REAL ESTATE MORTGAGE LAW

 Types of forced sales arising from a failure to pay mortgage debt:

1. EJ sale under Act 3135
2. Judicial foreclosure sale under Rule 68 of ROC
3. Ordinary execution sale under Rule 39 of ROC

 EJ foreclosure sale are proper only when so provided in the REM contract.

 Where is the sale conducted?

a. Within the province where the property is located.
b. In case the place within said province where the sale is to be made is the subject of
stipulation, such sale shall be made in said place or in the municipal building of the
municipality in which the property or part thereof is situated.
 But with respect to the venue on extrajudicial foreclosure sales, ACT 3135 or the
REM law applies, it being a special law dealing particularly with EJ foreclosure sales
of REM, and not the general provisions of the ROC on Venue of actions. Thus, the
stipulation on venue does not cover the foreclosure sale.

NOTICE OF FORECLOSURE SALE.

 Since this is a public sale, there is a necessity for notice of sale, in order to inform the
public of the property, and terms of the sale, to secure bidders and prevent sacrifice of
the property.
 There is no need for personal notice to the mortgagor, but the parties to the mortgage
contract MAY stipulate as to its necessity. Failure of compliance with this notice
requirement will render the sale void. However, when the sale of the property was
made in favor of a buyer in good faith / innocent purchaser in goo faith, there can no
longer be reconveyance of the property.
 The certificate of posting is not an indispensable requirement for the validity of a
foreclosure sale. It is because other proof of POSTING may be adduced to show posting,
which is the indispensable requirement
 Publication of the notice of sale (instead of posting it) is sufficient compliance with the
statutory requirement on notice-posting. It is because the purpose is merely to inform
the public.
  Creditor may participate in the bidding, unless otherwise prohibited under the mortgage
contract.

REDEMPTION PERIOD
 1 year from and after the date of the “sale”
 The ‘sale’ here pertains to the date of registration of the certificate of
sale before RD, and not the date of the auction sale. Why? Because it is
through the registration that the sale of a registered land will take
effect.
 This period is non-extendible. It likewise cannot be tolled or interrupted
for any other reason like filing of cases to annul the foreclosure sale or
to enforce the right of redemption.

-The fact that the selling price is too low in an EJ FORECLOSURE SALE will not be
a ground to nullify the sale. In fact, this is more beneficial for the mortgagor since
it will be easier for him to redeem the property by just paying a lower price. When
there is a right to redeem, inadequacy of price should not be material because the
judgement debtor may re-acquire the property or else sell his right to redeem and
thus recover any loss he claims to have suffered by reason of the price obtained
through execution sale

WRIT OF POSSESSION (WoP)

 Is an order whereby the sheriff is commanded to place a person in possession of a real
or personal property.
 Normally, the purchaser in a foreclosure sale is the one applying for WoP,
If during the redemption period, application is with bond
If after the redemption period, application is without bond. It is because the
mortgagor loses ALL interest over that property after lapse of his period to
redeem.
 A third party who purchased (the purchaser) the property after the redemption period
cannot obtain an ex parte WOP. There must be a hearing to determine whether
possession over the subject property is still with the mortgagor or is already with a third
party holding the same adversely to the defaulting debtor or mortgagor. If the property:
a. Is in the possession of mortgagor, WoP could not be issued
b. Is in the possession of 3rd party, WoP cannot be issued. The purchaser can
wrest possession over the property through an ordinary action of ejectment.

 WOP can still be issued when there is a pending issue on the legality of the mortgage .
The judge to whom an application for WoP is filed need not look into the validity of the
mortgage or the manner of its foreclosure. After the consolidation of title in the buyer’s
name (this presupposes the lapse of the redemption period) the WoP becomes a matter
of right. The civil case for annulment of a certificate of sale is not a prejudicial question
to a petition for issuance of WoP.

 Notwithstanding the non-stay of the issuance of a WoP, the debtor can still contest the
transfer of possession. Under Section 8 of Act 3135, the debtor may, in the proceedings
in which the possession was requestion, but not later than 30days after purchaser was
given possession, petition that the sale be set aside and the WoP be cancelled,
specifying the damages suffered by him and based on any of the following EXCLUSIVE
grounds:

1. The mortgage was not violated

2. The sale was not made in accordance with provisions of Act No. 3135
 PERSONAL PROPERTY SECURITIES ACT
 Memorize here since there is no jurisprudence here. This is mere theoretical.
 This act shall apply to all transactions of any form that secure an obligation with
movable collateral, except interests in aircrafts subject to RA 9497 and interests in ships
subject to PD 1521.

 WHAT IS SECURITY INTEREST?

- It is a property right in collateral that secures payment or other performance

of an obligation, regardless of whether the parties have denominated it as a
security interest, and regardless of the type of asset, the status of the grantor
or secured creditor, or the nature of the secured obligation; including the
right of a buyer of accounts receivable and a lessor under an operating lease
for not less than 1 year.

- HOW IS A SECURITY INTEREST CREATED? It is created by a security

agreement. A security agreement may provide for the creation of a security
interest in a future property (generally, mortgage of future property is NOT
allowed in Real Estate Mortgage), but the security interest in that property
is created only when the grantor acquires rights in it or the power to
encumber it.

- WHEN IS A SECURITY INTEREST PERFECTED? A Security interest shall be

perfected when it has been created and the secured creditor has taken one
of the actions in accordance with Section 12. On perfection, a security
interest becomes effective against third parties.

o Section 12. A security interest may be perfected by: (RPC)

a. Registration of a notice with the Registry
b. Possession of the collateral by the secured creditor
c. Control of investment property and deposit account.
 Done by:
 The creation of security interest in favor of the deposit-
taking institution or the intermediary;
 The conclusion of a control agreement; or
 For an investment property that is an electronic
security not held with an intermediary, the notation of
the security interest in the books maintained by or on
 behalf of the issuer for the purpose of recording the
name of the holder of the securities.

- As to commingled funds and money. To what extent does security interest

attach?

- HOW LONG IS SECURITY INTEREST EFFECTIVE?

It shall continue in collateral notwithstanding sale, lease, license,

exchange, or other disposition of the collateral, except:
a. As provided in Sec 21 hereof, which states that any party who
obtains, in the ordinary course of business, any movable
property containing a security interest shall take the same free
of such security interest provided he was in GOOD FAITH. No
such GF shall exist if the security interest in the movable
property was registered prior to his obtaining the property
(constructive notice)
b. As agreed upon by the parties.
- CAN A GRANTOR’S RIGHT TO CREATE A SECURITY INTEREST IN AN
ACCOUNT RECEIVABLE BE LIMITED?
-

- RULES ON PRIORITY OF SECURITY INTEREST

1. Priority in time, priority in right rule

- GRANTOR’S RIGHT OF REDEMPTION

- WHAT ARE THE RULES IN ENFORCING SECURITY INTERESTS?

- WHAT IS PRIOR INTEREST?

It means a security interest created or provided for by an agreement or
other transaction that was made or entered into before the effectivity of
this act, and that had not been terminated before the effectivity of this
act, but excludes a security interest that is renewed or extended by a
security agreement or other transaction made or entered into on or after
the effectivity of this Act. (we are still in transition period)
 GUARANTY
- GUARANTOR’S OBLIGATION IS MERELY CONDITIONAL, SECONDARY, SUBSIDIARY.
This is why the guarantor has the remedy of excussion, where guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the debtor.

o Instances when the benefit of excussion is not available (meaning,

derecho na habulin si guarantor):
1. Guarantor’s express renunciation
2. G bound himself solidarily (this is suretyship)
3. In case of insolvency of debtor (debtor has no other property which can
be exhausted)
4. When the debtor absconded, or cannot be sued within PH unless he
has left a manager or representative
5. If it may be presumed that an execution on property of the principal
debtor would not result in the satisfaction of the obligation (example
the property is valued at a considerably lower price than the loan
obligation)

o How to invoke this right of excussion?

1. G must set it up against the creditor upon the latter’s demand for
payment from him, and
2. Point out to the creditor available property of the debtor within PH
territory, sufficient to cover the amount of the debt.

- WHAT ARE THE GUARANTOR’S RIGHTS UPON PAYMENT FOR A DEBTOR?

1. Indemnification
a. total amount of debt
b. legal interests from time payment was made known to the debtor, even
though it did not earn interest for the creditor
c. expenses incurred by guarantor after having notified the debtor that
payment had been demanded of him.
d. Damages, if they are due.

2. Subrogation
 If the guarantor has compromised with the creditor, he cannot
demand of the debtor more than what he has really paid. (Di
pwedeng pagkakitaan ni guarantor si debtor)
 The guarantor may set up against the creditor all the defenses
which pertain to the principal debtor and are inherent in the debt
(objective as to contract); but not those that are purely personal to
the debtor.
- WHEN CAN THE GUARANTOR PROCEED AGAINST THE DEBTOR EVEN BEFORE
PAYMENT FOR HIM?
a. When he is sued for payment
b. In case of insolvency of the principal debtor
c. When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired
d. When the debt has become demandable, by reason of the expiration of the
period for payment
e. After the lapse of 10 years, when the principal obligation has no fixed period for
its maturity, unless it be of such nature that it cannot be extinguished except
within a period longer than 10 years
f. If there are reasonable grounds to fear that the principal debtor intends to
abscond
g. If the principal debtor is in imminent danger of being insolvent

In the above circumstances, the action of the G may be:

a. Obtain release from the guaranty
b. Demand security that shall protect him from any proceedings by the
creditor and from danger of insolvency of the debtor.

- EXTINCTION OF GUARANTY
-

-
o The extension of time given by the creditor to the principal debtor,
WITHOUT THE GUARANTOR’s CONSENT extinguishes the guaranty. It is
because the guarantor is said to be entitled to protect himself against the
contingency of the principal debtor or the indemnitors becoming insolvent
during the extended period. (Racio: this is a case of undue, unconsented
prolonging of exposure of guarantor to risk, thus if without G’s consent, the
extension releases him from liability)
 SURETY
- “A Surety will pay if the debtor does not pay”
- Debtor’s prior failure to pay is not necessary in order for the surety to be liable
- But as to the provision of extension of time in guarantee, the same applies to the
surety.
- A surety’s obligation is extinguished where there is material alteration of the
contract in connection with which the bond is given, such as a change which
imposes a new obligation on the promising party, or which takes away some
obligation already imposed, or one which changes the legal effect of the original
contract and not merely its form. However, the surety is not released by a change in
the contract which does not have the effect of making its obligation more onerous
- NOT ALL NOVATION OF CONTRACT RESULTS TO EXTINCTION OF SURETY. Only
novation which has the effect of making the obligation of the surety onerous would
have the effect of release.

- Surety v joint and solidary obligation

IN surety kasi, the surety is a third person from the principal contract. On the other
hand, in joint and solidary obligation, the jointly and solidarily liable person is part of
the contract and is not considered as stranger to it. Thus, when it comes to
reimbursement, the surety is entitled to full reimbursement of the amount she paid
in view of the suretyship. On the other hand, the person who is jointy and solidarily
liable is not entitled to full reimbursement since his share has to be deducted from
the reimbursement that he is entitled .
 LETTERS OF CREDIT

- Usual question in bar is definition. LoC is a financial device developed by merchants

as a covenant and relatively safe mode of dealing with sales of goods to satisfy the
seemingly irreconcilable interest of a seller, who refuses to par with his goods
before he is paid, and a buyer, who wants to have control of the goods before
paying.
- Commercial (LoC) is for sale settings or under contract of sale; while standby LoC is
for non-sale settings, which are present in contracts involving performance of a
thing.
- LoC are governed primarily by their own provisions, by laws specifically applicable to
them, and by usage and custom – Unifrom Customs and Practice for Documentary
Credits. (UCP)

- INDEPENDENCE PRINCIPLE. Assures the seller or main beneficiary of prompt

payment independent of any breach of the main contracts and precludes the issuing
bank from deermining whether main contract is actually accomplished or not. The
bank has no regard for the main contract whatsoever. This princile liberates the
issuing bank from the duty of ascertaining compliance by the parties in the main
contract.

o Exception to indepence principle: FRAUD

The untruthfulness of a certficate accompanying a demand for payment
under the standby credit may qualify as fraud sufficient to support an
injunction against payment. The remedy for fraudulent abuse is an
injuction. However, injunction should not be granted unless:
(a) there is clear proof of fraud;
(b) The fraud constitutes fraudulent abuse of the independent
purpose of LoC and not only fraud under the main
agreement, and
(c) Irreparable injury might follow if injunction is not granted or
the recovery of damages would be seriously damaged.

- DOCTRINE OF STRICT COMPLIANCE. The documents tendered must strictly conform

to the terms of the LoC. A correspondent bank which departs from what has been
stipulated under the LoC, as when it accepts a faulty tender, acts on its own risks
and it may not be able to recover from the buyer or the issuing bank the money
thus paid to the beneficiary.

- A correspondent bank may either be: Confirming, Notifying, Negotiating (CNN)

a. Notifying bank – no liability nor obligation at all but merely no notify that there
is available LoC which is issued.