Roan Salanga 2A Credit Transactions Page 4 of 6

owner of the thing pledged in a proper case, stating the amount for which thepublic sale is to be held. If at the first auction the thing is not sold, a secondone with the same formalities shall be held; and if at the second auction thereis no sale either, the creditor may appropriate the thing pledged. In this case,he shall be obliged to

give an acquittance for his entire claim.

Rights of pledgee to cause sale of thing pledged: [Formalities required forsuch sale]a. Debt is due and unpaidb. Sale must be at a public auctionc.

There must be notice to the pledgor and owner, stating the amount dued. The sale must be made with the intervention of a notary public

Sale is actually extrajudicial in character

without intervention by the courts

Right of pledgee to appropriate thing pledged:

o

If after the first and second auctions, the thing is not sold this is anexception to the prohibition against

pacto commissorio
o

If creditor appropriates the thing, it shall be considered as full payment forhis entire claim
o

Debtor is not entitled to the excess in case the value of the thing pledged ismore

than the principal obligation

2113. At the public auction, the pledgor or owner may bid. He shall,moreover, have a better right if he should offer the same terms as the highestbidder.The pledgee may also bid, but his offer shall not be valid if he is the onlybidder.

Right of pledgor and pledgee to bid at public sale:

o

Pledgor shall be preferred if he offers the same terms as the highest bidder
o

To avoid fraud, pledgee is not allowed to acquire the thing pledged if he isthe only bidder

2114. All bids at the public auction shall offer to pay the purchase price atonce. If any other bid is accepted, the pledgee is deemed to have received thepurchase price, as far as the pledgor or owner is concerned.

Bid must be for cash

If pledgee accepts a bud other than cash, the pledgor or owner has the rightto consider that the pledgee has received the purchase price in cash
2115. The sale of the thing pledged shall extinguish the principal obligation,whether or not the proceeds of the sale are equal to the amount of theprincipal obligation, interest and expenses in a

proper case. If the price of thesale is more than said amount, the debtor shall not be entitled to the excess,unless it is otherwise agreed.If the price of the sale is less, neither shall the creditor be entitled to recoverthe deficiency, notwithstanding any stipulation to the contrary.

Effect of sale of thing pledged it extinguishes the principal obligation whether the price of the sale is more or less than the amount due

If price of sale is more than the amount due

o

GR: debtor is not entitled to excess

This rule is unfair since the obligation is fully satisfied

This amounts to a pacto commissorio which is prohibited

Under the Chattel Mortgage Law

mortgagor is entitled to recover theexcess of the proceeds of the sale in foreclosure proceedings
o

Exception: there is a stipulation to the contrary

If price of sale is less than the amount due creditor is not entitled to recoverthe deficiency
o

Contrary stipulation is void

2116. After the public auction, the pledgee shall promptly advise the

pledgoror owner of the result thereof.

Obligation of pledgee to advise pledgor or owner of result of sale is to enablethe pledgor or owner to take steps for the protection of his rights where hehas reasonable grounds to believe that the sale was not an honest one

2117. Any third person who has any right in or to the thing pledged maysatisfy the principal obligation as soon as the latter becomes due anddemandable.

Right of third person to satisfy obligation:

o

GR: creditor is not bound to accept payment or

performance by a thirdperson who has no interest in the fulfillment of the obligation

o

Exception: a third person who has any right in or to the thing pledged may pay the debt as soon as it becomes due and demandable and the

creditorcannot refuse to accept the payment

2118. If a credit which has been pledged becomes due before it is redeemed,the pledgee may collect and receive the amount due. He shall apply the sameto the payment of his claim, and deliver the surplus, should there be any, tothe pledgor.
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2119. If two or more things are pledged, the pledgee may choose which hewill cause to be sold, unless there is a stipulation to the contrary. He maydemand the sale of only as many of the things as are necessary for thepayment of the debt.2120. If a third person secures an obligation by pledging his own movableproperty under the provisions of Art. 2085 he shall have the same rights as

aguarantor under Arts. 2066 to 2070, and Arts. 2077 to 2081. He is notprejudiced by any waiver of defense by the principal obligor.

A third person who is not a party to the principal obligation may secure thelatter by pledging his own property
2121. Pledges created by operation of law, such as

those referred to in Arts.546, 1731, and 1994, are governed by the foregoing articles on thepossession, care and sale of the thing as well as on the termination of thepledge. However, after payment of the debt and expenses, the remainder of the price of the sale shall be delivered to the obligor.2122. A thing under a pledge by operation of law may be sold only

afterdemand of the amount for which the thing is retained. The public auction shalltake place within 1 month after such demand. If, without just grounds, thecreditor does not cause the public sale to be held within such period, thedebtor may require the return of the thing.

Arts. 546, 1731, and 1994 are instances of legal pledges or pledges which arecreated by operation of law

Rules in cases of pledge by operation of law: Conventional pledge Legal pledge Debtor is not entitled tothe excess unless it isotherwise

agreedRemainder of the price of the sale after payment of the debt and expenses shall be delivered to thedebtor There is no definite period for the payment of theprincipal obligationPledgee must make a demand for the payment of the amount due him; without such, he cannotexercise the right of sale at public

auctionPledgee must proceed with the sale within 1 monthafter demand; otherwise, the debtor may requirehim to return the thing retained
2123. With regard to pawnshops and other establishments, which areengaged in making loans secured by pledgee, the special laws and regulationsconcerning them

shall be observed, and subsidiarily, the provisions of thisTitle.

CHAPTER 4 ANTICHRESIS

2132. By the contract of antichresis, the creditor acquires the right to receivethe fruits of an immovable of his debtor, with the obligation to apply them tothe payment of the interest, if owing, and

thereafter to the principal of hiscredit.

Characteristics of Antichresis:a. Accessory contract it secures the performance of a principal obligationb. Formal contract

 it must be in a specified form to be valid; in writing

Antichresis requires delivery by the debtor of the property given as security tothe creditor
o

Delivery is only required so that the creditor may

receive the fruits and notfor the contract to be binding

Antichresis only covers the fruits of the encumbered property but the law gives the parties the freedom to stipulate otherwise

Obligation to pay interest is not essential in order that it can be guaranteed with a contract of Antichresis

Antichresis v. Pledge Antichresis PledgeRefers to real property Refers to personal property Perfected by mere consent Perfected by

delivery of the thing pledgedConsensual contract Real contractDebtor loses control of the subject matter of the contract

3 provisions which are indicative of the contract of mortgage:a.

Agreement that full amount of the indebtedness must be returned to thelenders before the borrowers could demand the return of the property b.
Use of the term mortgage in various parts of the contract c.

Agreement that the lenders are not to pay rentals on the property inconsideration of the fact that the borrowers do not pay interest on the sum which they obtained as a loan

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Antichresis v. Mortgage Antichresis MortgageProperty is delivered to the creditor Debtor usually retains possession of the property Creditor acquires only the right toreceive the fruits of the property Creditor does not have any right toreceive the fruits but only creates realright over the property

which isenforceable against the whole worldCreditor is obliged to pay the taxesand charges upon the estate unlessthere is a stipulation to the contrary Creditor has no such obligationExpressly stipulated that creditorgiven possession of the property shallapply the fruits thereof to the paymentof interest, if

owing, and thereafter tothe principal of the credit There is no such obligation on thepart of the mortgagee
2133. The actual market value of the fruits at the time of the applicationthereof to the interest and principal shall be the measure of such application.2134. The amount of the principal and of the interest shall be

specified inwriting; otherwise, the contract of antichresis shall be void.2135. The creditor, unless there is a stipulation to the contrary, is obliged topay the taxes and charges upon the estate.He is also bound to bear the expenses necessary for its preservation andrepair.The sums spent for the purposes stated in this article shall be deducted fromthe fruits.

The creditor acquires by virtue of the contract of antichresis, the right toenjoy the fruits of the property delivered to him which carries 2 obligations:a. Payment of taxes and charges upon the estate
o

If he does not pay the taxes, he is by law required to pay indemnity fordamages to the debtor
o

If debtor has paid for the taxes which the creditor should have paid, theamount is to be applied to the payment of the debt, and debtor is entitledto the return of the property free

from all encumbrances if he, in effect,by advancing the taxes, has already discharged the debtb. Application of the fruits of the estate
2136. The debtor cannot reacquire the enjoyment of the immovable withoutfirst having totally paid what he owes the creditor.But the latter, in order to exempt

himself from the obligations imposed uponhim by the preceding article, may always compel the debtor to enter againupon the enjoyment of the property, except when there is a stipulation to thecontrary.2137. The creditor does not acquire the ownership of the real estate fornonpayment of the debt within the period agreed upon.Every stipulation to the

contrary shall be void. But the creditor may petitionthe court for the payment of the debt or the sale of the real property. In thiscase, the Rules of Court on the foreclosure of mortgages shall apply.

Remedies of the creditor:a. Bring an action for specific performanceb.

Petition for the sale of the real property as in a foreclosure of mortgagesunder Rule 68 of the Rules of Court

Possession of an antichretic creditor is not in the concept of an owner; he is amere holder who cannot acquire the

ownership of the real estate subject of the antichresis through prescription unless he repudiates his status as anantichretic creditor
2138. The contracting parties may stipulate that the interest upon the debt becompensated with the fruits of the property which is the object of theantichresis, provided that

if the value of the fruits should exceed the amountof interest allowed by the laws against usury, the excess shall be applied tothe principal.

Obligation to apply the fruits:a. First, of whatever interest on the debt is dueb.

Secondly, to the payment of the principal

2139. The last paragraph of Art. 2085, and Arts. 2089 to 2091 are applicable tothis contract.

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