CATEGORY GUARANTY SURETYSHIP PLEDGE MORTGAGE ANTICHRESISCHATTEL

MORTGAGEREAL

ESTATE MORTGAGE

LAW CIVIL CODEArticles 2047-2084

The 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-

2123

CIVIL CODEArticles 2085-2092

2140-2141 THE CHATTEL

MORTGAGE LAW(Act No. 1508, as

amended)

CIVIL CODE Articles

2083-20922124-2131SUPREME

COURT A.M. NO. 99-10-05-

0 AS AMENDED

BY RESOLUTION OF JUNE 30,

2001 AND AUGUST 7,

2002JUDICIAL

FORECLOSURE OF REAL

ESTATE MORTGAGE

(Rule 68, ROC)

CIVIL CODE Articles

2085-20922132-2139

DEFINITION By 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

It is a contract by virtue of which the debtor delivers to the creditor or to a third person a movableor a document involving incorporeal rights for the purpose of securing the fulfillment of a

By a chattel mortgage, personal property is recorded in the ChattelMortgage Register as a security for the performance of an obligation. If themovable, instead of being recorded, is delivered to the creditor or a third person,

A real estate mortgage is a contract whereby the debtor secures to the creditorthe fulfillment of a principal obligation, specially subjecting to such security immovable

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, ifowing, and thereafter to the

a suretyship. (Art. 2047 (2))

principal obligation with the understanding that when the obligation is fulfilled, the thing deliveredshall be returned with all its fruits and accessions.

the contract is a pledge and not a chattel mortgage. (Art. 2140)

propertyor real rights over immovable property in case the principal obligation is not complied with at thetime stipulated.

principal of his credit. (Art. 2132.)

PURPOSE Special promise to answer for the debt, default or miscarriage of another

Surety promises to answer for the debt, default ormiscarriage of the principal.

To secure fulfillment of a principal obligation.

To secure fulfillment of principal obligation

To secure fulfillment of principal obligation

It secures the performance of a principal obligation

PARTIES Guarantor, Creditor & Debtor

Obligor, surety and obligee

Pledgor & Pledgee

Mortgagor & Mortgagee Creditor & Debtor

SUBJECT MATTER personal: the guaranty is the credit given by the person who guarantees thefulfillment of the principal obligation (guarantor)

real: the guaranty is property. If the guaranty is immovable property: real mortgageor antichresis; If the guaranty is movable property: pledge or chatter mortgage

personal: the guaranty is the credit given by the person who guarantees thefulfillment of the principal obligation (guarantor)

real: the guaranty is property. If the guaranty is immovable property: real mortgageor antichresis; If the guaranty is movable

All  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. Immovables2. Alienable rights imposed upon immovables

Immovables or Real Property

property: pledge or chatter mortgage

KINDS/ CLASSIFICATION

1. 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 theproperty2. Legal – Required by law to be executed in favor of certain persons3. Equitable – Lacks the proper formalities of mortgage but shows the intention of theparties to make the property as a security for a debt

NATURE AND CHARACTERISTICS

1. 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 hisobligation.3. Unilateral:a. It gives rise to

1. Contractual and Accessory BUT Direct: The contractual obligation of the surety is merelyan accessory or collateral to the obligation contracted by the principal. BUT, his liability to thecreditor is direct,

Real, because it is perfected by delivery of the thing pledged.2. Acessory, because it has no independent existence.3. Unilateral, because it creates

1. It is an accessory contract because it secures performance of a principalobligation2. It is a formal contract because it requires registration in the Chattel Mortgage

Mortgage is a real, accessory, and subsidiary contract

1. Accessory – It secures the performance of a principal obligation. Manresa, however,believes that it is an independent contract.

obligations on the part of the guarantor in relation to the creditor andnot vice-versa. (Although after its fulfillment, the principal debtor should indemnifythe 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 theperson of the principal debtor (you cannot guaranty your own debt). However, in a realguaranty, 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.

primary, and absolute.2. Liability is limited by the terms of the contract: The extent of a surety’s liability isdetermined 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 thesurety are held liable, their liability to pay the creditor would be solidary. But, the surety doesnot 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 theproperties of the principal debtor since the surety assumes a solidary liability for thefulfillment of the principal obligation.5. The undertaking is to the CREDITOR, not to the principal debtor: The debtor cannotclaim that the surety breached its obligation to pay for

an obligation solely on the part of the creditor to return thething pledged upon fulfillment of the principal obligation.4. Subsidiary, because the obligation of the creditor does not arise until fulfillment of theprincipal obligation.

Register for its validity (but only against third persons)3. It is a unilateral contract because it produces only obligations on the part ofthe creditor to free the thing from the encumbrance on fulfillment of theobligation.

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 immovableunder 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 notsolidarily liable. (2090)6. The contract of antichresis may secure all kinds of obligations – pure or conditional.(2091)

the principal obligation because thereis no obligation as between the surety and the debtor. If the surety does not pay, theprincipal debtor is still not relieved of his obligation.

PERFECTION CONSENSUAL CONSENSUAL Real – There must be delivery of the thing.

CONSENSUAL REAL CONTRACT BUT NO DELIVERY

Delivery is not required for the validity of the contract itself. BUT, it is required in order that thecreditor may receive the fruits. CONSENSUAL

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

Must be in writing

Must be in writing

No registration needed

Must be in writing, a specific form is required.

FormalRegistered in chattel mortgage register

Must be in writing, a specific form is required.

Formal Written or oral But the oral mortgage is not binding against third persons.Registered public document

Must 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).

LIABILITY Serves 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 latter’s obligations nor does he receive any benefit therfrom. (Garcia, Jr. Vs. CA)

DELIVERY Delivery is not necessary

Delivery of the thing is

Delivery of the thing pledge is necessary.

In Chattel Mortgage, delivery of the personal

In Real Mortgage,

Delivery may or may not be

not necessary property to the mortgage is not necessary.

delivery is not necessary.

necessary.

OWNERSHIP The 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

VALIDITY The 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.

PROHIBITION Against unjust enrichment

Against Pactum Commissorium

Against Pactum Commissorium Against Pactum CommissoriumAgainst Usurious Rates

RIGHTS AND OBLIGATIONS OF

THE PARTIES

Guarantor:1) 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:

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.

Pledgor’s Rights:1) To demand the

return in case of reasonable grounds to fear destruction or impairment of the thing without the pledgee’s fault, subject to the duty of replacement.

2) To bid and be preferred at the public auction.

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

4) To ask that the

In Chattel Mortgage:

In Real Mortgage, Mortgagor’s Right:

1) 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.Mortgagee’s Right:

1) To claim from third a person in possession of the mortgaged property the payment of the part of the credit secured by which

Creditor:1) To pay the

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

2) To pay expenses for necessary repairs.

Debtor:To pay what he owes the creditor

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

2) Resort to all the legal remedies against the debtor.

3) Prove that the debtor is still unable to pay.

Debtor:Payment of his principal obligation.

Obligee- to whom the obligation is made.

thing pledged be deposited in one of the following cases:

a) F the creditor uses the thing without authority.

b) He misuses the thing.

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

Pledgor’s Obligations:1) To advise the

pledgee of the flaws of the thing.

2) 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.

Pledgee’s Rights:1) Option to

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

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.

in order to reacquire the enjoyment of the immovable.

quality.2) To sell at public

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

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

4) To choose which of several things pledged shall be sold.

5) To collect and receive amount due on credit pledged.

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

To appropriate the thing

REMEDIES In case of paying guarantor:

1) Right of indemnity or reimbursement

2) Right of subrogation

Other remedies:1) Obtain release

from the guaranty.

Demand a security that shall protect him

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.

1) Action for specific performance

2) Petition for the sale of the mortgages under Rule 68 of the Rules of Court.

3) Judicial Foreclosure

from any proceedings by the creditor and against the danger of insolvency of the debtor.

SPECIAL REQUISITES

1) 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 agreement2) 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,1) 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.

2) 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.

3) Description of the property as would enable the parties or other persons to identify the same

In Real Mortgage,

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

2) 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.

1) It can cover only the fruits of an immovable property

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

3) 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

after reasonable investigation and inquiry.

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

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

ten to the principal of his credit.

EXTINGUISHMENT OF A CONTRACT

1) Release 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.

2) 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

1) For the same causes as all other obligations.

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

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

4) Payment of the debt.

5) Sale of the thing pledged at public auction.

Appropriation under Art. 2112.

1) 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. 3135

The 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.

property.3) 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.

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

5) When the principal obligation is extinguished.

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