Notes on Pledge, Mortgage, Chattel Mortgage and Antichresis

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Review on the Law on Pledge, Real Mortgage & Chattel Mortgage Common Provisions on Pledge and Mortgage 1. Essential Requisites common to both Pledge and Mortgage: a. They are constituted to secure fulfillment of the principal obligation. b. The pledgor or mortgagor is the absolute owner of the thing pledge or mortgage. c. The person constituting the pledge or mortgage have free disposal of the their property and in the absence thereof, that may be legally authorized for the purpose (Art. 2085); and d. The when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment of the creditor. (Art. 2087) Note: a. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property (Art. 2085). b. Any kind of obligation whether pure or conditional, including natural, voidable and unenforceable obligations may be secured by a contract of pledge and mortgage. (Art. 2091, 2052). 2. Meaning of PACTUM COMMISSORIUM It is a stipulation authorizing the creditor to appropriate the things given by way of pledge and mortgage or to dispose of them. It is declared null and void by law. (Art 2088). Reason : The amount of the loan is ordinarily much less than the value of the security. Note: The appropriation must be automatic without need of further act on the part of the debtor. Hence, the prohibition does not apply to: a. Subsequent voluntary act of the debtor of making cession of the property or; b. A promise to assign or sell said property in payment of the debt. 3. Rules on the indivisibility of Pledge and Mortgage: a. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor; b. Therefore, the debtor’s heirs who has paid of the debt cannot ask for the proportionate extinguishments of the pledge or mortgage as long as the debt is not completely satisfied; c. Neither can the creditor’s heirs who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid; d. The above rules, however, do not apply where there being in several things given in mortgage or pledge, each of them guarantees only a determinate portion of the credit. In this case, the debtor shall have a right to the extinguishments of the pledge or mortgage as the portion of the debt for each thing is especially answerable is satisfied. Examples: a. A borrowed from B P 10,000 and to guarantee payment, A pledge his diamond ring worth P 4,000 and a pair of earnings worth P 6,000. if A pays P 4,000, he cannot ask for the return of the ring because both the ring and the earnings are given to secure payment of the entire obligation of P 10,000. The same is true if A dies leaving W and X as heirs and W pays P4,000 to B. If the creditors are B and C, and A pays B P4, 000, B cannot return the ring to the prejudice of C who has not received his share. However, if it is agreed that the ring was given to secure the payment of P4,000 and the earnings, the balance of P6,000 and A (or his heir W) pays P 4,000, A (or W) can demand the return of the ring. b. A and V are jointly liable to C in the sum of P9,000 secured by A’s ring worth P 5,000 and B’s watch worth P4,000. If A pays P5,000 he cannot demand the return of the ring even if their liability is only joint or proportionate because pledge is indivisible. 4. Legal effect of a promise to constitute a pledge or mortgage: It gives rise only to a personal right binding upon the parties but it creates no real right in the property. (See Art. 2092).

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PLEDGE 1. Meaning of Pledge It is a contract by virtue of which the debtor delivers to the creditor or to the third person a movable or instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligations is fulfilled the thing delivered shall be returned with all the fruits and accessions. 2. Characteristics/Nature as a contract: a. Real b. Accessory c. Unilateral d. Subsidiary contracts because the obligation incurred does not arise until the fulfillment of the principal obligation that is secured. e. In addition to the common requisites of pledge and mortgage (Art 2085), it is necessary in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (Art 2093). 3. Cause or Consideration in PLEDGE Insofar as the pledgor is concerned, it is the principal obligation. But if he is the debtor (Art 2085), the cause is the compensation stipulated for the pledge or the mere liberality of the pledgor. 4. What are the Kinds of pledge: a. Voluntary or conventional – one which is created by agreement of the parties; or b. Legal – one which is created by operation of law (Art 2121) 5. Additional requirements in order that pledge shall take effect against third parties: a. The description of the thing pledge; and b. The date of pledge (Art 2076) 6. May thing pledge be alienated? Yes, provided the pledgee consents to the sale. Ownership passes to the vendee but subject to the rights of the pledgee. (Art 2097) 7. Enumerate the rights of the Pledgee; a. To retain the thing in his possession or in that of a third person to whom it has delivered, until the debt is paid (Art 2099). b. To be reimbursed for the expenses incurred in its preservation (Art 2099). c. To compensate (set – off) the fruits, income, dividends or interests earned or produced by the thing pledged and received with those which are due to him (Art 2102). d. To bring the actins which pertain to the owner of the thing pledged in order to recover if from or defend it against a third person (Art 2103). e. To sell the thing pledged at the public auction, if without his fault, there is danger of destruction, impairment or diminution in the value of the thing (Art 2108). f. To claim a substitute or demand immediate payment, if he is deceived on the substance or quality of the thing pledged (Art 2109) g. To sell the thing pledged at public auction if the obligation secured is not paid (Art 2112). h. To bid at the public sale (Art 2114). i. To collect the amount that become due on a credit pledged before such credit is redeemed. j. To choose which one of the several thing pledged shall be sold (Art 2119) .

8. Obligations of the pledgee: a. To take care of the thing pledge with the diligence of a good father of the family (Art 2099). b. To answer for its loss or deterioration in the proper case; c. Not to deposit the thing pledge with a third person unless authorized (Art ) d. To be responsible for the acts of his agents or employees with respect to the thing pledged (Art 2100); e. Not to use the thing pledged unless authorized or its preservation so requires (Art 2104); f. To advise the pledgor, without delay, of any danger to the thing pledged (Art 2107). g. To promptly advise the pledgor or owner in case of sale at public auction of the result thereof (Art 2116); and h. To return the thing pledged when the principal obligation is paid.

3 9. Conditions required in an extra – judicial foreclosure sale of the thing pledged: a. The debt is due and unpaid b. The sale must be at a public auction c. There must be notice to the pledgor and owner, stating the amount due; and d. The sale must be made with the intervention of a notary public. Note: The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold. If the creditor appropriated the thing, it shall be considered as full payment for his entire claim. He is thus obliged to give an acquittance for the same (Art. 2115). The sale must be made at the public auction with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. 10. Rules on the proceeds after sale of the thing pledged: a. Price of sale more than the amount due – The debtor is not entitled to the excess, unless otherwise agreed; and b. Price of sale less tan the amount due – The creditor is not entitled to recover any deficiency, notwithstanding any stipulation to the contrary. (Art. 2115) Reason: To compel the creditor to hold an honest public sale. Note: 1. The creditor, however, may sue on the principal obligation instead of electing to sell the thing pledged. 2. In pledge by operation of law, after payment of the debt and expense, the remainder of the price shall be delivered to the obligor (Arts 2121, 2122) 3. Under the Chattel Mortgage Law, the mortgagor can also recover the excess (Act. No. 1506, Sec 14). 11. Instances of Legal Pledges or Pledges by Operation of Law: a. Possessor in good faith – for necessary and useful expenses incurred over the thing (Art 546); b. Usufructuary – for taxes and extraordinary expenses (Art 612) ; c. Bailee – For damages suffered by reason of the flaws in the thing loaned. (Arts 1944, 1951); d. Agent – for expenses advance and damages caused by the agency (Art 1914); e. Depositary – for the payment of what may be due him by reason of the deposit (Art 1994); and f. Hotel Keeper – for credits for lodging and supplies furnished (Art 2004); and g. Independent contractor – he who has executed work upon a movable has a right to retain it by way of pledge until he is paid. (Art 1731, see also Art 1701). In case of pledge by operation of law, the proceeds shall be applied to the debt and expenses, the remainder of the price of the sale shall be delivered to the obligor. (Art. 2121). The thing under pledge by operation of law may be sold only after demand of the amount for which the thing is retained. The public auction shall take place within one month after such demand. If, without just grounds, the creditor does not cause the public sale to be held within such period, the debtor may require the return of thing. (Art. 2122) 12. Rights of the Pledgor: a. TO continue to be the owner of the thing pledged, until its sale, unless it is expropriated(Art 2103) ; b. To demand the deposit of the thing pledged should the creditor use it without authority, or misuse it in any other was (Art 2104); c. To substitute the thing pledged if it is endangered without fault of the pledgee without prejudice to the pledgee’s right to have the thing sold at public sale (Art 2108). d. To bid and have preference at the foreclosure sale if he should offer the same terms as the bidder (Art 2113) His offer is not valid however if he is the only bidder. All bids shall offer to pay the purchase price in cash. If a bid other than for cash is accepted, the pledgee is deemed to have received the purchase price in cash, as far as the pledgor or owner is concerned. (Art. 2114). The sale of the thing pledged extinguishes the principal obligation, whether or not the proceeds are equal to the amount of the principal obligation, interest and expenses in proper case; and

4 e. To demand the return of the thing pledged upon the extinction of the principal obligation. (Art 2085 (1)) Note: A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to exinguish the pledge. For this purpose, neither the acceptance by the pledgor or owner, nor the return of the thing pledged is necessary. The pledgee becomes a depositary or bailee. 13. Obligations of the pledgor: a. To notify the pledgee of any flaw or defect of the thing pledged known to him; otherwise he answers for damages suffered by the pledgee (Art 2101); b. To reimburse the pledgee for expenses made for its preservation (Art 2099); and c. To fulfill his principal obligation (Art 2085) 14. Principles in Pledge: 1. As a general rule, the pledge extends to the interest and earnings of the thing pledged, unless there is a stipulation to the contrary. (Art. 2102) 2. Unless the pledge is expropriate, the debtor continues to be the owner thereof. Nevertheless, the creditor may bring actions which pertains to the owner of the thing pledged in order to recover it from or defend it against third person. (Art. 2104) 3. The creditor cannot use the thing pledged without the consent of the owner, and if he should do so, or should misuse t he thing in any other way, the owner may ask the Court that it be JUDICIALLY OR EXTRA-JUDICIALLY DESPOSITED. However, when the preservation of the thing pledged requires its use, it must be used by the creditor but only for that purpose. (Art. 2104) 4. The remedy of the pledgor should the thing pledgedd be in danger of being lost or impaired through the negligence or willful act of the pledgee is to require the thing to be deposited with a third person. (Art. 2106) 5. The creditor who is deceived on the substance or quality of the thing pledged may either (1) claim another thing instead; or demand immediate payment of the principal obligation (Art. 2109). 15. Remedies should there be reasonable grounds to fear the destruction or impairment of the thing pledged, without fault of the pledgee: -

The pledgee is bound to advise the pledgor, without delay or danger to the thing pledged. The pledgor, on the other hand, may demand the return of the thing, upon offering another in pledge provided the latter is of the same kinf as the former and not of inferior quality and without prejudice to the RIGHT OF THE PLEDGEE to cause the sale of the thing pledged at public sale. The proceeds of the auction sale shall be security for the principal obligation in the same manner as the thing originally pledged. (Arts. 2107; 2108). Between the right of the pledgor to demand the return of the thing pledged and the right of the pledgee to cause it to be sold at public auction, the latter prevails.

16. Causes for the extinguishments of the pledge: a. Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation to the contrary being void (Art 2110); b. Renunciation or abandonment executed in writing by the pledgee even without return of the thing (Art 111) c. Destruction or loss of the thing pledged; d. Extinction of the principal obligation (by payment or sale of the thing pledged); and e. Other causes of extinguishments or ordinary obligations (Art 1231) SALIENT FEATURES OF PRESIDENTIAL DECREE NO. 114 otherwise known as REGULATING THE ESTABLISHMENT AND OPERATION OF PAWNSHOPS Background: • Pawnshops provide an additional source of credit especially for small borrowers left unserved by the banking and other financial institutions in the country;

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There is no specific law in the Philippines that governs pawnshop establishments, particularly providing definite and uniform standards for their operation.

Declaration of Policy: – It is hereby declared the policy of the State to regulate the establishment of pawnshops and to place their operation on a sound and stable basis to derive the optimum advantages from them as an additional source of credit; to prevent and mitigate, as far as practicable, practices prejudicial to public interest; and to lay down the minimum requirements and standards under which they may be established and do business. ( Sec. 2) Definition of Terms: • “Pawnshop” shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably with pawnbroker or pawn brokerage. • “Pawner” shall refer to the borrower from a pawnshop. • “Pawnee” shall refer to the pawnshop or pawnbroker. • “Pawn” is the personal property delivered by the pawner to the pawnee as security for a loan. • “Pawn ticket” is the pawnbrokers’ receipt for a pawn. It is neither a security nor a printed evidence of indebtedness. • “Property” shall include only such personal property as may actually be delivered to the control and possession of the pawnshop: Provided, however, That certain specified chattels such as guns, knives and similar weapons whose reception in pawn is expressly prohibited by other laws or regulations shall not be included. A pawnshop may be established as a single proprietorship, partnership or corporation. (SEC. 4) Any person or entity desiring to engage in the pawnshop business shall (a) register with the Bureau of Commerce ( Department of Trade and Industries) in the case of single proprietorship or the Securities and Exchange Commission in the case of a corporation or any other association ( partnership) and (b) secure a license from the appropriate city or municipality having territorial jurisdiction over the place of establishment and operation (business permit). SEC. 6. Requirement of registration with the Central Bank. – Any individual, corporation, or association duly registered and licensed to engage in the pawnshop business shall file an information sheet, under oath, with the Central Bank before commencement of actual operations: Provided, however, That pawnshops duly licensed and operating before the approval of this Decree shall, within six months from the date of effectivity of the same, register with the Central Bank. For this purpose, the Central Bank shall furnish pawnshops, upon request, with necessary copies of the prescribed information sheet. Requirement of registration with the Central Bank – Any individual, corporation, or association duly registered and licensed to engage in the pawnshop business shall file an information sheet, under oath, with the Central Bank before commencement of actual operations. (Sec. 6) The minimum paid-in capital of any pawnshop which may be established after the effectivity of this Decree shall be one hundred thousand pesos (P100,000.00): Citizenship requirement. Upon the effectivity of this Decree, only Filipino citizens may establish and own a pawnshop organized in the form of a single proprietorship: Provided, however, That in the case of a partnership, at least seventy per cent (70%) of its capital shall be owned by Filipino citizens: Provided, further That in the case of a corporation, at least seventy per cent (70%) of the voting capital stock shall be owned by citizens of the Philippines, or if there be no capital stock, at least seventy per cent (70%) of the members entitled to vote, shall be citizens of the Philippines. SEC. 9. Amount of loan. Pawnshops may grant such amount of loans as may be agreed upon between the parties: Provided, That the amount of loan shall, in no case, be less than thirty per cent (30%) of the appraised value of the security offered for the loan unless the pawner manifests in writing the desire to borrow a lesser amount. SEC. 10. Rates of interest. – No pawnshop shall directly or indirectly stipulate, charge, demand, take or receive any higher rate or greater sum or value for any loan or forbearance than the rate allowed by the Usury Law for such transactions. It shall be unlawful for a pawnshop to divide the pawn offered by

6 a pawner in order to collect greater interest and/or to require the pawner to pay an additional charge as insurance premium for the safekeeping and conservation of the article pawned. In addition to interest charges, pawnshops may impose a Maximum service charge of five pesos (P5.00), but in no case to exceed one per cent (1%) of the principal loan. SEC. 13. Redemption. – The pawner who fails to pay his obligation on the date it falls due may, within ninety days from the date of maturity of the obligation, redeem the pawn by payment of the principal of the debt with interest: Provided, however, That for the purpose of computing interest due after maturity of the obligation, the basis shall be the sum of the principal obligation and interest earned at the time the obligation matured. SEC. 14. Disposition of pawn on default of pawner. – In the event the pawner fails to redeem the pawn within ninety days from the date of the maturity of the obligation in accordance with the preceding section, the pawnbroker may sell or otherwise dispose of any article taken or received by him in pawn: Provided, however, That the pawner shall be duly notified of such sale on or before the termination of the ninety-day period, the notice particularly stating the date, hour, and place of sale. SEC. 15. Public auction of pawned articles. No pawnbroker shall sell or otherwise dispose of any article or thing taken or received in pawn or pledge except at (1) public auction in his place of business as such pawnbroker or in any other public place within the territorial limits of the municipality or city where the pawnshop has its place of business, (2) under the control and direction of an auctioneer with license duly issued by the corresponding authorities, (3) nor shall any such article or thing to be sold or disposed of unless said pawnbroker has published a notice once in at least two daily newspapers printed in the city or municipality during the week preceding the date of such sale. In remote areas where newspapers are neither published nor circulated, notice by newspaper publication shall be substituted by posting notices in conspicuous public places within the territorial limits of the city or municipality where the pawnshop has its place of business. Said notice, whether published or posted, shall be in English, and either in Pilipino or in the local dialect, and shall contain the name of the pawnshop, its owner, address of the establishment, hour, and the date of the auctions sale. (SEC.15) Pawnshop business is under the regulatory power of the Central bank of the Philippines. (Sec. 17)

REAL MORTGAGE 1. Define mortgage: Mortgage otherwise known as Real Estate mortgage or Real Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of the principal obligation, especially 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: 2. Characteristics as a Contract: a. Real b. Accessory c. Unilateral; and d. Subsidiary contract 3. Distinguish Mortgage from Pledge a. Pledge is constituted on movables (Art 2094), while mortgage on immovables (Art 2124); b. In pledge, the property is delivered to the pledgee, or by common consent to third person (Art 2093), while in mortgage, delivery is not necessary; and c. Pledge is not valid against third persons unless a description of the thing pledged and the date of the pledge appear on a public instrument (Art 2096), while mortgage is not valid against third persons if not registered even if embodied in a public instrument. (Art 2125). Note: Both are extinguished by the fulfillment of the principal obligation and by the destruction of the property pledged or mortgaged. 4. Cause or consideration in mortgage:

7 Its consideration is that the principal contract from which it receives its life, although the obligation secured is incurred by a third person, that is, the principal debtor is other than the mortgagor. 5. Kinds of Mortgage: a. Voluntary – one which is agreed to between the parties or constituted by the will of the owner of the property on which it is created (Art 138, Spanish Mortgage Law) b. Legal – one required by law to be executed on favor of certain persons (Art 2125, par 2; see also Arts 2082, 2083) c. Equitable – one which, although it lacks the proper formalities of a mortgage, show the intention of the parties to make the property as a security for a debt. 6. Property which may be object of Mortgage: a. immovables; and b. Inalienable real rights in accordance with laws, imposed upon immovables (Art 2124) WHAT CONSTITUTE IMMOVABLE? Immovables • The following are immovable property: • Land, buildings, roads and construction of all kinds adhered to the soil. • Trees, plants and growing fruits, while they are attached to the land or form an integral part of an immovable. • Everything attached to an immovable in fixed manner, in such a way that it cannot be separated there from without breaking the material or deterioration of the object. • Statues, reliefs, painting or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements. • Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works. • Animal houses, pigeon houses, beehives, fishponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included. • Fertilizer actually used on a piece of land. • Mines, quarries, slag dumps, while the manner thereof forms part of the bed, and waters either running or stagnant. • Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast. • Contracts for public works, and servitudes and other real rights over immovable property. (Art. 415, Civil Code) 7. Effects of a Mortgage: a. It creates a real right, i.e., it directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Art 2126); b. The mortgage (creditor) may, therefore demand payment from any possessor of the mortgaged property (Art 2129); c. He may alienate or assign the mortgage credit (his right as mortgagee) to a third person (Art 2128); d. The mortgage does not extinguish the title of the mortgagor (debtor) who does not, therefore, lose his right to dispose. Indeed, the law considers void any stipulation forbidding the owner from alienating the property mortgaged. (Art 2130) 8. Scope of Mortgage: It extends to and includes the following: a. Natural accessions; b. Improvements (even if subsequently made); c. Growing fruits; d. Rents or income (belonging to the mortgagor) not yet received when the obligation becomes due; e. Proceeds of insurance received or owing from insurance of the property;

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Amounts received or owing in virtue of the expropriation of the properly for public sale (Art 2127)

Note: 1. The above are deemed included in the mortgage unless expressly excluded; 2. But the mortgage does not extend to improvements made by a third person subsequent to the mortgage and after the property has passed to him. 9. Define Foreclosure: Foreclosure is a remedy available to the mortgagee by which he subject the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given through the sale of the property at public auction and the application of the proceeds to the payment of his claims. 10. Kinds of Foreclosure: a. Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action for that purpose in the Regional Trial Court of the province or city the real property is located or any part thereof lies; and b. Extra – judicial foreclosure – A mortgage may be foreclosed extra-judicially where there is inserted in the contract a clause giving the mortgagee the prior upon default of the debtor to foreclose the mortgage by an extra-judicial sale of the mortgaged property (Sec 1, Art No. 3155 as amended by Act no 4148). 11. Define Redemption Redemption may be defined as a transaction by which the mortgagor reacquires or buys back the property, which may have been passed under the mortgage or divests the property of the lien, which the mortgage may have created. 12. Kinds of Redemption: a. Equity of Redemption – the right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property. In judicial foreclosure, the mortgagor may exercise his equity of redemption before and not after the sale is confirmed by the court; and b. Right of Redemption – the right of the mortgagor to redeem the mortgaged property with a certain period after is was sold for the satisfaction of the mortgaged debt. In all cases of extra – judicial sale, the mortgagor may redeem the property at any time within the term of one year from and after the date of the registration of the sale. In judicial foreclosure, the general rule is that the mortgagor cannot exercise his right of redemption after the sale is confirmed by an order of the Court.

Rules on Foreclosure

VALIDITY AND EFFECT OF FORECLOSURE  The right to foreclose the mortgage and to have the property seized and sold with a view to applying the proceeds to the payment of the principal obligation > A mortgage contract may contain an acceleration clause—on occasion of the mortgagor’s default, the whole sum remaining unpaid automatically becomes due and payable > Essence of mortgage contract—property has been identified and separated from a mass of the property of the mortgagor to secure the payment of a principal obligation >Once the proceeds have been applied to the payment of the principal obligation, the debtor cannot anymore be asked to pay unless there is deficiency. GROUNDS FOR FORECLOSURE A. Failure to pay the principal obligation on maturity date. B. Violation of any condition, stipulation or warranty of the mortgage contract by the debtor/debtor

9 C. Kinds of Foreclosure: D. Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action for that purpose in the Regional Trial Court of the province or city the real property is located or any part thereof lies as outlined under Sections 4 and 70 of the Revised Rules of Court. If there is deficiency in the public sale, the mortgagee can petition the court for a deficiency judgment and collect the unpaid balance from the debtor. A third person who owns the land mortgaged but merely secured the principal obligation shall not be liable for the deficiency of the debtor. The latter shall be personally liable thereof. Rule 68 Rules of Court 1. The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction over the area where the property is situated 2. The court will conduct a trial. If, after trial, the court finds merit in the petition, it will render judgment ordering the mortgagor/debtor to pay the obligation within a period not less than 90 nor more than 120 days from the finality of judgment. 3. Within this 90 to 120 day period, the mortgagor has the chance to pay the obligation to prevent his property from being sold. This is called the EQUITY OF REDEMPTION PERIOD. 4. If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be sold to the highest bidder at public auction to satisfy the judgment. 5. There will be a judicial confirmation of the sale. After the confirmation of the sale, the purchaser shall be entitled to the possession of the property, and all the rights of the mortgagor with respect to the property are severed or terminated. The equity of redemption period actually extends until the sale is confirmed. Even after the lapse of the 90 to 120 day period, the mortgagor can still redeem the property, so long as there has been no confirmation of the sale yet. Therefore, the equity of redemption can be considered as the right of the mortgagor to redeem the property BEFORE the confirmation of the sale. a. After the confirmation of the sale, the mortgagor does not have a right to redeem the property anymore. This is the general rule in judicial foreclosures – there is no right of redemption after the sale is confirmed. The proceeds of the sale of the property will be disposed as follows: a. First, the costs of the sale will be deducted from the price at which the property was sold b. The amount of the principal obligation and interest will be deducted. c. The junior encumbrances will be satisfied. d. If there is still an excess, the excess will go back to the mortgagor. In mortgage, the mortgagee DOES NOT get the excess (unlike in pledge). If there is a deficiency, the mortgagee can ask for a DEFICIENCY JUDGMENT which can be imposed on other property of the mortgagor. The rule on extrajudicial foreclosure is different. The mortgagee must go to court and file another action for the collection of the deficiency. The proceeds from the judicial sale of foreclosed property shall be applied as follows: a. To the total amount of the debt. b. To the costs of the sale. c. To the claims of subsequent mortgagees. If there is any excess from the proceeds of the sale, such will be returned to the debtor/mortgagor. Right of Redemption in Judicial Foreclosure The right to redeem the mortgaged property is exercised by the judgment debtor or mortgagor at anytime before the confirmation of the sale. Generally, the court is given a period of ninety (90) days to confirm the sale. The generally rule is the mortgagor cannot exercise his right of redemption after the sale is confirmed.

10 WHY ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE? 1. Judicial foreclosure is costly, since the parties would need to hire lawyers. But then again, the present rules provide that court fees are needed to be paid in extrajudicial proceedings also. 2. The parties have very little control over the sale because there is court intervention. 3. More susceptible to stalling/dilatory tactics by the mortgagor, since he can file all sorts of motions in court to prevent the sale. 4. It is more efficient to have extrajudicial proceedings since for judicial proceedings, there is a minimum lapse of time of 6 years.

Extra –Judicial Foreclosure – A mortgage may be foreclosed extra-judicially where there is inserted in the contract a clause giving the mortgagee the prior upon default of the debtor to foreclose the mortgage by an extra-judicial sale of the mortgaged property (Sec 1, Art No. 3155 as amended by Act no 4118). (UNDER

ACT

3135/4118

AND

SC

ADMINISTRATIVE CIRCULAR)

WHERE SHOULD AN EXTRAJUDICIAL FORECLOSURE SALE BE DONE? Sale cannot be made legally outside the city or province wherein the property sold is situated. In case the place has been stipulated, it shall be made in the municipal building of the said place. NOTICE OF THE SALE 1. POSTING of the notices of the sale FOR NOT LESS THAN 20 DAYS in at least 3 public places of the municipality or city where the property is situated. 2. IF THE PROPERTY IS WORTH MORE THAN P400, such notice shall also be published once a week at least 3 consecutive weeks in a newspaper of general circulation in the municipality or city. (You don't need to count 6 days between publications.) NOTE: there is jurisprudence, which held that there is sufficient notice when there is publication •

PUBLIC AUCTION/SALE 1. Time shall be between 9AM and 4PM. It shall be made in the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality, or of the notary public of the municipality, who shall be compensated with P5 for each day of actual work or performance in addition to his expenses. 2. Anyone may bid at the sale, unless there are stipulations in the agreement.

POSSESSION > Upon foreclosure, if the mortgagor is in possession of the property, he will retain possession during the redemption period—1 year from the date of sale > If the winning bidder wants possession during the redemption period, he may execute a bond in the amount equivalent to the use of the property for 12 months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of the Act. Upon approval, a writ of possession will be issued in his favor. > If the winning bidder is able to secure possession,

the mortgagor may petition that the sale

11 is set aside and the writ of possession be cancelled on the ground that he wasn't in default or that the sale wasn't made in accordance with Act 3135. This must be filed within 30 days from issuance of the writ of possession.

RIGHT OF REDEMPTION  The debtor, his successors-in-interest, or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time WITHIN THE TERM OF 1 YEAR FROM AND AFTER THE DATE OF THE SALE and such will be governed by the Rules of Court. –registration of the sale.  When the property is redeemed after the purchaser has been given possession, the redeemer is entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented. If the property was used as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer may deduct from the price the interest of 1% per month provided in the Rules of Court

RULES OF COURT, RULE 39, SECTIONS 29 TO 31, AND 35 Sec. 29. Effect of redemption by judgment obligor, and a certificate to be delivered and recorded thereupon; to whom payments on redemption made. If the judgment obligor redeems, he must make the same payments as are required to effect a redemption by a redemptioner, whereupon, no further redemption shall be allowed and he is restored to his estate. The person to whom the redemption payment is made must execute and deliver to him a certificate of redemption acknowledge before a notary public or other officer authorized to take acknowledgments of conveyances of real property. Such certificate must be filed and recorded in the registry of deeds of the place in which the property is situated, and the registrar of deeds must note the record thereof on the margin of the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be made to the purchaser r redemptioner, or for him to the officer who made the sale. Sec. 30. Proof required of redemptioner. A redemptioner must produce to the officer, or person from whom he seeks to redeem, and serve with his notice to the officer a copy of the judgment or final order under which he claims the right to redeem, certified by the clerk of the court wherein the judgment or final order is entered; or, if he redeems upon a mortgage or other lien, a memorandum of the record thereof, certified by the registrar of deeds; or an original or certified copy of any assignment necessary to establish his claim; and an affidavit executed by him or his agent, showing the amount then actually due on the lien. Sec. 31. Manner of using premises pending redemption; waste restrained. Until the expiration of the time allowed for redemption, the court may, as in other proper cases, restrain the commission of waste on the property by injunction, on the application of the purchaser or the judgment obligee, with or without notice; but it is not waste for a person in possession of the property at the time of the sale, or entitled to possession afterwards, during the period allowed for redemption, to continue to use it in the same manner in which it was previously used; or to use it in the ordinary course of husbandry; or to make the necessary repairs to buildings thereon while he occupies the property. Sec. 35. Right to contribution or reimbursement. When property liable to an execution against several persons is sold thereon, and more than a due proportion of the judgment is satisfied out of the proceeds of the sale of the property of one of

12 them, or one of them pays, without a sale, more than his proportion, he may compel a contribution from the others; and when a judgment is upon an obligation of one of them, as security for another, and the surety pays the amount, or any part thereof, either by sale of his property or before sale, he may compel repayment from the principal. GENERAL BANKING LAW OF 2000, SECTION 47 Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extra-judicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. NOTES: 1. For judicial or extra-judicial foreclosure, the redemption period is within one year from sale or registration. 2. The purpose is to give concession to the banks. Banks cannot get properties mortgaged by those in financial distress. 3. The redemption price would be the mortgaged obligation plus the interest as stipulated in the original obligation. Compare this with judicial foreclosure wherein the redemption price is the original price. In this case, you have to pay more when redeeming from a bank. 4. There is immediate possession 5. A motion to enjoin would not be entertained unless secured by a bond. 6. Court will fix the amount of the bond. Normally, this would be the liability of the bank plus costs. This remedied the loopholes in Act 3135—protect the bank during foreclosures. This makes it hard to secure injunctions and it shortens the redemption period. However, 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. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. •

"SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixtysix, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act." ( Act 4118).

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A.M. No. 99-10-05-0

August 7, 2001

(AS FURTHER AMENDED, AUGUST 7, 2001) PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE In line with the responsibility of an Executive Judge under Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative area, included in which is the task of supervising directly the work of the Clerk of Court, who is also the Ex-Office Sheriff, and his staff, and the issuance of commissions to notaries public and enforcement of their duties under the law, the following procedures are hereby prescribed in extrajudicial foreclosure of mortgages: 1. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or a notary public, pursuant to Act 3135, as amended by Act 4118, and Act 1508, as amended, shall be filed with the Executive Judge, through the Clerk of court who is also the ExOfficio Sheriff. 2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the duty of the Clerk ofCourt to: a) receive and docket said application and to stamp thereon the corresponding file number, date and time of filing; b) collect the filing fees therefore pursuant to rule 141, Section 7(c), as amended by A.M. No. 00-2-01-SC, and issue the corresponding official receipt; c) examine, in case of real estate mortgage foreclosure, whether the applicant has complied with all the requirements before the public auction is conducted under the direction of the sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as amended;

16 d) sign and issue the certificate of sale, subject to the approval of the Executive Judge, or in his absence, the Vice-Executive Judge. No certificate of sale shall be issued in favor of the highest bidder until all fees provided for in the aforementioned sections and in Rule 141, Section 9(1), as amended by A.M. No. 00-2-01-SC, shall have been paid; Provided, that in no case shall the amountpayable under Rule 141, Section 9(1), as amended, exceed P100,000.00; e) after the certificate of sale has been issued to the highest bidder, keep the complete records, while awaiting any redemption within a period of one (1) year from date of registration of the certificate of sale with the Register of Deeds concerned, after which, the records shall be archived. Notwithstanding the foregoing provision, juridical persons whose property is sold pursuant to an extra-judicial foreclosure, shall have the right to redeem the property 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. 8791 (as amended, Res. Of August 7, 2001). Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness, only one filing fee corresponding to such indebtedness shall be collected. The collecting Clerk of Court shall, apart from the official receipt of the fees, issue a certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the real estates and/or chattels mortgaged and their respective locations, which certificate shall serve the purpose of having the application docketed with the Clerks of Court of the places where the other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. 3. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a notary publicshall be published in a newspaper of general circulation pursuant to Section 1, Presidential Decree No. 1079, dated January 2, 1977, and non-compliance therewith shall constitute a violation of Section 6 thereof. 4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle applications for extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs, including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the branches. 5. The name/s of the bidder/s shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale. This Resolution amends or modifies accordingly Administrative Order No. 3 issued by then Chief Justice Enrique M. Fernando on 19 October 1984 and Administrative Circular No. 3-98 issued by the Chief Justice Andres R. Narvasa on 5 February 1998. The Court Administrator may issue the necessary guidelines for the effective enforcement of this Resolution. The Clerk of Court shall cause the publication of this Resolution in a nuewspaper of general circulation not later than August 14, 2001 and furnish copies thereof to the Integrated Bar of the Philippines. This Resolution shall take effect on the 1st day of September of the year 2001. Promulgated this 7th day of August 2001 in the City of Manila. Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Pardo, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur. Sandoval-Gutierrez J., on leave.

CHATTEL MORTGAGE ( Act No. 1508, as amended). 1. Define Chattel Mortgage: Chattel Mortgage is a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation (Art 2140). 2. Characteristics as a Contract: a. accessory b. unilateral c. formal contract d. if the chattel mortgage (or real mortgage) is not recorded, the mortgagee acquires the right to demand registration of the contract. (Art 2125) 3. Laws principally governing chattel mortgages: a. Chattel Mortgage Law (Act No. 1508) b. Civil Code c. Revised Administrative Code; and

17 d. Revised Penal Code 4. Similarities between pledge and chattel mortgage: a. both are executed to secure performance of a principal obligation; b. both are constituted only on personal property; c. both are indivisible d. both are constitute a lien on the property e. In both cases, the creditor cannot appropriate the property to himself in payment of the debt; f. In both cases, when the debtor defaults, the property must be sold for the payment of the creditor; and g. Both are extinguishments by the fulfillment of the principal obligation and by the destruction of the property pledged or mortgaged. 5. Distinguish chattel mortgage from pledge: a. In chattel mortgage, the delivery of the personal property to the mortgagee is not necessary, while in pledge, such delivery is necessary; b. In chattel mortgage, the registration of the same in the Chattel Mortgage Register is necessary for its validity, while in pledge, registration in the Registry of Property is not necessary. c. The procedure for the sale of the thing given as a security is different. In chattel mortgage, the procedure is found in Section 14 of Act No. 1508, as amended, while in pledge, it is found in Article 2112 of the Civil Code. d. In chattel mortgage, the excess over the amount due after foreclosure goes to the debtor (Art No. 1508, Section 14), while in pledge, if the property is sold, the debtor is not entitled to the excess unless it is otherwise agreed (Art 2115) or except in the case of a legal pledge (Art 2121) and; e. In chattel mortgage, the creditor is entitled to recover any deficiency except if the chattel mortgage is a security for the purchase of personal property in installments, while in pledge, the creditor is not entitled, any stipulation to the contrary notwithstanding (Art 2115). 6. Object of Chattel Mortgage Contract: Only movable or personal properties such as: a. Shares of stock (the mortgage to be registered both in Chattel Mortgage Registries of the province where the mortgagor resides, and the province where the corporation has its principal business); b. Interest in business; c. Growing crops; d. Large cattles; e. Vehicles (the mortgage to be registered also with the Land Transportation Office); and f. Vessels (the mortgage to be registered with the Office of the Philippine Coast Guard of the Port of Documentation of such vessels. (Pres. Decree No. 1521, Sec. 3 9a)). g. House built on rented land but as between the parties only under the doctrine of estoppel; and h. House to be demolished and portable nipa huts for what are really mortgaged in this case are the materials thereof and they are, therefore, personal property. Note: Growing crops and large cattle are considered personal property under the Chattel Mortgage Law (Art 1508 Sec 7). They cannot however, be the object of a contract of pledge because they are considered immovable under the Civil Code, which principally governs pledge. 7. Extent or scope of Chattel Mortgage: It covers only property described in the contract, and excludes like or substituted property thereafter acquired by the mortgagor, notwithstanding any thing in the contract to the contrary (Art No. 1508 Sec 7). Exception: In this case of stock or merchandise contained in drugstores, grocery stores, etc. which are constantly sold and substituted with new stock. 8. What is an Affidavit of Good Faith? The Affidavit of Good Faith is an oath in a contra t of chattel mortgage wherein the parties “severally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purpose and that the same is just and valid obligation and one not entered into for the purpose of fraud. (Section 5)

18 Note: The absence of the affidavit vitiates a mortgage only as against third persons without notice, like creditors and subsequent encumbrances. 9. Who may exercise right of redemption when condition of the chattel mortgage is broken: a. The mortgagor; b. A person holding a subsequent mortgage; c. A subsequent attaching creditor The redemption is made by paying or delivering to the mortgage the amount due on such mortgage and the costs and expenses incurred by such breach of condition before the sale thereof. (Section 13). 10. Kinds of Foreclosure of Chattel Mortgage: a. Judicial Foreclosure – the mortgagee institutes an action in court; b. Extra-judicial Foreclosure – The sale is made by the mortgagee himself when authorized by the Chattel mortgage contract or by special law. 11. How proceeds of the foreclosure be applied? To the payment of the following in their order: a. Costs and expenses of keeping and sale; b. Payment of the obligation secured by the mortgage; c. Claims of persons holding subsequent mortgages in their order; and d. The balance, if any. Shall be paid to the mortgagor, or in person holding under him.

19 ACT NO. 1508 ACT NO. 1508 - AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL PROPERTY AND FOR THE REGISTRATION OF THE MORTGAGES SO EXECUTED

Section 1. The short title of this Act shall be "The Chattel Mortgage Law." Sec. 2. All personal property shall be subject to mortgage, agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof shall be termed chattel mortgage. Sec. 3. Chattel mortgage defined. — A chattel mortgage is a conditional sale of personal property as security for the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. If the condition is performed according to its terms the mortgage and sale immediately become void, and the mortgagee is thereby divested of his title. Sec. 4. Validity. — A chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same, or, if he resides without the Philippine Islands, in the province in which the property is situated: Provided, however, That if the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property is situated, and for the purposes of this Act the city of Manila shall be deemed to be a province. Sec. 5. Form. — A chattel mortgage shall be deemed to be sufficient when made substantially in accordance with the following form, and shall be signed by the person or persons executing the same, in the presence of twowitnesses, who shall sign the mortgage as witnesses to the execution thereof, and each mortgagor and mortgagee, or, in the absence of the mortgagee, his agent or attorney, shall make and subscribe an affidavit in substance as hereinafter set forth, which affidavit, signed by the parties to the mortgage as above stated, and the certificate of the oath signed by the authority administering the same, shall be appended to such mortgage and recorded therewith. FORM OF CHATTEL MORTGAGE AND AFFIDAVIT. "This mortgage made this ____ day of ______19____ by _______________, a resident of the municipality of ______________, Province of ____________, Philippine Islands mortgagor, to ____________, a resident of the municipality of ___________, Province of ______________, Philippine Islands, mortgagee, witnesseth: "That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the following-described personal property situated in the municipality of ______________, Province of ____________ and now in the possession of said mortgagor, to wit: (Here insert specific description of the property mortgaged.) "This mortgage is given as security for the payment to the said ______, mortgagee, of promissory notes for the sum of ____________ pesos, with (or without, as the case may be) interest thereon at the rate of ___________ per centum per annum, according to the terms of __________, certain promissory notes, dated _________, and in the words and figures following (here insert copy of the note or notes secured). "(If the mortgage is given for the performance of some other obligation aside from the payment of promissory notes, describe correctly but concisely the obligation to be performed.) "The conditions of this obligation are such that if the mortgagor, his heirs, executors, or administrators shall well and truly perform the full obligation (or obligations) above stated according to the terms thereof, then this obligation shall be null and void. "Executed at the municipality of _________, in the Province of ________, this _____ day of 19_____

20 ____________________ (Signature of mortgagor.) "In the presence of "_________________ "_________________ (Two witnesses sign here.) FORM OF OATH. "We severally swear that the foregoing mortgage is made for the purpose of securing the obligationspecified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud." FORM OF CERTIFICATE OF OATH. "At ___________, in the Province of _________, personally appeared ____________, the parties who signed the foregoing affidavit and made oath to the truth thereof before me. "_____________________________" (Notary public, justice of the peace, 1 or other officer, as the case may be.) Sec. 6. Corporations. — When a corporation is a party to such mortgage the affidavit required may be made and subscribed by a director, trustee, cashier, treasurer, or manager thereof, or by a person authorized on the part of such corporation to make or to receive such mortgage. When a partnership is a party to the mortgage the affidavit may be made and subscribed by one member thereof. Sec. 7. Descriptions of property. — The description of the mortgaged property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same. If the property mortgaged be large cattle," as defined by section one of Act Numbered Eleven and forty-seven, 2 and the amendments thereof, the description of said property in the mortgage shall contain the brands, class, sex, age, knots of radiated hair commonly known as remolinos, or cowlicks, and other marks of ownership as described and set forth in the certificate of ownership of said animal or animals, together with the number and place of issue of such certificates of ownership. If growing crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop while growing, and faithfully and without delay to harvest the same, and that in default of the performance of such duties the mortgage may enter upon the premises, take all the necessary measures for the protection of said crop, and retain possession thereof and sell the same, and from the proceeds of such sale pay all expenses incurred in caring for, harvesting, and selling the crop and the amount of the indebtedness or obligation secured by the mortgage, and the surplus thereof, if any shall be paid to the mortgagor or those entitled to the same. A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. Sec. 8. Failure of mortgagee to discharge the mortgage. — If the mortgagee, assign, administrator, executor, or either of them, after performance of the condition before or after the breach thereof, or after tender of the performance of the condition, at or after the time fixed for the performance, does not within ten days after being requested thereto by any person entitled to redeem, discharge the mortgage in the manner provided by law, the person entitled to redeem may recover of the person whose duty it is to discharge the same twenty pesos for his neglect and all damages occasioned thereby in an action in any court having jurisdiction of the subjectmatter thereof. Sec. 9-12. (inclusive) 3 Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or person holding a subsequent mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the sale thereof. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the

21 mortgage in the same manner that the mortgagee could foreclose it by the terms of this Act. Sec. 14. Sale of property at public auction; Officer's return; Fees; Disposition of proceeds. — The mortgagee, his executor, administrator, or assign, may, after thirty days from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten days' notice of the time, place, and purpose of such sale has been posted at two or more public places in such municipality, and the mortgagee, his executor, administrator, or assign, shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in such municipality, at least ten days previous to the sale. The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the register of deeds where the mortgage is recorded, and the register of deeds shall record the same. The fees of the officer for selling the property shall be the same as in the case of sale on execution as provided in Act Numbered One hundred and ninety, 4 and the amendments thereto, and the fees of the register of deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the register of deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgages, shall be paid to the mortgagor or person holding under him on demand. If the sale includes any "large cattle," a certificate of transfer as required by section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be issued by the treasurer of the municipality where the sale was held to the purchaser thereof. Sec. 15. 6, 6a Sec. 16. This Act shall take effect on August first, nineteen hundred and six. Enacted, July 2, 1906.