The Bootleg Notes - JSP Credit Transactions 2E, First Semester, A.Y.

2018–2019

Session 8 - 24 October 2018 Therefore, I am not obliged to apply the excess to the principal because
1) I have the benefit of the term, and
Legend: 2) If I am forced to apply the excess to the principal, my right to full payment
will be violated (based on the rule of integrity of payment, and impliedly, on
Questions or premises the rule that application of payment directly to the principal while there is
Issues still unpaid interest would give rise to the presumption that interest has
Answers, rules, or doctrines been paid already).

Alonzo 0:06:00 - 0:12:37 If you have a contract of antichresis, it must be clear that the intention of the
parties as to the excess ought to be applied to the principal notwithstanding
Discussion on Antichresis any stipulated term or notwithstanding partial payment.

Article 2132. By the contract of antichresis the creditor acquires the right to 0:12:37 - 0:19:03 Luigi Bonoan
receive the fruits of an immovable of his debtor, with the obligation to apply
them to the payment of the interest, if owing, and thereafter to the principal of Q: What will happen now to the excess? Will I hold it?
his credit. (1881)
A: Yes. For the purpose of application to accruing interest, and if none for the
taxes and expenses. What kind of taxes and expenses? Real Estate Tax,
Contract of Antichresis
Capital Gains Tax (CPG).
It's a security arrangement wherein the goods of an immovable property can
be applied to the interest or the principal.
Q: What will be the transaction for CPG to arise?
It's a security arrangement, the object of which is the fruits of the immovable
A: Land can be subject to capital gains tax. If you are a business, it would be
property - to be applied to the interest. The Creditor applies for antichresis,
considered an ordinary asset and it would be subject only to withholding tax.
and under this arrangement the creditor receives the fruits of an immovable
Capital Gains will be viewed in case of a sale.
and applies it to the interest, and thereafter to the principal.
Example. Let’s say you have an antichresis involving rent. The lender
Example. I'm the lender and you're the borrower. You owe me P1m, and you
receives rent, VAT on the rent.
pay quarterly interest of 1% (P10,000/quarter). We entered into a contract of
antichresis. I'm receiving fruits amounting to P20,000 per quarter (there is an
excess of P10,000). Our contract provides that you pay the interest quarterly Q: is that an expense for the account of the lender and can be deducted from
at the rate of 1% per quarter, but you pay the principal in full 3 days after the the fruits?
release/perfection of the loan. What happens now? I'm receiving P20,000.
The interest owing is P10,000. A: No. The taxes mentioned by the law are taxes on the estate meaning the
property so you must read property taxes and assessments on the property
itself during the antichresis so it won’t CPG because it is tax on a sale, it
Q: Am I obliged to apply the fruits to the principal? I'm the lender, what do I
won’t cover VAT cause its an additional tax on the rent, and any other tax that
do with the excess?
has nothing to do with the property, on which case they should be for the
account of the debtor or whoever is obliged by law but not the lender.
A: No, the principal is not yet due, so the excess cannot be applied to the
principal.

Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
The Bootleg Notes - JSP Credit Transactions
Article 2135. The creditor, unless there is a stipulation to the contrary, is
obliged to pay the taxes and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and
repair.
The sums spent for the purposes stated in this article shall be deducted from
the fruits.
Under the law, the debtor has to pay for these taxes as long as the
antithesis exists. If the debtor doesn’t wanna pay the taxes, the lender must
give up the antichresis and return the property. The structure of the law is that
if there is an antithesis, the creditor is obliged to pay taxes and charges on
the property as well as expenses for the preservation and maintenance
during the antichresis, and these taxes, charges, expenses can be deducted
from the fruits.
However, if the lender does not want to assume the obligation, the lender is
must give up the antithesis as security.
Q: Let’s say we have an antichresis, but the obligation being secured is just a
1M peso loan payable in three years. What will not happen to the fruits?
A: In the meantime, the lender will just collect the fruits and hold it. In that
scenario, the intention really is to pay the principal as the fruits accrue
because there is nothing left to pay, otherwise the antithesis would not make
sense.
0:19:03 - 0:25:35 Mikee Candelaria
The logical conclusion is that, you pay the principal as to the fruits.
Q: Is possession of the creditor necessary for Antichresis?
A: General Rule: No, possession is not indispensable.
Exception: When possession is needed to implement the antichresis.
Ex. An antichresis covering a mango orchard where the creditor needs to
have possession during the antichresis.
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
Thus the creditor needs to harvest the fruits. There ought to be possession in
order to take care of the fruits and harvest. Otherwise you will be coming in
only during harvest time, which does not make sense.
Illustration: Debtor owns a condominium. A contract of antichresis is
established in favor of the creditor wherein the creditor will receive the rent
instead of the debtor.
The creditor needs to have an SPA because although the contract of
antichresis already entitles the creditor to the fruits, the SPA empowers the
creditor to act for and in behalf of the lessor-debtor and collect the rent.
Without an SPA, a tenant who is obliged to pay the lessor cannot be
compelled by the lessor’s creditor under a contract of antichresis because the
tenant is not a party to the contract. The SPA gives the creditor such power to
collect.
0:25:35 - 0:32:06 Kevin Dinsay
JSP: Without an SPA you can you collect? There is way. There’s one way.
You have to think in practical terms.
S: Filing an action.
JSP: Legal action? No, you want an extra-judicial action. You want to
facilitate this transaction with the least documentation. If you don’t have an
SPA, what can the parties do to force Pelongco to pay the creditor?
Q: What can the debtor do? Debtor meaning the lessor? To insure Pelongco
will pay the creditor. There is no SPA. There is a contract of antichresis.
What other document can the debtor issue?
A: A Notice. The simplest thing. “Mr. Pelongco, please be adviced that
henceforth you shall tender payment thereto to _________ pursuant to this
letter/authorisation.” A simple notice.
Q: Now, if you are a creditor in a contract of antichresis, you’re given an SPA.
In Through the SPA you want to ensure you are able to collect always. How
The Bootleg Notes - JSP Credit Transactions
do you want to qualify or characterize the SPA, in order to make it effective
throughout the antichresis?
A: Revoke. The principal can revoke the SPA anytime. That’s the general
rule. So you want the SPA to be classified to be IRREVOCABLE.
JSP: If it is classified as irrevocable. Will it be subject to revocation by the
principal anytime? Even if you name it irrevocable special power of attorney?
S: I think so, sir.
JSP: It will still be revocable. How do you make it not revocable? So your
SPA should be defined or characterized as husband and wife “blank”.
S: Agency
JSP: It cannot be revoked because it is an agency coupled with interest.
What does that mean? In the context of SPA, why will it be coupled with
interest? Because the SPA is a means to implement or fulfill an obligation or
contract. So it’s a SPA necessary to implement an antichresies.
Thereby it is coupled with an interest. Thus, the implementation of the
antichresis is dependent on the SPA.
32:06:00 – 38:38:00 Giancarlo Fernando
JSP: It can be classified as irrevocable. In the SPA you can state there this
SPA is irrevocable and is coupled with an interest. You describe why,
because it’s a means to implement whatever contract. The antichresis in our
example. Is there a formal requirement for the contract of Antichresis?
It has to be in writing otherwise it is void. There is a formal requirement and
that is a requirement for validity. This is not similar to the requirement under
statute of frauds. This is similar to the requirements of contracts. Can you
give me another example for a formal requirement for validity?
S: Stipulation on interest on loan is a formal requirement for validity.
JSP: So the Antichresis affords the creditor the right to collect the fruits. So
that’s the benefit of Antichresis. That security is useful only because it allows
the creditor to receive the fruits?
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
S: Yes.
JSP: The answer is NO. What other benefit would the creditor have in the
contract of Antichresis? So let’s say you have a principal obligation, a loan
payable by debtor. This is secured by a contract of Antichresis, there will be
fruits accruing. Can you have an agreement where the fruits are not sufficient
to pay accruing interest, the debtor shall pay the deficiency without notice or
demand? Let’s assume both parties will be aware of the amount of the fruits
as they accrue.
S: I think they can
JSP: They Can? …
38:38 – 45:10 Yan Fuego
JSP: The law says that if there is a delivery of the personal property, it is
a pledge, not a mortgage. So let’s say you have a chattel mortgage but
there is delivery. In case of a legal action, most likely it will be characterized
as a pledge based on delivery. So there is no need to deliver the personal
property subject of the chattel mortgage. But is registration required?
S: Registration is required to bind third parties.
JSP: So only to bind third parties! Notwithstanding the definition that under
the civil code, by the chattel mortgage, the agreement is recorded in the
chattel mortgage registry as security for the performance of a principal
obligation. But it’s not essential, at least as between the two parties. It’s only
to bind third parties.
JSP: So take note: in this case, you have to follow the definition under the
Civil Code. You do not follow the definition under the Chattel Mortgage Law.
Q: How does the Chattel Mortgage Law define chattel mortgage?
A: It is a conditional sale! So that one is amended by a provision in the Civil
Code. So the definition of a chattel mortgage should be the one in the Civil
Code because the Civil Code will prevail over the Chattel Mortgage Law.
The Bootleg Notes - JSP Credit Transactions
JSP: Now let’s say you have a transaction. Borrower has a loan obligation
payable to Lender. This is secured by a chattel mortgage. Chattel mortgage
is not registered. X is another creditor. Borrower also has a payable to X.
Now Lender, upon default of borrower, sued Borrower. The claim of the
Borrower is based on this contract of mortgage, the Borrower clearly
borrowed money, has to pay on certain date, defaulted on certain date, so
Lender now sues Borrower for collection. X now opposes this action, because
this is an action based on an unregistered mortgage, which should not bind or
prejudice X. Is X correct?: No knowledge. Knowledge only subsequent.
Meaning upon filing the action.
A: It doesn’t matter if the chattel mortgage is not registered, because in
the action, Lender is using the chattel mortgage as evidence of
Borrower’s loan. Lender is not using the chattel mortgage contract for
the purpose of chattel mortgage. Remember the purpose is to collect
money from Borrower as evidenced by the chattel mortgage. So it
doesn’t matter is the chattel mortgage.
JSP: If, let’s say, this is a mortgage done on Day 1. Let’s say on day 2, x
sued b and obtained an attachment against this mortgaged property, whose
right will prevail?
A: The right of B because this is not registered. So even though it is prior
in time, it does not bind X. So X’s attachment will prevail over the chattel
mortgage unlike the earlier example when there is delivery of the property it is
a pledge rather than a mortgage.
45:10 – 51:41 Carlo Luis Hirang
JSP: So, in case of, let’s say that you have a Chattel Mortgage [CM], a
documented CM but there is delivery. In case of a legal action, most probably
it will be characterized as a pledge based on the delivery. So, there is no
need to deliver the personal property subject of the CM. But is registration
required?
S: Registration is required to bind 3 parties
rd
rd
JSP: Okay only to bind 3 parties. Notwithstanding, the definition that, under
the civil code, that by a CM, personal properties recorded in the CM Registry
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
as a security for the performance of a principal obligation. But it’s not
essential for validity of a CM, at least as between the parties.
S: Yes sir
rd
JSP: So, it’s only to bind 3 parties. Take note in this case, you have to follow
the definition under the civil code. Do not follow the definition under the CM
Law. How does the CM law define CM?
S: CM as a security for a principal obligation
JSP: No. As a what?
S: That it has to be registered sir
JSP: No. Under the CM Law, CM is a what? What kind of contract?
It’s a conditional sale. So that one is amended by the provision of the civil
code. So, the definition of a CM should be the one in the civil code because it
will prevail.
Example. Let’s say, again you have a transaction,
L: lender, B borrower. A loan obligation to the lender. This is secured by a
CM. CM is not registered. B has another creditor, X. B also has a payable
obligation to X.
Now L upon default by B, sues B. The claim of B, based on this contract of
mortgage, B clearly borrowed money and borrower is supposed to pay on a
given due date but defaulted on the said due date, therefore, lender sued
borrower for collection. X now opposed this action because this is an action
based on an unregistered mortgage which should not bind X and should not
prejudice X.
Q: Is X correct? X only has subsequent knowledge, upon filing of the action.
S: It should not bind X sir because it is unregistered
JSP: No. In this example, it doesn’t matter if CM is not registered because in
the action, what L is doing is using this [the CM] as evidence only of the
obligation of B. L is not using the CM contract for the purpose of enforcing the
CM. Remember that the action is to collect from B as evidence by a CM. So,
it doesn’t really matter whether the CM is unregistered. If it were, this one.
The Bootleg Notes - JSP Credit Transactions 2E, First Semester, A.Y. 2018–2019

This was a mortgage done on day 1. On day 2, X sued B and then obtained
an attachment against the mortgage property. JSP: If it’s movable, you have to specifically identity. This is line with all the, a
lot of, requirements under Chattel Mortgage Law (CML). This law requires
Whose right would prevail? that the object shall only be what?
S: The right of B.
S: Movable
51:41 – 58:13 Iñigo
JSP: I know. There’s no debate in that one, but CML states that there should
A: The right of B because this is not registered. Although it is prior in time, it be particular description of the objects and this is in relation to another
does not bind X. So X’s attachment will prevail over the CM. provision under CML – that the chattel mortgage shall only cover, what
object?
…so X ‘s attachment will prevail over the chattel mortgage. In this case, it is a
question of enforcing the chattel mortgage unlike the earlier example which is
Movable – that’s given. Particular – yes. What object? If X particularly
an enforcement of the loan obligation only using as basis the chattel
describes, so what does it mean? Can you describe your grandchildren?
mortgage document.
S: It must be existing sir.
Have you seen a chattel mortgage contract? You should have seen a chattel
mortgage contract. Why? Because it’s in the law. The law provides the
JSP: It’s existing! So?
form of a chattel mortgage so I did not assign a sample form because
you have a sample form in the law itself.
S: The CML is concern with movable and existing object.
Give me a law that provides for the form for a certain legal transaction. You
JSP: that’s the provision in CML? What does CML say?
haven’t encountered one?
S: It should be existing sir and cannot be substituted.
So there is a formal requirement. Can you describe to me the formal
requirements? Something peculiar about the chattel mortgage. There must
JSP: The CML shall cover only presently existing properties not
be a particular description of objects of the chattel mortgage. Let’s say you
replacement or substitutions. So it is not possible to have chattel
have a chattel mortgage saying that all the personal properties in this
mortgage covering even future properties of the mortgagor which may
warehouse located at 123 Rockwell Drive, Makati City. Is that a valid
be replacements or substitutes of the originally mortgaged property, that the
description? No. So how do you make it valid? You make an inventory or
rule. So what are you saying?
schedule. So how do you describe it?
S: There’s an exemption sir. Under jurisprudence, regarding inventories sir;
S: As specific as possible
retail stores.
JSP: Movables here are chairs, tables, cabinets, pictures. Describe to me
JSP: So it must be a retail store?
exactly how you see it. If it’s an arm chair, say it is a wooden armchair with its
inventory number. Describe the chair and say the number. You have to state
S: Under the same industry.
all numbers for all chairs. You have to specifically provide. Why do you have
to identify it properly?
JSP: Like 7Eleven, Ministop, Allday, Lawson?
58:13 – 1:04:44 Aileen Lauricio
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
The Bootleg Notes - JSP Credit Transactions 2E, First Semester, A.Y. 2018–2019

So it’s a special jurisprudence for retail stores. It cannot be. The law says, it
applies to what kind of business? What do you call the inventories of these A: A deficiency in the, a defect or lack of the affidavit of good faith will only
stores? Describe to me the inventories of these stories. make the CM not binding on 3rd parties even registered. Anything, any formal
deficiency in the CM like the affidavit of good faith, notarization, registration
S: there is always a turn-over — they will only affect the binding effect of the mortgage on 3rd parties. The
mortgage will still be valid and binding between the parties.
JSP: There’s a constant turn-over. Meaning?
JSP: Of course it’s a different matter if you have an inadequate description
S: Sir, the goods are for trade, because of that the specific item, cannot of the property. What will happen to the mortgage? It will be void, because
always be identified. you don’t know the object. Now, who should sign the affidavit of good faith?

JSP: The stocks always replenish in the ordinary course of business. But S: both the parties (mortgagor and mortgagee)
that’s not in the law. How can jurisprudence allow it?
Illustration. Let’s say you have a Borrower and Lender. The B owes L 10M.
The exemption is created because it is impossible to use the chattel To secure it, B mortgaged cars. B was in the business of providing transpo
mortgage as a security for this type of business. The only way to use it is service like grab. So fleet of cars. Now, L and B, they signed a contract.
by creating an exemption. But it is not in the law. It was an exemption
created. Place of execution/signing = Makati
L resides in = QC
1:04:44 to 1:11:16 Alexander Lumapas B resides in = Muntinlupa
Cars are in = Paranaque and Laguna
JSP: Regarding the going concern with some turnover of goods, there can be Place of Payment = Manila
a Chattel Mortgage (CM) of the inventory. That would be valid
notwithstanding that there is constant sale and replenishment. What is an Q: Where should they register the CM?
Affidavit of Good Faith?
S: It states there sir that the CM is executed and as a security for a principal S: Muntinlupa.
obligation for that reason without further…
JSP: Why muntinlupa?
FORM OF OATH OF AFFIDAVIT OF GOOD FAITH
“We severally swear that the foregoing mortgage is made for the purpose of S: Because it is the residence of the mortgagor.
securing the obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one not entered JSP: Yes and?
into for the purpose of fraud.”
S: The location of the cars (Paranaque and Laguna)
JSP: Words to that effect, but to be safe when you’re doing a CM follow the
language used by the law. You don’t have to do anything, you don’t have to JSP: So these three only? These are the material places for the purposes of
reinvent it. Just use it. registration. Nothing more?

Q: Why do you have to follow the law in the form of the affidavit of good S: LTO
faith?

Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
The Bootleg Notes - JSP Credit Transactions
JSP: Why LTO? What’s LTO? Land Transportation Office, because? You’re
dealing with cars. It’s an imposition by law. When you’re mortgaging a
motor vehicle, and you want to register it (CM) you also have to register
it with the LTO. So when you purchase a car and you take bank financing ,
you mortgage the car to the bank, your certificate of registration will have an
annotation, this is subject to a CM in favor of the bank.
Q: Now, going back earlier. The basic difference between a pledge and a CM
is?
A: Possession. Possession of the object during the subsistence of the
contract. If it’s a pledge it ought to be … delivery of possession to the creditor
or 3rd party. If it’s a CM it is not required.
Adrian Mallari
In fact, if there's delivery, there will be an interpretation that it will be a pledge.
JSP: If you're the creditor, what will you prefer? You want a pledge because
you have possession. What else? What is the other advantage when you
have a pledge? I know that there will be a lien on the property itself when it
comes to foreclosure. If you are going for the thing itself, there will be a lien
on the property.
Q: What else is the advantage for pledge?
A: You have possession and it gives you a greater chance of a successful
bid. Anyone who want to participate in the bid wants to be assured that upon
winning the bid, he or she can get the property immediately.
When you have a pledge, it's a plus and you don't have to go to court. You
have to go to possession immediately and any bidder will be certain that upon
winning the bid, he/she can get the pledged property unlike in a chattel
mortgage.
Example. Let’s say, if you have a chattel mortgage on warehouse and you
want to foreclose. If you're the bidder, and the mortgagor refuses to cede the
properties to the mortgagee.
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
Q: Will you participate in the bid?
A: Most likely not because in that case you will be required to win and to file
an action for possession to get a writ of possession of the properties. So, that
will discourage participation in the bid. What can they do? Immediate
possession of the property will give you an added advantage when
foreclosure time comes. So pledge will be preferred if you're a creditor.
JSP: But there are instances when a creditor has to settle with a chattel
mortgage. And if you're the creditor, you cannot force a pledge, you have to
accept a chattel mortgage. What is that instance?
S: Sir, for example when the mortgagor is using the mortgaged property like
for example, cars for Grab. The borrower is using the cars for his business.
So you cannot force the borrower to enter into a chattel mortgage because he
will not be able to pay you back. It is the source of your repayment. So if
you're going to force a pledge, you will deprive the debtor of the very source
of repayment, so you wouldn't want a chattel mortgage. He won't be able to
pay you back.
1:17:47 to 1:24:19 Paolo Naval
JSP: Yes. Because if you're going to force a pledge, you will deprive the
debtor of the very source of repayment. So you need a chattel mortgage. For
example, there is a factory. The factory is being used as a collateral. What
security arrangement will you have?
S: A real estate mortgage.
JSP: Yes. You have two security arrangements. A real estate mortgage and
a chattel mortgage. By the way, if you mortgage a car, how do you describe
it?
Normally, you say the certificate of registration number, the official
receipt, and certain particulars in the certificate of registration, and the
license plate.
Q: If you don't have the license plate, you use the conduction sticker. Where
do you register?
The Bootleg Notes - JSP Credit Transactions 2E, First Semester, A.Y. 2018–2019

A: Register of deeds.
JSP: Let's assume that the borrower defaults. How should lender foreclose?
S: There's 30 days after the default. There's a grace period. The borrower
can pay within that time.
JSP: So if we're not interested in payment, when can you foreclose?
S: 30 days after default and 10 days after the notice.
JSP: There is only equity of redemption. Meaning, the debtor can pay prior to
the foreclosure, but there is no right to redeem in a chattel mortgage.
1:24:19 – 1:30:51 Salazar
JSP: So the foreclosure can happen only 30 days after default, and 10 days
after the notice
Q: Is there a right to redeem?
A: There’s no right to redeem, what is [in] there is an equity of redemption.
Meaning the debtor can pay, before the foreclosure but there is no right to
redeem [in] a chattel mortgage.
JSP: Upon foreclosure of the Chattel Mortgage, let’s say the obligation is 10
Million, [and let’s say] that the Chattel Mortgage realized a net proceeds of 8
million, thereby, there is a deficiency of Php 2 Million, can lender collect the
deficiency?
S: Yes, sir
JSP: Look at the provision of the civil code it states:
“The provisions on pledge in so far as they are not in conflict with the Chattel
Mortgage law shall be applicable in mortgages”.
Q: So what is there are a conflict? So therefore the pledge provision should
apply? Should there be no recovery of the deficiency?
A: The chattel mortgage law does not prohibit the recovery of the deficiency.
In the absence of a specific provision, thereby you cannot allow the
provisions on pledges. There is no prohibition!
General Rule: Follow the rule on mortgages, there can be recovery on the
deficiency.
Exceptions:
1. If the parties agree that the recourse of the creditor shall be credited
to the Chattel Mortgage (Agreement)
2. When the law provides otherwise (Recto Law prohibition)
1:30:51 -1:37:22 Pelos Remollo
JSP: The Recto Law is the sale of personal property in installments. Just to
refresh your memory,
Article 1484 provides that incase of sale in installments of personal property
and the buyer defaults the seller has alternative remedies, one is collection,
cancellation of the contract, or foreclosure of the mortgage. Should the seller
foreclose he chattel mortgage, there can be no recovery of the deficiency.
Article 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
1. Exact fulfillment of the obligation, should the vendee fail to pay;
2. Cancel the sale, should the vendee’s failure to pay cover more two or more
installments;
3. Foreclose the CM on th thing sold, if one has been constituted, should the
vendee’s failure to pay cover tow or more installments. In this case, he shall
have no further action against the prucahser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
JSP: Let’s say you have a sale. Seller sells land to buyer in exchange for
payment of the price, the price is 10m. Price shall be paid by buyer through
down payemnt of 2M pesos and the balance in 40 equal monthly
installments.
Seller is just the owner of the land. In order to secure payment of the balance
buyer mortgaged the same property and avoid confusion we will assume that

Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
The Bootleg Notes - JSP Credit Transactions
the buyer registered the property legally in his name, we will assume that this
is a completely valid mortgage. Buyer defaulted in the payment of the
installments despite demands no payment.
Q: What are the remedies of the seller?
A: Foreclosure, sue for collection, specific performance.
1:37:23 - 1:43:54 Rosario Reyes
JSP: Let's say you have a sale, you have a sale of property. There is non-
payment of the purchase price so the remedy of the seller is either sue for
collection or?
S: Mortgage
JSP: No, let us assume there is no mortgage, we're just dealing with the
sale.
The buyer defaulted in the payment of the price, seller can avail of the ff
remedies:
1. sue for collection or rescind the contract,
2. resolve the contract (resolution), or
3.rescission.
Q: Ordinarily, you have a sale, and then if you have a mortgage, you have a
foreclosure. Now, if the seller sues to collect, what will be the consequence?
This is juts a repeat of the midterm exam. If the seller sues to collect?
A: The REM will be extinguished, it will be an abandonment of the real estate
mortgage.
JSP: Can the seller sue for resolution?
No, based on jurisprudence, this one is not available because according to
the court, when you have this kind of transaction - sale of land with balance
payable in the future and secured by the sale, the mortgage of the purchased
property, the court in one case said that the real estate mortgage
consummated the sale so there is nothing more, just payment of the price in
short.
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
The explanation of the Supreme Court was simple. The real estate mortgagor
constituted the cash payment, which does not make sense. To make sense
of it is to understand this as the seller extending a loan to the buyer
applying payment in full of the purchase price therefore the buyer is
only amortizing the loan, that's the one secured by the mortgage. So
here, resolution will not be available.
JSP: As for the chattel mortgage, let us assume we have a chattel mortgage
falling squarely under Art. 1484. What are the remedies?
S: Collection or specific performance, foreclosure, and
cancellation/rescission. These are alternative remedies.
JSP: Okay, so either the creditor can opt for collection, cancellation, or
foreclosure. If the creditor forecloses and there is a deficiency, the law
clearly provides that there can be no recovery of the deficiency.
But let us assume, aside from the mortgage, so these are the security
arrangements, so you now notice that there is a real estate mortgage and a
surety. Will that be valid? This is a recto law sale, sale in installments. So
aside from the chattel mortgage there is also a real estate mortgage and a
surety to ensure payment of the 10 million.
Q:Valid?
Ordinarily this is valid. Of course there are exceptional cases wherein
sometimes the Supreme Court will say the surety given by, let us say D is a
corporation, the surety shares is given by stockholder, director, the SC will
say that should be considered invalid because of the over collateral sale. But
as a rule, you can give as many collaterals as can be given and as
accepted by the lender.
JSP: So let us say Borrower defaults. Lender forecloses the mortgage. Let's
say the foreclosure realized only 5 million. Can lender collect the deficiency?
S: No sir.
JSP: Because that is the mandate of the Recto Law. Lender, instead of
foreclosing the chattel mortgage, forecloses the real estate mortgage. How?
The Bootleg Notes - JSP Credit Transactions 2E, First Semester, A.Y. 2018–2019

S: You hold judicial foreclosure

S: Collection
JSP: Why judicial foreclosure?
JSP: Collection! When you foreclose the real estate mortgage are you
S: That is what is required by law. collecting? No, you would say that you’re actually collecting because?

JSP: Because that is the default rule in the absence of a special power S: Because the REM Constituted the payment..
for extra-judicial foreclosure. So, real estate mortgage, foreclosure -
judicial. Now, the foreclosure realized only 5 million. Can the lender recover JSP: Wrong.You remember our discussion on judicial foreclosure. How do
the deficiency? you commence the foreclosure?

S: No sir S: File a case with the court

JSP: Because? JSP: You file an action or petition for foreclosure.

S: There is no agreement that, and absent any provision that… Q: What are the allegations in the complaint? Remember?

1:43:54 - 1:50:25 Hosea Salazar
JSP: What if you have multiple security arrangement, instead of a chattel
mortgage. If your resort to the other security arrangement will you be entitled
to recover the deficiency?
For academic purposes I want you to tell me that you will be entitled to
recover the deficiency. Of course in light of our subject Credit Transactions,
don’t talk to me about Sales or Art. 1484.
Q: Explain to me how the creditor can recover the deficiency of 5M
A: You allege the parties, you allege the particulars of the obligation, you
allege the mortgage and then the default.
1:50:25 - 1:56:57 Khalela Talion
JSP: Lets get back to the example, our problem is we want to assert that
foreclosure of the real estate mortgage will entitle the lender to recover
the deficiency, not withstanding Article 1484. Why can lender recover the
deficiency. So we start with the complaint/petition for judicial foreclosure,
what would be the prayer of the complainant/lender — a prayer for payment
and?

A: There will be judicial foreclosure, so how will I reach the answer that there S: Payment and sale of the property.
1
will a recovery of the deficiency. Under Art. 1484 , what are the remedies
besides foreclosure JSP: In case of non-payment, foreclosure. This corresponds to what? This
payment is the basis for what right of the mortgagor?
1
Article 1484. In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies: (2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(1) Exact fulfillment of the obligation, should the vendee fail to pay; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
(1) Exact thefulfillment
(2) Cancel sale, shouldofthethe obligation,
vendee's failure toshould thetwo
pay cover vendee
or morefail to pay;
installments; shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.

Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
The Bootleg Notes - JSP Credit Transactions
It’s the right to Equity of Redemption, the period when the mortgagor is
afforded by the court a period in which to pay, so your prayer corresponds to
the equity of redemption. So now this was not done and you foreclose and
there is a deficiency, what will be the recourse of the lender in case of
deficiency?
S: Ask for deficiency judgement by the subsequent petition in the court
JSP: So you have 2 petitions? No, it’s done by mere motion because
there’s a pending case. If there is a deficiency, the lender can file for a
motion in the same case asking the court to award a deficiency judgement.
Q: So lender will now more for a deficiency judgement and what will happen
to the deficiency judgement? How do you enforce it or a judgment for that
matter?
A: The lender will now cause the execution of the deficiency judgement,
in this example how should the lender execute a monetary award? How
should the lender go about it? And lets say the borrower is not paying
S: He may attach the properties.
JSP: Attach? Attachment is a provisional remedy. What do you do then? Its
like the barrier for funds, Levy! What property?
S: The property covered by the chattel mortgage
JSP: Yes. Will that be a violation of Article 1484?
S: No, because the foreclosure did not arise from the chattel mortgage.
JSP: Correct, it's pursuant to the execution, how then can you now say that
you are going to distill the reason the foreclosure of the mortgage will entitle
the lender to collect the deficiency not withstanding Article 1484 becaus —
just from the perspective of credit transactions?
S: The chattel mortgage law does not exclude the foreclosure.
Aguila, Alonzo, Arcenas, Bonoan, Cabrera, Candelaria, Castillo, Chan, Dinsay, Encarnacion, Fernando, Fuego, Hirang, Ignacio, Iñigo, Isabel, Joson, Lauricio, Lumapas, Magistrado, Mallari, Naguiat, Naval, Pangilinan,
Paredes, Pelongco, Punsalan, Remollo, Reyes, Salazar, Santos, Talion, Tamayo, Tan, Taylo, Uy
A.M.D.G.
2E, First Semester, A.Y. 2018–2019
1:56:57 - 2:03:28 Ryan Tamayo
JSP: Aside from that one, this one is not contemplated in the law. When
the lender sues for foreclosure, the lender is effectively suing for
collection. In case of non-payment you foreclose. The foreclosure can be
considered an action for specific performance. Besides, there is nothing in
the article saying that this covered, nothing.
Illustration. Let’s say we have this scenario. Let’s say you have an obligation
of 10 million. Then you have security arrangements. Guaranteed by G,
antichresis by C.
Q: Can there be an antichresis by a third party?
A: Yes.
Example. Antichresis and a pledge. This one is a guarantee by Manny
Pacquiao with a net worth of 5B. So let’s say D, defaulted. The coverage of
this one is the value of the property covered by the antichresis.
If you want the maximum recovery, how should you proceed? Why should
you not go after the pledge first? The principal obligation was extinguished
upon choosing the pledge. You will not get maximum. In fact, you will now get
a deficiency. The question is maximum recovery.
2:03:28 - 2:10:00 Kelby Uy
JSP: Going back to the chattel mortgage, there is no right to redeem in a
chattel mortgage, right?
S: Yes.
JSP: What you have is the payment of obligation. Who can pay?
S: The mortgagor, and any party with an interest to the property. They can
pay the principal obligation.
END OF SESSION