Commercial Law Review

Special Laws Maria Zarah Villanueva - Castro CHATTEL MORTGAGE: A. Define chattel mortgage It is an accessory contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. Subject Matter: *It covers personal or movable properties contemplated under Article 416 and 417 of the New Civil Code including shares of stocks and interest in business. *Growing crops may be subject to chattel mortgage as express provision of law. General Rule: Buildings subject of chattel mortgage. are not Registration creates a lien that follows the property and serves as notice to third persons. *Good faith is not a defense. Q: If there is actual knowledge but no registration, is the third party bound to the mortgage? A: YES. The registration requirement is complied with by reason of actual knowledge. D. Where do mortgage? you register chattel

Exception: The chattel mortgage over a building is considered valid as between the parties on the basis of estoppels but not against third persons. B. Distinguish chattel mortgage from pledge Pledge Not perfected until there is delivery Registration is not necessary No recovery deficiency for Chattel Mortgage Delivery is not necessary Registration is necessary to bind third persons General Rule: There is recovery for deficiency Exception: In case of sale under Recto Law Debtor is entitled to the excess

The mortgage must be registered in the Chattel Mortgage Register of the Register of Deeds of the province in which the mortgagor resides at the time of making the sane or if, he resides within the Philippines, in the province in which the property is situated. If the property is situated in different province from that in which the mortgagor resides, that mortgage must be recorded in the Chattel Mortgage Register of the Register of Deeds of both the province in which the mortgagor resides and that in which the property is situated. E. Is there a foreclosure chattel mortgage? YES. Can the deficiency? mortgagee recover sale in

YES. Except in case of sale subject to Recto Law. Requisites: 1. Sale of personal property. 2. The personal property subject of sale is covered by chattel mortgage 3. The payment is via instalment F. After-incurred Obligations *Chattel mortgage can cover only obligations existing at the time the mortgage is constituted. *It cannot cover after-incurred obligations because of the execution of affidavit of good faith. *Drag net clause is not allowed in chattel mortgage. 1

General Rule: Debtor is not entitled to the excess Exceptions: there is stipulation; and in case of legal pledge Pledge can secure Cannot secure after-incurred after-incurred obligations obligations C. Why is registration necessary?

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Special Laws Maria Zarah Villanueva - Castro - Drag net clause is a clause in pledge, real mortgage, or antichresis that allows the properties subject of pledge, real mortgage or antichresis to secure future obligations. AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL ESTATE MORTGAGE (ACT 3135): A. Requirements for the extrajudicial foreclosure to be effected 1. There must be a special power inserted in or attached to any real estate mortgage allowing the sale of property. 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is subject to 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. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. 4. The sale shall be made at public auction, between the hours or nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos each day of actual work performed, in addition to his expenses. B. In case of foreclosure sale, what are the jurisdictional requirements? Sec. 2 of Act 3135 provides that: Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is subject to 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 C. In case of foreclosure sale, what is the period of redemption? For Natural persons: 1 year from the date of the registration of the certificate of sale with the Register of Deeds. For Juridical persons: the right to redeem the property is until, but not after, the registration of the certificate of foreclosure sale which in no case shall be more than three (3) months after foreclosure, whichever is earlier, as provided in Section 47 of Republic Act No. D. Is the purchaser entitled to possess the property during the period of redemption? YES. Sec. 47 of the GBL provides that the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Furthermore, Sec. 7 of Act No. 3135 provides that the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without 2

Commercial Law Review

Special Laws Maria Zarah Villanueva - Castro complying with the requirements of this Act. E. If the purchaser complied with the requisites required by law, does the court has jurisdiction to deny the same? NO. Under Sec. 7 of Act No. 3135, the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. BULK SALES LAW: A. What are covered? the transactions or the and said seller or mortgagor may be indebted, together with the amount of indebtedness due or owing, or to become due or owning by said seller or mortgagor to each of said creditors to the buyer. 2. It is also the duty of the seller, mortgagor, transferor or assignor to make a full detailed inventory and to preserve the goods, wares, merchandise in bulk showing the quantity and, so far as is possible with the exercise of reasonable diligence, the cost price of the seller of each article to be included in the sale, transfer or mortgage. 3. To notify the creditors whose name and address is set forth in the verified statement of the seller at least 10 days before transferring possession thereof, personally by or registered mail, of the price, terms and conditions of the sale. 4. The sworn statement containing the names and the addresses of all creditors must be registered in the Bureau of Commerce. 5. The proceeds of the sale must be applied to all his credits pro rata. D. There is no violation of bulk sales law, can the creditors may still go after the properties to enforce their claims? YES. Does it matter that the properties are in the hands of the buyer? NO. *Bulk sales law applies even if there is an agreement on how payment of the sale be made. *It doesnt matter if the claim has not been reduced to judgment. E. Purpose of the Bulk Sales Law: To prevent the merchants from evading in their obligations. It seeks to prevent the defrauding of creditors by the secret sale or disposal in bulk of all or substantially all of a merchants stock of goods. 3

1. Sale, transfer, mortgage disposition other than in ordinary course of trade business;

2. Sale, transfer, mortgage or other disposition of all or substantially all of the business or trade; and 3. Sale, transfer, mortgage or other disposition of all or substantially all of the fixtures and equipment. B. What are covered? the transactions not

1. Sale by virtue of judicial order 2. Sale or mortgage is made in the ordinary course of trade and business 3. When accompanied with a written waiver by the seller/mortgagors creditors 4. Sale by assignee in insolvency or those beyond the reach of creditors 5. Sale of properties exempt from attachment or execution. C. What are the obligations of the seller/mortgagor/assignor? 1. The person who shall sell, mortgage, transfer or assign stock of goods, wares, merchandise, provisions or materials in bulk shall give a written statement sworn of substantially of the names and addresses of all creditors to whom

Commercial Law Review

Special Laws Maria Zarah Villanueva - Castro INSOLVENCY LAW: A. What is the object of suspension of payment? The object of suspension of payment is to seek postponement of the payment of debts in order to provide the debtor a given period to convert some of his properties to cash. B. What is the financial condition of the applicant when he filed the petition for suspension of payment? The debtor has sufficient property to cover all his debts but there is impossibility to meet them when they respectively fall due. C. Where do you file a petition for suspension of payment? The petition is filed in the court of the province or of the city where the debtor resided for six months next preceding the filing of his petition. D. What are the effects of the filing of a petition for suspension of payment? 1. No disposition in any manner of his property may be made by the petitioner except insofar as concerns the ordinary operations of commerce or of industry in which he is engaged; 2. No payments may be made by the petitioner except in the ordinary course of his business or industry; and 3. Upon request to the court, all pending executions against the debtor shall be suspended except execution against property especially mortgaged. E. What is double majority rule for proposed schedule of liability? Sec. 8 (e) of the Insolvency Law provides that to form a majority, it is necessary that 2/3 of the creditors voting unite upon the same proposition and that the claims represented by said majority vote amount to at least 3/5 of the total liabilities of the debtor mentioned in the petition. F. Distinguish suspension insolvency from

Suspension of Payment The debtor has sufficient property but he foresees the impossibility of meeting his debts as they fall due The purpose is to suspend or delay payment of debts The amount indebtedness not affected The number creditors immaterial of is of is

Insolvency The debtor does not have sufficient property to pay his debts The purpose is to discharge the debtor from the payment of certain debts Some of the creditors may receive less than their credits In case of involuntary insolvency, three or more creditors are required

G. Distinguish involuntary insolvency from voluntary insolvency Involuntary Insolvency 3 or more creditors are required Filed by 3 or more qualified creditors Debtors must have committed one or more acts of insolvency Indebtedness must not be less than P1,000 Voluntary Insolvency One creditor is sufficient Filed by the debtor No need for commissions of acts of insolvency

Amount of indebtedness must exceed P1,000 Petition must be Bond is not accompanied by a required bond H. What are the effects of the filing of insolvency proceeding whether involuntary or voluntary? 1. Forbid the payment to the debtor of any debt due to him and the delivery to him of any property belonging to him; 4

Commercial Law Review

Special Laws Maria Zarah Villanueva - Castro 2. Forbid the transfer of any property by him; 3. Stay of all pending civil proceedings against the insolvent I. What are the debts that are not affected by discharge? Sec. 68 of the Insolvency Law substantially provides that the following debts are not discharged: 1. Taxes or assessment due to the National Government or Local Government; 2. Debt created embezzlement; by fraud or

3. Debt created by defalcation by public officer or while acting in fiduciary capacity; and 4. Claims of secured creditors J. Discharge Sec. 69 of the Insolvency substantially provides that insolvent debtor is released from: Law the

1. All his debts and liabilities set forth in the schedule; and 2. All debts, liabilities or claims which were or might have been proved against the estate in insolvency.