Pledge v.

Chattel Mortgage
Common
1. Constituted to secure the fulfillment of a
principal obligation
2. Pledgor or mortgagor must be absolute owner
of thing pledged or mortgaged
3. Must also have free disposal of the property
and in the absence thereof, must be legally
authorized
4. When the principal obligation becomes due,
thing may be alienated for payment to the
creditor (but cannot provide for appropriate
appropriation: pactum commissorium)
5. Third persons who are not parties to the
principal obligation may secure the latter by
mortgaging their own property

Surety v. Guaranty

Dragnet clause
May secure future obligations so long as they are
sufficiently described, to dispense with the need of
executing a new contract

Reliance on security test

Whether or not the new loan was made in reliance
solely on the original security with the dragnet clause or
on the new security given; If it is the new security, then
it is deemed not to be covered under the original
security; also, the new loan must refer to the original
security

Letters of Credit
A bank issued promise to pay assuring payment either
to:
1. Seller, if he delivers documents evidencing his
delivery of the goods (Commercial Letter of
Credit)
2. Obligee requiring obligors performance, if he
delivers documents evidencing the obligors
non-performance (Standby Letter of Credit)

Independence Principle: Bank is required to examine

only shipping documents presented by the seller
Rule of Strict Compliance: Tendered documents must
include all documents required by the letter of credit

Trust Receipt
Document whereby entruster party delivers the goods
and the possession to entrustee party, who promises to
hold the goods in trust for the entruster
(Usually, this is the Security for the loan given by the
bank in LC.)

Escalation Clause
1. Must be paired with a de-escalation clause
2. Must be pegged to the prevailing market rates,
not merely a generalized reference to any
increase or decrease in the interest rate in the
event of a law or CB regulation
3. Proposed modification must be the result of an
agreement between parties
Note that you do not have to agree all the
time, it is enough that the escalation clause
is very clear and leaves no doubt

Legal Interest Rates

1. Loan / forbearance of money, goods or services:
6%
2. Everything else: 6%
3. Judgments awarding damages: 12%
Pactum Commissorium
1. Property is subject of a pledge or mortgage
2. Stipulation for automatic appropriation of the
property by the creditor in case the debtor
defaults
Judicial Foreclosure, General Banking Law of 2000 (RA
5791)

CM, Extrajudicial foreclosure (no judicial)governed

by Act 3135 (same provides for one year redemption
period), notice
1. Ten days before sale, where collateral is located
or where mortgagor resides, post in at least two
public places
2. Ten days before sale, Sheriff must notify
a. Mortgagor
b. Person holding under him
c. Persons holding subsequent mortgages
either personally or by mail
Should state
1.
2.
3.
4.
5.

Date, time, place of the sale

Description of the property sold
Parties to the principal obligation
Total amount
Unpaid amount

CM, proceeds
1.
2.
3.
4.

Costs and expenses of sale

Obligation secured
Persons holding subsequent mortgages
Residue goes back to mortgagor or person
holding under him

REM, Extrajudicial foreclosure

1. Post, in PCM where property is situated, in at
least three public places for at least 20 days
2. If the property exceeds P 400, NGC, once a
week, three consecutive weeks
XPN: If objectives of notice of sale are attained

REM, judicial foreclosure, proceeds

1.
2.
3.
4.

Costs of sale
Mortgage debt
Junior encumbrancers
Mortgagor (same as CM)

Suspension of Payments: Creditors Meeting, Notice

Requirements
1. Where petition is filed

2. Once a week for two weeks (so just two

publications all in all)
3. First publication being made seven days from
issuance of Order (calling the meeting)
Note: Meeting is had fifteen to forty days from the
date of the Order

Rehabilitation: Commence Order with Stay or

Suspension Order, Notice Requirements
1. Publication in a NGC in the PHILIPPINES
2. Once a week, at least two weeks
3. First publication being made seven days from
issuance of Order
4. Special: if Creditor holds at least 10% of total
liabilities in debtors schedule
Personal Service within five
days
5. Initial hearing takes place at most 40 days from
filing of Petition
Liquidation
1.
2.
3.
4.

Determine if liquidation is necessary

A liquidator will be appointed
He will come up with a liquidation plan
Court approves considering Concurrence and
Preference of Credits
5. During proceedings, foreclosure of mortgages
are stayed for a period of 180 days; apart from
that, rights of secured creditors are not
impaired
6. Proceedings terminate when Court orders the
discharge of the debtor