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Hizon Notes - Special Commercial Laws PDF
Hizon Notes - Special Commercial Laws PDF
Hizon Notes - Special Commercial Laws PDF
LETTERS OF CREDIT
A: It is neither a surety nor a guarantor. The liability of the
Definition issuing bank is primary and solidary. It is also not entitled to
the benefit of excussion.
Q: What are letters of credit?
Q: What is the purpose of the letters of credit?
A: Any arrangement however named of described, whereby a
A: To ensure certainty of payment. The seller is assured of
bank acting upon the request of its client or in its own behalf,
payment because the bank intervenes and makes the
agrees to pay another, against a stipulated documents
commitment to pay. This addresses problems arising from the
provided that the terms of the credit are complied with.
sellers refusal to part with his goods before being paid and
the buyers refusal to part with his money before acquiring
Q: What is the duration of LC?
the goods, thus, facilitating commercial transactions.
A:
NOTE: The issuing bank should pay the beneficiary upon the
latters submission of the stipulated documents and
1. Upon the period fixed by the parties; or
compliance with the terms of the credit even though there is
2. If none is fixed:
a pending issue on whether or not the main contract
a. 6 months from its date if used in the Philippines;
underlying the letter of credit has been paid or fulfilled or
b. 12 months if used abroad
not.
Governing law
Q: What are the 2 kinds of letters of credit?
Q: What laws govern commercial transactions?
A:
A: In the absence of any particular provision in the Code of
COMMERCIAL STANDBY
Commerce, commercial transaction shall be governed by
Involves contracts of sale Involves non-sale
usage and customs genereally observed.
transactions
Letter of credit as an independent contract Payable only upon Payable upon certification by
presentation by the seller- the beneficiary of the
Q: Is a letter of credit an accessory contract? beneficiary of documents applicants non-performance
that show he has performed of the agreement.
A: Letters of credit are in effect an absolute undertaking to his contract
pay the money advanced or the amount for which credit is
given on the faith of the instrument. They are primary Q: What are the other kinds of letters of credit?
obligations and not accessory contracts.
A:
NOTE: A letter of credit by itself does not come into 1. Irrevocable letter of credit A letter of credit
operation without a contract supporting it. It is not a contract wherein the terms and the undertakings of the
that can stand on its own, it needs a supporting contract. In a issuing bank cannot be amended or altered or
commercial letter of credit it is a sale; in standby letter of revoked without the consent of the beneficiary
credit, it is a non-sale transaction. 2. Revocable letter of credit can be amended,
altered or revoked even without the consent of the
Q: Describe the liability of the bank which issued the letter beneficiary
of credit.
Facultad de Derecho Civil 1
UNIVERSITY OF SANTO TOMAS
NOTES ON SPECIAL COMMERCIAL LAWS
Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________
3. Confirmed letter of credit - the liability of the reimburse the issuing bank any and all amount should be paid
confirming bank is primary under the letter of credit once the issuing bank is compelled
4. Non-confirmed letter of credit to pay because the beneficiary is able to submit the
document stipulated.
Irrevocable letter of credit
He agrees to pay the bank that issued the letter of credit. The
Q: Is irrevocable letter of credit and confirmed letter of applicant has no obligation to reimburse the issuing bank if
credit synonymous? the latter pays without the stipulated amounts duly paid
under the letter of credit.
A: An irrevocable letter of credit is not synonymous with a
confirmed letter of credit. In an irrevocable letter of credit, Q: Who is the beneficiary?
the issuing bank may not, without the consent of the
beneficiary and the applicant, revoke its undertaking under A: The one entitled to payment from the issuing bank upon
the letter, whereas, in a confirmed letter of credit, the his submission of the document stipulated and compliance
correspondent bank gives an absolute assurance to the with the terms of the credit.
beneficiary that it will undertake the issuing banks obligation
as its own according to the terms and condition of the credit. Q: What is the effect of the failure of the beneficiary to
fulfill his obligation under the main contract?
IRREVOCABLE LETTER OF CONFIRMED LETTER OF
CREDIT CREDIT A: It does not negate his right to payment from the issuing
The issuing bank may not, The correspondent bank bank as long as he is able to submit the required documents
without the consent of the gives an absolute assurance and comply with the terms of the credit, without prejudice to
beneficiary and the to the beneficiary that it will his liability against the account party under the law on
applicant, revoke its undertake the issuing banks contract and damages
undertaking under the letter obligation as its own
according to the terms and Q: Who is the issuing bank?
conditions of the credit
A: The one that undertakes to pay the beneficiary upon
Q: Can the irrevocable nature of letter of credit be changed? submission of the beneficiary of these stipulated documents
and compliance with the terms of the credit.
A: The terms of an irrevocable letter of credit cannot be
changed without the consent of the parties, particularly the Q: Enumerate the other parties.
beneficiary thereof (Philippine Virginia Tobacco
Administration v. De Los Angeles, 164 SCRA 543, 1988). A:
Q: Can a court order the release to the applicant the Advising or Not liable to pay the beneficiary; it does not
proceeds of an irrevocable letter of credit without the Notifying bank have any contractual relations with the
consent of the beneficiary? beneficiary. Its only obligation is to determine
the apparent authenticity of the letter of credit;
to check if at first glance that the same is
A: No, such order violates the irrevocable nature of the letter genuine or valid:
of credit. The terms of an irrevocable letter of credit cannot a. If valid, the advising/notifying bank
be changed without the consent of the parties, particularly notifies the beneficiary of the letter of
the beneficiary thereof. credit; transmit the letter of credit in
favor of the beneficiary so that the
Parties to a letter of credit beneficiary can cause shipment of the
equipment
Q: Who are the parties to the letter of credit? Paying bank An agent of the issuing bank for the purpose of
making payment to the beneficiary.
He can also be the advising bank
A:
Confirming bank It lends credence to a letter of credit issued by a
1. Applicant lesser known bank as if it is the one who issued
2. Beneficiary the letter of credit.
3. Issuing bank Its obligation is similar to an issuing bank. Thus,
beneficiary may tender documents to the
Q: Who is the applicant? confirming bank and collect payment
Negotiating The bank in the city of the beneficiary which
A: He may be a buyer, importer or obligor. The person who bank buys or discounts the drafts contemplated by
procures the opening of letter of credit and who agrees to the LC, if such draft is to be drawn on the
opening bank not in the city of the beneficiary
Facultad de Derecho Civil 26
UNIVERSITY OF SANTO TOMAS
NOTES ON SPECIAL COMMERCIAL LAWS
Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________
Correspondent If the account party is in the Philippines and the
bank of issuing beneficiary is abroad, the beneficiary will be A: Once the issuing bank shall have paid the beneficiary after
bank notified and consequently will be paid through the latters compliance with the terms of the LC. Presentment
the correspondent bank for acceptance to the customer/applicant is not a condition
sine qua non for reimbursement.
Q: Describe the duty of the advising bank?
Q: Is presentment a condition prior to reimbursement?
A: It determines the apparent authenticity of the letter of
credit and notifies the beneficiary of the letter of credit. A: Presentment for acceptance to the customer or applicant
of the drafts drawn by the beneficiary is not a condition sine
He does not guarantee the genuineness or due execution of qua non for reimbursement (Prudential Bank & Trust Co. v.
the letter of credit. It is not liable for damages even if it turns IAC, 216 SCRA 257, 1992)
out to be spurious provided the spurious character is not
apparent on the face of the instrument. Q: What is the consequence of payment upon an expired
LC?
Q: Does the advising bank have the obligation to pay the
beneficiary? A: An issuing bank which paid the beneficiary of an expired
letter of credit can recover the payment from the applicant
A: which obtained the goods from the beneficiary to prevent
GR: No unjust enrichment.
XPN: When the advising bank is also the confirming or Q: Should the marginal deposit made by the customer, in
paying bank possession of the bank be first deducted from the principal
indebtedness before computing the interest?
Three distinct relationships arising from a letter of credit
A: Yes, since it is supposed to be returned upon compliance
Q: Explain the three (3) distinct but intertwined contract with his obligation. Indeed, it would be onerous to compute
relationships that are indispensable in a letter of credit interest and other charges on the face value of the letter of
transaction. credit which the issuing bank issued, without first crediting or
setting off the marginal deposit which the importer paid to it.
1. Between the applicant/buyer/importer and the Requiring the importer to pay the interest on the entire letter
beneficiary/seller/exporterThe applicant/ buyer/ of credit without deducting first his marginal deposit would
importer is the one who procures the letter of credit be a clear case of unjust enrichment by the bank.
while the beneficiary/seller/exporter is the one who in
compliance with the contract of sale ships the goods to NOTE: The applicant has the right to have the marginal
the buyer and delivers the documents of title and draft deposit deducted from the principal obligation under the
to the issuing bank to recover payment for the goods. letter of credit and to have the interest computed only on the
Their relationship is governed by the contract of sale. balance and not on the face value thereof.
2. Between the issuing bank and the
beneficiary/seller/exporter The issuing bank is the one Doctrine of Independence
that issues the letter of credit and undertakes to pay the
seller upon receipt of the draft and proper documents of Q: What is the doctrine of independence?
title. On the other hand, the beneficiary/seller/exporter
surrenders document of title to the bank in compliance A: Under this doctrine, the obligation of the issuing bank to
with the terms of the LC. Their relationship is governed pay the beneficiary does not depend on the fulfillment or
by the terms of the LC. non-fulfillment of the contract supporting the letter of credit.
3. Between the issuing bank and the If it is a commercial letter of credit, the obligation if the
applicant/buyer/importer The applicant/buyer/ issuing bank to pay the beneficiary is not affected by any
importer obliges himself to reimburse the issuing bank breach of contract by the seller to the buyer because the
upon receipt of the documents of title. Their relationship contract between the issuing bank and beneficiary is separate
is governed by the terms of the application for the and distinct from the contract between the seller and the
issuance of the letter of credit by the bank. buyer.
NOTE: These relationships while interrelated are distinct and Q: Does the issuing bank have the obligation to determine
separate from each other. whether or not the main contract has been fulfilled or not?
The SC held that banks deals with documents, they dont deal TRUST RECEIPT
with goods. The issuing bank has no obligation to check the
object, the quantity or quality of the goods. The bank needs Definition
not to verify or go beyond the four corners of the document.
The issuing bank will determine the documents to be Q: What is a trust receipt transaction?
submitted, where the stipulated documents tendered
faithfully. If the documents were submitted, the issuing pays A: It is any transaction between the entruster and entrustee
the seller. whereby the entruster who owns or holds absolute title or
security interests over certain specified goods, documents or
Q: What is the exception to the doctrine of independence? instrument, releases the same to the possession of entrustee
upon the latters execution of a TR agreement.
A: Fraud exception principle
It is a transaction wherein the entrustee binds himself to hold
Fraud exception Principle the designated goods in trust for the entruster and, in case of
default, to sell such goods, documents or instrument with the
Q: What is the Fraud exception principle? obligation to turn over to the entruster the proceeds to the
extent of the amount owing to it or to turn over the goods,
A: The beneficiary may be enjoined from collecting on the documents or instrument itself if not sold.
letter of credit if the following elements are present:
a. There is fraud on the part of the beneficiary NOTE: To be in the nature of a trust receipt, the entruster
b. Fraud must be in relation to the independent should have financed the acquisition or importation of the
purpose or character of the credit goods. The funds should have been delivered before or
c. Unless the beneficiary is restrained, the applicant simultaneously with delivery of the goods.
shall suffer grave and irreparable injury.
Q: What is a trust receipt (TR)?
NOTE: To be an exception, the fraud must NOT be in relation
to the performance of the main contract but in relation to the A: It is the written or printed document signed by the
independent purpose or character of the credit. entrustee in favor of the entruster containing terms and
conditions substantially complying with the provisions of PD
Q: What is the remedy for a fraudulent abuse? 115.
A: The documents that the beneficiary should submit to the Parties to a trust receipt agreement
issuing bank or confirming bank must strictly conform to the
documents stipulated. If there is discrepancy, the issuing Q: Who are the parties to a trust receipt agreement?
bank is not liable to pay. If it pays, it pays at its own risk and
cannot obtain reimbursement from the applicant. A:
1. Entruster
It matters not that the submission of the documents are 2. Entrustee
unfair, unjust or inequitable, the point is, it requires that the
A: A borrower, buyer, importer or debtor. Person to whom A: No because what is sought to be penalized is not the non-
the goods are delivered for sale or processing in trust, with payment of debt but the dishonesty and abuse of confidence
the obligation to return the proceeds of sale of the goods or in the handling of money or goods to the prejudice of
the goods themselves to the entruster another. It punishes the act not as an offense against
property but against public order (People v. Nitafan, 207
LCs and TRs, not negotiable instruments SCRA 726, 1992).
Q: Are letters of credit and trust receipt considered as NOTE: The penal sanction covers:
negotiable instruments? 1. Criminal liability
2. Civil liability
A: No, but drafts in connection with the former are
negotiable instruments (Lee v. CA 375 SCRA 579, 2002). Estafa
2 features of a trust receipt agreement Q: What is the effect of the failure of the entrustee to
deliver the proceeds of the sale of the goods or instruments
a. Loan feature subject to the trust receipt or return the goods?
b. Security feature
A: It will constitute estafa.
Q: Discuss the dual features of a trust receipt agreement.
Q: May the civil action for the collection of the loan be
A: A trust receipt has a loan and security features. The instituted independently of the criminal action?
entruster (bank) extends loan to the entrustee (importer and
retail dealers) to finance the importation of goods or A: Yes.
instruments in favor of the entrustee who may not be able to
obtain credit except thru utilization of the merchandise Q: What is the effect of the acquittal of the entrustee in the
imported or purchased. criminal case as a result of the surrender or consignation of
the goods?
The security feature is in the covering trust receipt which
secures the indebtedness. A: The acquittal of the entrustee in the criminal case as a
result of the surrender or consignation of the goods is not a
Effect of failure on the part of entrustee to comply with its bar to the filing of a separate civil action to enforce payment
obligations of the loan (Vintola v. Insular Bank of Asia and America, 150
SCRA 140, 1987).
Q: What is the effect of payment of the loan or delivery of
the sale proceeds equivalent to the full amount? Q: What is the effect of compromise of estafa case arising
from trust receipt transaction, after the case has been filed
A: It extinguishes both criminal and civil liabilities of the in court?
entrustee.
A: Compromise of estafa case arising from trust receipt
Section 13. Penalty clause. The failure of an entrustee to turn over the transaction, after the case has been filed in court does not
proceeds of the sale of the goods, documents or instruments covered by a amount to novation and does not erase the criminal liability
trust receipt to the extent of the amount owing to the entruster or as of the accused (Ong v. CA, 124 SCRA 578, 1983).
appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable Penalty in case of corporation
under the provisions of Article Three hundred and fifteen, paragraph one (b)
of Act Numbered Three thousand eight hundred and fifteen, as amended, Q: What if the entrustee is a corporation?
otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the A: In such case, the law makes the officers or employees or
directors, officers, employees or other officials or persons therein other persons responsible for the offense liable to suffer the
Facultad de Derecho Civil 29
UNIVERSITY OF SANTO TOMAS
NOTES ON SPECIAL COMMERCIAL LAWS
Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________
penalty of imprisonment. The criminal liability falls on the Q: When does the penal sanction under the trust receipts
human agent responsible for the violation of the Trust law apply?
Receipt Law.
A: Jurisprudence provides that the penal sanction does not
A person who admits being the agent of the entrustee apply in case the goods are not intended for sale or resale as
corporation is a person responsible for the offense if he is the when they are for actual use.
signatory of the trust receipts and if he cannot explain why he
is not responsible for the failure to turn over the proceeds of Cases where no criminal liability despite execution of
the sale or account for the goods covered by the trust receipt. TR agreement
Q: Why are the officers, employees, etc. of a corporation 1. Compliance with the terms of the trust receipt either
responsible for the offense? by:
a. payment,
A: It is because they are vested with the authority and b. return of the proceeds or
responsibility to devise means necessary to ensure c. return of the goods.
compliance with the law, and if they fail to do so, are held
criminally accountable. Yet, a corporation may be charged 2. The transaction is not a trust receipt within the
and prosecuted for a crime if the imposable penalty is fine contemplation of the trust receipts law
(Ching v. Sec. of Justice, 481 SCRA 609, 2006) 3. Surrender of the goods to the entruster
4. Non-delivery of the goods to entrustee
Q: Is the person signing the trust receipt for the corporation 5. Compromise agreement before the filing of the
solidarily liable with the entrustee-corporation for the civil criminal information for violation of the TR law
liability arising from the criminal offense? 6. Cancellation of the trust and taking possession by
the entruster
A: No. He may however be personally liable if he bound
himself to pay the debt of the corporation under a separate NOTE: Mere repossession of the goods will
contract of surety or guarantee (Ong v. CA, 401 SCRA 649, extinguish criminal liability.
2003).
7. Loss of the goods due to force majeure
Q: Can we file a criminal case against the corporation? 8. Consignment
A: It depends, if the penalty is imprisonment, we cannot file a Entrustee, owner of the articles subject of the TR
criminal case, but if the penalty is a fine or forfeiture or
revocation of the corporations franchise, then we can. Q: Who is the owner of the articles subject of the TR?
Civil obligation remains as long as loan is not paid A: The entrustee. A trust receipt has two features, the loan
and security features. The loan is brought about by the fact
Q: What is the effect of non-payment of the loan? that the entruster financed the importation or purchase of
the goods under TR. Until and unless this loan is paid, the
A: The civil obligation still remains. obligation to pay subsists. If the entrustee is made to appear
as the owner, it was but an artificial expedient, more of legal
Q: What is the effect of the loss of the goods subject of the fiction than fact, for if it were really so, it could dispose of the
trust receipt? goods in any manner that it wants, which it cannot do. To
consider the entrustee as the true owner from the inception
A: Loss of the goods subject of the trust receipt, regardless of of the transaction would be to disregard the loan feature
the cause does not extinguish the civil liability of the thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings
entrustee. and Trust Company, 2005)
Q: What is the effect of return of goods? Q: Can the entrustee mortgage or pledge the articles in
trust?
A: If the loan is not yet paid, the return of the goods may
extinguish the criminal liability but not the civil liability of the A: The articles covered by the trust receipts are owned by the
entrustee unless the goods are sold and the proceeds thereof entruster and they were only held by the entrustee in trust.
applied in full payment of the loan. While it was allowed to sell the items, the entrustee had no
opportunity to dispose of them or any part thereof or their
Penal sanction applies to goods intended for sale only proceeds through conditional sale, pledge or any other
means. Accordingly, the entrustee has neither ownership,
Q: What is the effect of the receipt of the bank of a sum of XPN: When the properties are in the hands of an innocent
money without reference to the trust receipt obligation to purchaser for value and in good faith (Prudential Bank v.
which the same pertains? NLRC, 251 SCRA 421, 1995).
A: It does not obligate the bank to apply the money received Obligations or liability of the entrustee
against the trust receipt obligation.
Q: What are the obligations and liabilitites of the entrustee?
Q: Does it have the effect of compensation? A:
1. To hold good, documents and instruments (GDI) in
A: No since compensation is not proper when one of the trust for the entruster and to dispose of them strictly
debts consist in civil liability when one of the debts consists in in accordance with the terms of TR;
civil liability arising from a criminal offense (Metropolitan 2. To receive the proceeds of the sale for the entruster
Bank and Trust Company v. Tonda, 338 SCRA 254, 2000). and to turn over the same to the entruster to the
extent of amount owing to the entruster;
Rights of the entruster 3. To insure GDI against loss from fire, theft, pilferage
or other casualties.
Q: What are the right of an entuster? 4. To keep GDI or the proceeds thereof, whether in
money or whatever form, separate and capable of
A: identification as property of the entruster;
1. To be entitled to the proceeds of the sale of the 5. To return GDI to the entruster in case they could not
goods under trust receipt to the extent of the be sold or upon demand of the entruster; and
amount owing to him or to return the goods in case 6. To observe all other conditions of the trust receipts.
of non-sale (Sec. 9, P.D. 115)
2. To cancel the trust and take possession of the goods
or of the proceeds realized therefrom at any time
upon default by the entrustee Order for application of proceeds
3. To sell the goods with at least 5-day notice to the
entrustee and apply the proceeds in payment of the Q: What is the order in the application of proceeds of
obligation. Entrustee is liable to pay deficiency, if the TR transactions?
any.
A:
Validity of the security interest as against creditors of the
1. Expenses of the sale
entrustee/innocent purchasers for value
2. Expenses derived from storing the goods
Q: As between the entruster and the creditors of the
3. Principal obligation
entrustee, who has a better right over the goods?
Q: Is the entrustee liable for the deficiency?
A: The entruster. His security interest in goods, documents,
or instruments pursuant to the written terms of a trust A: Yes, but any excess shall likewise belong to him.
receipt shall be valid as against all creditors of the entrustee
for the duration of the trust receipt agreement.
Q: Who shall bear the loss of goods which are the subject of
TR?
CHATTEL MORTGAGE
A: The entrustee. Loss of goods, documents or instruments
which are the subject of a TR, pending their disposition, Q: What is a chattel mortgage?
irrespective of whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish his obligation A: An accessory contract whereby a personal property is
to the entruster for the value thereof. (Sec. 10, P.D. 115) recorded in the Chattel Mortgage Register to secure the
NOTE: The principle of res perit domino will not apply against performance of a principal obligation.
the entruster
NOTE: The concept of a chattel mortgage as a conditional sale
Remedies under the old chattel mortgage law has been supplanted by
the definition of chattel mortgage under Art 2140 of the Civil
Q: What are the remedies available to the entruster? Code. It is now an accessory contract, no longer a conditional
sale.
A:
1. File a criminal action for estafa in case of failure of CHARACTERISTICS OF CHATTEL MORTGAGE
the entrustee to deliver the proceeds of the sale of
the goods under the trust receipt up to the extent of 1. An accessory contract because it is for the purpose of
his obligation to the entruster. securing the performance of a principal obligation;
2. A formal contract because of its enforceability,
NOTE: The civil action may be instituted: registration in the Chattel Mortgage Register is
indispensable;
a. In the criminal action 3. A unilateral contract because it produces only
b. Separately filed independently of the criminal action obligations on the part of the creditor to free the thing
from encumbrance on the fulfillment of the obligation.
CRIMINAL ACTION CIVIL ACTION
Based on ex-delicto Based on ex-contracto NOTE: The extinguishment of the accessory contract does not
extinguish the principal contract; the extinguishment of the
2. Cancel the trust and take possession of the goods at principal contract extinguishes the accessory contract.
any time upon default of the entrustee
3. After the repossession, the entruster may sell the ESSENTIAL REQUISITES
goods upon at least 5-day notice to the entrustee
and apply the proceeds in payment of the obligation. Q: What are the essential requisites for a valid chattel
The entrustee is liable for deficiency or entitled to mortgage?
excess, if any.
4. If a surety secures the obligation of the entrustee in A:
addition to the trust receipt, the law does not
obligate the entruster to cancel the trust or take 1. Constituted to secure fulfillment of the principal
possession of the goods. He can proceed against the obligation
surety. The options belong to the entruster. 2. Mortgagor is the absolute owner of the property
3. Mortgagor has free disposal of the property, in the
Q: In the event of default, is it mandatory or compulsory for absence thereof, that he be legally authorized for
the entruster to cancel the trust and take possession of the such purpose
goods to be able to enforce his rights? 4. That it involves a personal property. (Sec. 2085,NCC)
A: No, the law uses the word may in granting to the FORMAL REQUISITES
entruster the right to cancel the trust and take possession of
the goods. Thus, he has the discretion to avail itself of such Q: What are the formal requisites for a valid chattel
right to sue or seek alternative actions, such as third party mortgage?
claim or a separate civil action which it deems bets to protect
its right, at any time upon default or failure of the entrustee A:
to comply with any of the terms and conditions of the
1. Affidavit of good faith
A: It does not affect the validity of the chattel mortgage but RULES:
the same will be unenforceable against third persons.
Private motor Land Transportation Office (LTO)
Q: What is the status of an unrecorded CM? vehicle
Public motor Land Transportation Franchise &
A: The mortgage is valid and binding between the parties. vehicle Regulatory Board (LTFRB)
Registration is necessary only for the purpose of binding third Vessels Maritime Industry Authority (MARINA)
person. Aircrafts Civil Aviation Authority of the
Philippines (CAAP)
NOTE: In an action for collection, the non-registration of the
chattel mortgage which ordinarily does not bind third persons Chattel mortgage vs. Pledge
is not critical. The rule is different when the remedy resorted
to is foreclosure. Q: Distinguish chattel mortgage from pledge.
Q: What are the properties mortgageable under the law? Mortgagee vs. Innocent purchaser for value
NOTE: While pledge, real estate mortgage, or anti-chresis It subsumes all debts of past or future origin.
may secure after-incurred obligations so long as these future
debts are accurately described, a chattel mortgage can only Q: How do you construe such clause?
cover obligations existing at the time the mortgage is
constituted. A: It must be carefully scrutinized and strictly construed
particularly where the mortgage contract is one of adhesion.
Although the promise expressed in the chattel mortgage to
include debts that are yet to be contracted can be a binding NOTE: A mortgage given to secure future advancements is a
commitment that can be compelled upon, the security itself, continuing security and is not discharged by the repayment of
however, does not come into existence or arise until after a the amount named in the mortgage, until the full amount of
chattel mortgage agreement covering the newly contracted the advancements is paid. It permitted the mortgagor to take
debt is executed either by: the money as it is needed and thus avoid the necessity of
a. concluding a fresh chattel mortgage or paying interest until the necessity for its use actually arises.
b. by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law Remedies available in case of simple loan
Q: Does the law require a minute and specific description of Q: What does the word default cover?
every chattel mortgage in the deed of mortgage?
A:
A: No, it only requires that the description of the mortgaged 1. non-payment
property be such as to enable the parties to the mortgage or 2. violation of the terms of the agreement
any other person to identify the same after a reasonable
investigation and inquiry. Q: What is the effect of stipulation prohibiting the
mortgagor from exercising acts of ownership?
After-Incurred Obligation
A: Such agreement is void. Since the mortgagor remains the
Q: Can the CM cover afterincurred obligations? owner of the chattel, he can sell it even if the chattel
mortgage agreement prohibits the mortgagor from selling the
A: No, the affidavit of good faith in a CM makes it obvious chattel without the consent of the mortgagee.
that the debt referred to in the law is current, not an
obligation that is yet merely contemplated. (Acme Shoe v. CA, The sale, however, is without prejudice to:
G.R. No. 103576, Aug. 22, 1996) a. his criminal prosecution under the permanent
provisions of the RPC
Q: What then is the consequence of a CM covering b. the sale can be considered as violation of the terms
afterincurred obligations? of the chattel mortgage
A: A promise expressed in a CM to include debts that are yet Q: What are the remedies in case of default?
to be contracted can be a binding commitment that can be
compelled upon. The security itself, however, does not come A:
into existence or arise until after a CM agreement covering 1. action for collection
newly contracted debt is executed either by concluding a 2. foreclosure
fresh CM or by amending the old contract conformably with
the form prescribed by the CM law. The remedy of NOTE: There is no rescission in case of simple loan.
A: They are alternative remedies. The election of one bars the Q: What is the remedy if the mortgagee cannot obtain
other remedies. possession of mortgaged property?
NOTE: The mere filing of the collection case bars the A: If a mortgagee cannot obtain possession of a mortgaged
foreclosure, regardless of the venue (whether here or property for its sale on foreclosure, the mortgagee cannot
abroad). take the property by force but must institute the appropriate
action in the court.
Foreclosure a. He must bring a civil action for replevin either to
recover such possession as preliminary step on the
Q: What is foreclosure? extra-judicial foreclosure of the chattel mortgage or
b. judicial foreclosure.
A: It is the remedy available to the mortgagee by which he
subjects the mortgaged property to the satisfaction of the NOTE: Foreclosure can be:
obligation to secure which the mortgage was given through 1. public sale
the sale of the property at public auction and the application 2. private sale, if stipulated by the parties
of the proceeds thereof to the payment of his claim.
Two-bidder Rule
Q: State the essence of a contract of mortgage?
Q: What is the so-called Two-bidder rule?
A: The essence of a contract of mortgage indebtedness is that
a property has been identified or set apart from the mass of A: There must be at least 2 participating bidders for the
the property of the debtor-mortgagor as security for the auction sale to be valid.
payment of money or the fulfillment of an obligation to
answer the amount of indebtedness in case of default of Q: Does the two-bidder rule apply to chattel mortgage?
payment.
A: No, it only applies to pledge.
Q: What are the kinds of foreclosure?
Twin Periods Rule
A:
1. judicial foreclosure
Q: What is the twin periods rule?
2. extra-judicial foreclosure
A: In case of the equity of redemption, the mortgagor has the
Judicial foreclosure
right to prevent the sale by paying the debt within 30 days
from default. So it is a grace period that the law affords in
Q: What is judicial foreclosure?
favor of the mortgagor. Within the 30 days grace period there
must be a Notice of sale given to the mortgagor.
A: By bringing an action for that purpose in the RTC of the
province or city where the real property or any part therof
Also, there must be a 10-day notice to the mortgagor prior to
lies.
the sale.
The proceeds of the sale shall be applied to the payment of Claim of deficiency
the:
Q: Can the mortgagee claim in case of deficiency?
a. Costs of the sale;
b. Amount due to the mortgagee; A:
c. Claims of persons holding subsequent
mortgages in the order of their priority; and GR: Yes, mortgagee is entitled to recover deficiency.
d. Balance if any shall be paid to the mortgagor.
XPNS:
Extra-judicial foreclosure
1. Contrary stipulation
Q: What is Extra-judicial foreclosure? 2. Transactions covered by Recto Law (Art. 1484, NCC)
NOTE: In all proceedings for the foreclosure of chattel Q: In case of recovery of property through replevin
mortgages, executed on the chattels, which have been preparatory to foreclosure, is it a bar to avail of other
sold on the installment plan, the mortgagee is limited to remedies?
the property only in the mortgage.
A: Recovery of property through a replevin case preparatory
Thus, the principal object of Article 1484 was to remedy to foreclosure will not bar the other remedies if there was no
actual foreclosure. If sellermortgagee opts to file an action
the abuses committed in connection with the
for specific performance, he shall be deemed to have waived
foreclosure of chattel mortgages. This prevents his right as a mortgagee but may still levy on the mortgaged
mortgagees from seizing the engaged property, buying property (on execution).
it at foreclosure for a low price and then bringing suit
against the mortgagor for the deficiency judgment. The REPLEVIN
almost invariable result of this procedure was that the VOUNTARY INVOLUNTARY
mortgagor found himself minus the property and still Not akin to foreclosure Akin to foreclosure; a bar to
owing practically the full amount of the original other remedies which are
indebtedness. Ex: surrender of the property alternative
NOTE: According to Dean Divina, the reason for this rule is to Not a bar to avail of other
encourage the mortgagee/creditor to make a reasonable remedies
bid. If he bids at a low price, the company will record on its
book of accounts the deficiency as a loss. To prevent this XPN: if possession is in view
situation, the mortgagee will bid at a reasonable amount. of dacion en pago
Art. 1484 not applicable in case mortgagee is not the vendor Q: Is the mortgagees letter informing the mortgagor of his
intent to foreclose is already considered a foreclosure of the
Q: Does Article 1484 apply as against a mortgagee who is chattel?
not the venodor of the chattel mortgaged?
A: No. A mere offer by the mortgagor to surrender the
A: Art. 1484 of the NCC does not apply as against a chattel, not accepted by the mortgagee, does not preclude
mortgagee who is not the vendor of the chattel mortgaged. the mortgagee from bringing suit to recover the balance of
Thus, a suit for replevin is not equivalent to an exercise of the the purchase price.
remedy of foreclosure under Art. 1484 of the NCC. Hence, a
vendor-mortgagee is not barred from making a claim for Q: Is mere demand sufficient to foreclose the object?
specific performance against the buyer-mortgagor, by the
mere fact that the former was already able to secure a writ of A: A mere demad to surrender the object which is not heeded
replevin. by the mortgagor will not amount to foreclosure, but the
repossession thereof by the vendor-mortgagee would have
Rescission the effect of foreclosure (Borbon II v. Servicewide Specialist,
258 SCRA 634, 1996).
NOTE: In rescission, there should be mutual restitution
except in case of stipulation of forfeiture of prior payments. Q: Is a mortgagee of a personal property sold on
installments, after taking possession of the property, legally
Replevin obligated to foreclose the chattel mortgage and sell it at
public auction?
Q: What is replevin?
A: Having opted to foreclose the chattel mortgage, GAMI can
no longer cancel the sale. The three remedies of the vendor
in case the vendee defaults, in a contract of sale of personal
Q: When is equity of redemption may be exercised? A: If it is a transaction not involving a loan but purchase
of receivables at a discount, it is well within the purview
A: Equity of redemption may be exercised by the mortgagor of "investing, reinvesting or trading in securities" which an
after his default in the performance of his obligation but investment company is authorized to perform and does not
before the sale of the mortgaged property or confirmation of constitute a violation of the General Banking Act.
sale.
This transaction is known as a deposit substitute.
Q: When is the right of redemption available?
NOTE: What is prohibited by law is for investment companies
A: The SC said that there are only 3 cases where there is a to lend funds obtained from the public through receipts of
right of redemption. And they do not involve personal deposit, which is a function of banking institutions. But here,
property. They only pertain to real property. There are only 3: the funds supposedly "lent" to petitioners have not been
1. Extrajudicial foreclosure of Real Estate Mortgage shown to have been obtained from the public by way of
under Act 3135 deposits, hence, the inapplicability of banking laws (Baas v.
2. Execution sale of a real property under the Rule 39 Asia Pacific Finance Corp., 2000).
of Rules of Court
3. Judicial foreclosure of a real estate mortgage, if the Paluwagan
mortgagee is a bank or a credit institution
Q: Describe the concept of paluwagan?
NOTE: So the mortgagee cannot foreclose right away after
default. He has to give the mortgagor 30 days grace period. A: Even if there are more than 20 members, such is not
That is what you call equity of redemption. The right of the considered as banks: the funds are not obtained in the form
mortgagor to prevent the sale by paying the debt within 30 of deposits. It is for savings among its members.
days from default. It is only when he failed the debt that
there can be actual foreclosure of chattel mortgage. Deposit-taking activity
NOTE: Whatever a commercial bank can do, a universal bank Under the old banking law, a safety deposit box is a special
can also perform deposit. However, the new General Banking Law, while
retaining the renting of safe deposit box as one of the
Allied and non-allied transactions services that the bank may render, deleted reference to
depository function.
Q: What do you mean by to invest in equity?
Sia v. Court of appeals
A: It means to be a stockholder of another corporation
Justice Edgardo Paras was of the opinion that the contract for
Q: What are allied or related undertakings? the use of safety deposit box is governed by the law on lease.
The Supreme Court did not agree with him and said that
A: Any undertaking which is about money such as: contract for the use of safety deposit box is a special kind of
a. Foreign exchange deposit. In other words the bank must exercise the due
b. Leasing diligence required of depository in safekeeping or preserving
c. Investment company of the object inside the safety deposit box.
d. Insurance company
e. Warehousing The basis for this is that under the Old General Banking Act, it
provided that in renting out safety deposit boxes the bank
NOTE: An example of non-allied undertaking is cargo shall act as a depositary. Because the law itself provides for
operations. this SC concluded that the contract for the use of safety
deposit box is governed by deposits.
Q: What are the kinds of underwriting agreements?
New Law retains the authority of the Bank to rent out safety
A: deposit box but silent on being a depositary.
A: If the teller gives the passbook to the wrong person, they Bank not a trustee
would be clothing that person presumptive ownership of the
passbook, facilitating unauthorized withdrawals by that Q: Is a bank a trustee?
person. For failing to return the passbook to authorized
representative of the depositor, the bank presumptively A: No, the fiduciary nature of a bank-depositor relationship
failed to observe such high degree of diligence in does not convert the contract between the bank and its
safeguarding the passbook and insuring its return to the party depositors from a simple loan to trust agreement. Failure by
authorized to receive the same. The banks liability, however, the bank to pay the depositor is failure to pay a simple loan,
is mitigated by the depositors contributory negligence in and not a breach of trust.
allowing a withdrawal slip signed by authorized signatories to
Mandamus will not lie A: Unless otherwise prescribed by the Monetary Board,
the total amount of loans, credit accommodations and
Q: In the enforcement of obligations concerning deposit, will guarantees that may be extended by a bank to a single
the remedy of mandamus lie?
borrower shall not exceed 25% of the net worth of such
A: No, because all kinds of deposit are loans. Thus, the
bank.
relationship being contractual in nature, mandamus cannot
be availed of because mandamus will not lie to enforce the NOTE: The amount may be increased by an additional
performance of contractual obligations. 10% of the banks net worth provided that the
additional liabilities are adequately secured by
Q: After procuring a checking account, the depositor issued documents of title covering readily marketable and non-
several checks. He was surprised to learn later that they had perishable goods.
been dishonored for insufficient funds. Investigation
disclosed that deposits made by the depositor were not Q: What is the purpose of the rule?
credited to its account. Is the bank liable for damages?
Except with the written approval of at least majority of all the Q: In case of DOSRI accounts, what are the requirements
directors of the bank excluding the director concerned. The that must be complied with?
required approval shall be entered upon the records of the
bank and a copy of such entry shall be submitted forthwith to A:
the appropriate supervising and examining department of
BSP. 1. Procedural requirements
The outstanding loans, credit accommodations and a. Loan must be approved by the majority of all
guarantees which a bank may extend to the DOSRI shall be the directors not including the director
limited to an amount equivalent to their respective concerned (not merely majority of the quorum)
unencumbered deposits and book value of their pre-paid b. CB approval is not necessary; however, there is
contribution to the bank. a need to inform them prior to the transaction.
Q: What are excluded from the limits? c. Loan must be entered in the books of the
corporation. (Sec. 36)
A: Non-risk loans such as:
2. Substantive requirement or ceiling requirement
1. Loans secured by obligations of the Bangko Sentral Loan must not exceed the paid in contribution and
ng Pilipinas or the Philippine Government unencumbered deposits. (Not to exceed 15% of the
2. Loans fully guaranteed by the Government portfolio or 100% of the net worth, whichever is
3. Loans covered by assignment of deposits maintained lower.) (Sec. 36 [4])
in the lending bank and held in the Philippines
4. Loans, credit accommodations and acceptances Q: What is the effect of noncompliance with the foregoing
under letters of credit to the extent covered by requirements?
margin deposits
5. Other loans or credit accommodations which the MB A: Violation of DOSRI is a crime and carries with it penal
may specify as nonrisk items. sanction.
Q: Who are covered by the DOSRI Regulation? Q: What are the transactions covered by the DOSRI
regulation?
A:
A: The transactions covered are loan and credit
a. Director those who are directly elected by the accommodation. Not being a loan, the ceiling will not apply to
stockholders including those who represent lease and sale. However, it should still comply with the
themselves as director procedural requirement.
b. Officer including those who advertises themselves
c. Stockholder, which should at least 1% (if below 1% NOTE: Each and every requirement constitutes a separate
not anymore covered) violation or offense.
d. Related Interests, such as DOSs spouses, their
relatives within the first degree whether by Ex: no board approval
consanguinity or affinity, partnership whereby DOS
is a partner or a corporation where DOS owns at Q: What is the effect of the non-comppliance with the
least 20% requirements such as the single borrowers limit with regard
the loan?
Q: Who are included under the first degree?
A: The same is valid without prejudice to criminal
A: prosecution. In the case of Republic v. Sandiganbayan,
Cojuangco (12 April 2011, G.R. No. 166859), the Supreme
1. Parents Court held that the loans, assuming that they were of a DOSRI
NOTE: Despite such pronouncement, the crime has already Q: Can one group of persons or an entire family, under the
prescribed. Violation of special penal laws has a prescriptive new law, own the entire bank?
period of 10 years.
A: Yes, for as long as not one of them own more than 40%
Q: What is the armslength rule? (maximum) of the capital shares/stock of the Bank.
A: It provides that any dealings of a bank with any of its Q: What about a foreigner? Is there a limit on the number of
DOSRI shall be upon terms not less favorable to the bank than share a foreigner can own in bank?
those offered to others.
A: Only up to 40%. Foreigners can only own 40% of the bank.
NOTE: The arms-length rule is the basis. Loans of directors, This is because a bank is a nationalized activity.
etc. should be beyond question. They should be above board.
Q: What does NATIONALIZED ACTIVITY mean?
Penalties for violation of the limitations
A: It is an activity either wholly or partly reserved for
Q: What are the penalties for the violations? Filipinos.
Q: What is Bangko Sentral ng Pilipinas (BSP)? Q: What is the legal tender power of coins?
A:
REMEDIES OF BSP IN CASE OF BANKS IN DISTRESS 1. To take charge of the assets, liabilities, and the
management thereof
Q: What are the remedies of the Bangko Sentral ng Pilipinas 2. Recognize the management
in case of banks in distress? 3. collect all monies and debts due said bank
4. Exercise all powers necessary to restore its viability with
A: Place the bank in: the power to overrule or revoke the actions of the
1. Conservatorship previous management and board of directors of the bank
2. Receivership or quasibank
3. Closure of the bank
Q: Can the power to overrule or revoke the actions of the
Conservatorship previous management and board of directors extend to
perfected transactions?
Q: What is conservatorship?
A: Such powers cannot extend to post facto repudiation of
A: Whenever on the basis of the report of appropriate perfected transactions. Thus, the law merely gives contracts
supervising and examining department, the Monetary Board that are deemed to be defective void, voidable,
finds that a bank or quasi-bank is in a state of continuing unenforceable or rescissible. Hence, the conservator merely
inability or unwillingness to maintain a condition of liquidity takes the place of the banks board.
deemed adequate to protect its depositors and creditors, the
Monetary Board may appoint a conservator to take charge of 5. To bring court actions to assail or repudiate contracts
the assets, liabilities and management thereof. entered into by the bank.
Q: Is the receiver authorized to transact business in A: No, they only have acts of administration, they cannot sell
connection with the banks assets and property? properties of banks, they cannot approved option to
purchase properties, just purely acts of administration.
A: No, the receiver only has authority to administer the same
for the benefit of its creditors. Closure
NOTE: Once the bank is placed under receivership, its officers Q: Can the BSP close a bank without prior hearing?
can no longer authorized to transact business in connection
with the banks assets and property. A: Yes, because if prior hearing is required then bank run will
be the order of the day. The power of BSP to close a bank is a
Q: Can the court appoint a receiver for a bank? valid exercise of police power. If there is showing of bad faith
or grave abuse of discretion, it can be set aside and subject to
A: No. The power belongs to the BSP. judicial scrutiny.
Q: Should the issue of whether or not the Monetary Boards Q: Can BSP close a bank on the strength of a report by the
resolution is arbitrary be only raised in a separate action? supervising and examining department without complete
notice of such bank?
A: No. While resolutions of the Monetary Board forbidding a
bank to do business on account of a condition of insolvency A: Yes
and appointing a receiver to take charge of the banks assets
or determining whether the bank may be rehabilitated or CLOSE NOWHEAR LATER DOCTRINE
should be liquidated are by law final and executory.
However, they can be set aside by the court on one specific Q: What is the close nowhear later doctrine?
ground if the action is plainly arbitrary and made in bad
faith. Such contention can be asserted as an affirmative A: The law does not contemplate prior notice and hearing
defense of a counterclaim in the proceeding for assistance in before the bank may be directed to stop operations and
liquidation. placed under receivership. The purpose is to prevent
unwarranted dissipation of the banks assets and as a valid
Q: What is the rule of promissory estoppel? Q: Should the issue of whether or not the MBs resolution is
arbitrary be only raised in a separate action?
A: When the Central Bank made express representations that
it would support the bank and avoid its liquidation if its A: No. While the resolutions of the MB forbidding a bank to
majority stockholders would execute a voting trust do business on account of a condition of insolvency and
agreement turning over the management of the bank to the appointing a receiver to take charge of the banks assets or
CB or its nominees and mortgage or assign their properties determining whether the bank may be rehabilitated or should
to CB to cover the overdraft balance of the bank, the CB may be liquidated by law final and executory. However, they can
not thereafter renege on its representation and liquidate the be set aside by the ground if the action is plainly arbitrary and
bank after the majority stockholders of the bank complied made in good faith. Such actions can be asserted as an
with the conditions and parted with value to the profit of CB, affirmative defense of a counterclaim in the proceeding for
which thus acquired additional security for its own advances assistance in liquidation.
to the detriment of the banks stockholders, depositors and
other creditors under the rule of promissory estoppel (Ramos NOTE: The Court perceives no reason whatever why a
v. Central Bank of the Philippines, 41 SCRA 565, 1971). banking institutions claim that a resolution of the Monetary
Board under Section 29 of the Central Bank Act should be set
Valid exercise of police power aside as plainly arbitrary and made in bad faith cannot be
asserted as an affirmative defense or a counterclaim in the
Q: Can the closure and liquidation of a bank, which is proceeding for assistance in liquidation, but only as a cause of
considered an exercise of police power, be the subject of action in a separate and distinct action. There is no provision
judicial inquiry? of law which expressly or even by implication imposes the
requirement for a separate proceeding exclusively occupied
A: Yes. While the closure and liquidation of a bank may be with adjudicating this issue. Moreover, to declare the issue as
considered an exercise of police power, the validity of such beyond the scope of matters cognizable in a proceeding for
exercise of police power is subject to judicial inquiry and assistance in liquidation would be to engender that
could be set aside if it is either capricious, discriminatory, multiplicity of proceedings which the law abhors (Salud v.
whimsical, arbitrary, unjust or a denial or due process and Central Bank, G.R. No. L-17620, 1986).
equal protection clauses of the Constitution
Q: Can a bank be held liable to pay interest on deposit once
Q: Upon maturity of the time deposit, the bank failed to it closed and ceased operations?
remit. By reason of punitive action taken by Central Bank,
the bank has been prevented from performing banking A: Generally, no.
operations. Is the bank still obligated to pay the time
deposits despite the fact that its operations were suspended NOTES
by the Central Bank?
A:
1. By the stockholders representing at least majority of
the outstanding capital stock
2. Within 10 days from receipt by the board of
directors of the order
Liquidation
Claims against the insolvent bank
Q: When can there be liquidation?
Q: Where should the claims against insolvent bank be filed?
A: If the bank cannot be restored to its financial health upon
the recommendation of the conservator or receiver or head A: All claims against the insolvent bank should be filed in the
of the supervising and examining department, BSP shall file liquidation proceeding. It is not necessary that a claim be
the petition with the RTC for assistance in liquidation. initially disputed in a court or agency before it is filed with the
liquidation court (Ong v. CA, 253 SCRA 105, 1996).
NOTE: Once the liquidation proceedings have been initiated,
the majority stockholders of the bank can no longer file a Q: What is the exception to this rule?
separate action or petition to assail the order of closure.
Instead, issues on validity of closure should be raised as A: It does not apply to a petition for the issuance of a writ of
affirmative defenses in the liquidation proceeding. This is possession for foreclosed property filed by the bank.
necessary to prevent multiplicity of suits or conflicting
resolutions. Q: All claims against the insolvent bank should be filed in
the liquidation proceeding. What is the purpose of such
Lack of tax clearance; effect rule?
Q: Can the liquidation of bank be carried out despite lack of A: The requirement that all claims against the bank be
tax clearance? pursued in the liquidation proceedings is intended:
a. to prevent multiplicity of actions against the insolvent
A: bank, and;
b. designed to establish due process and orderliness in the
GR: Dissolution of a CORPORATION cannot be approved liquidation bank
unless there is payment of taxes
Q: What is the nature of a petition for the Issuance of a Writ
XPN: Closure and liquidation of banks which is governed by a of Possession?
special law. The authority of the BSP to close cannot be
impaired. A: It is not in the nature of a disputed claim against the bank.
On the contrary, it is an action instituted by the bank itself for
NOTEl Unlike in the voluntary dissolution of a corporation the preservation of its asset and protection of its property.
under the Corporation Code. There are substantial
differences in the procedure for involuntary dissolution and Bank deposits, not preferred credits
liquidation of a corporation under the Corporation Code and
that of a bank under the New Central Bank Act so that the Q: What is the nature of bank deposits?
requirements in one cannot simply be imposed in the other
(In Re: Petition for Assistance in the Liquidation in the Rural A:
Bank of Bokod (Benguet), PDIC v. Bureau of Internal Revenue,
511 SCRA 123, 2006). GR: Not preferred credits
XPN: When the deoposits are covered by a cashiers check Prohibited acts
purchased from the bank when the bank officers knew or
ought to have known that the bank is insolvent. Q: What are the prohibited acts?
A: Any final judgment against the bank which has been Q: What are the kinds of deposits covered?
ordered or closed should be stayed as to execute the
judgment would unduly deplete the assets of the bank to the A:
prejudice of other creditors. After the Monetary Board has 1. All deposits of whatever nature with banks or
declared that a bank is insolvent and has ordered it to cease banking institutions found in the Philippines; or
operations, the Board becomes the trustee of its assets for Investments in bonds issued by the Philippine
the equal benefit of all the creditors, including depositors. government, its branches, and institutions
The assets of the insolvent banking institution are held in 2. Trust funds and any sum of money invested in the
trust for the equal benefit of all creditors, and after its bank which the bank may use for loans and similar
insolvency, one cannot obtain an advantage or a preference transaction are now included in the term deposits
over another by an attachment, execution or otherwise. 3. Deposits are thus no longer limited to those
governed by law on loans giving rise to creditor-
Q: Will the suspension of the operations of a bank excuse debtor relationship
non-compliance with its obligation to remit the deposit of
depositors? Q: What do you mean by Bank Deposits in this context?
A: No, the suspension of operations of a bank cannot excuse A: This means funds given to the bank giving to a creditor-
non-compliance with the obligation to remit the time debtor relationship.
deposits of depositors which matured before the banks
closure (Overseas Bank of Manila v. CA, 172 SCRA 521, 1989). Q: What are the requisites?
LAW ON SECRECY OF BANK DEPOSITS (R.A. 1405) Q: What does investment in government securities mean?
A: No, because the cause of action of the Union bank is to Q: Can a bank be compelled to disclose the records of the
recover the difference between Php1000,000 and Php1000, it accounts of a depositor under the investigation for
paid Php1000,000 to payee depositor but only got P1000. unexplained wealth?
Union Bank is a collecting Bank, it collects the amount
covered by a check from the drawee bank so it can credit the A: Since cases of unexplained wealth are similar to cases of
account of the depositor. So the cause of action of the Union bribery, dereliction of duty, no reason is seen why it cannot
bank is to recover the difference between Php1000,000 and be excepted from the rule making bank deposits confidential.
Php1000, and not necessarily the funds in the account of A, In this connection, inquiry into illegally acquired property in
so it is any money that falls under the difference between antigraft cases extends to cases where such property is
Php1000,000 and Php1000. The right to privacy is a right concealed by being held or recorded in the name of other
guaranteed by the constitution and if it examines the account persons. This is also because the AntiGraft and Corrupt
of the depositor which do not fall under the exception Practices Act, bank deposits shall be taken into consideration
violates such right to privacy. in determining whether or not a public officer has acquired
property manifestly out of proportion with his lawful income.
Bribery, dereliction of duty, prosecution for unexplained (PNB v. Gancayco, G.R. No. L18343, Sept. 30, 1965).
wealth, prosecution for Anti-graft and Corrupt Practices Act
Garnishment
Q: A special prosecutor was conducting an investigation for
violation of unexplained wealth law involving a public Q: Does garnishment of a bank deposit violate the law?
official suspected to have an ill-gotten wealth. In the course
of the investigation, the special prosecutor issued a A: No, the prohibition against examination does not preclude
subpoena were such public official maintained an account. its being garnished for satisfaction of judgment. The
The Bank opposed citing the R.A 1405. Decide. disclosure is purely incidental to the execution process and it
was not the intention of the legislature to place bank deposits
A: The SC said that when it comes to investigation of beyond the reach of judgment creditor.
unexplained wealth under anti-graft and corrupt practices
act, the prosecutor may have access to bank deposits. Q: How about foreign currency deposits, can they be subject
Although a special prosecutor is not a court, but the SC to garnishment?
Q: Are foreign currency deposits covered by the Secrecy in A: According to the Secretary of Justice, foreign currency
Bank Deposits (R.A. 1405)? deposits are exempt from escheat proceedings because
escheat is akin to garnishment, since foreign currency
A: deposits are exempt from garnishment and escheat is a form
or specie of garnishment, therefore foreign currency deposits
GR: No. Foreign currency deposits are covered by R.A. 6426 are exempt from escheat proceedings. Being exempt from
otherwise known as the Foreign Currency Act. Under the escheat proceedings, the bank has no authority to disclose to
same law, all authorized foreign currency deposits are the National Treasurer any information about foreign
considered of an absolutely confidential nature and, except currency dormant accounts.
upon the written permission of the depositors, in no instance
shall be examined, inquired or looked into by any person, Filing of the comlaint for violation of RA 1405 does not toll
government official, bureau or office whether judicial or the running of the prescriptive period to file the appropriate
administrative private. complaint for violation of R.A. 6426
Q: Can the foreign currency deposit of a transient foreigner Q: Does the filing of the comlaint for violation of RA 1405
who illegally detained and raped a minor Filipina, be toll the running of the prescriptive period to file the
garnished to satisfy the award for damages to the victim? appropriate complaint for violation of R.A. 6426?
A: They are now governed by 2 laws: ANTI-MONEY LAUNDERING LAW (R.A. 9160, a amended)
1. RA 8791 and
2. RA 1405. Q: What is the policy of the law?
The Supreme Court did not go beyond explaining what A: To protect and preserve the integrity and confidentiality of
exceptions will apply because under RA 8791 there are 2 bank accounts and to ensure that the Philippines shall not be
exceptions (written permission and court order). There are used as a money laundering site for the proceeds of any
funds which are not covered by RA 1405, these funds that the unlawful activity.
bank cannot be use for loans and other similar transactions.
Q: What is money laundering?
Q: When are funds considered as deposited?
A: Money laundering is a crime whereby the proceeds of an
A: Funds which are deposited or invested with the bank unlawful activity as defined in the AMLA are transacted or
which the bank can use for loans and similar transactions if attempted to be transacted to make them appear to have
the bank can use it for loans and similar transactions then it is originated from legitimate sources.
not covered by RA 1405 but it is governed by RA 8791.
Anti-Money Laundering Council
Examples of these are funds obtained by the bank for strict
deposit meaning for safe keeping. Since the bank cannot use Q: What is the Anti-Money Laundering Council (AMLC)
these funds for loans, it is not covered by RA 1405 but they
are covered by RA 8791. The government body tasked to carry out the
implementation of the Anti-Money Laundering Law is the
NOTE: Whether 1405 or 8791 both laws say that it cannot be Anti-Money Laundering Council. It is authorized to impose
inquired or looked in to but the problem lies on which administrative sanctions for the violation of the law, rules or
exception would apply. regulations issued pursuant to the Anti-Money Laundering
Law.
Q: Can the bank disclose information about the contents of
the safety deposit box? It may freeze monetary instrument or property alleged to be
the proceeds of unlawful activity. The AMLC shall apply for a
A: No, because it will violate RA 8791. freeze order with the Court of Appeals. Such order may be
issued ex parte.
Q: What if the depositor did not pay rents on the safety
deposit box? It is also authorized to inquire into bank deposits or
investments, regardless of currency but it needs a bank
A: If the depositor is not paying rents, then the Bank will inquiry order. The AMLC shall apply for a bank inquiry order
force open the safety deposit box. In case of force opening, with any competent court. Such competent court is the
the Bank will know the contents of the box, so every time the Regional Trial Court. The bank inquiry order cannot be issued
bank will force open the Box it engages with the services of ex parte but under the recent law dated June 2012, bank
the notary public to make sure that the owner of the safety inquiry order can now be issued ex parte.
1. Institutions supervised or regulated by the BSP A: Suspicious transactions are transactions with covered
2. Institutions supervised and regulated by the Insurance institutions, regardless of the amounts involved, where any of
Commission; and the following circumstances exist:
3. Entities dealing in currency, commodities, or financial
derivatives based thereon valuable objects, cash 1. There is no underlying legal or trade obligation,
substitutes, and other similar monetary or property purpose or economic justification
supervised and regulated by the SEC. 2. The client is not properly identified
NOTE: (Enumeration under Golden Notes 2011) 3. The amount involved is not commensurate with the
business or financial capacity of the client;
1. Banks 4. Taking into account all known circumstances, it may
2. Nonbanks be perceived that the clients transaction is
3. Quasibanks structured in order to avoid being the subject of
4. Trust entities reporting requirements under the AMLA;
5. All other institutions, their subsidiaries and affiliates 5. Any circumstances relating to the transaction which
supervised or regulated by BSP is observed to deviate from the profile of the client
6. Insurance companies and all other institutions and/or the clients past transactions with the
supervised and regulated by the Insurance covered institution;
Commission 6. The transactions is in a way related to an unlawful
7. Securities dealers, brokers, salesmen, investment activity or offense under the AMLA that is about to
houses and other similar entities managing securities be, is being or has been committed; or
or rendering services as investment agent, advisor, 7. Any transactions that is similar or analogous to any
or consultant of the foregoing.
8. Mutual funds, closedend investment companies,
common trust funds, preneed companies and other Q: What are the acts punishable under R.A. 9160?
similar entities
9. foreign exchange, corporations, money changers, A:
money payments, remittance and transfer 1. Knowingly transacting or attempting to transact any
companies and other similar entities; and monetary instrument/property which represents,
10. Other entities administering or otherwise dealing in involves, or relates to, the proceeds of any unlawful
currency, commodities or financial derivatives based activity (Action)
thereon, valuable objects, cash substitutes, and
other similar monetary instruments or property 2. Knowingly performing or failing to perform an act in
supervised or regulated by SEC. relation to any monetary instrument/property
involving the proceeds of any unlawful activity as a
Q: What are the obligations of covered institutions? result of which he facilitated the offense of money
laundering (Omission).
A:
3. Knowingly failing to disclose and file with the AMLC
1. Customer identification any monetary instrument/ property required to be
2. Record keeping (records should be kept and safely disclosed and filed (Failure to report).
stored for 5 years from the date of the transaction)
3. Reporting of covered and suspicious transactions Safe Harbor Provision
A: The Court of Appeals has the jurisdiction to freeze the Q: In disclosing Alvin's bank accounts to the AMLC, did the
account upon application ex parte by the AMLC and after bank violate any law?
determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful A: No, the bank did not violate any law. The bank being
activity. specified as a "covered institution" under the AntiMoney
Laundering Law, is obliged to report to the AMLC covered and
Note: The freeze order shall be for a period of 20 days unless suspicious transactions, without thereby violating any law.
extended by the court. This is one of the exceptions to the Secrecy of Bank Deposit
Act.
BANK INQUIRY ORDER FREEZE ORDER
The AMLC is authorized to The AMLC may freeze
inquire into bank deposits or monetary instrument or
investments, regardless of property alleged to be the TRUTH IN LENDING ACT (RA 3765) (TILA)
currency but it needs a bank proceeds of unlawful activity.
inquiry order. Historical Background
Jurisdiction
Regional Trial Court Court of Appeals The Truth in Lending Law was pass to compliment the then
Issuance USURY LAW. The USURY LAW is suspended (not repealed) as
Under the recent law dated Can be issued ex parte of
June 2012, bank inquiry 1982. The Central Bank (CB) lifted the ceiling on interest rate.
order can now be issued ex
parte. Q: When is an interest considered as usurious?
Duration
N/A The freeze order shall be for A: A rate of interest is USURIOUS if it in excess of the ceiling
a period of 20 days unless set forth by the Bangko Sentral ng Pilipinas (BSP).
extended by the court.
Circular 905
Q: Does the AMLC have the authority to inquire into bank
deposits? In 1982 CB issued Circular 905 lifting the ceiling on interest
rate. There being no ceiling in interest rates then there is no
A: Notwithstanding the provisions of R.A. 1405 (The Bank usurious rate of interest.
Secrecy Law), as amended; R.A. 6426, as amended; R.A. 8791
(General Banking Law of 2000), and other laws, the AMLA Truth in Lending Law
may inquire into or examine any particular deposit or
investment with any banking institution or non-bank financial When the Truth in Lending Law was passed the Usury Law
institution upon order of any competent court in cases of was still in place. Under said law the rate of interest is
violation of AMLA when it has been established that there is usurious if the interest is more than 12% for secured loans
probable cause that the deposits or investments involved are and more than 40% for unsecured loan (no collateral, no
in any way related to an unlawful activity. mortgages).
Q: Alvin is jobless but is reputed to be a jueteng operator. Many persons were found to circumvent the usury law by
He has never been charged or convicted of any crime. He sticking to the ceiling but collecting other items not on their
maintains several bank accounts amounting to P100 Million. interest but other charges. Since they are not interest then
AMLC charged Alvin with violation of the AntiMoney they are not usurious but they jacked up the cost of credit. So
Laundering Law. Can Alvin move to dismiss the case on the this is why the Truth in Lending Law was passed to
ground that he has no criminal record? compliment the Usury Law.
The money laundering crime is separate from the unlawful 1. To complement the Usury Law;
activity of being a jueteng operator, and requires no previous 2. To protect persons from a lack of awareness of the
conviction for the unlawful activity. (Sec. 3, AMLA) true cost of credit by assuring full disclosure of such
Q: What are the items required to be disclosed? A: That means the promissory note does not contain a clear
statement in writing of finance charge. Such provision is
A: Prior to the consummation fo a loan transaction, the bank, illegal not only because it violates the provisions of the Civil
as creditor, is obliged to finish a client with a clear statement, Code on mutuality of contracts but also because it violates
in writing, setting forth, to the extent applicable and in the Truth in Lending Act.
accordance with the Rules and regulations prescribed by the
Monetary Board of the CB, the ff. information: Uncovered transactions
a. the cash price or delivered prie of the property or service Q: What transactions are not covered by TILA?
to be acquired
b. the amounts if any, to be credited as down payment and A: The law does not apply to transaction on cash basis but
or trade-in only where there is a credit component (Dean Divina).
c. the difference between the amounts set forth under
clauses 1 and 2 NOTE: It also does not apply to:
d. the charges, individually itemmized which are to be paid 1. Those which do not involve the payment of any
by such person in connection with the transaction but finance charges by the debtor; and
which are not incident to the extension of credit 2. Where the debtor is the one specifying a definite
e. the finance charges expressed in terms of pesos and and fixed set of credit terms such as bank deposits,
centavos insurance contracts, sale of bonds, etc.
f. the percentage charges bears to the total amount to be
financed expressed as a simple annual rate on the The TILA is also applicable only to a creditor as defined by
outstanding unpaid balance of the obligation (the unpaid law, a person engaged in the business of extending credit.
interest on the outstanding obligation)
Q: You want to buy a DVD component. You went to SM
Illustration: A wants to purchase a car on installment basis. Appliance Center. You got it and you got your credit card
The cost of the car is 3M. He made a down payment of P1M. from your wallet, and then presented it to the sales lady.
The balance (P2M) is covered by a promissory note payable The sales lady swiped it into the machine. After 1 month you
over 60 mos. (5 yrs to pay). The truth in lending law requires got a billing statement from your card company. It turns out
the creditor (the car company) to disclose to the borrower that you have a revolving credit with the card company. You
(the buyer to the car) the ff information: are allowed to pay 36 months with the card company 0
interests for 36 mos. So you are not forced to pay affront.
1. Cost Price/Delivery Price - How much is the cost or You will pay on installment basis for 36 mos. 0 interest.
value of the delivery of the car? P3M Billing statement comes; it says 12% interest on the invoice
2. Amount of Down Payment P1M; OR Trade In (if charges and other fees or charges that the card company
the borrower wants to trade his old car in exchange may determine from time to time. Did SM Appliance
for a new car then the trade in value has to be Center Violated that Truth in Lend Law?
indicated in the document)
3. The Difference bet. 1 and 2 A: No because the transaction between SM and the card
4. Charges not incident to the credit which must be holder is on cash basis. The installment basis is between the
itemized. card holder and the card company. If there is anyone
required to comply with the Truth in Lending Law it is the
Examples: handling fee, service fee, registration fee, card company. The truth in lending law does not apply when
there is no credit component in the transaction. It does not
5. The total amount apply when the transaction is payable in cash.
1. The unpaid balance of money or its equivalent A: Funds held by an insured bank in a fiduciary capacity and
received by a bank in the usual course of business include, without being limited to, funds as trustee, executor,
and for which it has given of is obliged to give credit administrator, guardian or agent.
to a commercial, checking, savings, time or thrift
account Q: Why is Trust Fund not included?
2. Must give rise to creditor-debtor relationship
between the bank and the depositor A: Because what are covered by the PDIC are only deposits,
funds deposited with the bank giving rise to a creditor debtor
Q: What is the rule in case of deposits in a branch of relationship. So if there is no creditor-debtor relationship
domestic bank outside the Philippines? then that is not insured with PDIC.
A: PDIC shall commence the determination of insured Determination of the insured deposits
deposits due to the depositors of the closed bank upon its
actual take-over of the closed bank. Q: When and how shall PDIC commence the determination
of insured deposits?
Deposit accounts covered
A: PDIC shall commence the determination of insured
The following accounts are COVERED by PDIC: deposits due the depositors of a closed bank upon its actual
1. Savings take-over of the closed bank. PDIC shall give notice to the
2. Current/Checking Account (these are the same) depositors of the closed bank of the insured deposits due
3. Dollar Deposits the new law made it clear Dollar them by whatever means deemed appropriated by the Board
Deposits are covered. You have to convert the same of Directors. PDIC shall publish the notice once a week for at
to Philippine Currency at the time of closure of the least 3 consecutive weeks in a newspaper of general
Bank. circulation or, when appropriate, in a newspaper circulated in
the community or communities where the closed bank or its
Q: Are the deposits in foreign currency covered by the branches are located.
insurance?
Calculation of liability
A: Deposit obligations in foreign currency of any insured bank
are likewise insured. Per depositor, per capacity rule
NOTE: Foreign currency deposits are covered under the Q: What are the types of deposits covered?
provisions of RA 3591, as amended, and insurance payment
shall be in the same currency in which the insured deposits A: Demand, savings, and time deposits. If the depositor has
are denominated. all three types of accounts with the same bank, he can only
recover up to P500,000.00. He is considered as one depositor.
Accounts not covered
Q: Is the liabiity of PDI on a per bank or per branch basis?
Accounts NOT Covered by PDIC:
Mode of payment XPN: The period shall not apply if the validity of the claim
requires the resolution of issues of facts and or law by
Q: What are the modes of payment? another office, body or agency.
Q: What is the effect of failure of depositor to claim insured XPN: The Supreme Court may issue a restraining order or
deposits? injunction when the matter is of extreme urgency involving
constitutional issue, such that unless a temporary restraining
A: Unless otherwise waived by the PDIC, if the depositor in order is issued, grave injustice and irreparable injury will
the closed bank shall fail to claim his insured deposit with arise.
PDIC within 2 years from actual take-over of the closed bank
by the receiver or does not enforce his claim filed with the PDIC may reduce interest on deposit
PDIC within 2 years after the 2-year period to file a claim, all
rights of the depositor against the PDIC with respect to the Q: Does PDIC have the power to reduce interest on deposit?
insured deposit shall be barred; however, all rights of the
depositor against the closed bank and its shareholders or the A: PDIC law now empowers the PDIC to reduce the interest
receivership estate to which the PDIC may have become rate on any deposit made within 6 months prior to closure. So
subrogated shall thereupon revert to the depositor. if you are induced by the offer of the bank of its high
interest rate, think twice because all of these banks have
Q: When may the PDIC examine banks and deposit closed in the past and PDIC , any way, has the power to
accounts? reduce the interest rate to a reasonable level.
A: Whenever a depositors deposit account exceeds Q: When does Warehouse Receipts Law apply?
P500,000.00 is broken down and transferred into 2 or more
accounts in the name/s of natural or juridical persons who A: This law only applies if the receipt is issued by a
have no beneficial ownership on transferred deposits within warehouseman as defined by law.
120 days immediately preceding or during a bankdeclared
bank holiday, or immediately preceding a closure order by Nature and Functions
the Monetary Board of the BSP for the purpose of availing of
the maximum deposit insurance coverage. Q: What is the nature of a warehouse receipt?
Q: What is a warehouse? A:
1. A warehouseman shall be liable to any person
A: The building or place where goods are deposited and injured thereby for all damages caused by the
stored for profit. omission
2. Validity of receipt not affected
1 3. Negotiability of receipts not affected
Article 1507 A document of title in which it is stated that the goods referred
to therein will be delivered to the bearer, or to the order of any person 4. Contract is converted to ordinary deposit.
named in such document is a negotiable document of title. (n)
To whom delivered A:
1. Negotiable warehouse receipt- is a receipt in which
Q: To whom is the warehouse receipt delivered? it is stated that the goods received will be delivered
to the bearer or to the order of any person named in
A: such receipt.
2. Non-negotiable warehouse receipts- a receipt in
In general which it is stated that the goods received will be
delivered to the depositor or to any other specified
1. To the person lawfully entitled to the possession of person.
the goods or his agent
2. The person entitled to the delivery under a non- Negotiable warehouse Non-negotiable warehouse
negotiable receipt receipt receipt
3. Person in possession of a duly negotiated warehouse May be acquired through May be acquired through
receipt negotiation transfer or assignment
Rights of the holder of the Rights of transferee:
receipt:
Specific situations
1. If indorsed: 1. Acquires title to the
4. Between a judgment creditor and holder of a duly goods subject to the terms
negotiated warehouse receipt, the latter has the a. Acquires title to the goods of any agreement with the
better right as the person negotiating. transferor. (Sec. 42)
5. Between the unpaid seller of the goods deposited to (Sec. 41) 2. Acquires the right to
the warehouseman and the holder of a duly b. Acquires the direct notify the warehouseman of
2. If not indorsed: He may NOTE: Prior to notice, the Q: What is required in a nonnegotiable receipt?
compel indorsement; title of the transferee may be
otherwise, he would acquire defeated by the levy of an A: It shall have plainly placed upon its face by the
title as that of an assignee attachment or execution warehouseman issuing it nonnegotiable, or not
(Section 43). upon the goods by a creditor negotiable. (Sec. 7)
of the transferor or by a
notification to the NOTE: Failure to mark nonnegotiable shall make it
warehouseman by the negotiable (if the holder purchased it for value supposing it to
transferor or a subsequent be negotiable).
purchaser from the
transferor of a subsequent Q: How is it transferred?
sale of the goods by the
transferor. (Sec. 42) A: A nonnegotiable warehouse receipt may be transferred by
Defeats the lien of the seller Acquires the title as that of its delivery to the transferee accompanied by a deed of
of the goods covered his transferor. assignment, donation or other form of transfer.
thereby.
Good covered cannot be Pending notification to the Q: What is the effect of indorsement?
garnished, attached or levied warehouseman, goods can
on execution by execution, be. A: Even if the receipt is indorsed, the transferee acquires no
unless: additional right (Sec. 39)
1. Receipt is Reason: Absent such notice,
surrendered. both the warehouseman and Q: Distinguish between negotiable instrument and
2. Its negotiation is the sheriff have a right to negotiable warehouse receipts.
enjoined by the assume that the goods are
court. still owned by the person A:
3. The goods are whose name appears in the
impounded by receipt. NEGOTIABLE INSTRUMENT NEGOTIABLE WAREHOUSE
the court. (Sec. RECEIPT
25) The obligation is to pay In a warehouse receipt, the
money while in a warehouse endorsers or immediate
Note: This shall not apply if receipt, the obligation is to parties are not liable for any
the person depositing is not deliver goods. failure on the part of the
the owner of the goods or warehouseman or previous
one who has no right to endorsers of the receipt to
convey title to the goods fulfill their obligations.
binding upon the owner. The general endorsers The endorsers of a
Protects the purchaser in The assignee only steps into warrant that the instrument, negotiable warehouse
good faith and for value. the shoes of the assignor. after due presentment, shall receipt may however be held
be paid and in that case of liable for breach of
Q: What are the advantages of a negotiable warehouse dishonor and notice of warranties, such as:
receipt? dishonor is duly given, the 1. The receipt is
endorser shall pay the holder genuine and in
1. The goods while in the possession of the respects what it
warehouseman cannot be garnished or levied on purports to be;
execution 2. They have legal title
UNLESS: to the instrument;
a. the receipt is surrendered or 3. The goods are fit for
b. the negotiation is enjoined, or consumption and
c. the receipt is impounded by order of court merchantable;
4. They are not aware
RIGHTS OF A HOLDER OF A NEGOTIABLE WAREHOUSE A: Yes. Yoyo, as a holder for value of the receipt, has a better
RECEIPT right to the goods than the creditor. It is Yoyo that can
surrender the receipt which is in its possession and can
Q: What are the rights of a holder of a negotiable comply with the other requirements which will oblige the
warehouse receipt? warehouseman to deliver the goods, namely, to sign a receipt
A: The pledgee or mortgagee does not automatically become A: A court of competent jurisdiction may order the delivery of
the owner of the goods but merely retains the right to keep the goods only:
and with the consent of the owner to sell them so as to
satisfy the obligation from the proceeds for the simple reason a. Upon satisfactory proof of the loss or destruction of
that the transaction is not a sale but only a mortgage or the receipt; and
pledge. Likewise, if the property is lost without the fault or b. Upon the giving of a bond with sufficient sureties to
negligence of the mortgagee or pledgee, then said goods are be approved by the court. (Sec. 14)
to be regarded as lost on account of the real owner,
mortgagor or pledgor. NOTE: The delivery of the goods under an order of the court
shall not relieve the warehouseman from liability to a person
Q: Does the nonpayment by the original depositors of the to whom the negotiable receipt has been or shall be
purchase price render the further negotiation of the receipt negotiated for value without notice of the proceedings or of
invalid? the delivery of the goods. (Sec. 14)
A: No, the negotiation of the warehouse receipt by the buyer Q: When does the duty to insure the goods arise?
of goods purchased from and deposited to the
warehouseman is valid even if the warehouseman who issued A:
the negotiable warehouse receipt was not paid by the buyer.
The validity of the negotiation cannot be impaired by the fact 1. Where the law provides
that the owner/warehouseman was deprived of the 2. Where it was an inducement for the depositor to
possession of the same by fraud, mistake or conversion. enter into the contract;
3. Established practice; or
DUTIES OF WAREHOUSEMAN 4. Where the warehouse receipt contains a
representation to that effect.
Q: What are the duties of warehouseman?
Q: What is conversion?
A:
A: An unathorized assumption and exercise of the right of
ownership over goods belonging to another through the
Q: Where will the warehousemans fees and charges cease Q: What else are deemed included in a mortgage of real
to accrue? property?
Q: What is real estate mortgage (REM)? Q: What is the effect of any stipulation in the mortgage
contract including after-acquired properties?
A: It is a contract whereby the debtor secures to the creditor
the fulfillment of a principal obligation, specially subjecting to A: It is valid. This is common and logical in cases where the
such security immovable property or real rights over properties given as collateral are perishable or subject to
immovable property which obligation shall be satisfied with inevitable wear and tear or were intended to be sold or to be
the proceeds of the sale of said property or rights in case the used but with the understanding that they shall be replaced
said obligation is not complied with at the time stipulated. with others to be thereafter acquired by the mortgagor. Its
purpose is to maintain the original value of the properties
Nature given as security.
Q: What is the nature of REM? A mortgage given to secure future advancements enables the
parties to provide continuous dealings, the nature or extent
A: It creates real right over the property, such that in of which may not be known or anticipated at the time, and
subsequent transfers by the mortgagor, the transferee must they avoid the expense and inconvenience of executing a new
respect the mortgage. security on each new transaction.
Stipulation forbidding owner from alienating immovable A: It is the remedy available to the mortgagee by which he
property subjects the mortgaged property to the satisfaction of the
obligation to secure which the mortgage was given through
Art. 2130. A stipulation forbidding the owner from the sale of the property at public auction and the application
alienating the immovable mortgaged shall be void. (n) of the proceeds thereof to the payment of his claim.
NOTE: The mortgagee can simply withhold his consent and NOTE: Foreclosure denotes the procedure adopted by the
thereby prevent the mortgagor from selling the property. Yet, mortgagee to terminate the rights of the mortgagor on the
in case of alienation of property, the transferee is bound to property and includes the sale itself.
respect the encumbrance because being a real right, the
property remains subject to the fulfillment of the obligation Q: What is the remedy of a party aggrieved by the
for whose guaranty it was constituted. foreclosure?
A: He may petition that the sale be set aside and the writ of
possession be canceled because the mortgage was not
violated or the sale was not made in accordance with the
A: The petition for sale is not an ordinary action and is A: In case of postponement, the notice of sale must be
therefor not governed by the rules on venue. The petition/s republished once a week for 3 consecutive weeks unless the
for sale must be filed with the Office of the Clerk of Court of notice of sale contains an alternative date and the sale is
the City where the real property/ies is/are situated. subsequently conducted on such date.
Q: Where should the notice of sale be posted? A: No, they are imbued with public policy considerations and
any waiver thereon would be inconsistent with the intent and
A: It shall be posted in a conspicious place where the sale letter or the law. It would thus be converting into a private
shall be conducted: sale what ought to be a public auction.
a. Sheriffs Office; Yet, the failure to post a notice is not per se a ground for
b. Assessors Office; and invalidating a foreclosure sale provided that the notice
c. Register of Deed thereof is duly published in a newspaper of general
circulation. The publication accordingly alone is more than
Q: What is the posting requirement be waived? sufficient compliance with the notice-posting requirement.
A: The posting requirement is jurisdictional and as such, Personal notice to the mortgagor when and when need not
cannot be waived. The certificate of posting may be waived needed
but not the actual posting itself.
Q: Is personal notice to the mortgagor of the date, time and
Publication requirement place of the sale required?
Possession by purchaser of foreclosed property A: The action to recover a deficiency after foreclosure
prescribes after 10 years from the time the right of action
Q: During the period of redemption, is the mortgagee accrues.
entitled to possession as a matter of right?
The mortgagee in both real and chattel mortgages has, by
A: law, the right to claim for the deficiency resulting from the
price obtained in the sale of the property at public auction.
GR: No. During the period of redemption, the mortgagee is
not entitled to possession as a matter of right. It is NATURE OF JUDICIAL FORECLOSURE PROCEEDING
discretionary to the court and subject to bond requirement.
Q: What is the nature of judicial foreclosure proceeding?
XPN: But if the petition for writ of possession is prayed for
after the expiration of the redemption period and A: It is an action quasi in rem which is based on a personal
consolidation of title in favor of the mortgagee, the issuance claim against a specific property of the defendant. Its purpose
of the writ is ministerial duty on the part of the court and is to have the property seized and sold by court order to the
bond is not required. end that the proceeds thereof be applied to the payment of
plaintiffs claim.
Remedy in case of foreclosure
Q: What is the result of failure to pay indebtedness?
Q: If there is a balance due to the mortgagee after applying
the proceeds of the sale, is the mortgagee entitled to A: The principal obligation is the money indebtedness and the
recover the deficiency? subjection of the property is only resorted to upon the failure
to pay the debt. Thus, the money indebtedness is the
A: Yes. However, in case of extrajudicial foreclosures, Act. principal thing not the foreclosure of the property which is
3135 does not give a mortgagee the right to recover the only result or an incident of the failure to pay the debt.
deficiency after the public auction sale, neither does it
expressly or impliedly prohibit such recover. NOTE: The fact that the property mortgaged is destroyed is
not ground to reduce the indebtedness secured.
NOTE: To recover deficiency, the extrajudicial foreclosure
must be valid. Action for the foreclosure of mortgage survives after the
death of the mortgagor
Q: Why is the mortgagee entitled to recover deficiency?
Q: Does the action for the foreclosure of mortgage survive
A: In both extrajudicial and judicial foreclosures, the after the death of the mortgagor?
mortgage is but a security and not a satisfaction of the
indebtedness. It is of no importance if the buyer or highest A: Yes. It is an action which survives the death of the
bidder is the creditor himself. mortgagor because the claim against him is not a pure money
claim but an action to enforce a mortgagee lien.
NOTE: Where a third person is the mortgagor, he is not liable Consequently, the judgment rendered therein may be
for any deficiency in the absence of a contrary stipulation. enforced by a writ of execution.
The action for the recovery of such deficiency must be
directed against the debtor. Q: What is the remedy?
NOTE: The power to foreclose is not an ordinary agency that WAIVER OF SECURITY BY MORTGAGEE
contemplates exclusively the representation of the principal
by the agent but is primarily an authority conferred upon the NOTE: The ME may institute either a:
mortgagee for the latters own protection.
a. personal action for debt (he may waive the right to
Q: What is the nature of the power of foreclosure by extra- foreclose his mortgage and maintain a personal
judicial sale? action for recovery of the indebtedness) or
b. a real action to foreclose the mortgage. In either
A: It is an ancillary stipulation supported by the same cause case, he is entitled to obtain a deficiency judgment
or consideration for the mortgage and forms an essential and for whatever sum might be due after the liquidation
inseparable part of the bilateral agreement. It is proper only of the property covered by the mortgaged.
when so provided under a special power inserted in or
attached to the mortgage contract. Q: What is the nature of these remedies?
NOTE: The power to decide to foreclose or not is the A: The remedy is alternative and not cumulative or
prerogative of the mortgagee. successivemortgagee cannot have both remedies since he
has only 1 cause of action.
STIPULATION OF UPSET PRICE
Q: What are the remedies of the CR holding a real estate
Q: Is a stipulation of upset price valid? mortgage for the satisfaction of his credit in case the MR
dies?
A: A stipulation in a mortgage of real property fixing an upset
pricethe minimum price at which the property shall be A:
soldto become operative in the event of a foreclose sale at
public auction is null and void for the property must be sold 1. Waive the mortgage and claim the entire debt from
to the highest bidder. the estate of the MR as an ordinary claim;
2. Foreclose the mortgage judicially and prove any
It is debatable however if the rule will still apply where the deficiency as an ordinary claim;
purchaser happens to be the creditor or mortgagee himself. 3. Rely on the mortgage exclusively, foreclosing the
same at any time before it is barred by prescription
EFFECT OF INADEQUACY OF THE PRICE without right to file a claim for any deficiency. This is
an extrajudicial foreclosure which bars any
Q: What is the effect of the inadequacy in the price in subsequent deficiency claim against the estate of
foreclosure sale? the deceased.
A: Where there is a right to redeem, inadequacy of the price Q: Does foreclosure have retroactive effect?
is not material because the judgment debtor may reacquire
the property or else sell his right to redeem and thus recover A: A foreclosure sale retroacts to the date of the registration
any loss he claims to have suffered by reason of the price of the mortgage and that a person who takes a mortgage in
obtained at the auction sale. good faith and for valuable consideration, the record showing
clear title to the MR will be protected against equitable
Q: Is inadequacy of price sufficient to annul or set aside claims on the title in favor of third persons of which he had
foreclosure sale? no actual or constructive notice.
A: Mere inadequacy of the price will not be sufficient to NOTE: A notice of adverse claim annotated after the
annul or set aside the foreclosure sale. The property may be registration of the mortgage but before the foreclosure and
sold for less than its fair market value upon the theory that sale at public auction of the property cannot affect the rights
the lesser the price the easier for the owner of to effect the of the ME. Thus, it no longer matters that the annotation of
redemption so that the low price even works to his the sheriffs certificate of sale and the affidavit of
advantage. consolidation of ownership was made subsequent to the
annotation of the notice of lis pendens.
A: It is the transaction by which the mortgagor reacquires or Q: When can the mortgagor exercise the equity of
buys back the property which may have passed under the redemption?
mortgage or divests the property of the lien which the
mortgage may have created. A: The mortgagor must exercise his equity of redemption
before but not after the sale is confirmed by the court. It is
Q: What is the purpose of redemption? simply the right of the defendant mortgagor to extinguish the
mortgage and retain ownership of the property by paying the
A: The concept of redemption is to allow the owner to secured debt within the 90-day period after the judgment
repurchase or buy back, within a certain period and for a becomes final in accordance with Rule 68, or even after the
certain amount, a property that has been sold due to debt, foreclosure sale but prior to its confirmation.
tax, or encumbrance.
Q: What if the case is one of judicial foreclosure?
Q: What is the redemption period?
A: No equivalent right of redemption exists.
A:
NOTE: Being an incorporeal right, the value of an equity of
GR: Within one year from the registration of the sale and not redemption can neither be quantified nor equated with
from actual sale. actual value of the property nor equated with the actual
value of the property upon which it may be exercised.
XPN: If the following requisites are present, the redemption
period is 3 months from the date of the sale or registration, Acquired by second mortgagee
whichever comes earlier:
Q: Describe the right of a second mortgagee?
1. The mortgagor is a juridical person
2. The mortgagor is a bank, quasi-bank or trust entity A: A second mortgagee acquires only the equity redemption
3. The mode of foreclose is extrajudicial vested in the mortgagor, and his rights are strictly
subordinate to the superior lien of the first mortgagee.
NOTE: The one year redemption period rule still applies if the
mortgagor is a natural person and/or the mortgagee is not a Taking physical possession not necessary for levy
bank, quasi-bank or trust entity and/or the mode of foreclose
is judicial (but in the latter case, only if the mortgagee is a Q: Is taking of possession necessary for levy?
bank or a credit institution because if the mortgagee is
different, there is no right of redemption in judicial A: To levy upon the mortgagors equity of redemption, it is
foreclosure but only equity of redemption). not necessary for the sheriff to take physical possession of
the mortgaged property.
Kinds of redemption
RIGHT OF REDEMPTION
Q: What are the kinds of redemption?
Q: What is the period to exercise the right of redemption?
A:
A: The mortgagor may redeem the property at any time
1. Equity redemption right of mortgagor in case of within the term of 1 year from and after the date of the sale,
judicial foreclosure to redeem the mortgaged i.e., the date of registration of the certificate of sale with the
property after his default in the performance of the appropriate Registry of Deeds.
conditions of the mortgage but before the
confirmation of the sale of the mortgaged property. Q: Does the filing of an action by redemption to enforce his
2. Right of redemption the right of the mortgagor in right to redeem suspend the running period of the statutory
case of extra-judicial foreclosure to redeem the period to redeem the property?
mortgaged property within a certain period from
and after it was sold for the satisfaction of the A: No. It doesnt also bar the purchaser at public auction from
mortgaged debt. procuring a writ of possession after the period had lapsed,
without prejudice to the final outcome of the action to
A: The general rule is that the mortgagor cannot exercise his 2. A mere statutory privilege it must be exercised in the
right of redemption after the sale is confirmed. mode and within the period prescribed by the statute.
Q: What is the importance of confirmation of the sale of the The filing of an action to enforce redemption within the
mortgaged real property? period is equivalent to a formal offer to redeem and should
the court allow the redemption, the redemptioner should
A: It cuts off all the rights or interests of the mortgagor and of then pay the amount already determined.
the mortgagee and persons holding under him, and with
them the equity of redemption in the property and vests The right on redemption is liberally construed in favor of the
them in the purchaser. Confirmation retroacts to the date of original owner of the property.
the sale. It is a final order not merely interlocutory.
By executing a dacion en pago by the mortgagor in favor of
CONTROL OF COURT OVER PROCEEDINGS the mortgagee, the former waived the redemption period
BEFORE CONFIRMATION normally given a mortgagor.
Q: Who controls the proceedings over the proceedings 3. Involves title to foreclosed property
before the confirmation?
Redemption period NOT interrupted by the filing of an
A: The court retains control of the proceedings by exercising action for nullity of sale
sound discretion in regard to it either granting or withholding
confirmation as the rights and interests of the parties and Q: Is the redemption period interrupted by the filing of an
ends of justice may require. action for nullity of sale?
rd
NOTE: The subsequent sale by purchaser to a 3 person of A: No.
the mortgaged property does not prevent the court from
granting the mortgagor a period within which to redeem the Q: What will toll the running?
property by paying the judgment debt and the expenses of
sale and costs. A: What will toll the running of the period is the action to
compute the redemption price.
Q: Without the confirmation by the court, what is the effect
of acceptance of bid at the foreclosure sale? Q: Who may redeem?
Q: What is the redemption price in case of accomodation Q: What is the remedy in case the mortgagee cannot obtain
mortgagors? possession?
A: Accommodation mortgagors are not liable for the payment A: If a mortgagee cannot obtain possession of the mortgaged
of the loan of the debtor. The liability of the accommodation property for its sale on foreclosure, he must bring a civil
mortgagors extends only up to the loan value of their action either to:
mortgaged property and not to the entire loan itself. Hence, a. To recover such possession as a preliminary step to
it is only just that they be allowed to redeem their mortgaged the sale or
property by paying only the winning bid price thereof (plus b. To obtain judicial foreclosure.
interest thereon) at the public auction sale.
REPLEVIN
Effect of the pendency of action for annulment of sale
Q: What is replevin?
Q: Is the filing of an action to nullify the extrajudicial sale a
prejudicial question to the petition filed by the mortgagee A: It is the appropriate action to recover possession
for the issuance of the writ of possession? preliminary to the extra-judicial foreclosure of a chattel
mortgage.
A: No, a complaint for annulment of extrajudicial sale is a civil
action and a petition for the issuance of writ of possession is Q: Who can institute replevin suit?
but an incident to the land registration proceeding hence no
prejudicial question can arise from the two actions. A: It is not only the owner but also a person entitled to the
possession of the property can institute a replevin suit.
Q: What is the effect of the pendency of action for
annulment of sale? Q: When does a mortgagee become a transferee?
A: If the foreclosure is irregular, the mortgagor may file an A: He becomes a transferee only after acquiring the property
action to nullify the sale. Such action however, does not in the foreclosure sale and subsequently consolidates his title
suspend the running of the redemption period or the to it.
issuance of the writ of possession if such writ is prayed for
after expiration of the redemption period.
Q: Is the issuance of the writ of possession ministerial or Q: What are the stages in extra-judicial foreclosure?
discretionary?
A:
A: The issuance of the writ of possession after the expiration
of redemption period and consolidation of title is the 1. Execution of contract of loan and REM agreement
ministerial duty of the court. It can be granted ex parte and with the corresponding SPA;
not subject to a bond requirement. 2. Default of the mortgagor-debtor either by:
Q: Will the above rule violate the principle of indivisibility of A: By filing an affidavit with the Register of Deeds.
the mortgagee?
Q: What must the affidavit of consolidation of title indicate?
A: No. The principle of indivisibility of the mortgagee states
that all the mortgaged properties will answer for the A: It must indicate the relevant dates to show mortgagors
mortgage debt and the partial payment of the debt does not failure to redeem within the allowable time. This enables the
extinguish that part paid corresponding to the mortgaged mortgagee to acquire full ownership over the property. His
properties. inchoate right ripens to full ownership.
NOTE: There is no more indivisibility of mortgage after the 9. Cancellation of title of the mortgagor and issuance
foreclosure. The mortgagor can redeem on a piece-meal of a new title in favor of the mortgagee
basis.
Q: What is the basis of this?
Q: What is the prescriptive period of a mortgage action?
A: The basis of which is the order of court confirming the sale.
A: It prescribes in 10 years from the time the right of action
accrues. 10. Petition for writ of possession
Q: When does the right of action accrue? Q: Is there a need to file an ejectment suit?
A: It accrues from the time the mortgagor defaults in the A: No. That would be very costly and although a summay
payment of his obligation to the mortgagor defaults in the proceeding, ejectment cases take long period of time.
payment of his obligation to the mortgagee and not from the
time of the execution of the mortgage contract; Q: What is writ of possession?
4. Compliance with certain jurisdictional requirements: A: Here, the mortgagee employs force to oust the mortgagor
from the property.
a. Publication- in a newspaper of general
circulation once a week for 3 consecutive Q: Can this writ of possession be issued during the
weeks; and redemption period?
b. Posting- of the notice of sale for not less than 20
days in at least 3 public/conspicuous places in A: This writ may be even issued during the redemption
the province or municipality where the property period.
is located.
Q: Is a bond required?
NOTE: A certificate of posting is not indispensable for the
validity of an extra-judicial foreclosure sale of real property.
Q: What if petition for the writ is filed after the expiration of Q: What is the effect of clerical errors?
the redemption period?
A: Clerical errors in the name of the mortgagor and the
A: The issuance of which is ministerial on the part of the technical description in the notice of sale are not sufficient to
court. This writ can be issued without the issuance of a bond; annul a foreclosure.
in fact, it can even be issued ex parte.
Q: Can the notices required by law be waived?
Q: Is the writ suspended by the mere filing of the mortgagor
of an action to annul the foreclosure sale? A: No. Notices are given to secure bidders and prevent
sacrifice of property.
A: No.
Two-bidder rule not applicable
Publication requirement
NOTE: The case of PS Bank v. Certeza scrapped the 2-bidder
Q: Is there a need for personal notice? rule. Neither Act No. 3135 nor the previous circulars issued by
the Court governing extrajudicial foreclosures provide for a
A: No. The publication takes the place of the notice. similar requirement. The two-bidder rule is provided under
P.D. No. 1594 and its implementing rules with respect to
XPN: contracts for government infrastructure projects because of
the public interest involved. Although there is a public
1. When the mortgagee assumes the obligation to interest in the regularity of extrajudicial foreclosure of
notify the mortgagor mortgages, the private interest is predominant. The reason,
2. unless so stipulated. therefore, for the requirement that there must be at least
two bidders is not as exigent as in the case of contracts for
Q: What is meant by once a week for 3 consecutive government infrastructure projects. It is no longer required
weeks? to have at least two bidders in an extrajudicial foreclosure of
mortgage
A: A period of 7 days, inclusive of the first day of publication.
The publication must be made 7 days apart. Q: Does the two-bidder rule apply in case of foreclosure of a
real estate mortgage?
Q: What happens when the foreclosure sale is postponed?
A: No.
A: The notice of sale must be republished once a week for 3
consecutive weeks, otherwise, foreclosure is invalid. Foreclosure sale
Q: What is the effect of loss of the affidavit of publisher? Q: How is the foreclosure sale conducted?
A: The presumption of regularity in the performance of duty A: The highest bidder wins.
is not applicable. The affidavit must be produced, otherwise,
there is no such publication, hence, no valid public sale. a. if the mortgagee wins, there is no need to pay cash
to the mortgagor, and thus, the bid price would
Republication simply be applied to the amount of obligation
b. if the highest bidder is not the mortgagee, then the
Q: What is the rule in case of republication? purchaser needs to pay cash and remit his payment
to the mortgagee.
A:
Failure to implead subordinate lien holders
GR: Republication is absolute
Q: What is the effect of failure to implead subordinate lien
XPNs: holders to the mortgage as defendants in foreclosure
proceedings? Would that render the proceedings not valid?
1. The publication also states an alternative date and
the sale pushed through on that date
A: It does not apply to real estate mortgages constituted by RIGHT OF REDEMPTION REPURCHASE
juridical persons in favor of: Becomes functus officio The exercise of the right
on the date of expiry and of redemption after the
a. bank period is not really one
b. quasi-bank of redemption but
c. trust entity repurchase
By force of law; the No such obligation; the
Q: The period of redemption can only be exercised until but purchaser at public law will not compel the
not after the registration of the certificate of sale or 3 auction is bound to purchaser to resell
months from foreclosure, whichever is earlier, under what accept the redemption
conditions?
Redemption Price
A:
Q: What is the rule as to the redemption price in case the
1. mortgagor must be a juridical person that is either a mortgagee is a banking institution?
partnership or a corporation
2. morgtagee is: A: The redemption price is the amount fixed by the court in
a. bank the order of execution or the amount due under the
b. quasi-bank mortgaged deed.
c. trust entity
3. foreclosure is done extra-judicially Q: How about in case of accommodation mortgagors?
Q: Primetime Corp. obtained a P10 M, 5-year loan from the A: Accomodation mortgagors are not liable for the payment
Universal Bank. As security for the loan the following of the loan of the debtor. The liability of the accommodation
securities were agreed: extends only up to the loan value of their mortgaged property
a. a real estate mortgage over the land and building and not to the entire loan itself. Hence, its only just that they
owned by Primetime Corp be allowed to redeem their mortgaged property by paying
b. joint and several promissory note of Mr. Primo only the winning bid price thereof (plus interest thereon) at
Timbol, the President of Primetime Corp. the public auction.
c. a real estate mortgage over the residential house
and lot owned by Mr. Timbol. Q: What is the effect of filing an action to annul the
The Primetime Corp. was not able to pay the obligation. foreclosure sale during the one year redemption period?
Thus, the real estate was foreclosed.
A:
Q: Are the bidder obliged to bid based on the FMV?
1. Terceria to determine whether the sheriffs has
A: No. rightfully or wrongfully taken hold of the property
not belonging to the judgment debtor or obligor
XPN: Grossly inadequate/shocking to the conscience 2. An independent separate action to vindicate their
claim of ownership and/or possession over the
Q: What if the right of redemption is exercised beyond the 1 foreclosed property.
year period, what will be the interest rate?
Q: What is the effect of filing a collection case?
A: The interest rate is the stipulated interest rate for the one
year period but beyond such 1 year period, an interest rate of A: It is tantamount to abandonment of the remedy to
12% per annum shall be imposed. foreclose the REM. The principle applies even though the
rd
mortgage was constituted on the property of a 3 party
Owner of the mortgaged property mortgagor and collection suit was filed before foreign courts.
A: During the redemption period, the mortgagor is still the Q: What are the stages in judicial foreclose?
owner. Hence, he may still execute attributes of ownership
during the period such as executing a second mortgage on A:
the same subject property.
1. File a complaint against the mortgagor together
Q: The mortgagee introduced improvements on the with the subsequent lien holders, otherwise equity
property sought to be redeemed. Will the cost of the of redemption will not be divested
improvements be imputed to the redemption price?
Facultad de Derecho Civil 83
UNIVERSITY OF SANTO TOMAS
NOTES ON SPECIAL COMMERCIAL LAWS
Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________
2. Hearing days from entry of judgment and even beyond, until finality
3. Judgment of order confirming the sale.
4. Entry judgment- this is the reckoning point whereby
the period of equity of redemption is computed EQUITY OF RIGHT OF REDEMPTION
5. 90-120 days from the entry of judgment for the REDEMPTION
mortgagor to pay his debt, as determined by the GR: Only in Judicial GR: There is no right of
court foreclosure redemption in juridical
6. Upon failure to pay, the mortgagee must file a foreclosure, only equity
Motion for Execution foreclosing the mortgage XPN: In case of extra- in redemption
7. Execution sale judicial foreclosure
8. Mortgagee to file Motion for Confirmation of Sale involving a bank as XPN: If the mortgagee or
mortgagee and a bidder is:
Q: What is the purpose of the Motion for Confirmation of juridical person as a. Bank
Sale? mortgagor c. Credit
institution, the
A: Its purpose is to declare the sale valid in accordance with mortgagor has
the law. 1 year from the
registration of
9. Issuance of the order confirming the sale order
confirming the
Q: Is this order confirming the sale appealable? sale and the
certificate of
A: Yes because it is not an interlocutory order. Thus, the sale to redeem
mortgagee must wait until the finality of the order the property
Mortgage by spouses
DRAGNET CLAUSE
Currency
REFERENCES
NOTES