4.) FORECLOSE the mortgage or enforce the lien.
Q:
A:
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redounded to the benefit of the family. If it is the husband who is insolvent, the administration of the conjugal partnership of absolute
community may, by order of the court, be transferred to the wife or to a third person other than the assignee.
Art. 2239. If there is property, other than that mentioned in the preceding article, owned by two or more persons, one of whom is
the insolvent debtor, his undivided share or interest therein shall be among the assets to be taken possession of by the assignee for
the payment of the insolvent debtor's obligations.
Art. 2240. Property held by the insolvent debtor as a trustee of an express or implied trust, shall be excluded from the insolvency
proceedings.
Art. 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
SPECIFIC PERSONAL PROPERTY
(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of
their duties, on the movables, money or securities obtained by them;
(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to
the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be
enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form,
substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when
the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a
chattel mortgage, upon the things pledged or mortgaged, up to the value thereof;
(5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired,
kept or possessed;
(6) Claims for laborers' wages, on the goods manufactured or the work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the
fruits or harvest;
(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their
delivery and for thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest
as long as such movables are in the hotel, but not for money loaned to the guests;
(11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested;
(12) Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the
fruits of the same, but not on money or instruments of credit;
(13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor
may demand them from any possessor, within thirty days from the unlawful seizure.
Art. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens
shall be preferred, and shall constitute an encumbrance on the immovable or real right:
SPECIFIC REAL PROPERTY
(1) Taxes due upon the land or building;
(2) For the unpaid price of real property sold, upon the immovable sold;
(3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged
in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works;
(4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works,
upon said buildings, canals or other works;
(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;
(6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the
immovable preserved or improved;
(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the
property affected, and only as to later credits;
(8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;
(9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the
immovable donated;
(10) Credits of insurers, upon the property insured, for the insurance premium for two years.
Art. 2243. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or
personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, Article 2241, and
No. 1, Article 2242, shall first be satisfied.
Art. 2244. With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the
order named:
FREE PROPERTY
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(1) Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own,
when approved by the court;
(2) Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the
commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if
they have no property of their own;
(4) Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor
accident, or illness resulting from the nature of the employment;
(5) Credits and advancements made to the debtor for support of himself or herself, and family, during the last year
preceding the insolvency;
(6) Support during the insolvency proceedings, and for three months thereafter;
(7) Fines and civil indemnification arising from a criminal offense;
(8) Legal expenses, and expenses incurred in the administration of the insolvent's estate for the common interest of the
creditors, when properly authorized and approved by the court;
(9) Taxes and assessments due the national government, other than those mentioned in Articles 2241, No. 1, and 2242, No.
1;
(10) Taxes and assessments due any province, other than those referred to in Articles 2241, No. 1, and 2242, No. 1;
(11) Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1, and 2242, No. 1;
(12) Damages for death or personal injuries caused by a quasi-delict;
(13) Gifts due to public and private institutions of charity or beneficence;
(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been
the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the
instruments and of the judgments, respectively.
Art. 2245. Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no
preference.
Art. 2246. Those credits which enjoy preference with respect to specific movables, exclude all others to the extent of the value of
the personal property to which the preference refers.
Art. 2247. If there are two or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after
the payment of duties, taxes and fees due the State or any subdivision thereof.
Art. 2248. Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of
the value of the immovable or real right to which the preference refers.
Art. 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro
rata, after the payment of the taxes and assessments upon the immovable property or real right.
Art. 2250. The excess, if any, after the payment of the credits which enjoy preference with respect to specific property, real or
personal, shall be added to the free property which the debtor may have, for the payment of the other credits.
Art. 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as
to the amount not paid, shall be satisfied according to the following rules:
(1) In the order established in Article 2244;
(2) Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
4 ORDERS OF PREFERENCE
1.) Absolutely Preferred
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They are preferred creditors with respect to the property but among themselves, THEY CONCUR.
Sharing will be PRO RATA.
3.) Ordinary Preferred
Art. 2244
MAHARLIKA
COMMON TAO
For example, there are several creditors which have liens or claims over specific properties over the
INSOLVENT debtor.
Remember that order and preference of credits is only applicable when debtor is INSOLVENT (liabilities >
assets)
CONCURRENCE VS. PREFERENCE
A. Concurrence: A car with several creditors which has legal pledges or liens or claims over the
property.
-
Car is imported from Japan which required the payment of customs duties.
The purchase price was not yet fully paid.
The car was repaired due to damages.
The owner of the car may have contracted a loan & subjected the car to a recorded chattel
mortgage.
B. Preference: When the asset is disposed, preference refers to the application of the proceeds.
Preference is not a lien or charge on the property. It refers to the order of payment once
property is sold.
SAMPLE CASE:
A. Specific Personal
Property
Customs Duties
Chattel Mortgage
(registered)
Mechanics Lien
Balance
Php 100,000
Php 50,000
(10,000)
(10,000)
40,000
ABSOLUTE PREFERRED
(50,000)
(28,571)
= (50/70) X 40,000
(20,000)
20,000
(11,429)
0
= (20/70) X 40,000
In the first instance, there is no problem as the proceeds of the asset is more than enough to pay the
claims/credits.
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Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in
proportion.
Mortgage and Mechanics Lien concur pro rata.
The BALANCE, if any, (referring to 20,000) goes to the FREE PROPERTY.
B. Specific Real Property
Real Property Taxes
Insurance Premiums
Unpaid Price
Balance
Php 5,000,000
(180,000)
(120,000)
(2,100,000)
2,600,000
Php 2,000,000
(90,000)
1,910,000
(102,703)
(1,797,297)
0
ABSOLUTE PREFERRED
= (120/2,220) X 1,900,000
= (2,100/2,220) X 1,900,000
In the first instance, there is no problem as the proceeds of the asset is more than enough to pay the
claims/credits.
Those creditors that concur cannot recover the entire amount of the obligation but only share pro rata/ in
proportion.
Insurer for the premiums and the Vendor for the unpaid price concur pro rata.
C. Free Property
The FREE PROPERTY is subject to Art. 2244, following that exact sequential order.
The excess of the proceeds of the specific real & personal property and other properties not so charged
become part of common credit which shall be paid last.
According to Sec. 133 of FRIA,
o
wages must be paid first under Art. 2244 if the wages are not preferred under Art. 2241 &
Art. 2242
PROPER ORDER:
(0) Wages of Laborers (synchronizing Art. 2244 NCC and Sec. 133 FRIA)
(1) Proper funeral expenses
(2) Credits for services rendered by employees, laborers, or household helpers
(3) Expenses during the last illness of the debtor
(4) Compensation due the laborers
(5) Credits and advancements made to the debtor for support of himself
(6) Support during the insolvency proceedings
(7) Fines and civil indemnification arising from a criminal offense
(8) Legal expenses
(9) Taxes and assessments due the national government
(10) Taxes and assessments due any province
(11) Taxes and assessments due any city or municipality
These taxes are not customs duties nor realty taxes but could refer to:
Business Taxes
Capital Gains Tax (CGT)
Documentary Stamp Tax (DST)
TWO INSTANCES:
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Hence, the unregistered mortgagee still joins in the MAHARLIKA (3rd Order) not on the COMMON TAO (4th
Order).