CREDIT TRANSACTIONS [R.A. 9510]

Requisite 1 (Pledge/Mortgage)?

Constituted to secure the fulfillment of a principal obligation.

Requisite 2 (Pledge/Mortgage)?

The pledgor or mortgagor must be the absolute owner of the thing.

Requisite 3 (Pledge/Mortgage)?

Persons constituting it must have free disposal or be legally authorized.

Pledge/Mortgage is an accessory contract, meaning?

Cannot exist without a valid obligation or a principal contract.

What kind of obligation can pledge/mortgage NOT secure?

A void obligation/contract.

Can third persons secure an obligation with their own property?

Yes, even if they are not parties to the principal obligation.

What is an "accommodation mortgagor/pledgor"?

A third party who did not receive any proceeds of the loan secured.

What is PACTUM COMMISSORIUM?

VOID stipulation where creditor automatically appropriates the thing given.

What is the effect of Indivisibility (Heir paying part of debt)?

Debtor's heir cannot ask for proportionate extinguishment until debt is paid.

When is the Rule of Indivisibility NOT applicable?

If several things guarantee only a determinate portion of the credit.

Definition of Pledge (Delivery)?

Debtor delivers movable or document to creditor or a third person.

Essential requisite for Pledge constitution (Possession)?

The thing pledged must be placed in the possession of the creditor/third person.

Characteristic of Pledge (Perfection)?

REAL CONTRACT—perfected by the delivery of the thing pledged.

Characteristic of Pledge (Return)?

UNILATERAL—creates obligation solely on creditor to return the thing.

Kinds of Pledge?

Voluntary or conventional (agreement) and Legal (operation of law).

What is the object of Pledge (Incorporeal Rights)?

Incorporeal rights evidenced by negotiable instruments (must be indorsed).

Rule if the thing pledged earns fruits/income?

Creditor shall compensate what he receives with what is owing him.

Who continues to be the owner of the thing pledged?

The debtor, unless the thing pledged is expropriated.

When may pledgor deposit the thing with a third person?

If pledgee's negligence or willful act endangers the thing.

If loss is without pledgee's fault, what can pledgor demand?

Return of the thing upon offering another thing of the same kind.

Form required to constitute a contract of Pledge?

No form required to constitute the contract.

What is needed for Pledge to affect third persons?

A public instrument with description and date of the pledge.

Alienation of the thing pledged is allowed if?

With the consent of the pledgee.

Effect of alienation on possession?

Ownership transmits to the vendee, but the creditor-pledgee shall continue in possession.

Creditor-pledgee's duty of care?

Take care of the thing with the diligence of a good father of a family.

When can the creditor-pledgee use the thing pledged?

Only with authority of the owner OR when preservation requires its use.

Right of Third Party Pledgor (Subrogation)?

Same rights as a guarantor, including subrogation to all rights the creditor had.

When is Third Party Pledgor released (Extension)?

If an extension of time is granted to debtor without pledgor's consent.

VOID Stipulation (Pledge)

A stipulation for the recovery of deficiency from the sale proceeds.

When must a Legal Pledge be foreclosed?

Requires a demand and can only be done one (1) month thereafter.

Who gets the deficiency in a Legal Pledge foreclosure sale?

The creditor (can be recovered).

Who gets the excess in a Legal Pledge foreclosure sale?

The debtor (excess will go to the debtor).

What property may be the object of REM?

Immovables and alienable real rights imposed upon immovables.

Characteristic of REM (Right)?

REAL RIGHT—enforceable even against third party possessors if registered.

Characteristic of REM (Perfection)?

CONSENSUAL CONTRACT—it is perfected by mere consent.

REM where facts show intention to secure a debt but lacks formality?

Equitable mortgage.

Form required for REM to affect third persons?

Public instrument containing description, recorded in the Registry of Property.

To what does the REM object extend?

Natural accessions, improvements, growing fruits, rents, and indemnity.

General Rule: Principal Obligation Covered (REM)?

Covers only that which is stated in the deed.

Exception: Future advancements covered by REM?

If there is a stipulation called a dragnet clause.

What is PACTUM DE NON-ALIENDO?

VOID stipulation prohibiting the owner from alienating the mortgaged property.

Is a third party transferee bound by an unregistered mortgage?

No, they are not affected by an unregistered mortgage.

Is a third party transferee bound to answer for the deficiency (Registered REM)?

Not bound to answer the deficiency, unless there is novation of the debtor.

Two ways to foreclose a mortgage?

Judicially (Rule 68, Rules of Court) or Extrajudicially (Act No. 3135).

Notice required for Extrajudicial foreclosure?

Not required, unless expressly stipulated in the contract.

Notice required for Judicial foreclosure?

Posting in 3 public places and publication 20 days prior to sale.

What happens if foreclosure proceeds are MORE than the debt?

The mortgagor shall be entitled to the excess.

What happens if foreclosure proceeds are LESS than the debt?

The mortgagee shall be entitled to recover the deficiency.

Does Redemption exist in Chattel Mortgage foreclosures?

No right of redemption exists in a foreclosure of chattel mortgage.

General Rule: Redemption period in Extrajudicial REM?

1 year from date of foreclosure.

Exception: Redemption period for juridical persons (Bank creditor)?

3 months from sale or registration of the certificate of sale, whichever is earlier.

Redemption period in Judicial REM foreclosure?

Equity of redemption exists until confirmation of sale by the court.

VOID stipulation: Tipo/Upset Price?

Void because the property must be sold to the highest bidder with no maximum limit.

VOID stipulation: Pactum Commissorium?

Stipulation allowing automatic appropriation by the mortgagee upon debtor's default.

VOID stipulation: Pactum de non aliendo?

Stipulation prohibiting the mortgagor from disposing or selling his property.

Definition of Chattel Mortgage?

Personal property is recorded in the Chattel Mortgage Register as security.

What is CM called if the property is delivered instead of recorded?

The contract is a PLEDGE and not a chattel mortgage.

CM Characteristic (Perfection)?

FORMAL CONTRACT—perfected by the registration to chattel mortgage register.

Purpose of the Affidavit of Good Faith?

Swearing that the mortgage is for securing the specified obligations and not for fraud.

Effect of ABSENCE of Affidavit of Good Faith (Between Parties)?

Does not affect the validity of the contract as between the parties.

Effect of NON-REGISTRATION (On Third Persons)?

Makes the contract non-binding to third persons who acted in good faith.

What is CM coverage limited to (As a rule)?

Debts existing at the time the contract was entered and indicated in the Affidavit.

What is the criminal act for disposing of CM object?

Removal of Mortgaged Property (Art. 319 of the Revised Penal Code).

How is CM foreclosure done?

Shall be done extrajudicially. (Rule 68 does not apply)

Notice required for CM foreclosure sale?

Required 10 days prior to sale; posting in two or more public places.

General Rule: Who is entitled to CM deficiency?

The creditor is entitled to the deficiency.

Exception: Deficiency in CM foreclosure (Recto Law)?

Prohibits collection of unpaid amount if property was subject of a sale in installment.

PLEDGE Object?

Personal property susceptible of possession including incorporeal rights.

REM Object?

Real property but extends to accessions, improvements, growing fruits.

PLEDGE Perfection?

Delivery of the thing.

REM Perfection?

Consensual but public instrument registered to bind third parties.

CM Perfection?

Formal Contract—Affidavit of Good Faith registered in the Registry of Deeds.

PLEDGE Possession?

Transferred to the pledgee.

REM Possession?

Retained by the mortgagor.

CM Possession?

Retained by the mortgagor.

PLEDGE: Deficiency Recovery?

Creditor is NOT entitled to recover any deficiency.

PLEDGE: Excess Recovery?

Creditor is entitled to the excess (unless stipulated or legal pledge).