CREDIT TRANSACTIONS LOAN (BOOK IV – TITLEXI)
II. Effects of Guaranty (Chapter 2) Arts. 2058-2075
A. Effects of Guaranty Between The Guarantor & Creditor (Section 1) Arts. 2058-2065
Benefit of Excussion – right of the guarantor to have all properties of the debtor and all legal remedies against him first exhausted before he can be compelled to pay the creditor (Art. 2058). There can be no excussion in the following cases:
If guarantor has expressly renounced it
If he has solidarily bound himself with the debtor;
In case of insolvency of the debtor;
When he has absconded or cannot be sued within the Philippines unless he has left a manager or representative
If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation.
Benefit of Division–should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all guarantors, unless solidarity has been expressly stipulated (Art. 2065).
Case Studies:
Southern Motors Inc vs. Barbosa (99 Phil 263)
The right of guarantors, under article 2058 NCC, to demand exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has not been given as special security for the payment of the principal obligation. Guarantees, without any such pledge or mortgage, are governed by title XV of said Code, whereas pledges and mortgages fall under title XVI thereof, in which articles 2087 and 2126 of same code among others are found.Although an ordinary personal guarantor, not a mortgagor or pledgor, may demand exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him, until after the properties of the principal debtor shall have been exhausted, to satisfy the obligation involved in the case.
Philippine Trust Co. vs. Echaus Tan Siua (52 Phil 852)
One who mortgages his property to secure the debt of another without expressly assuming personal liability for such debt cannot be compelled to pay the deficiency remaining due after the mortgage is foreclosed.
Palmares vs. Court of Appeals (288 SCRA 422)
A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 NCC, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. It is not necessary for a creditor to proceed against the principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then as soon as the principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety(who is primarily liable) is the same as that of the principal, then as soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. The proper remedy is for surety to pay the debt and pursue the principal for reimbursement. Unless
permitted by statute and in the absence of any agreement limiting the application of the security the creditor or oblige, is not required to resort to and exhaust his remedies against the principal , before proceeding against the surety.
B. Effects of Guaranty Between The Debtor and The Guarantor (Section 2) Arts. 2066-2074
Indemnification By Debtor To Guarantor After The Latter Has Paid Consists Of:
Total Amount of Debt
Legal interests from time payment was made known to debtor
Expenses incurred by guarantor after having notified debtor of payment
Damages, if due.
C. Effects of Guaranty Between Co- Guarantors (Section 3)
Arts. 2073-2075 – benefit of division except when several guarantors bound themselves solidarily with principal debtor
III. Extinguishment of Guaranty (Chapter 3) Arts. 2076-2081 Obligation of Guaranty Extinguished By:
Same causes as all other obligations
Extension granted to debtor by creditor without consent of guarantor
Release by creditor to one of guarantor without consent of other creditors benefits others to the extent of share of released guarantor
IV. Legal and Judicial Bonds (Chapter 4) Arts. 2082-2084 Exception to Benefit of Excussion:
Judicial bondsman
Sub-surety in sofar as property of debtor or of surety.
PLEDGE, MORTGAGE AND ANTI-CHRESIS (BOOK IV – TITLEXVI) Arts. 2085-2141
I. Provisions Common To Pledge & Mortgage (Chapter 1) Arts. 2085-2092 Essential Requisites To Contracts of Pledge/Mortgage:
They be constituted to secure the fulfillment of an obligation
Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged
3. Persons constituting the pledge/mortgage have the free disposal of their property and in the absent thereof, that they be authorized for the purpose
4. When the principal obligation becomes due, the thing in which the pledge or mortgage consists, may be alienated for the payment to the creditor.
Pactum Commissorium (Art. 2088) vs. Foreclosure – Arts. 2112 to 2115 Two Elements of Pactum Commisorium (void)
a. That there should be a pledge or mortgage by way of security for the payment of the principal obligation
b. That there should be a stipulation for an automatic appropriation of the thing given in pledge or mortgaged by the creditor in the event of default Case Studies:
Yau Chu vs. CA (177 SCRA 793)
The encashment of the deposit certificates was not a pacto commissorio, prohibited under Art. 2088 of the Civil Code, to preventan obligor, pledgor, or mortgagor frombeing overreached by his creditor who holds a pledge or mortgage over property whose value is much more than the debt. A pacto commissorio is a provision for the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. Where the security for the debt is also money deposited in a bank, the amount of which is even less than the debt, the creditor can encash the time deposit certificates to pay the debtors' overdue obligation, with the latter's consent, apply the amount thereof to the debtor’s obligation and still collect the deficiency, if any, as this does not constitute pactum commissorium.
A. Francisco Realty & Devt. Corp. vs. CA (298 SCRA 349)
The stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be registered, are in substance a pactum commissorium and is void.
Nakpil v. Intermediate Appellate Court, (225 SCRA 456)
An agreement whereby property held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt to the former as secured by the said property was void for being a pactum commissorium..There was automatic appropriation of the property by creditor in the event of failure of debtor to pay the value of the advances, which is expressly prohibited by Art. 2088 of the Civil Code. All the elements of a pactum commissorium were present: there was a creditor- debtor relationship between the parties, the property was used as security for the loan; and, there was automatic appropriation by respondent creditor of the property in case of default of petitionerdebtor.The stipulation that the ownership of the property would automatically pass to the vendee in case no redemption was effected within the stipulated period, is
void for being a pactum commissorium since the mortgagee acquires ownership of the mortgaged property without need of foreclosure. Its insertion in the contract is an avowal of the intention to mortgage rather that to sell the property.
Reyes v. Sierra, (93 SCRA 472 )
A mortgagee's mere act of registering the mortgaged property in his own name upon the mortgagor's failure to redeem the property amounted to the exercise of the privilege of a mortgagee in a pactum commissorium in violation of Article 2088 of the Civil Code. Applicant's predecessor-in-interest is a mere mortgagee, and ownership of the thing mortgaged is retained by the mortgagor. The mortgagee, may recover the loan, although the mortgage document evidencing the loan was nonregistrable being a purely private instrument. Failure of mortgagor to redeem the property does not automatically vest ownership of the property to the mortgagee, which would grant the latter the right to appropriate the thing mortgaged or dispose of it.
DBP vs. CA (284 SCRA 14)
The deed of assignment of leasehold rights was a mortgage contract- a security and not a satisfaction of indebtedness. DBP's act of appropriating debtor’s rights violates Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of debt. Under the deed of assignment, DBP cannot appropriate the leasehold rights because it did not say leasehold rights would automatically pass to DBP ifdebtorfails to pay the loans on time. It merelysays in case debtor fails to pay, DBP is the attorney-in-fact with authority to sell or otherwise dispose of the said real rights, and to apply the proceeds to the payment of the loan. The promissory notes are not novated by the assignmentsince the assignment merely complemented or supplemented the promissory notes. The obligation to pay remained, and the assignment is onlya security for the loans under the promissory notes.
II. Pledge (Chapter 2) Arts. 2093-2123 PledgeArts. 2085, 2093 and 2096.
It is constituted to secure the fulfillment of an obligation;
The Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged;
Persons constituting the pledge/mortgage have the free disposal of their property and in the absent thereof, that they be authorized for the purposed
Thing pledged is placed in the possession of the creditor or of a third person by common agreement
Description of thing pledged and the date of the pledge must appear in public instrument to affect third persons
No double pledge
Case Studies:
Betita vs. Ganzon (49 Phil 87)
A pledge is not effective as against third parties unless evidence of its date appears in a public instrument. The filing of a private document of pledge with the sheriff, after the levy of execution does not create a lien superior to that of the attachment. The delivery of possession referred to in article 1863 of the old Civil Code (now Art. 2093 NCC) and essential to the validity of a pledge,means actual possession of the property pledged and a mere symbolic delivery is not sufficient.
Involuntary Insolvency Of.Pacific Commercial Company, et. al vs.
Philippine National Bank(49 Phil 236)
To make a written instrumentvalid as to third persons, which is in form and substance, a pledge of personal property, it is necessary to take the actual, physical possession of the property and to continue in such possession.Without delivery of the possession of the property therein described, a chattel mortgage is void as to third persons unless the mortgage is duly received and made a matter of record in the office of the register of deeds of the province in which the property is situated. A pledge or chattel mortgage is confined and limited to personal property, and cannot be enlarged or made a lien on real property.
B. Kinds
C. Obligation and Rights of Pledgor Case Studies:
Cruz vs. Lee (54 Phil 10)
Under article 1867 of the old Civil Code (Art. 2099 of the NCC), a person who takes in pledge a pawn ticket representing jewelry already held in pledge by a pawnbroker is bound, so long as he retains custody of the ticket, to keep the original contract of pledge alive by payment from time to time of the premium, or interest, required by the pawnbroker, and if he fails in this duty, he will be liable in damages to the person pledging such pawn ticket to him.
DBP vs. Mirang (66 SCRA 141)
When the Legislature intends to bar or occlude a creditor from suing for any deficiency after foreclosing and selling the security given for the obligation, it makes express provisions to that effect, as it did in Article 2115 of the Civil Code on pledge.
Manila Surety & Fidelity Company vs. Velayo (21 SCRA 515)
Where the pieces of jewelry were delivered to a surety company "as collateral security and by way of pledge" in a contract of guaranty, and sold at a lower price than the amount of surety, the principal obligation was extinguished and the guarantor cannot recover the deficiency, because Art. 2115 of the Civil Code, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: "If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary." The effect of this provision cannot be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale.
Note: Although Article 2088 applies the principle of “pactum commissorium” in the contract of pledge, this principle may be negated in the foreclosure proceedings, thus:
ARTICLE 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary.
E. Pledge by Operation of Law – Art. 2121-2122
1. Art. 546 – Right to retain by possessor in good faith of necessary and useful expenses
2. Art. 1731 – Mechanic’s lien for work on movables 3. Art. 1914 – Right of an agent to retain
3. Art. 1994 – Right of Depositary to retain
4. Art. 2004 – Right of Hotelkeeper on Things Brought by Guests G. Distinguished from Chattel Mortgage – Arts. 2140, 1484
III. Real Estate Mortgage (Chapters 1 & 3) Arts. 2124-2131
Mortgage – A contract whereby the debtor guarantees to the creditor the fulfillment of the principal obligation, subjecting thereto for the compliance therewith, real property in case of non-fulfillment of the obligation at the time stipulated.
A. Definition And Characteristics B. Essential Requisites
C. No Pactum De Non Aliendo
– Art. 2130 which provides that a stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
Case Studies:
Mobil Oil vs. Diocares (29 SCRA 656)
Even if the instrument were not recorded, "the mortgage is nevertheless binding between the parties.". The mere fact that there is no recording of the mortgage is not a bar to foreclosure. An exception should be made to the rule that it is indispensable for a mortgage to be validly constituted that it be recorded.. There is full acknowledgment of the binding effect of a promise, which must be lived up to, otherwise the freedom a contracting party is supposed to possess becomes meaningless.
Prudential Bank vs. Alviar (464 SCRA 353)
A "blanket mortgage clause," (a"dragnet clause") is specifically phrased to subsume all debts of past or future origins and should be "carefully scrutinized and strictly construed." It: (a) enables the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time; (b) avoids the expense and inconvenience of executing a new security on each new transaction; (c)operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.
Mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.
Where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. While the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to.
Lim Julian vs. Lutero (49 Phil 703)
When a mortgage is given to secure future advancements and the money is paid to the mortgagor little by little and repayments are made from time to time, the advancements and repayments are considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage
B.H. Bertenkotter vs. Cu Unjieng (61 Phil 663)(Re: Art. 2127)
The installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon.
(Article 1877, old Civil Code now Art. 2127 NCC.) C. Foreclosure
1. Three (3) Common Types of Forced Sale on Mortgage Debt a. Extrajudicial foreclosure under Act 3135
Right of Redemption – in extra-judicial foreclosure is ordinarily one year, while equity of redemption in judicial foreclosure is 90-120 days and before the Order of confirmation by the court.
Case Studies:
El Hogar Filipino vs. Paredes (45 Phil 178)
A stipulation in a mortgage of real property authorizing the mortgagee, upon default of the mortgagor in the payment of the mortgage debt and after publication for three successive weeks in a paper of general circulation, to expose the property to public sale and allowing the mortgagee to become a bidder at such sale, is valid.
Concepcion vs. CA (274 SCRA 614)
The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court. Each mode, peculiarly, has its own requirements. In an extrajudicial foreclosure, such as here, Section 3 of Act No.
3135 is the law applicable. The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not precluded from exacting additional requirements provided these are not contrary to law, morals, good customs, public order or public policy.
Tambunting v. Court of Appeals, (167 SCRA 16),
The republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The parties have no right to waive the publication requirement in Act No. 3135.
Dayot vs. Shell Chemical Co (Phils ) Inc. (525 SCRA 535)
Any property brought within the ambit of Act 3135 is foreclosed by the filing of a
Any property brought within the ambit of Act 3135 is foreclosed by the filing of a