CIVIL REVIEW 2

Credit Transaction Contracts

These are the bailment contracts.

How many bailment contracts do we have? Several.

Okay! lets start with a contract which is the basis, because it is the principal
contract which is the basis of six accessory contract.

Let’s start with the creditor who lends money to a debtor let’s say in the
amount of 100k. If one borrows money from another. This is your mutuum,
so this is your loan, simple loan and you have only one contract which can
stand by itself and from this principal contract would come the six accessory
contracts, how accessory contracts do we have?, antechresis, real mortgage,
chattel mortgage, pledge, guaranty and suretyship.

Let’s say the creditor has collect collateral for the 100k, let’s put collateral to
be provided for by the debtor ant it is a personal property, how many
possible contracts, accessory contracts can arise if there is a collateral? We
have already one, and then another two, one maybe a chattel
mortgage,dba? And second is pledge. Okay chattel mortgage, debtor is
indebted of 200k, debtor pass a collateral, what is the purpose of a collateral
as you studied in your credit transaction, to answer in the event the debtor
fails to pay, so in the event the debtor fails to pay this one, the creditor runs
after the collateral, not automatically become the owner, because that is
bawal how do you call that arrangement in the event that the debtor fails to
pay his indebtedness automatically the creditor appropriate ownership over
the collateral, that is your pactum commisuriom, it is void, bakit? Impakto
eh. Because it is prejudicial to the debtor. Chattel mortgage is constituted
over this personal property, the debtor becomes now the mortgagor,
because he is the one mortgaging, then the creditor becomes the
mortgagee.

If it is pledge, debtor becomes the pledger then the creditor becomes the
pledgee

Kinds of contracts As to perfection

1. Consensual= consent + object + cause

The moment the parties agreed on what is the object and what is the cause, and that
agreement is the consent you have now valid perfected contract. The moment the parties
agreed what to be bought an the price even not put in writing, the contract of sale is perfect or
lease in the boarding house if have agreed with the landlady the place you’re going to occupy
for rent and how much is the rental even you have no written contract it is valid, consensual.

Is mortgage consensual, is pledge consensual?

2. Real= consent + object+ Cause+ delivery

The thing must be delivered for validity, if there is no delivery of the object there is no contract
and the other party has no obligation to be___ of the object because it is not yet delivered.

3. Formal= consent+ object + cause +form required by law usually a written form.

The contract should be put in to writing to be valid. If it is not I writing, void.

So with this where do you classify chattel mortgage and pledge, and that is one of the
distinction.

Chattel Mortgage.

What kind of contract is chattel mortgage? So if I lend you 100,000, your motor vehicle will be
the collateral. What is required so that the chattel mortgage contract will be valid?

Do you need to deliver to me the motor vehicle meanwhile that you have not yet paid the
indebtedness? You don’t need to, just keep your thing. But what is my security as the creditor
in the event you failed to pay it would be very hard for me to run after that motor vehicle.

So what is required by the law? You need a written instrument. So a chattel mortgage is a
formal contract. You need to put into into writing. If not put in writing the contract is null and
void. So theres no such thing as an oral or verbal contract of a chattel mortgage. Why? If it is in
writing then it can be registered in the LTO as well as the chattel mortgage register under the
custody of the register of deeds so that the registration becomes a notice to the whole world
that this motor vehicle has been mortgage. So that if the mortgagor therefore sells it to another
and is now in the hands of the another person, the mortgagee can still run against the motor
veghicle for purposes of forclosure.

How about in pledge? The basic example of pledge is what you do in a pawnshop. What do you
do in a pawnshop, you borrow money diba but there must be collateral. So we have a case of a
pawnshop which is called the pledgee and the one borrowing called the pledgor but since this is
a pawnshop transaction technically the parties instead of pledger we called that party as
pawner and the pawnshop as pawnee. Pledge however can exist between ordinary persons. So
when I lend you 10,000, instead of executing a chattel mortgage we make use of a contract of
pledge. So how do we do it. You have a laptop you deliver it to me, I’ll keep it until such time
that you paid the obligation. You need to deliver because pledge is not consensual, not formal
but a real contract. You need delivery for the perfection even if we do not reduce that into
writing it is still valid. That’s why when you go there in the pawnshop, you don’t need to sign a
pledge contract. The pawnshop will just issue you a piece of paper which contain the
description of what you have pledge. What is required by law is delivery. So that the difference.
Chattel mortgae is a formal contract while pledge is a real contract.

Another distinction. Possession. Who has possession? In chattel mortgage the debtor keeps the
thing. When is he obliged to surrender, at the time of the foreclosure proceedings if the debtor
default in the payment, creditor will now foreclose the mortgage. The foreclosure proceedings
will either be judicial or extra judicial but pointing to one purpose, the sale of the collateral so
that from the proceeds if there are interest, surcharges and penalties, it will be used and the
procveeds in the sale will be used for that. Mortgagor defaults- creditor forecloses- and
because of the foreclosure the debtor will have to surrender the property.

How about in pledge, in pledge the possession is with the creditor. Debtor fails to pay creditor
can easily conduct the auction sale. So that the second difference.

Third difference. What happens to the proceeds in chattel mortgage. The proceeds, the prize to
be paid by the highest bidder, ok. Debtor fails to pay- creditor conducts foreclosure
proceedings, there is an auction sale. The amount of the principal is 100,000 plus interest and
charges, lets say amounts to 120,000. Personal property was auctioned, the proceeds 200,000.
So 200,000 minus 120,000 you have 80,000, this is your excess. In mortgage, where will the
excess go? Should it be taken by the creditor, should it be return to the debtor? Or to the
sheriff (haha)? The excess goes back to the debtor. This is chattel mortgage ah.

Suppose it is pledge? What is the rule? Just the same pactum commisorium applies in pledge
hence no automatic appropriation. Ok, Debtor fails to pay, auction sale, publication then notice
to the pledger. Pledger can participate. He was not the highest bidder. The thing pledge was
sold for 200,000. Total amount claim by the pawnshop is 120,000. There is an excess of 80,000.
To whom the excess belong? In pledge the excess belongs to the creditor except if there is a
stipulation that the creditor returns it to the debtor but if no stipulation to that effect, creditor
gets the excess.

In case of deficiency, what is the rule? So during auction, proceeds is only 90,000. The total
indebtedness is 120,000. Who shoulders the deficiency? In chattel mortgage, Yes, The creditor
run after the debtor to recover the deficiency except. Meron tayong exception, you learned one
in sale under 1484, this is your recto law. Under 1484, if it is a sale where the price is payable by
installments. Lest say im the seller you’re the buyer, you give me a down payment of 100,000
the price is 500,000, the balance is 400,000. You’re going to pay that for 3 yrs. monthly. Sale of
personal property by installments, ok we have a contract and it is a contract of sale with chattel
mortgage. It was you the buyer will keep the thing you bought from me but as a security for
that 400,000 unpaid price, we have to execute chattel mortgage and one of the stipulation
therein is the payment of monthly installments. You defaulted in the payment with two to
three installments, what is my remedy? I have three alternative remedies under 1484,
collection or specific performance, rescission is the second remedy, but I like foreclosure, so I
foreclose the chattel mortgage. The thing is in your possession which is now subject to
foreclosure was now sold at public auction. There was deficiency. Question can I still run for the
deficiency? Do you still apply the general rule that in case of deficiency the mortgagee can still
run against the mortgagor? No more because this is covered by 1484 so I cannot run for that
deficiency. The recto law protects the buyer. Suppose we made a stipulation that in the event
of deficiency I can still run after you, can I use that stipulation? NO because any stipulation to
that effect would be null and void under 1484.

So rule!! If there is a chattel mortgage, in case of deficiency creditor/mortgagee can still run
against the debtor/mortgagor. But note if it is covered by 1484.

How about in pledge if there is a deficiency, Can the pledgee run after the pledgor? Can the
pawnshop still run after you? NO. Suppose there is stipulation where you sign voluntarily that in
case of deficiency in the auction sale, the pledgor is still liable, can the pawnshop run after you?
No because that is a void stipulation. Kanina sinabi natin in case of excess it belongs to pledgee
diba, but if there is stipulation that the pledgee will return the excess of the proceeds to the
pledgor, that is a valid stipulation. Ngayon, in case of excess( should be deficiency, nagkamali
ata si sir ng sinabi) , the excess(deficiency) is shouldered by the pledgee, if there is a stipulation
that the pledgor shoulders the deficiency, that is the void stipulation.

If the collateral is a real property, then we have two possible contracts. We have a real
morgtgage and antichresis. In antechresis, we have the antichretic debtor and antichretic
crerditor. So what is the difference? What kind of contract is a real mortgage? Here the written
form is required for its validity not for its enforceability. That is different from your statutes of
fraud because your statute of fraud, a written form is required not for validity but or
enforceability. If a contracts belongs to a formal contract, written form is an indispensable
requisite without it is void.

Ok, real mortgage, ano? C, R OR F? You need a written instrument for vcalidity. Should it be
notarized? Should it be in a public instrument? Sign by the parties but not notarized, is it void?
It is valid. Why is there a need to notarize? If you want it to be registered you have to have it
notarized because if not notarized the register of deeds will not registered. So real mortgage is
a formal contract.

How about antichresis? The law requires that the principal and interest will be put in writing to
be valid. If the principal and interest is not in writing then it is void. But an antichresis is also a
real contract because here the collateral is to be delivered to the creditor and in keeping it he
gathered the fruits and applies these fruits as payment of the interest and if still there is an
excess then apply it to the principal.

Let’s say this is the strawberry farm. Who keeps the farm during the subsistence of the real
mortgage? So the creditor lent the debtor 100,000, the debtor provided the farm as collateral.
Who cultivates the farm meanwhile? Debtor because this is the real mortgage. The debtor is in
possession so the debtor continue cultivating the farm. When he will surrender? Not during
foreclosure proceedings. As a rule he should be surrendering but the practice is that he keeps
it. He participates in the foreclosure proceedings, if he is the highest bidder then well and good.
Is the debtor who is in possession of his farm continuing cultivating the farm despite the fact
that this was already sold at public auction to the highest bidder? Yes because this is a real
mortgage. In real mortgage the mortgagor debtor has a redemption period. 1 year from the
registration of the certificate of sale in the RD. if he fails to redeem then that is tha time, the
highest bidder will now claim the property and the debtor will have to vacate the property. Ok
so possession is with the debtor.

How about if it is an antichresis? Creditor takes charge of the property until such time that the
debtor is able to pay. If the debtor has settled all his obligation then the creditor returns the
real property. So what will the creditor do with the farm? He cultivates and gather the fruits.
Lets say the strawberry farm produced an income of 50,000. Less 30,000 as capital and
expenses. So you have 20,000 as net income. The fruits will now be applied to the payment of
the interest of the 100,000. The interest is the stipulated interest. Let’s say 12% so 12,000. So
minus 12,000 remaining 8,000. Since it is antichresis what will the creditor do with the 8,000,
he will not return to debtor or keep but will be used to deduct from the principal. So 92,000 na
lng yong naiwan sa principal, next year same process. Suppose the fruits is not sufficient to pay
the interest and the principal during the stipulated period say 5 years. Can the creditor gets the
property as his own? The creditor cannot appropriate it as his own. Pactum commisorium- no
automatic ownership to the creditor. He has to go through the foreclosure proceedings.

Ok debtor has no collateral, walang personal and real property. A person can be collateral but it
is called a co-maker. The co-maker can either be a guarantor or surety. In the event the debtor
fails to pay creditor runs against the person to pay just like collateral the creditor runs after the
property. Now, where does the contract lie?
So if you have a creditor and a debtor and you have here the guarantor or surety, we have here
a tripartite relationship. Where does the contract lie? The contract of guaranty and surety is
with the guarantor or surety and the creditor. It is an undertaking buy the guarantor that in the
event the debtor fails to pay the guarantor will pay. Certainly, the guarantor/ surety can run
after the debtor if the financial statues of the debtor increase, the G/S can run after the debtor
by virtue of contract of indemnity. It is an implied contract of indemnity.

Now, which is better to be a guarantor or a surety? Guarantor is better because the guarantor
has the benefit of excussion. Excuss is also exhaust. The benefit of the guarantor that before
the creditor can run after him, the creditor must exhaust first all the assets of the debtor. If the
assets are sufficient, there is no need for the creditor to run after the guarantor. No assets then
the creditor run after the guarantor. There are assets but deficient, creditor runs after the
guarantor for the deficiency.

How about in surety? The surety is solitarily liable. If debtor fails to pay, creditor has three
choices, run after the debtor only, run after the surety only, or run after the debtor and the
surety both of them at the same time because the surety is solitarily liable as if he is the
principal debtor. No benefit of excussion.