PROBLEMS ON REAL AND CHATTEL MORTGAGE 1. Mortgagor mortgaged property worth 120K to secure a 100K loan. Mortgagor defaulted. Mortgagee foreclosed. The property was sold to X for 70K. Should mortgagor redeem the property? Yes, because he can sell it for more than 70K and realize more than the amount of the principal obligation. But if, in the example above, the mortgagor has creditors running after him for debts worth 300K, should he redeem? No, he should not redeem. If he redeems, he spends 70K in order to re-acquire property, which he may thereafter lose again to his other creditors. Borrower borrows P10M from Lender. Borrower offers the following securities to Lender: (1) a GUARANTY by X who is worth P100M (2) a PLEDGE of shares of stock worth P10M (3) a REAL ESTATE MORTGAGE worth P15M Which one should Lender choose? It really depends on the circumstances, but here are the considerations: 1. If he chooses the pledge, it is easier to foreclose, and he can get the excess in case the shares of stock are sold for more than P10M. 2. If he chooses the guaranty, it is good only if he is sure that the guarantor will pay. If the guarantor is any of the following, persons, the guaranty would be a good choice: a. the Government – because it is never insolvent b. a Bank – in the form of a bank guaranty through a letter of credit c. Insurance Company – though in some cases, it is also hard to collect from an insurance company (also, take note that they would be governed, not by the Civil Code provisions on guaranty, but by the Insurance Code). But the disadvantage of choosing the guaranty is that the guarantor who is worth P100M can afford to hire good lawyers who can stall the Lender’s claim. 3. In the case of the real estate mortgage, it depends on how easy it would be to dispose of the property. If it’s property at a prime spot in Makati, this might be a good choice since it can probably be sold at a good price right away. But if it’s located in far-flung rural area, the Lender may have a very difficult time selling it. Borrower borrows P10M from Lender. The loan is secured by a guaranty by X, who is worth P100M, a real estate mortgage worth P8M, and a pledge worth P8M. If Borrower defaults, what is the best way for Lender to proceed? 1. Foreclose the real estate mortgage first. Then get a deficiency judgment for the remaining P2M. 2. Then, foreclose the pledge because in pledge, he gets to keep the excess – resulting in an upside of P6M. 3. The Guarantor is not yet an option since he has the benefit of excussion. The Lender must first go through steps 1 and 2 and other remedies before running after X.
What is antichresis? Antichresis is a contract by which the creditor acquires the right to receive the fruits of an immovable belonging to the debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit. What are the characteristics of antichresis? 1. 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). Is delivery of the property to the creditor required? Delivery is not required for the validity of the contract itself. BUT, it is required in order that the creditor may receive the fruits. Does antichresis apply to all of the fruits of the immovable concerned? GENERAL RULE: The general rule is that the contract of antichresis covers ALL the fruits of the encumbered property. If the parties do not want all of the fruits to be subject to the antichresis, they must STIPULATE otherwise. Is it essential for the contract to have a stipulation for interest in order to have an accessory contract of antichresis? No. It is not essential to the contract of antichresis that the loan that it guarantees should have interest. There is nothing in the law that says that antichresis can only guarantee interest-bearing loans. Example: A borrowed P1M from B. To secure the loan, A delivered a parcel of land with coconut trees to B, giving B the power to administer it and harvest the coconuts. What is the nature of the contract? Answer: The contract is one of mortgage, not antichresis. In order for it to be a contract of antichresis, it must be expressly agreed between creditor and debtor that the creditor, having been given possession of the property, is to apply the fruits to the payment of interest, if owing, and thereafter, to the principal. Art. 2133. The actual market value of the fruits at the time of the application thereof to the interest and principal shall be the measure of such application. When it is time to apply the fruits to the payment of the interest or the principal, the creditor must base the value of the fruits on their market value at the time of the application. Example: The property subject of the contract of antichresis has mango trees. In January, one kilo of mangoes costs P50/kilo. But in May, when mangoes are in season, one kilo costs 25/kilo. If interest is due in January, the creditor must apply the fruits to the payment of interest based on the price of P50/kilo. If interest is due in May, he should compute at the price of P35/kilo. Art. 2134. The amount of the principal and of the interest shall be specified in writing; otherwise, the contract of antichresis shall be void. Is there a form required for the contract of antichresis? Yes. The contract must state the amount of the principal and the interest IN WRITING. If this form is not followed, the contract of antichresis is VOID. The requirement that it be in writing is necessary not merely to bind third persons but to make the contract valid. But even if the antichresis is void, the principal obligation is still valid. Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes and charges upon the estate. He is also bound to bear the expenses necessary for its preservation and repair. The sums spent for the purposes stated in this article shall be deducted from the fruits.
What are the obligations of the creditor under the contract of antichresis? 1. Pay the taxes and charges upon the estate – If the creditor does not pay the taxes, he is required by law to pay indemnity for damages to the debtor. If the debtor pays the taxes on the property which the creditor should have paid, the amount is to be applied to the payment of the debt. If the amount of taxes paid by the debtor is enough to satisfy the principal obligation, then the loan and the antichresis are extinguished; the creditor must return the property to the debtor. What if the creditor does not want to pay the taxes and charges? They must so stipulate in their agreement OR see the next article. 2. Apply the fruits The creditor must apply the fruits of the property to the payment of interest, if owing, and thereafter to the principal. Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. But the latter, in order to exempt himself from the obligations imposed upon him by the preceding article, may always compel the debtor to enter again upon the enjoyment of the property, except when there is a stipulation to the contrary. When can the debtor get back the property subject of the antichresis? The debtor can get it back only when he has totally paid the principal obligation. This is because the property stands as a security for the payment of the principal obligation. Is there an exception? Yes. The exception to this rule is if the creditor does not want to pay the taxes and charges upon the estate. In such a case, the creditor may compel the debtor to get the property back, UNLESS there is a contrary stipulation (exception to the exception). But this has the effect of extinguishing the contract of antichresis. Art. 2137. The creditor does not acquire the ownership of the real estate for nonpayment of the debt within the period agreed upon. Every stipulation to the contrary shall be void. But the creditor may petition the court for the payment of the debt or the sale of the real property. In this case, the Rules of Court on the foreclosure of mortgages shall apply. What happens when the debtor defaults on the principal obligation? The creditor DOES NOT acquire ownership of the real estate. Any stipulation to the contrary shall be void. This is because the contract of antichresis covers only the right to receive the fruits from the estate, and not its ownership. Also, this is pactum commisorium, which is void. The creditor has the following remedies in case of default: 1. Bring an action for specific performance. 2. Petition for the sale of the real property in judicial foreclosure proceedings under Rule 68 of the Rules of Court. Can the parties stipulate on an extra-judicial foreclosure? Yes, in the same manner that they are allowed in pledge and mortgage. Can the creditor acquire the property given in antichresis by prescription? No, and any stipulation to the contrary shall be void. In order to acquire property be prescription, possession must be in the concept of owner. The antichretic creditor possesses the property merely as a holder. Exception: Just like in a co-ownership, if the creditor repudiates the antichresis, he can acquire the property by prescription.
Art. 2138. The contracting parties may stipulate that the interest upon the debt be compensated with the fruits of the property which is the object of the antichresis, provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury, the excess shall be applied to the principal. The creditor must first apply the fruits to the payment of the interest. If the value of the fruits exceeds the value of the interest due, then the creditor should apply the excess to the principal. The second part of this provision is no longer applicable, since there is no Usury Law anymore. Art. 2139. The last paragraph of article 2085, and articles 2089 to 2091, are applicable to this contract. Other characteristics of Antichresis: 1. 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) 2. The contract of antichresis is indivisible. (2089) 3. The indivisibility of the antichresis is not affected by the fact that the debtors are not solidarily liable. (2090) 4. The contract of antichresis may secure all kinds of obligations – pure or conditional. (2091)