CATEGORY

CATEGORYGUARANTYSURETYSHIPPLEDGEMORTGAGEANTICHRESIS

CHATTEL

MORTGAGEREAL ESTATE MORTGAGE

LAW CIVIL CODE

Articles 2047-2084The second paragraph of Article 2047 states the law applicable to the contract of suretyship. It covers Articles 1207 to 1222, Title I (Obligations), Chapter 3 (Different Kinds of Obligations), Section 4 (Joint and Solidary Obligations), Book IV (Obligations and Contracts) of the CIVIL CODE CIVIL CODE

Articles 2085-2123CIVIL CODE

Articles 2085-2092

2140-2141 THE CHATTEL MORTGAGE LAW

(Act No. 1508, as amended)

CIVIL CODE Articles

2083-2092

2124-2131

SUPREME COURT A.M. NO. 99-10-05-0 AS AMENDED BY RESOLUTION OF JUNE 30, 2001 AND AUGUST 7, 2002

JUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE (Rule 68, ROC)CIVIL CODE

Articles

2085-2092

2132-2139

DEFINITIONBy guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. Art. 2047 (1)If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,

Title 1 of this Book shall be observed. In such case the contract is called a suretyship. (Art. 2047 (2))It is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable

or a document involving incorporeal rights for the purpose of securing the fulfillment of a

principal obligation with the understanding that when the obligation is fulfilled, the thing delivered

shall be returned with all its fruits and accessions.By a chattel mortgage, personal property is recorded in the Chattel

Mortgage Register as a security for the performance of an obligation. If the

movable, instead of being recorded, is delivered to the creditor or a third person,

the contract is a pledge and not a chattel mortgage. (Art. 2140)A real estate mortgage is a contract whereby the debtor secures to the creditor

the fulfillment of a principal obligation, specially subjecting to such security immovable property

or real rights over immovable property in case the principal obligation is not complied with at the

time stipulated.By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to app apply them to the payment of the interest, if

owing, and thereafter to the principal of his credit. (Art. 2132.)

PURPOSESpecial promise to answer for the debt, default or miscarriage of anotherSurety promises to answer for the debt, default or

miscarriage of the principal. To secure fulfillment of a principal obligation.To secure fulfillment of principal obligationTo secure fulfillment of principal obligationIt secures the performance of a principal obligation

PARTIESGuarantor, Creditor & DebtorObligor, surety and obligeePledgor & PledgeeMortgagor & MortgageeCreditor & Debtor

SUBJECT MATTERpersonal: the guaranty is the credit given by the person who guarantees the

fulfillment of the principal obligation (guarantor)

real: the guaranty is

property. If the guaranty is immovable property: real mortgage

or antichresis; If the guaranty is movable property: pledge or chatter mortgagepersonal: the guaranty is the credit given by the person who guarantees the

fulfillment of the principal obligation (guarantor)

real: the guaranty is

property. If the guaranty is immovable property: real mortgage

or antichresis; If the guaranty is movable property: pledge or chatter mortgageAll movables, which are within commerce, may be pledged, provided they are susceptible of possession. (Art. 2094)

Incorporeal rights (Art. 2095.)personal or movable property.1. Immovables

2. Alienable rights imposed upon immovablesImmovables or Real Property

KINDS/ CLASSIFICATION1. Conventional- one constituted by agreement of the parties (art. 2051, par. 1)

2. Legal- one imposed by virtue of a provision of law; (Ibid)

3. Judicial- one required by a court to guarantee the eventual right of one of the parties in a case.1. Voluntary or conventional (created by agreement of the parties);

2. Legal (by operation of law).1. Voluntary Agreed to between the parties or constituted by the will of the owner of the

property

2. Legal Required by law to be executed in favor of certain persons

3. Equitable Lacks the proper formalities of mortgage but shows the intention of the

parties to make the property as a security for a debt

NATURE AND CHARACTERISTICS1. Accessory: It is dependent for its existence upon the principal obligation guaranteed by it.

2. Subsidiary and Conditional: It takes effect only when the principal debtor fails in his

obligation.

3. Unilateral:

a. It gives rise to obligations on the part of the guarantor in relation to the creditor and

not vice-versa. (Although after its fulfillment, the principal debtor should indemnify

the guarantor, but this obligation is only incidental)

b. It may be entered into even without the intervention of the principal debtor.

4. Distinct Person: It requires that the person of the guarantor must be distinct from the

person of the principal debtor (you cannot guaranty your own debt). However, in a real

guaranty, a person may guarantee his own obligation with his own properties.

GENERAL RULE: Guaranty is gratuitous.

EXCEPTION: Guaranty is onerous only if it is stipulated guarantee is given.

1. Contractual and Accessory BUT Direct: The contractual obligation of the surety is merely

an accessory or collateral to the obligation contracted by the principal. BUT, his liability to the

creditor is direct, primary, and absolute.

2. Liability is limited by the terms of the contract: The extent of a suretys liability is

determined only by the terms of the contract and cannot be extended by implication.

3. Liability arises only if principal debtor is held liable: If the principal debtor and the

surety are held liable, their liability to pay the creditor would be solidary. But, the surety does

not incur liability unless and until the principal debtor is held liable.

4. Surety is not entitled to exhaustion: A surety is not entitled to the exhaustion of the

properties of the principal debtor since the surety assumes a solidary liability for the

fulfillment of the principal obligation.

5. The undertaking is to the CREDITOR, not to the principal debtor: The debtor cannot

claim that the surety breached its obligation to pay for the principal obligation because there

is no obligation as between the surety and the debtor. If the surety does not pay, the

principal debtor is still not relieved of his obligation.Real, because it is perfected by delivery of the thing pledged.

2. Acessory, because it has no independent existence.

3. Unilateral, because it creates an obligation solely on the part of the creditor to return the

thing pledged upon fulfillment of the principal obligation.

4. Subsidiary, because the obligation of the creditor does not arise until fulfillment of the

principal obligation.1. It is an accessory contract because it secures performance of a principal

obligation

2. It is a formal contract because it requires registration in the Chattel Mortgage

Register for its validity (but only against third persons)

3. It is a unilateral contract because it produces only obligations on the part of

the creditor to free the thing from the encumbrance on fulfillment of the

obligation.Mortgage is a real, accessory, and subsidiary contract1. Accessory It secures the performance of a principal obligation. Manresa, however,

believes that it is an independent contract.

2. Formal Contract It must be in specified form to be valid (in writing).

3. A third person, who is not a party to the principal contract, may offer his immovable

under the contract of antichresis to secure the debt of another. (2085)

4. The contract of antichresis is indivisible. (2089)

5. The indivisibility of the antichresis is not affected by the fact that the debtors are not

solidarily liable. (2090)

6. The contract of antichresis may secure all kinds of obligations pure or conditional.

(2091)

PERFECTIONCONSENSUALCONSENSUALReal There must be delivery of the thing.CONSENSUALREAL CONTRACT BUT NO DELIVERYDelivery is not required for the validity of the contract itself. BUT, it is required in order that the

creditor may receive the fruits.

CONSENSUAL

FORMALITYMust be in writing to be enforceable. It is govern by the Statute of Frauds.Must be in writingMust be in writing

No registration neededMust be in writing, a specific form is required.

Formal

Registered in chattel mortgage registerMust be in writing, a specific form is required.

Formal

Written or oral But the oral mortgage is not binding against third persons.

Registered public documentMust be in writing, otherwise it is void.

The amount of the principal and of the interest shall be specified in writing;

otherwise, the contract of antichresis shall be void (Art. 2134).

LIABILITYServes as an accessory contract

*with regard to suretyship it is contractual and accessory but direct. In other words he is directly, primarily and equally bound with the principal as original promisor although he possesses no direct or personal interest over the latters obligations nor does he receive any benefit therfrom. (Garcia, Jr. Vs. CA)

DELIVERYDelivery is not necessaryDelivery of the thing is not necessaryDelivery of the thing pledge is necessary.In Chattel Mortgage, delivery of the personal property to the mortgage is not necessary.

In Real Mortgage, delivery is not necessary.Delivery may or may not be necessary.

OWNERSHIPThe guarantor need not be the owner.Pledgor must be the owner of the thing pledge, otherwise the pledge is void.Mortgagor must be the owner of the thing mortgaged, otherwise the mortgage is void.Creditor must be the owner

VALIDITYThe contract of guaranty is valid only between the contracting parties.Not valid against third persons unless a description of the thing pledged and the date of the pledge appear in a public instrument. In Chattel Mortgage, not valid against third person unless registered in the Chattel Mortgage Register.

In Real Mortgage, not valid against third persons if not registered.The contract is valid only between the parties.

PROHIBITIONAgainst unjust enrichmentAgainst Pactum CommissoriumAgainst Pactum CommissoriumAgainst Pactum Commissorium

Against Usurious Rates

RIGHTS AND OBLIGATIONS OF THE PARTIESGuarantor:

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.

Creditor:

Exhaust all the property of the debtor unless the guarantor is not entitled to such benefit under art. 2059.

Resort to all the legal remedies against the debtor.

Prove that the debtor is still unable to pay.

Debtor:

Payment of his principal obligation.Obligor- undertakes an obligation; he is the principal obligor

Surety- a person who engages himself to be answerable to a third person for debt, default, miscarriage of another.

Obligee- to whom the obligation is made.Pledgors Rights:

To demand the return in case of reasonable grounds to fear destruction or impairment of the thing without the pledgees fault, subject to the duty of replacement.

To bid and be preferred at the public auction.

To alienate the thing pledged provided the pledgee consent to the sale.

To ask that the thing pledged be deposited in one of the following cases:

F the creditor uses the thing without authority.

He misuses the thing.

The thing is endangered of being lost or impaired because of negligence or willful act of the pledgee.

Pledgors Obligations:

To advise the pledgee of the flaws of the thing.Not to demand the return of the thing until after full payment of the debt, including interest due thereon and expenses incurred for this preservation. Pledgees Rights:

Option to demand replacement or immediate payment of the debt in case of deception as to substance or quality.

To sell at public auction in case of reasonable grounds to fear destruction or impairment of the thing without his fault.

To bring actions pertaining to the owner or to defend it against third persons.

To choose which of several things pledged shall be sold.

To collect and receive amount due on credit pledged.

To bid at public auction, unless he is the only bidder.

To appropriate the thingIn Chattel Mortgage:

In Real Mortgage,

Mortgagors Right:

To alienate the thing mortgaged property but the mortgage shall remain attached to the property.

A stipulation forbidding the owner from alienating the immovable mortgage shall be void being contrary to public policy inasmuch as the transmission of property should not be unduly impede.

Mortgagees Right:

To claim from third a person in possession of the mortgaged property the payment of the part of the credit secured by which said third person possesses.

It is necessary that prior demand for payment must have been made on the debtor and the latter failed to pat.

Creditor:

To pay the taxes and charges upon the estate unless there is a contrary stipulation.

To pay expenses for necessary repairs.

Debtor:

To pay what he owes the creditor in order to reacquire the enjoyment of the immovable.

REMEDIESIn case of paying guarantor:

Right of indemnity or reimbursement

Right of subrogation

Other remedies:

Obtain release from the guaranty.

Demand a security that shall protect him from any proceedings by the creditor and against the danger of insolvency of the debtor.Sale of the thing pledged at a public auction. In case of legal pledge, it can be made from the date of demand otherwise; the debtor may require the return of the thing.Foreclosure of Chattel Mortgage by public auction under Act 1508 but the parties may stipulate that it may be by private sale.Action for specific performance

Petition for the sale of the mortgages under Rule 68 of the Rules of

Court.

Judicial

Foreclosure

SPECIAL REQUISITES A guaranty cannot exist without a valid obligation.

2) May also be given as security for future debts.1. Possession of the thing pledged must be transferred to the creditor or a third person by agreement

Subject matter:

movable and incorporeal rights evidenced by documents of the title and the instruments proving the right pledged shall be delivered to the creditor and if negotiable must be endorsed.

The description of the thing pledged and the date of must appear in a public instrument to bind third persons but not for the validity of the contract.In Chattel Mortgage,

It can cover only personal or movable property in general; however, the parties may treat as personal property that which by its nature would be real property.

Registration of the mortgage with the Chattel Mortgage Register where the mortgagor resides; if property is located in a different province, registration in both provinces is required.

Description of the property as would enable the parties or other persons to identify the same after reasonable investigation and inquiry.

Accompanied by an affidavit of good faith to bind thirds persons but not for the validity of the contract.

It can cover only obligations existing at the time the mortgage s constituted.

In Real Mortgage,

It can cover only immovable property and alienable real rights imposed upon immovable.

It must appear in a public instrument.

Registration in the registry of property is necessary to bind third persons but not for the validity of the contract.It can cover only the fruits of an immovable property

Delivery of the immovable is necessary for the creditor to receive the fruits and not that the contract shall be biding.

Amount of the principal and interest must be specified in writing.

Express agreement that debtor will give possession of the property to creditor and that the latter will apply the fruits to the interest if any ten to the principal of his credit.

EXTINGUISHMENT OF A CONTRACTRelease in favor of one of the guarantors, without the consent of the other, benefits all to the extent of the share of all the guarantor to whom it has been granted.

If the creditor voluntarily accepts immovable or other properties in payment of the debt, even if he should afterwards lose the same trough eviction or conveyance of property.

Whenever by some act of the creditor, the guarantors even though they are solidarily liable cannot be subrogated to the rights, mortgages and preferences of the former.

For the same causes as all other obligations under art. 1231.

When the principal obligation is extinguished.

Extension granted to the debtor by the creditor without the consent of the guarantor.

For the same causes as all other obligations.

Return of the thing pledged by the pledgee to the pledgor.

Statement in writing by the pledge that he renounces or abandons the pledge.

Payment of the debt.

Sale of the thing pledged at public auction.

Appropriation under Art. 2112.Foreclosure of the thing mortgaged.

Judicial ordinary action for foreclosure under Rule 68 of the Rules of Court

Extra-judicial when mortgagee is given a special power of attorney to sell the mortgaged property by public auction under Act No. 3135The debtor shall have the right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is especially answerable is satisfied.