Bar Questions for Finals

ANTICHRESIS Antichresis (1995) Olivia owns a vast mango plantation which she can no longer properly manage due to a lingering illness. Since she is indebted to Peter in the amount of P500.000.00 she asks Peter to manage the plantation and apply the harvest to the payment of her obligation to him, principal and interest, until her indebtedness shall have been fully paid. Peter agrees. 1)What kind of contract is entered into between Olivia and Peter? Explain. 2) What specific obligations are imposed by law on Peter as a consequence of their contract? 3) Does the law require any specific form for the validity of their contract? Explain 4) May Olivia re-acquire the plantation before her entire indebtedness shall have been fully paid? Explain. SUGGESTED ANSWERS: 1. A contract of antichresis was entered into between Olivia and Peter. Under Article 2132 of the New Civil Code, by a contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, and thereafter to the principal of his credit. 2. Peter must pay taxes and charges upon the land and bear the necessary expenses for preservation and repair which he may deduct from the fruits. (Art, 2135, NCC) 3. The amount of the principal and interest must be specified in writing, otherwise the antichresis will be void. (Art. 2134,NCC) 4. No. Art. 2136 specifically provides that the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. However, it is potestative on the part of the creditor to do so in order to exempt him from his obligation under Art. 2135, NCC, The debtor cannot re-acquire the enjoyment unless Peter compels Olivia to enter again the enjoyment of the property. PLEDGE Pledge (1994) In 1982, Steve borrowed P400.000.00 from Danny, collateralized by a pledge of shares of stock of Concepcion Corporation worth P800,000,00. In 1983, because of the economic crisis, the value of the shares pledged fell to

only P100,000.00. Can Danny demand that Steve surrender the other shares worth P700,000.00? SUGGESTED ANSWER: a) No. Bilateral contracts cannot be changed unilaterally. A pledge is only a subsidiary contract, and Steve is still indebted to Danny for the amount of P400,000.00 despite the fall in the value of the stocks pledged. b) No. Danny's right as pledgee is to sell the pledged shares at a public sale and keep the proceeds as collateral for the loan. There is no showing that the fall in the value of the pledged property was attributable to the pledger's fault or fraud. On the contrary, the economic crisis was the culprit. Had the pledgee been deceived as to the substance or quality of the pledged shares of stock, he would have had the right to claim another thing in their place or to the immediate payment of the obligation. This is not the case here. Pledge (2004) ABC loaned to MNO P40,000 for which the latter pledged 400shares of stock in XYZ Inc. It was agreed that if the pledgor failed to pay the loan with 10% yearly interest within four years, the pledgee is authorized to foreclose on the shares of stock. As required, MNO delivered possession of the shares to ABC with the understanding that the shares would be returned to MNO upon the payment of the loan. However, the loan was not paid on time. A month after 4 years, may the shares of stock pledged be deemed owned by ABC or not? Reason. (5%) SUGGESTED ANSWER: The shares of stock cannot be deemed owned by ABC upon default of MNO. They have to be foreclosed. Under Article 2088 of the Civil Code, the creditor cannot appropriate the things given by way of pledge. And even if the parties have stipulated that ABC becomes the owner of the shares in case MNO defaults on the loan, such stipulation is void for being a pactum commissorium Pledge; Mortgage; Antichresis (1996) In the province, a farmer couple borrowed money from the local merchant. To guarantee payment, they left the Torrens Title of their land with the merchant, for him to hold until they pay the loan. Is there a – a) contract of pledge, b)contract of mortgage, c) contract of antichresis, or d)none of the above? Explain. SUGGESTED ANSWER:

None of the above. There is no pledge because only movable property may be pledged (Art. 2094. NCC). If at all, there was a pledge of the paper or document constituting the Torrens Title, as a movable by itself, but not of the land which the title represents. There is no mortgage because no deed or contract was executed in the manner required by law for a mortgage (Arts.2085 to 2092, NCC; 2124 to 2131, NCC). There is no contract of antichresis because no right to the fruits of the property was given to the creditor (Art. 2132NCC). A contract of simple loan was entered into with security arrangement agreed upon by the parties which is not one ofthose mentioned above.

Pledge; Pactum Commissorium (2009) No.XVII. Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her diamond ring. The contract signed by the parties stipulated that if Rosario is unable to redeem the ring on due date, she will execute a document in favor of Jennifer providing that the ring shall automatically be considered full payment of the loan. (A). Is the contract valid? Explain. (3%) (B). Will your answer to [a] be the same if the contract stipulates that upon failure of Rosario to redeem the ring on due date, Jennifer may immediately sell the ring and appropriate the entire proceeds thereof for herself as full payment of the loan? Reasons. (3%) A. The contract is valid because Rosario has to execute a document in favor of Jennifer to transfer the ownership of the pledged ring to the latter. The contract does not amount to pactum commissorium because it does not provide for the automatic appropriation by the pledgee of the thing pledged in case of default by the pledgor. B. No, my answer will be different. While the contract of pledge is valid, the stipulation authorizing the pledgee to immediately sell the thing pledged is void under Art 2088 of the New Civil Code, which provides that “the creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them xxx.” Jennifer cannot immediately sell by herself the thing pledged. It must be foreclosed by selling it at a public auction in accordance with the procedure under Art 2112 of the New Civil Code.

Pledge Bar 2004 XVI. Donna pledged a set of diamond ring and earrings to Jane for P200,000.00 She was made to sign an agreement that if she cannot pay her debt within six months, Jane could immediately appropriate the jewelry for herself. After six months, Donna failed to pay. Jane then displayed the earrings and ring set in her jewelry shop located in a mall. A buyer, Juana, bought the jewelry set for P300,000.00.

A. Was the agreement which Donna signed with Jane valid? Explain with legal basis. (2%) B. Can Donna redeem the jewelry set from Juana by paying the amount she owed Jane to Juana? Explain with legal basis. (2%) C. Give an example of a pledge created by operation of law. (2%) a) Appropriate the jewelry upon default of Donna is considered pactum commissorium and it is considered void by law. ( Article 2088) b) No, Donna cannot redeem it from Juana because the pledge contract is between her and Jane. Juana is not a party to the pledge contract. (Article 1311, Civil Code) c) One example of a pledge created by operation of law is the right of the depositary to retain the thing deposited until the depositor shall have paid him whatever may be due to the depositary by reason of the deposit. (1994)Another is the right of the agent to retain the thing which is the object of the agency until the principal reimburses him the expenses incurred in the execution of the agency. (Article 1914, Civil Code)

CHATTEL MORTGAGE 2013 QUESTION VI. Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To secure payment, Lito executed a chattel mortgage on a Toyota Avanza and a real estate mortgage on a 200-square meter piece of property. (A) Would it be legally significant - from the point of view of validity and enforceability - if the loan and the mortgages were in public or private instruments? (6%) (B) Lito's failure to pay led to the extra-judicial foreclosure of the mortgaged real property. Within a year from foreclosure, Lito tendered a manager's check to Ferdie to redeem the property. Ferdie refused to accept payment on the ground that he wanted payment in cash: the

check does not qualify as legal tender and does not include the interest payment. Is Ferdie's refusal justified? (4%) SUGGESTED ANSWER: A) With respect to the loan, the same is both valid and enforceable regardless of whether it is in a private or public document because as a rule, contracts shall be obligatory in whatever form they may have been entered into provided all the essential requisites for their validity are present. A loan is a contract which the law does not require to be in a particular form in order that it may be valid or enforceable. However, with regard to the chattel mortgage, since the law (Act 1508) requires an affidavit of good faith stating that the chattel mortgage is supposed to stand as security for the loan, it is submitted that for validity of the chattel mortgage, it must be in a public document. A real estate mortgage under the provisions of Article 2125 requires that in order that a mortgage may be validly constituted that the document in which it appears must be recorded. If it is not recorded, the mortgage is nevertheless valid and binding between the parties. Hence, for validity both chattel and real estate mortgages must be in a public document. But for purposes of enforceability, it is submitted that the form of the contract whether in a public or private document would be immaterial. (Mobil Oil vs. Diocares29 SCRA 656). B) Ferdie’s refusal to accept the check on the ground that it does not qualify as legal tender is correct because a check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. (Philippine Airlines vs. CA and Amelia Tan – January 30, 1990) Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3). Also, redemption within the period allowed by law is not a matter of intent but a question of payment or valid tender of full redemption price within the said period. Whether the redemption is being made under Act 3135 or under the General Banking Law, the mortgagor or his assignee is required to tender payment to make said redemption valid. (Heirs of Quisumbing vs. PNB aand SLDC –G.R. No. 178242 January 20, 2009) CHATTEL MORTGAGE IMMOVANLES 1994

Vini constructed a building on a parcel of land he leased from Andrea. He chattel mortgage the land to Felicia. When he could not pay Felicia, Felicia initiated foreclosure proceedings. Vini claimed that the building he had constructed on the leased land cannot be validly foreclosed because the building was by law, an immovable. Is Vini correct? SUGGESTED ANSWERS A. The chattel mortgage is void and cannot be foreclosed because the building is an immovable and cannot be an object of a chattel mortgage.

B. It depends. If the building was intended and is built of light materials, the chattel mortgage may be considered as valid between the parties and it may be considered in respect to them as movable property, since it can be removed from one place to another. But if the building is of strong material and is not capable of being removed or transferred without being destroyed, the chattel mortgage is void and cannot be foreclosed. Chattel Mortgage (1993) A, about to leave the country on a foreign assignment entrusted to B his brand new car and its certificate of registration. Falsifying A’s signature, B sold A’s car to C for P200, 000.00. C then registered the car in his name. To complete the needed amount, C borrowed P100,000.00 from the savings and loan association in his office, constituting a chattel mortgage on the car. For failure of C to pay the amount owed, the savings and loan association filed in the RTC a complaint for collection with application for issuance of a writ of replevin to obtain possession of the vehicle so that the chattel mortgage could be foreclosed. The RTC issued the writ of replevin. The car was then seized from C and sold by the sheriff at public auction at which the savings and loan association was the lone bidder. Accordingly the car was sold to it. A few days later, A arrived from assignment. Learning of what happened to his car, A sought to recover possession and ownership of it from the savings and loan association. Can A recover his car from the savings and loan association? Explain your answer. SUGGESTED ANSWER Under the prevailing rulings of the Supreme Court, A can recover the car from the Savings and Loan Association provided he pays the price at which the association bought the car at a public auction. Under that doctrine, there has been an unlawful deprivation by B of A of his car and, therefore, A can recover it from any person thereof. But since it was bought in a public auction in good faith by the Savings and Loan Association, he must reimburse the Association at the price for which the car was bought. ALTERNATIVE ANSWER Yes, A can recover his car from the Savings and Loan Association. In a chattel mortgage, the mortgagor must be the absolute owner of the thing mortgaged. Furthermore, the person constituting the mortgage must have free disposal of the property, and in the absence thereof, must be legally authorized for the purpose. In the case at bar, these essential requisites did not apply to the mortgagor B, Hence the chattel mortgage was not valid. Mortgage - Pactum Commissorium 1999

Mortgage - Pactum Commissorium 2001

Mortgage – Right of Redemption vs. Equity of Redemption