SECURITY TRANSACTIONS

FAQs OF ATTY. DE LEON-MANZANO (for finals) (Atty. Manzanos strict instruction is that we answer only what is asked. There are by-the-way statements contained here under the heading, !T". These were inserted #or re$iew %ur%oses, not necessarily as su%%orting answers. &now by heart those in asterisk. ' I. PLED E

(ledge is a contract wherein the debtor deli$ers to the creditor or to a third %erson a mo$able (Art. )*+,' or document e$idencing incor%oreal rights (Art. )*+-' #or the %ur%ose o# securing #ul#illment o# a %rinci%al obligation with the understanding that when the obligation is #ul#illed, the thing deli$ered shall be returned with all its #ruits and accessions. (ledgee (creditor' . one who %ossess the thing %ledged as security #or a debt (ledgor (debtor' . owner o# the thing gi$en as a security !o" #an a #on$ra#$ of %l&'(& )in' $*ir' %&rsons+ To bind third %ersons, a contract o# %ledge must be embodied in a %ublic instrument. Art. )*+/ %ro$ides that a %ledge shall not take e##ect against third %ersons i# a descri%tion o# the thing %ledged and the date o# the %ledge is not embodied in a %ublic document, e$en i# all the essential re0uisites under Arts. )*1- and )*+2 are %resent and there was deli$ery. !T"3 The ob4ect is to #orestall #raud because a debtor may attem%t to conceal his %ro%erty #rom his creditors when he sees it in danger o# e5ecution. The rule is that o# substanti$e law %rescribing a condition without which the e5ecution o# a contract o# %ledge cannot a##ect third %ersons ad$ersely. Can $*& %l&'(or ali&na$& $*& $*in( %l&'(&'+ 6es. 7nder Art. )*+8, i# the %ledgee gi$es his consent, the thing %ledged may be alienated by the %ledgor or owner, sub4ect to the %ledge. The ownershi% o# the thing %ledged is transmitted to the $endee or trans#eree as soon as the %ledge consents to the alienation, but the latter shall continue in %ossession. (ledgor retains his ownershi% o# the thing %ledged. 9e may sell the same %ro$ided the %ledgee consents. As soon as the %ledgee consents, ownershi% shall transmit to the $endee sub4ect to the rights o# the %ledgor, namely, that the thing may be alienated to satis#y the obligation (Art. )::)', and that the %ledgee continues in %ossession during the e5istence o# the %ledge (Arts. )*+2, )*+1'. !T"3 The %ledge would not bind or ad$ersely a##ect third %ersons unless Art. )*+/ has been #ollowed. Can $*& pledgor '&%osi$ $*& $*in( %l&'(&' $o ano$*&r+ 6es. Art. )*:/ %ro$ides that i# through the negligence or will#ul act o# the %ledge, the thing %ledged is in danger o# being lost or im%aired, the %ledgor may re0uire that it be de%osited with a third %erson.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age :

SECURITY TRANSACTIONS
!T"3 Art. ):*, also %ro$ides that the creditor cannot use the thing %ledged without the authority o# the owner, and i# he should do so or should misuse the thing in any other way, owner may ask that it be 4udicially or e5tra4udicially de%osited. Can $*& pledgee '&%osi$ $*& $*in( %l&'(&' "i$* a $*ir' %&rson+ o, unless there is a sti%ulation authorizing him to do so. The %ledgee is res%onsible #or the acts o# his agents or em%loyees with res%ect to the thing ledged. Chile the %ledgee is entitled to retain the %ossession o# the thing %ledged until the debt is %aid (Art. )*+1', he is not authorized to trans#er %ossession to a third %erson. !T"3 The %rohibition is necessary #or the %rotection o# the %ledgor. ,*a$ ar& $*& r&-&'i&s of a #r&'i$or-%l&'(&& '&#&i.&' on s/)s$an#&+ Art. ):*+. ;# the creditor is decei$ed on the substance or 0uality o# the thing %ledged, he may either :. Alaim another thing in its stead, or ). ?emand immediate %ayment o# the %rinci%al obligation The remedies are alternati$e, that is, he is %ri$ileged to choose only one and not both. Do&s $*& %l&'(&& *a.& $*& ri(*$ $o #a/s& $*& sal& of $*& $*in( %l&'(&+ If $*& ans"&r is in $*& affir-a$i.&0 'is#/ss $*& %ro#&'/r& for $*& 'is%osi$ion of $*& $*in( %l&'(&'. 6es. ;#, without the #ault o# the %ledgee, there is danger o# destruction, im%airment, or diminution in $alue o# the thing %ledged, he may cause the same to be sold at a (7D<;A BA<". The %ledgee shall kee% the %roceeds o# the sale as B"A7>;T6 #or the #ul#illment o# the %rinci%al obligation. ;n other words, they shall belong to the %ledgor (Art. ):*1'. Moreo$er, Art. )::) %ro$ides that the creditor to whom the credit has not been satis#ied in due time may %roceed be#ore a otary (ublic to cause the sale o# the thing %ledged (? ( D A"!'3

:. ;# debt is ?7" and 7 (A;?, the creditor may %roceed to ha$e the sale o# the thing %ledged
(Art. )::)'

). The sale shall be made at a (7D<;A A7AT;! (Art. )::)' 2. There must be !T;A" to the %ledgor and owner, stating the AM!7 T due
a. o %osting or %ublication is neededE noti#ication to %ledgor and owner is su##icient

,. Bale must be with the inter$ention o# a !TA>6 (7D<;A (Art. )::)'

a. !nly a notary %ublic can conduct a %ublic auction a#ter %ro%er notice is sent to the %ledgor and owner o# the thing %ledged (Art. )::)' -. The %ledgor and the %ledgee may D;? a. At the %ublic auction, the %ledgorFowner may bid. 9e shall ha$e a better right i# he should o##er the same terms as the highest bidder. The %ledgee may also bid, but his o##er shall not be $alid i# he is the only bidder (Art. )::2' /. Did must be #or AAB9

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age )

SECURITY TRANSACTIONS
a. All bids at the %ublic auction shall o##er to %ay the %urchase %rice at once. ;# any other bid is acce%ted, the %ledgee is deemed to ha$e recei$ed the %urchase %rice, inso#ar as the %ledgor or owner is concerned (Art. )::,' 8. The sale o# the thing %ledged shall "GT; =7;B9 the %rinci%al obligation a. This a%%lies whether or not the %roceeds o# the sale are e0ual to the amount o# the %rinci%al obligation, interest and e5%enses in a %ro%er case (Art. )::-' 1. A#ter the %ublic auction, the %ledgee shall %rom%tly ad$ise the %ledgor or !C "> o# the result thereo# (Art. )::/' !T"3 Article )::) does not re0uire %osting o# the notice o# sale and %ublication. oti#ication to the %ledgor and the owner o# the thing %ledged is su##icient. !nly a notary %ublic can conduct a %ublic auction a#ter %ro%er notice is sent to the %ledgor and owner o# the thing %ledged. !T"3 The %ledgees right to ha$e the thing %ledged sold at a %ublic sale granted under Art. ):*1 is B7(">;!> to that gi$en to the %ledgor in Art. ):*8. The law says the %ledgor is gi$en the right without %re4udice to the right o# the %ledgee. Bee below3 Art. ):*8 (ledgor has the right to demand the return o# the thing %ledged u%on o##ering another thing in %ledge Art. ):*1 (ledgee has the right to cause the thing in %ledge to be sold at a %ublic sale

!T"3 The sale o# the thing %ledged shall e5tinguish the %rinci%al obligation, whether or not the %roceeds o# the sale are e0ual to the amount o# the %rinci%al obligation, interest and e5%enses in a %ro%er case. ;# the %rice o# the sale is more than said amount, the debtor shall not be entitled o the e5cess, 7 <"BB it is otherwise agreed u%on. Is $*& %l&'(&& &n$i$l&' $o r&#o.&r '&fi#i&n#1+ (Art. )::-'

:. ;# the %rice o# the sale is more than the amount due the creditor, the debtor is not entitled to
the e5cess 7 <"BB the contrary is %ro$ed. ). ;# the %rice o# the sale is less, the creditor is !T " T;T<"? to reco$er the de#iciency even if there is a sti%ulation to that e##ect. Any contrary sti%ulation is $oid. !T"3 The reasons are as #ollows3 :' to com%el the creditor to hold an honest %ublic sale, and ()' the creditor should see to it that he loans only as much as he is likely to realize at a %ublic sale. ,*&n #an $*& %l&'(or s/)s$i$/$& $*& $*in( %l&'(&'+ (!##er ):*8' o e5ercise, Hear o #ault - Art.

:. The %ledgor has reasonable grounds to H"A> the destruction or im%airment o# the thing
%ledgedE

). There is ! HA7<T on the %art o# the %ledgeeE 2. The %ledgor is !HH">; =, in %lace o# the thing, another thing in %ledge which is o# the same
kind and 0uality as the #ormerE and

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age 2

SECURITY TRANSACTIONS
,. The %ledgee does !T choose to "G">A;B" his right to cause the thing %ledged to be sold at
a %ublic auction. ,*&n is %l&'(& &2$in(/is*&'+ (CrA(B I> B'

:. ). 2. ,. -. /.

Hor the BAM" causes as all other obligations >"T7> o# the thing %ledged by the %ledgee to the %ledgor Statement in WRITING by the %ledgee that he >" !7 A"B or abandons the %ledge (A6M" T o# debt BA<" o# thing %ledged at a %ublic auction A((>!(>;AT;! under Art. )::) (i# a#ter the #irst and second auction, the thing is not sold, the creditor may a%%ro%riate the thing %ledged. This is to be considered as #ull %ayment #or his entire claim'.

II. REAL MORT A E ,*a$ is for&#los/r& of r&al -or$(a(&+ ;J :. ;t is a remedy a$ailable to the mortgagee by which he sub4ects the mortgaged %ro%erty to the satis#action o# the obligation to secure that #or which the mortgage was gi$en. ). ;t may be e##ected 4udicially or e5tra-4udicially. 2. ;t is but a necessary conse0uence o# non-%ayment o# the %rinci%al obligation when due. ,. ;t is more than a mere demand to surrender %ossession o# the ob4ect o# the mortgage. ;t denotes the %rocedure ado%ted by the mortgagee to terminate the rights o# the mortgagor on the %ro%erty and include the sale itsel#. !T"3 Jalidity and "##ect o# #oreclosure o# real mortgage3 :. Chen the %rinci%al obligation is not %aid when due, the mortgagee has the right to #oreclose the mortgage and to ha$e the %ro%erty seized and sold, and to a%%ly the %roceeds thereo# to the %ayment o# %rinci%al obligation. ). The %ower to #oreclose resides on the mortgagee 2. ;n case o# de#iciency, the debtor is re0uired to %ay the same e$en a#ter #oreclosure ,. The rule go$erning %ublic notice o# #oreclosure must be strictly com%lied with and slight de$iations will in$alidate the sale or render it $oidable. If $*& %ro#&&'s of $*& sal& of $*& #*a$$&l -or$(a(& 'o no$ f/ll1 sa$isf1 $*& s&#/r&' '&)$0 #an $*& -or$(a(&& r&#o.&r '&fi#i&n#1 fro- $*& -or$(a(or+ S$a$& $*& r/l&s an' &2&-%$ions0 if an1. 6es. The creditor may maintain an action #or the de#iciency. According to ?e <eon, although the Ahattel Mortgage <aw is silent on this %oint, it is submitted that such is allowed because the chattel mortgage is only gi$en as a security and not as %ayment #or the debt in case o# #ailure o# %ayment. 9owe$er, under Art. :,1, o# the AA, where the mortgage is constituted as a security #or the %urchase o# %ersonal %ro%erty %ayable in installments, reco$ery o# the de#iciency cannot be made and any agreement to the contrary is $oid.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age ,

SECURITY TRANSACTIONS
!T"3 The action must be brought within :* years #rom the time the right o# action accrues, e$en i# not written u%on the mortgage contract. This is because the obligation o# the mortgagor to %ay is one created by law. The action is in the nature o# a mortgage action because its %ur%ose is %recisely to en#orce the mortgage contract.

,*&n -a1 a -or$(a(&& of r&al %ro%&r$1 for&#los& &2$ra-3/'i#iall1+K An e5tra4udicial #oreclosure is allowed when the mortgagee is gi$en a B("A;A< (!C"> !H ATT!> "6 to sell the mortgaged %ro%erty by %ublic auction. "5tra-4udicial #oreclosure must be sti%ulated in the contract (Act. o. 2:2-'. !T"3 o sale can be legally made outside the %ro$ince in which the %ro%erty sold is situatedE and in case the %lace within said %ro$ince in which the sale is to be made is the sub4ect o# sti%ulation, such sale shall be made in the said %lace in the munici%al building o# the munici%ality in which the %ro%erty or %art thereo# is situated ,*&n -a1 a -or$(a(&& of %&rsonal %ro%&r$1 for&#los& &2$ra-3/'i#iall1+ "5tra-4udicial #oreclosure may be had when there is a sti%ulation in the mortgage contract gi$ing the mortgagee the %ower, u%on de#ault o# the debtor, to #oreclose the mortgage by selling the mortgaged %ro%erty. There is no %articular #ormality re0uired in the creation o# the %ower o# sale. Any word is su##icient which e$ince an intention that the sale may be made u%on de#ault o# the mortgagor. Dis#/ss $*& %ro#&'/r& for &2$ra3/'i#ial for&#los/r&.K A.M. o. ++-:*-*--*, Lanuary :-, )***, #urther amended on August *8, )**:3

:. Hile a com%laint #or e5tra4udicial #oreclosure with the "5ecuti$e Ludge. ). otice o# Bale3 a. (osting in at least 2 %ublic %laces )* days be#ore the sale (e.g., Bheri##s !##ice, Assessors !##ice, and >egister o# ?eeds'. b. (ublication in a news%a%er o# general circulation, once a week #or at least 2 consecuti$e weeks i# the $alue o# the %ro%erty e5ceeds (h% ,**. c. This needs to be done within a s%an o# ): days. d. The notice should contain the descri%tion o# the %ro%erty to be sold, date, time and %lace o# the sale, and the %rinci%al obligation to be satis#ied by the sale o# the mortgaged %ro%erty. e. There is no need #or %ersonal notice to the mortgagor unlike in a guaranty. This is because the mortgagor, ha$ing de#aulted in the %rinci%al obligation, should e5%ect that a #oreclosure is #orthcoming. ;# you are the mortgagee, you would want to sur%rise the mortgagor so that he cannot em%loy dilatory tactics such as getting an in4unction in order to delay #oreclosure.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age -

SECURITY TRANSACTIONS
2. (ublic Auction a. Time #or conducting a %ublic sale is between + am to , %m. b. Manner o# Aonducting a Bale3 the sale should be under the direction o# the sheri## and o# the %ro$ince, the 4ustice or au5iliary 4ustice o# the %eace o# the munici%ality, or o# a notary %ublic o# the munici%ality, who shall be com%ensated with (h%- #or each day o# actual work %er#ormed. c. Cho may bid3 Anyone may bid at the sale, unless there are e5ce%tions sti%ulated in the mortgage deed. "$en the mortgageeFcreditor may bid. And unlike in %ledge, e$en i# the mortgageeFcreditor is the sole bidder, the sale is still $alid because there is a right to redeem in e5tra4udicial #oreclosure. There#ore, the lower the %rice at which it is sold, the better the chances o# the mortgagorFdebtor to redeem the %ro%erty. Dis#/ss $*& %ro#&'/r& for 3/'i#ial for&#los/r& of r&al -or$(a(&.4 >ule /1 o# >ules o# Aourt3 :. Ludicial action #or the %ur%ose a. Dring an action #or #oreclosure in the %ro%er court which has 4urisdiction o$er the area where the real %ro%erty is situated. ). !rder the mortgagor to %ay mortgage debt a. ;# the court #inds the com%laint well-#ounded, it shall order the mortgagor to %ay the amount due u%on the debt %lus interest and other charges within not less than +* days but not more than :)* days #rom entry o# 4udgment. 2. Bale to highest bidder at %ublic auction a. ;# mortgagor #ails to %ay, the court, u%on motion, shall order the %ro%erty to be sold to the highest bidder at a %ublic auction. ,. (roceeds o# sale shall be a%%lied to the %ayment o# the #ollowing3 a. Aosts o# the sale b. The amount due the mortgage c. Alaims to 4unior encumbrances or %ersons holding subse0uent mortgages in the order o# %riority. d. The balance, i# any, shall be %aid to the mortgagor or his duly authorized agent, or to the %erson entitled to it. -. Aon#irmation o# sale a. 7%on con#irmation o# the sale by the court u%on motion, the rights shall be $ested to the %urchaser sub4ect to the right o# redem%tion o# the seller-mortgagor. /. "5ecution o# Bheri##s Aerti#icate a. The mortgage can be #oreclosed only when the debt remains un%aid at the time. b. The #oreclosure is not com%lete until the Bheri##s Aerti#icate is e5ecuted, acknowledged, and recorded. ;n the absence o# a Aerti#icate o# Bale, no title %asses by the #oreclosure %roceedings to the $endee. c. ;t is only when the #oreclosure %roceedings are com%leted and the mortgaged %ro%erty sold to the %urchaser that all interests o# the mortgagor are cut o## #rom the %ro%erty. There#ore, the mortgagor is liable #or additional interests %ro%erly chargeable on the balance o# the mortgage indebtedness during the %eriod #rom the notice o# sale to actual sale. This %rinci%le is a%%licable to e5tra-4udicial #oreclosures.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age /

SECURITY TRANSACTIONS
!T"3 >e con#irmation o# sale, be#ore the con#irmation o# a 4udicial #oreclosure sale, the court retains control o# the %roceedings by e5ercising sound discretion in regard to it, either granting or withholding con#irmation as the rights and interest o# the %arties and that ends o# 4ustice may re0uire. Hrom this stand%oint, any order, which neither sets aside nor con#irms the #oreclosure, is merely interlocutory in character. !T"3 >e a%%lication o# %roceeds o# sale, i# the mortgagee is retaining more o# the %roceeds o# the sale than he is entitled to, this #act alone will not a##ect the $alidity o# the #oreclosure sale but sim%ly gi$e the mortgagor a cause o# action to reco$er sur%lus. The mortgagee, who has been ordered by the court to return the sur%lus but #ailed to do so, may be cited #or contem%t. !T"3 >e e5ecution o# Bheri##s Aerti#icate, a sheri##s re%ort on the auction sale is clothed with the %resum%tion o# regularity where no ob4ection has been raised against it. ,*a$ is r&'&-%$ion+ >edem%tion is a transaction by which the mortgagor reac0uires or buys back the %ro%erty which may ha$e %assed under the mortgage or di$ests the %ro%erty o# the lien which the mortgage may ha$e created. Dis#/ss $*& 5in's of r&'&-%$ion an' $*& %&rio' "i$*in "*i#* $*&1 -a1 )& &2&r#is&'.K A. "0uity o# redem%tion The right o# the mortgagor in a L7?;A;A< H!>"A<!B7>" to redeem the mortgaged %ro%erty a#ter his de#ault in the %er#ormance o# the conditions o# the mortgage but be#ore the con#irmation o# the sale o# the mortgaged %ro%erty. This may be e5ercised be#ore but !T a#ter the sale is con#irmed by the court. The mortgagor has a right to e5tinguish the mortgage and retain ownershi% o the %ro%erty by %aying the secured debt within the %eriod o# not less than +* days nor more than :)* days #rom the entry o# 4udgment (Bec. ) o# >ule /1, >!A', or e$en a#ter the #oreclosure sale but %rior to its con#irmation. D. >ight o# >edem%tion The right o# the mortgagor in case o# "GT>AL7?;A;A< H!>"A<!B7>" to redeem the mortgaged %ro%erty within a certain %eriod a#ter it was sold #or the satis#action the mortgage debt. ;n all cases, it may be e5ercised at any time within the term o# one year #rom and a#ter the date o# registration o# the certi#icate o# sale with the a%%ro%riate >egistry o# ?eeds. ,*o ar& &n$i$l&' $o &2&r#is& $*& ri(*$ of r&'&-%$ion+ According to Bection )+, >ule 2+ o# the >ules o# Aourt, they are as #ollows3 :. Mortgagor (4udgment-debtor' or one in %ri$ity o# title with the mortgagor a. The manner o# redem%tion is wholly statutory. As a general %rinci%le, i# one is in %ri$ity o# title with the mortgagor, and he has such an interest that he would be a loser by the #oreclosure, he may redeem.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age 8

SECURITY TRANSACTIONS
). Buccessor-in-interest a. The right o# redem%tion %ro$ided #or in Bec. / o# Act o. 2:2- (e5tra4udicial #oreclosure', like any other %ro%erty right, may be trans#erred or assigned by its owner. The trans#eree o# such rights stand in the %osition o# a successor-in-interest o# the mortgagor III. ANTIC!RESIS ,*a$ is an$i#*r&sis+K An antichresis is a contract whereby the creditor ac0uires the right to recei$e the #ruits o# an immo$able o# the debtor, with the obligation to a%%ly them to the %ayment o# the interest, i# owing, and therea#ter to the %rinci%al o# his credit (Art. ):2)'. An antichresis is also indi$isible in nature. ;n antichresis, the debtor cannot reac0uire the en4oyment o# the immo$able without #irst ha$ing totally %aid what he owes the creditor. Dis$in(/is* an$i#*r&sis fro- r&al -or$(a(&. An$i#*r&sis (ro%erty is ?"<;J">"? to the creditor Areditor ac0uires only the right to recei$e the H>7;TB o# the %ro%erty !T a real right The creditor, is obliged to (A6 the ta5es and charges u%on the estate, unless there is sti%ulation to the contrary ;t is e5%ressly sti%ulated that the creditor gi$en %ossession o# the %ro%erty shall a%%ly all the #ruits thereo# to the %ayment o# interest, i# owing, and therea#ter to the %rinci%al Bub4ect-matter is real %ro%erty R&al Mor$(a(& ?ebtor usually retains (!BB"BB;! o# the %ro%erty Areditor does !T ha$e any right to recei$e the #ruitsE Areates a >"A< right o$er the %ro%erty The creditor has no such obligation

There is no such obligation on the %art o# mortgagee

Bame

,*a$ ar& $*& o)li(a$ions of $*& an$i#*r&$i# #r&'i$or+ (TEAR)K :. To %ay the TAG"B and charges u%on the estate, unless there is a contrary sti%ulation. ;# he does not %ay the ta5es, he is re0uired to %ay indemnity #or damages to the debtor. ;# the debtor %ays the ta5es, the amount %aid shall be a%%lied to the %ayment o# the debt (Art. ::8*'. a. !T"3 ;# the debtor %aid #or the ta5es on the %ro%erty which the creditor shouldha$e %aid, the amount is to be a%%lied to the %ayment o# the debt and the debtor is entitled to the return o# the %ro%erty #ree #rom all encumberances i# he, by ad$ancing the ta5es, in e##ect had already been discharged #rom the debt. ). To bear the "G(" B" necessary #or its %reser$ation. 2. To A((<6 the #ruits to its interest, i# owing, and therea#ter, to the %rinci%al (Art. ):2)' ,. To >" ?"> an account o# said #ruits to the debtor a. !T"3 This carries with it the corres%onding right o# the debtor to a%%ly the

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age 1

SECURITY TRANSACTIONS
said #ruits to the debt (Art. ):22, ):21' !o" #an an$i#*r&$i# #r&'i$ors &2&-%$ $*&-s&l.&s fro- $*& %a1-&n$ of $a2&s an' n&#&ssar1 r&%airs+ To e5em%t himsel# #rom the %ayment o# ta5es and necessary re%airs, he may com%el the debtor to reac0uire en4oyment o# the %ro%erty, e5ce%t when there is sti%ulation to the contrary (Art. ):2/'.

I6. C!ATTEL MORT A E Dis$in(/is* #*a$$&l -or$(a(& fro- %l&'(&.K C*a$$&l Mor$(a(& ?eli$ery o# the %ersonal %ro%erty to the mortgage is not necessary >egistration in the Ahattel Mortgage >egistry is necessary #or its $alidity The %rocedure #or sale is #ound under Bec. :, o# Act. o. :-*1, as amended ;# %ro%erty is #oreclosed, the excess o$er the amount due goes to the debtor ;# there is deficiency a#ter #oreclosure, creditor is entitled to reco$er the de#iciency #rom the debtor, e5ce%t under Art. :,1, Bub4ect-matter is mo$able %ro%erty Pl&'(& ?eli$ery o# the thing %ledged is necessary >egistration not necessary to be $alid The %rocedure #or sale is #ound under )::) o# the Ai$il Aode ?ebtor is not entitled to excess unless otherwise agreed or e5ce%t in case o# legal %ledge ;# there is deficiency, creditor is not entitled to reco$er notwithstanding any sti%ulation to the contract Bame

,*a$ is an affi'a.i$ of (oo' fai$*+ ,*a$ is $*& &ff&#$ of $*& a)s&n#& of affi'a.i$ of (oo' fai$* in a #on$ra#$ of #*a$$&l -or$(a(&+K An a##ida$it o# good #aith is an oath in a contract o# chattel mortgage wherein the %arties se$erally swear that the mortgage is made #or the %ur%ose o# securing the obligation s%eci#ied in the conditions thereo# and #or no other %ur%oses and that the same is a 4ust and $alid obligation and one not entered into #or the %ur%ose o# #raud (Bec. -, Ahattel Mortgage <aw' The s%ecial a##ida$it is re0uired only #or the %ur%ose o# trans#orming an already $alid mortgage into %re#erred mortgage. Thus, it is not necessary #or the $alidity o# the chattel mortgage itsel# but only to gi$e it a %re#erred status. ;n other words, its absence $itiates the mortgage only as against third %ersons without notice like creditors and subse0uence encumberances. 6. CONCURRENCE AND PREFERENCE OF CREDITS ,*a$ is -&an$ )1 #on#/rr&n#& of #r&'i$+4

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SECURITY TRANSACTIONS
(ossession by two or more creditors o# e0ual rights or %ri$ileges o$er the same %ro%erty or all o# the %ro%erty o# the debtor. ,*a$ is %r&f&r&n#& of #r&'i$+ ;t is the right held by a creditor to be %re#erred in the %ayment o# his clam abo$e others out o# the debtors assets. ;t is the right to be %aid #irst. ,*&n ar& $*& r/l&s on %r&f&r&n#& of #r&'i$ a%%li#a)l&+ The rules on %re#erence will a%%ly where two or more creditors ha$e se%arate and distinct claims against the same debtor who has insu##icient %ro%erty. The 0uestion o# %re#erence should only arise when the debtors assets are insu##icient to %ay his debts in #ull. 9ence, %re#erential rights o# credits are signi#icant only a#ter the %ro%erties o# the debtor ha$e been in$entoried and li0uidated and the claims held by his $arious creditors ha$e been established. Dis#/ss $*& or'&r of %r&f&r&n#& "i$* r&s%&#$ $o #r&'i$s &.i'&n#&' )1 %/)li# ins$r/-&n$s an' final 3/'(-&n$s.4 Aredits e$idenced by a %ublic instrument and those e$idenced by a #inal 4udgment are %laced in the same order o# %re#erence. (re#erence among themsel$es is determined by considering the %riority o# the dates o# the instruments and o# the #inal 4udgments, res%ecti$ely. That which is o# an earlier date is %re#erred o$er that with the later date ((ar. :,, Art. )),,'. !T"3 A mortgage o# a motor $ehicle, in order to a##ect third %ersons, should not only be registered in the Ahattel Mortgage >egistry but the same should also be recorded in the <T!. !nly then will the credit be considered %re#erred. 9owe$er, i# such is not the case, %re#erence o# %ublic instruments and #inal 4udgments shall be %rioritized according to the dates. !o" ar& non-%r&f&rr&' or #o--on #r&'i$s an' /n%ai' %r&f&rr&' #r&'i$s sa$isfi&'+ A. Those credits which are :. on-%re#erred a. ?o not en4oy any %re#erence with res%ect to s%eci#ic %ro%erty because they are not among those enumerated in Arts. )),: and )),), and ). 7n%aid a. ;ncluded in said articles but are un%aid because the $alue o# the %ro%erty to which en4oy %re#erence re#ers to is less than the %re#erred credits Bhall be satis#ied in the order established in Art. )),, with re#erence to other real andFor %ersonal %ro%erty o# the debtor. D. Aommon credits are satis#ied through %ayment pro rata regardless o# dates. Aommon credits are those which do not #all under Arts. )),:, )),) and )),,. They do not en4oy %re#erence.

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SECURITY TRANSACTIONS
!T"3 (re#erred credits, in order to be satis#ied, are %aid concurrently and pro rata with the e5clusion o# ta5es and assessments u%on s%eci#ic mo$able and immo$able %ro%erties which en4oy absolute %re#erence and must be satis#ied #irst. The pro rata, howe$er, does not a%%ly to credits annotated in the >egistry o# (ro%erty by $irtue o# a 4udicial order, by attachments and e5ecutions, which are %re#erred to as later credits. ;n satis#ying se$eral credits annotated by attachments or e5ecutions, the rule is still %re#erence according to the %riority o# the credits in order o# time. !T"3 Pro rata means in %ro%ortion or ratably, or a di$ision according to share interest or liability to each. 6I. INSOL6ENCY LA, ,*a$ is s/s%&nsion of %a1-&n$+ ;t is the %ost%onement, by court order, o# %ayment o# debts o# one who, while %ossessing su##icient %ro%erty to co$er his debts, increases the im%ossibility o# meeting them when they res%ecti$ely #all due. ;n the %etition to be #iled, the debtor must :. ). 2. (ossess su##icient %ro%erty to co$er all his debts Horesee the im%ossibility o# meeting them when they res%ecti$ely #all due, and (etition that he be declared in the state o# sus%ension o# %ayments

!T"3 The %etition need not be $eri#ied. (rocedure :. Hiling o# the %etition by the debtor ). ;ssuance by the court o# an order calling a meeting o# creditors 2. (ublication o# the order and ser$ice o# summons ,. Meeting o# the creditors #or the consideration o# the debtors %ro%osition -. A%%ro$al by the creditors o# the debtors %ro%osition /. !b4ections, i# any, to the decision which must be made within :* days #ollowing the meeting 8. ;ssuance o# the order by the court, directing that the agreement be carried out in case the decision is declared $alid, or when no ob4ection to said decision has been %resented. ,*a$ ar& $*& &ff&#$s of filin( of $*& %&$i$ion for s/s%&nsion of %a1-&n$s+ :. o dis%osition in any manner o# his %ro%erty may be made by the %etitioner e5ce%t inso#ar as concerns the ordinary o%erations o# commerce or o# industry in which he is engaged. ). o %ayments may be made by the %etitioner e5ce%t in the ordinary course o# his business or industry.

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SECURITY TRANSACTIONS
2. 7%on re0uest to the court, all %ending e5ecutions against the debtor shall be sus%ended e5ce%t e5ecution against %ro%erty es%ecially mortgaged. ,*a$ 'o#/-&n$s ar& r&7/ir&' $o )& a$$a#*&' $o $*& %&$i$ion for s/s%&nsion of %a1-&n$s+ (JJB(' :. A J">;H;"? BA9"?7<" containing a #ull and true statement o# the debts and list o# liabilities o# the %etitioner together with a list o# creditors, including the residence, sum due each, nature o# liability, consideration thereo#, and any e5isting %ledge, lien or security. ). A J">;H;"? ; J" T!>6 containing a list o# creditors, an accurate descri%tion o# all the %ro%erty, real and %ersonal, o# the %etitioner including %ro%erty e5em%t #rom e5ecution and a statement as to the $alue o# each item or %ro%erty, its location and encumberances thereon, i# any. 2. A BTAT"M" T o# his assets and liabilities. ,. The (>!(!B"? agreements he re0uests o# his creditors. Dis#/ss $*& %ro#&'/r& for s/s%&nsion of %a1-&n$s.K :. Hile a %etition with the >TA where the debtor has resided #or / months %rior to the #iling o# the %etition. The %etition should be accom%anied by a $eri#ied list o# all his creditors, debts, and liabilities, a statement o# his assets and liabilities, and the %ro%osed agreement that he re0uests #rom his creditors. ). The Aourt will issue an order calling #or the meeting o# all creditors. The meeting should take %lace not less than ) weeks nor more than 1 weeks #rom the date o# the order. 2. The order will be %ublished and notices sent to all the creditors o# the debtors. ,. There will be a meeting o# creditors in which they will decide whether to grant the %etition. Take note that the amount o# the debt is not reduced. The debtor merely buys more time to satis#y his obligations. Muorum >e0uirement3 To ha$e a $alid meeting, the creditor %resent must %resent at least /*N o# the total liabilities o# the debtor. -. The creditors will a%%ro$e the %ro%osition o# the debtor. Ma4ority re0uired to a%%ro$e the %ro%osal3 A double ma4ority consisting in )F2 o# the number o# creditors $oting, )F2 must re%resent at least /*N o# the total liabilities o# the debtor. /. !b4ections, i# any, to the decision must be made within :* days #ollowing the meeting. 8. ;ssuance o# the !rder o# the Aourt directing that the agreement be carried out in case the decision is declared $alid or when no ob4ection to said decision has been re%resented. ,*1 is insol.&n#1 in#onsis$&n$ "i$* s/s%&nsion of %a1-&n$s+ Chen sus%ension o# %ayments has been 4udicially declared, a declaration o# insol$ency is not legally %ossible unless %roceedings #or sus%ension ha$e been terminated. The condition o# sus%ension o# %ayments is in law incom%atible with that o# simultaneous bankru%tcy. Dis$in(/is* )&$"&&n s/s%&nsion of %a1-&n$s an' insol.&n#1. S/s%&nsion of %a1-&n$s To sus%end or delay the %ayment o# debts Insol.&n#1 To discharge the debtor #rom the %ayment o# debts

(ur%ose

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SECURITY TRANSACTIONS
(ro%erty Amount ?ebtor has su##icient %ro%erty to %ay his debts Amount o# indebtedness is not a##ected ?ebtor does not ha$e su##icient %ro%erty to %ay all his debts Areditors recei$e less than their credits and in case where there are %re#erences, some creditors may not recei$e any amount at all ;n in$oluntary insol$ency, three or more creditors are re0uired

umber o# creditors

umber o# immaterial

creditors

is

,*a$ is a #o-%osi$ion+ A com%osition is an agreement, made u%on a su##icient consideration, between an insol$ent or embarrassed debtor and his creditors, whereby the latter #or the sake o# immediate or sooner %ayment, agree to acce%t a di$idend less than the whole amount o# their claims, to be distributed pro rata, in discharge and satis#action o# the whole debt. ,*a$ ar& $*& r&7/isi$&s for a .ali' off&r of #o-%osi$ion+4 (?AMA'

:. The o##er o# the terms o# the com%osition must be MA?" a#ter the #iling in court o# the
schedule o# %ro%erty and submission o# the list o# creditors. ). The o##er must be AAA"(T"? in writing by a ma4ority o# the creditors re%resenting a ma4ority o# the claims which ha$e been allowed. 2. ;t must be made a#ter ?"(>"A;AT;! in such %lace designated by the court, the consideration to be %aid and the cost o# the %roceedings. ,. The terms o# the com%osition must be A((>!J"? or con#irmed by the court. Dis#/ss $*& %ro#&'/r& for .ol/n$ar1 insol.&n#1.4 :. Hiling o# the %etition by the debtor %raying #or the declaration o# insol$ency. ). ;ssuance o# an order o# ad4udication declaring the debtor insol$ent. 2. (ublication and ser$ices o# the order to the creditor. ,. Meeting o# the creditors to elect the assignee in insol$ency. -. Aon$eyance o# the debtors %ro%erty by the clerk o# court to the assignee. /. <i0uidation o# the debtors assets and %ayment o# his debts. 8. Aom%osition, i# agreed u%on. 1. ?ischarge o# the debtor, u%on his a%%lication, e5ce%t i# the debtor is a cor%oration. +. !b4ection, i# any, to the discharge. :*. A%%eal to the Bu%reme Aourt in certain cases. Dis#/ss $*& &ff&#$s of $*& filin( of $*& %&$i$ion for .ol/n$ar1 insol.&n#1. !nce the %etition is #iled, it ipso facto takes away and de%ri$es the debtor-%etitioner o# the right to do or commit any act o# %re#erence as to creditors, %ending #inal ad4udication. Dis#/ss $*& %ro#&'/r& for in.ol/n$ar1 insol.&n#1.4

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SECURITY TRANSACTIONS
:. Hiling o# the %etition by 2 or more creditors in the >TA where the debtor resides or has his %lace o# business. ). ;ssuance o# the order re0uiring the debtor to show cause why he should not be ad4udged insol$ent. 2. Ber$ice o# order to show cause. ,. Hiling o# the debtors answer or motion to dismiss. -. 9earing o# the case. /. ;ssuance o# the order o# decision ad4udging the debtor insol$ent. 8. (ublication and ser$ice o# order. 1. Meeting o# the creditors #or election o# an assignee in insol$ency. +. Aon$eyance o# debtors %ro%erty by clerk o# court to the assignee. :*. <i0uidation o# assets and %ayments o# debts. ::. Aom%osition, i# agreed u%on. :). ?ischarge o# the debtor on his a%%lication, e5ce%t a cor%oration. :2. !b4ection, i# any, to the discharge. :,. A%%eal to the Bu%reme Aourt in certain cases. En/-&ra$& $*& '&)$s $*a$ -a1 )& %ro.&' a(ains$ $*& &s$a$& of $*& '&)$or in insol.&n#1 %ro#&&'in(s. (?"<< Ad'

:. All debts ?7" and %ayable #rom the debtor at the time o# the ad4udication o# insol$ency. ). All debts "G;BT; = at the time o# the ad4udication o# insol$ency but not %ayable until a #uture
time, a discount being made i# no interest is %ayable on the terms o# the contract. 2. Any debt o# the insol$ent arising #rom his <;AD;<;T6 as indorser, surety, bail, or guarantor, where such liability became absolute a#ter the ad4udication o# insol$ency but be#ore the #inal di$idend shall ha$e been declared. ,. !ther A! T; =" T ?"DTB and contingent liabilities contracted by the insol$ent i# the contingency shall ha%%en be#ore the order o# #inal di$idend. -. Any debt o# the insol$ent arising #rom his <;AD;<;T6 to any %erson liable as indorser, surety, bail, or guarantor or otherwise, #or the insol$ent, who shall ha$e %aid the debt in #ull or in %art. ,*a$ is a 'i.i'&n' in insol.&n#1+ A di$idend in insol$ency is a %arcel o# the #und arising #rom the assets o# the estate, right#ully allotted to a creditor entitled to share in the #und, whether in the same %ro%ortion with other creditors or in a di##erent %ro%ortion. ,*a$ ar& $*& &ff&#$s of assi(n-&n$ $o $*& assi(n&& in an insol.&n#1 %ro#&&'in(+ (T<A ?JJ'

:. The assignee TA&"B the %ro%erty in the %light and conditions that the insol$ent held it. ). 7%on the a%%ointment, the <"=A< title to all the %ro%erty o# the insol$ent is $ested in the
assignee and the control o# the %ro%erty is $ested in the court.

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SECURITY TRANSACTIONS
2. All AAT;! B to reco$er the estate, debt, and e##ects o# the insol$ent shall be brought by the
assignee not by the creditors. ,. The assignment shall3 a. ?;BB!<J" any attachment le$ied within : month ne5t %receding the insol$ency %roceeding. b. JAAAT" and set aside 4udgment in any action commenced within 2* days #rom the commencement o# the insol$ency %roceeding. c. JAAAT" and set aside any 4udgment entered by the de#ault or consent o# the debtor within 2* days #rom commencement o# the insol$ency %roceeding. En/-&ra$& $*& %ro%&r$i&s of $*& insol.&n$ $*a$ %ass $o $*& assi(n&&.4 (H>AA 7'

:. ). 2. ,. -.

A<< real and %ersonal %ro%erty (ro%erties H>A7?7<" T<6 con$eyed >;=9T o# action #or damages to real %ro%erty 7 ?;J;?"? shares o# interest o# the insol$ent in the %ro%erty held under co-ownershi%. ;n insol$ency %roceedings, A9!B"B-; -AAT;! as well as cor%oreal %ro%erty ordinarily %ass to the assignee (e.g. book o# accounts and other debts that are due to the insol$ent. At

En/-&ra$& $*& %ro%&r$i&s of $*& insol.&n$ $*a$ DO NOT %ass $o $*& assi(n&&. (MA "TA'

:. (ro%erty "G"M(T #rom e5ecution. ). (ro%erty held in T>7BT. 2. (ro%erty o# the A! L7=A< %artnershi% or absolute community so long as said %artnershi% or
community e5ists e5ce%t inso#ar as the insol$ent debtors obligations ha$e redounded to the bene#it o# the #ormer. (ro%erty o$er which a M!>T=A=" or %ledge e5ists unless the creditor surrenders his security or lien. AHT">-AAM7;>"? %ro%erty (%ro%erty ac0uired subse0uent to the #iling o# the %etition' except #ruits and income o# %ro%erty owned by the debtor and which had %assed to the assignee in insol$ency. ! -<"J;AD<" assets like li#e insurance %olicy which does not ha$e any cash surrender $alue. >ight o# AAT;! #or T!>T (e.g. libel, malicious %rosecution' which is %urely %ersonal in nature.

,. -.

/. 8.

,*a$ is a #on$in(&n$ #lai-+ A claim in which liability de%ends on some #uture e$ent which may or may not ha%%en and which makes it uncertain whether there will be any liability. A claim based on a contingency which has not ha%%ened at the time o# the %endency o# the %roceedings cannot be %ro$ed in the %roceedings, as there is no real claim yet. Dut, i# the contingency ha%%ens a#ter the termination o# the %roceedings, the creditor can still claim #rom the debtor. The discharge granted the debtor #rom his e5isting debts does not co$er those debts that could not ha$e been %ro$ed in the insol$ency %roceedings.

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SECURITY TRANSACTIONS
To illustrate, a contingent claim arises when a %erson is bound as surety or guarantor #or a %rinci%al who is insol$ent or dead. The surety has no claim whatsoe$er against his %rinci%al until he himsel# %ays something by way o# satis#action u%on the obligation which is secured. Dut until the surety has contributed something to the %ayment o# the debt, he has no right o# action against anybody . no claim that can be reduced to 4udgment. !T"3 An absolute claim, on the other hand, is not sub4ect to contingency and may be %ro$ed or allowed. ,*a$ is a 'is#*ar(&+ ?ischarge is the #ormal and 4udicial release o# an insol$ent debtor #rom his debts with the e5ce%tion o# those e5%ressly reser$ed by law. ,*&n -a1 an insol.&n$ '&)$or a%%l1 for a 'is#*ar(&+ A debtor may a%%ly #or a discharge at any time a#ter the e5%iration o# 2 months, but not later than : year, #rom the ad4udication o# insol$ency, 7 <"BB the %ro%erty o# the insol$ent has not been con$erted into money without his #ault, thereby delaying the distribution o# di$idends among the creditors, in which case the court may e5tend the %eriod. !T"3 A%%ly #or a discharge to the >egional Trial Aourt. Any creditor may o%%ose the discharge by #iling his ob4ections thereto, s%eci#ying the grounds #or o%%osition. A#ter the debtor has #iled and ser$ed his $eri#ied answer, the court shall try the issueFs raised. ,*a$ '&)$s ar& r&l&as&' )1 'is#*ar(&+ :. All claims, debts, and liabilities and demands set #orth in the schedule. ). All claims, debts, and demands which were or might ha$e been %ro$ed against the estate in insol$ency. ,*a$ '&)$s ar& NOT r&l&as&' )1 'is#*ar(&+ (Ta5es, Alaims-AB7 ieB, ?ebts-H?(BA s O#or easy recall, it means claims o# Aali#ornia Btate 7ni$ersity students, debts o# Hederal ?e%artment (rison Bhit-Alass nobodiesP'

:. TAG"B or assessments due the go$ernment, whether national or local. ). Any debt created by H>A7? or embezzlement o# the debtor. 2. Any debt created by the ?"HA<AAT;! o# the debtor as a %ublic o##icer or while acting in a
#iduciary ca%acity.

,. ?ebt o# any %erson liable #or the BAM" debt, #or or with the insol$ent debtor, either as
%artner, 4oint contractor, indorser, surety, or otherwise.

-. ?ebts o# a A!>(!>AT;! because a cor%oration is not granted discharge. /. Alaims o# B7((!>TE otherwise, it will make the law a means o# a$oiding the en#orcement o#
the obligation, moral and legal, de$ol$ing u%on the husband to su%%ort his #amily. 8. ?ischarged debt but re$i$ed by a subse0uent new (>!M;B" to %ay.

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SECURITY TRANSACTIONS
1. ?ebts which ha$e
!T been duly BA9"?7<"? in time #or %roo# and allowance unless the creditors had notice or actual knowledge o# the insol$ency %roceedings, are not discharged as to such creditors. +. Alaims #or 7 <;M7;?AT"? damages arising out o# %ure tort. :*. Alaims o# B"A7>"? creditors. ::. Alaims !T ; "G;BT" A" or not mature at the time o# the discharge are generally una##ected thereby. :). Alaims that are A! T; =" T at the time o# the discharge are not barred thereby, and conse0uently, an action may be maintained against the debtor #or collection thereo#. Dis#/ss $*& l&(al &ff&#$s of 'is#*ar(&. A discharge, when granted, takes e##ect not #rom its date, but #rom the commencement o# the insol$ency %roceedings. ;ts legal e##ects are as #ollows3 :. ;t releases the debtor #rom all claims, debts, liabilities, and demand set #orth in the schedule or which were or might ha$e been %ro$ed against his estate in insol$ency. ). ;t o%erates as a discharge o# the insol$ent and #urther ac0uisitions, but %ermits mortgagees and other lien creditors to ha$e their satis#action out o# the mortgage or sub4ect o# the lien. 2. ;t is a s%ecial de#ense which may be %leaded and be a com%lete bar to all suits brought on any such debts, claims, liabilities, or demands. ,. ?oes not o%erate to release any %erson liable #or the same debt, #or or with the debtor, either as %artner, 4oint, contractor, indorser, surety, or otherwise. -. The certi#icate o# discharge is %rima #acie e$idence o# the #act o# release, and the regularity o# such discharge. Chere a debtor is 4udicially declared insol$ent, the remedy o# the guarantor or surety would be to #ile a contingent claim in the insol$ency %roceeding, i# his rights as such guarantor or surety are not to be barred by the subse0uent discharge o# the insol$ent debtor #rom all his liabilities. ,*&n 'o&s fra/'/l&n$ $ransf&r &2is$+ A #raudulent trans#er is any %ayment, %ledge, mortgage, con$eyance, sale, assignment or trans#er o# %ro%erty o# whate$er character made by the insol$ent within one month be#ore the #iling o# the %etition in insol$ency by or against him, e5ce%t #or a $aluable consideration in good #aith. Buch trans#er is $oid. ;n case o# real %ro%erty, the trans#er shall be deemed to ha$e been made at the time the instrument con$eying such realty was #iled #or record in the >egister o# ?eeds o# the %ro$ince or city where the same is located. The e##ect o# #raudulent trans#er as against the creditors o# the insol$ent, any con$eyance or assignment #raudulently made is $oid. 9ence, no title is ac0uired by the trans#eree. The assignee has the right to reco$er the %ro%erty or its $alue. ,*a$ ar& $*& &ff&#$s of fra/'/l&n$ $ransf&r+ As against the creditors o# the insol$ent, any con$eyance or assignment #raudulently made is $oid. 9ence, no title is ac0uired by the trans#eree. The %ro$isions o# the Ai$il Aode on rescissible contracts which assume the $alidity o# the contract cannot be in$oked as to said trans#er since the ;nsol$ency <aw regards the contract as $oid. Aonse0uently, it is idle to talk o# restitution, e5haustion o# the debtors %ro%erties, sources o# title, etc. under the Ai$il Aode.

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(age :8

SECURITY TRANSACTIONS
Dis#/ss $*& &ff&#$ of '&a$* of $*& insol.&n$ '&)$or %&n'in( $*& insol.&n#1 %ro#&&'in(s. :. ;# the debtor shall die AHT"> the order o# ad4udication, the %roceedings shall be continued and concluded in like manner and with like $alidity, and e##ect as i# he had li$ed. (Bec. 8)' ). ;# the death occurs D"H!>" the order o# ad4udication, the %roceedings shall be discontinue. The claims must be #iled in the %ro%er testate or intestate %roceedings as %ro$ided #or in the >ules o# Aourt on the settlement o# a decedents estate. 6II. MISCELLANEOUS (Pa"ns*o% R&(/la$ion A#$0 Tr/$* in L&n'in( A#$0 Cor%ora$& R&*a)ili$a$ion A#$0 &$#.)

PA,NS!OP RE ULATION ACT !o" is a %a"n 'is%os&' in #as& of '&fa/l$ of $*& %a"n&r+K 7%on de#ault, :. The %awner has +* days to redeem #rom the date o# maturity by %aying the %rinci%al debt with interest. ). ;# the %awner still #ails to %ay, the %awnbroker may sell or dis%ose the articles %awned. 2. The %awner shall be noti#ied o# such sale be#ore the termination o# the +*-day %eriod, the notice stating the date, hour and %lace o# sale. ,. The sale must be made in a %ublic auction in the %lace o# business o# the %awnbroker or within the munici%ality. -. The notice shall be %ublished once in at least two news%a%ers %rinted in the munici%ality during the week %receding the date o# the sale. /. ;# there are no news%a%ers circulated, %osting o# notice in cons%icuous %laces within the munici%ality where the %awnsho% has its %lace o# business shall be re0uired. 8. The notice, whether %osted or %ublished, shall be in "nglish, Hili%ino, or in the local dialect The notice shall contain the name o# the %awnsho%, its owner, address o# establishment, hour and date o# the auction sale (Becs. :,-:- o# the (awnsho% >egulation Act' FINANCIN COMPANY ACT

,*a$ ar& finan#in( #o-%ani&s+ Aor%orations, %artnershi%s, e5ce%t those regulated by the AD(, the ;nsurance Aommissioner and Aoo%erati$es Administration !##ice, which are %rimarily organized #or the %ur%ose o# e5tending credit #acilities to consumers and to industrial, commercial or agricultural enter%rises, either by :. ?iscounting or #actoring commercial %a%ers or accounts recei$able, ). Duying and selling contracts, leases, chattel mortgages, or other e$idence o# indebtedness, or 2. Hinancial leasing o# mo$ables as well as immo$able %ro%erty (Bec. 2a'. !T"3 "5ce%tions to cor%orations and %artnershi%s are banks, in$estments houses, sa$ings and loan associations, insurance com%anies, coo%erati$es, and other #inancial institutions organized or o%erating under other s%ecial laws.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age :1

SECURITY TRANSACTIONS
,*a$ is a %/r#*as& 'is#o/n$+ A %urchase discount is the di##erence between the $alue o# the recei$able %urchased or credit assigned, and the net amount %aid by the #inance com%any #or such %urchase or assignment, e5clusi$e o# #ees, ser$ice charges, interest and other charges incident to the e5tension o# credit. Dis#/ss $*& infor-a$ion $*a$ a #r&'i$or s*o/l' 'is#los& $o &a#* %&rson $o "*o- a #r&'i$ is &2$&n'&'.K ((AT ?H (A' :. The cash (>;A" or deli$ered %rice o# the %ro%erty or ser$ice to be ac0uired The AM!7 TB, i# any, to be credited as down %ayment andFor trade-in The ?;HH">" A" between the amounts set #orth under clauses : and ) The A9A>="B, indi$idually itemized, which are %aid or to be %art by such %ersons in connection with the transaction but which are not incident to the e5tension o# credit -. The T!TA< amount to be #inanced /. The H; A A" charge e5%ressed in terms o# %esos and centa$os 8. The (">A" TA=" that the #inance bears to the total amount to be #inanced e5%ressed as a sim%le annual rate on the outstanding un%aid balance o# the obligation (Bec. ,'

). 2. ,.

,*a$ ar& in#l/'&' in finan#& #*ar(&s+ Hinance charge includes interest, #ees, collection charge discounts and such other charges incident to the e5tension o# credit. TRUT! IN LENDIN ACT

,*a$ is -&an$ )1 #r&'i$ in Tr/$* an' L&n'in( A#$+ :. Any loan, mortgage, deed o# trust, ad$ance or discount ). Any conditional sales contractE any contract to sell, or sale o# real %ro%erty or ser$ices, either #or %resent or #uture deli$ery, under which %art o# all o# the %rice is %ayable subse0uent to the making o# such sale or contract 2. Any rental-%urchase contract ,. Any contract or arrangement #or the ire, bailment or leasing o# %ro%erty -. Any o%tion, demand, lien, %ledge or other claims against, or #or the deli$ery o#, %ro%erty or money. /. Any %urchase or any credit u%on the security o# any obligation or claim arising out o# any o# the #oregoing 8. Any transaction ha$ing a similar %ur%ose or e##ect (Bec. 2O)P'. ,*a$ infor-a$ion -/s$ a #r&'i$or f/rnis* in "ri$in( $o &a#* %&rson $o "*o- #r&'i$ is &2$&n'&' %rior $o $*& #ons/--a$ion of $*& $ransa#$ion+4 ((A?ATH(' Bec. , o# the Truth in <ending Act %ro$ides3 Any creditor shall #urnish to each %erson to whom credit is e5tended, %rior to the consummation o# the transaction, a clear statement in writing stating #orth,

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age :+

SECURITY TRANSACTIONS
to the e5tent a%%licable and in accordance with rules and regulations %rescribed by the Doard, the #ollowing in#ormation3 :. ). 2. ,. The cash (>;A" or deli$ered %rice o# the %ro%erty or ser$ice to be ac0uiredE The AM!7 TB, i# any, to be credited as down %ayment andFor trade-inE The ?;HH">" A" between the amounts set #orth under clauses (:' and ()'E The A9A>="B, indi$idually itemized, which are %aid or to be %aid by such %erson in connection with the transaction but which are not incident to the e5tension o# creditE -. The T!TA< amount to be #inancedE /. The H; A A" charge e5%ressed in terms o# %esos and centa$osE and 8. The (">A" TA=" that the #inance charge bears to the total amount to be #inanced e5%ressed as a sim%le annual rate on the outstanding un%aid balance o# the obligation. ,*a$ is -&an$ )1 #r&'i$ in $*& Tr/$* in L&n'in( A#$+ :. Any loan, mortgage, deed o# trust, ad$ance or discount ). Any conditional sales contract, any contract to sell, or sale o# %ro%erty or ser$ices, either #or %resent or #uture deli$ery, under which %art o# all o# the %rice is %ayable subse0uent to the making o# such sale or contract 2. Any rental-%urchase contract ,. Any contract or arrangement #or the hire, bailment, or leasing o# %ro%erty -. Any o%tion, demand, lien, %ledge, or other claim against or #or the deli$ery o# %ro%erty or money /. Any %urchase or other ac0uisition o#, arising out o# any o# the #oregoing 8. Any transaction or series o# transactions ha$ing a similar %ur%ose or e##ect CORPORATE RE!A8ILITATION ACT ,*&n s*all $*& r&*a)ili$a$ion #o/r$ iss/& a s$a1 or'&r+K ;# the court #inds the %etition to be su##icient in #orm and substance, it shall not later than - days #rom the #iling o# the %etition, issue a stay order. Un'&r $*& in$&ri- r/l&s of %ro#&'/r& on #or%ora$& r&*a)ili$a$ion0 "*a$ s*o/l' )& in#l/'&' in a r&*a)ili$a$ion %lan+4 (=THM <a!'

:. The desired business targets or =!A<B and the duration and co$erage o# the rehabilitation. ). The T">MB and conditions o# such rehabilitation which shall include the manner o# its
im%lementation, gi$ing due regard to the interest o# secured creditors. 2. The material H; A A;A< commitments to su%%ort the rehabilitation %lan. ,. The M"A B #or e5ecution o# the rehabilitation. -. A <;M7;?AT;! A A<6B;B that estimates the %ro%ortion o# the claims that the creditors and shareholders would recei$e i# the debtors %ro%erties were li0uidated. /. Buch !T9"> rele$ant in#ormation to enable a decision on the #easibility o# the rehabilitation %lan.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age )*

SECURITY TRANSACTIONS
,*a$ -a$&rial fa#$s -/s$ )& in#l/'&' in $*& %&$i$ion for r&*a)ili$a$ion+ ((TA9 M '

:. AM" and business o# the debtor. ). AT7>" o# the business o# the debtor. 2. 9;BT!>6 o# the debtor. ,. AA7B" o# its inability to %ay its debts. -. All the (" ?; = AAT;! B or %roceedings known to the debtor and the courts where they are
%ending. /. T9>"ATB or demands to en#orce claims or liens against the debtor. 8. MA "> by which the debtor may be rehabilitated and how such rehabilitation may bene#it the general body o# creditors, em%loyees, and stockholders. Dis#/ss $*& %rin#i%l&s lai' 'o"n in $*& follo"in( #as&s3 (Aheck the digests '

a' Eas$&rn S*i%%in( . re a%%lication o# interest

Chen an obligation, regardless o# its source, i.e., law, contracts, 0uasi-contracts, delicts or 0uasi-delicts, is breached, the contra$enor can be held liable #or damages. Cith regard %articularly to an award o# interest in the conce%t o# actual and com%ensatory damages, the rate o# interest, as well as the accrual thereo#, is im%osed, as #ollows3 Chen the obligation is breached, and it consists in the %ayment o# a sum o# money (i.e., a loan or #orbearance o# money', the interest due should be that which may ha$e been sti%ulated in writing. Hurther, the interest due shall itsel# earn legal interest #rom the time it is 4udicially demanded. ;n the absence o# sti%ulation, the rate o# interest shall be :)N %er annum to be com%uted #rom de#ault, i.e., #rom 4udicial or e5tra4udicial demand under and sub4ect to the %ro$isions o# Article ::/+ o# the Ai$il Aode. Chen an obligation, not constituting a loan or #orbearance o# money, is breached, an interest on the amount o# damages awarded may be im%osed at the discretion o# the court at the rate o# /N %er annum. o interest, howe$er, shall be ad4udged on unli0uidated claims or damages e5ce%t when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run #rom the time the claim is made 4udicially or e5tra4udicially (Art. ::/+, Ai$il Aode' but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only #rom the date the 4udgment o# the court is made (at which time the 0uanti#ication o# damages may be deemed to ha$e been reasonably ascertained'. The actual base #or the com%utation o# legal interest shall, in any case, be on the amount #inally ad4udged. Chen the 4udgment o# the court awarding a sum o# money becomes #inal and e5ecutory, the rate o# legal interest, whether the case #alls under %aragra%h : or %aragra%h ), abo$e, shall be :)N %er annum #rom such #inality until its satis#action, this interim %eriod being deemed to be by then an e0ui$alent to a #orbearance o# credit.

)) C&n$ral 8an5 . Morf& Dank de%osits are not %re#erred credits but sim%le loans.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age ):

SECURITY TRANSACTIONS
Chere a suit o# reco$ery o# a bank de%osit was #iled a#ter the bank has been declared insol$ent by the Aentral bank, a 4udgment in #a$or o# the de%ositor cannot be considered a %re#erred credit under Art. )),, (:' o# the Ai$il Aode. A non-%re#erred credit cannot be raised to that category sim%ly because a de%ositor, taking ad$antage o# long inter$al o# time between declaration o# insol$ency and #iling o# 4udicial assistance, was able to secure a 4udgment #or %ayment o# his de%osit. #) A$o5 Finan#& Cor%. . CA Art. )*-2- a guaranty may also be gi$en as a security #or #uture debts, the amount o# which is not yet knownE there can be no claim against the guarantor until the debt is li0uidated. A conditional obligation may also be secured. There is no theoretical or doctrinal di##iculty inherent in saying that the suretyshi% agreement itsel# is $alid and binding e$en be#ore the %rinci%al obligation intended to be secured thereby is born, any more that there would be in saying that obligations which are sub4ect to a condition %recedent are $alid and binding be#ore the occurrence o# the condition %recedent. ') In$&(ra$&' R&al$1 Cor%. . PN8 (loans) (ledge is not e0ui$alent to %ayment but only security. The deed o# assignment in the instant case is actually a %ledge. The character o# the transaction between the %arties is to be determined by their intention, regardless o# what language was used or what the #orm o# trans#er was. A trans#er o# %ro%erty by the debtor to a creditor, e$en i# su##icient on its #ace to make an absolute con$eyance, should be treated as a %ledge i# the debt continues in e5istences and is not discharged by the trans#er, and that accordingly, the use o# terms ordinarily im%orting con$eyance o# ownershi% will not be gi$en that e##ect in such a transaction i# they are also commonly used in %ledges and mortgages and there#ore do not un0uali#iedly indicate a trans#er o# absolute ownershi% in the absence o# clear and unambiguous language or other circumstances e5cluding an intent to %ledge. The deed o# assignment has satis#ied the re0uirements o# a contract o# %ledge3 o That it be constituted to secure the #ul#illment o# an obligation. o That the %ledgor be the absolute owner o# the thing %ledged. o That the %ersons constituting the %ledge ha$e the #ree dis%osal o# their %ro%erty, and in the absence thereo#, that they be legally authorized #or the %ur%ose. The #urther re0uirement that the thing %ledged be %laced in the %ossession o# the creditor, or o# a third %erson by common agreement was com%lied with by the e5ecution o# the deed o# assignment in #a$or o# ( D. A contract o# loan or mutuum is created when Bantos in$ested his money in time de%osit with %etitioner bank.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age ))

SECURITY TRANSACTIONS
&) D8P . NLRC Art. ::* o# the <abor Aode cannot be in$oked absent a #ormal declaration o# bankru%tcy or li0uidation order. 7nder the new law, e$en mortgage credits are subordinate to workers claim. >.A. o. /8:-, howe$er, took e##ect only on March ):, :+1+. The amendment cannot there#ore be retroacti$ely a%%lied to nor can it a##ect the mortgage credit which was secured by the %etitioner se$eral years %rior to its e##ecti$ity. To gi$e Art. ::* retroacti$e e##ect would be to wi%e out the mortgage in ?D(s #a$or and e5%ose it to a risk which it sought to %rotect itsel# against by re0uiring a collateral in the #orm o# real %ro%erty. f) S$a$& In.&s$-&n$ !o/s&0 In#. . Ci$i)an5 A #oreign cor%oration doing business in the (hili%%ines is considered a QresidentQ o# the (hili%%ines. ( ote that while the ;nsol$ency <aw itsel# does not ha$e a de#inition o# the term resident, it may be obtained #rom other statutes (e.g. ;>A, the !##shore Danking <aw, and the =eneral Danking Act'. Although no substanti$e law e5ists e5%licitly granting #oreign banks the right or %ower to %etition #or a (hili%%ine cor%oration to be declared bankru%t, no law e5ists also granting the same solely to domestic banks. The ;nsol$ency <aw 4ust grants to a 4uridical %erson the %ower to %etition #or the ad4udication o# bankru%tcy o# any %erson, natural or 4uridical, %ro$ided that it is a resident cor%oration and 4oins at least ) other residents in %resenting the %etition to the ;nsol$ency Aourt. Hor answering3 Aorrect or incorrectR K The mortgaged credit may not be alienated or assigned to a third %erson. K A sti%ulation in a mortgage contract including a#ter-ac0uired %ro%erties $alid.

M;&7 <A=A>?" @ A>;B M7 ?; , )-A, )*:)

(age )2