FROM COMMERCIAL LAW

2009
Armando, a resident of Manila, borrowed P3-million from Bernardo, offering as security his 500
shares of stock worth P1.5-million in Xerxes Corporation, and his 2007 BMW sedan, valued at
P2-million. The mortgage on the shares of stock was registered in the Office of the Register of
Deeds of Makati City where Xerxes Corporation has its principal office. The mortgage on the car
was registered in the Office of the Register of Deeds of Manila. Armando executed a single
Affidavit of Good Faith, covering both mortgages.
Armando defaulted on the payment of his obligation; thus, Bernardo foreclosed on the two
chattel mortgages. Armando filed suit to nullify the foreclosure and the mortgages, raising the
following issues:
a. The execution of only one Affidavit of Good Faith for both mortgages invalidated the
two mortgages; (2%) and
b. The mortgage on the shares of stocks should have been registered in the Office of the
Register of Deeds of Manila where he resides, as well as in the stock and transfer book of
Xerxes Corporation. (3%)
Rule on the foregoing issues with reasons.
c. Assume that Bernardo extrajudicially foreclosed on the mortgages, and both the car and
the shares of stock were sold at public auction. If the proceeds from such public sale
should be P1-million short of Armandos total obligation, can Bernardo recover the
deficiency? Why or why not? (2%)

2010
III
Ozamis Paper Corporation secured loans from ABC Universal Bank in the aggregate principal
amount of P100 million, evidenced by several promissory notes, and secured by a continuing
guaranty of its principal stockholder Menandro at P45 million; and a real estate mortgage over
certain parcels of land owned by Marquez.

The corporation defaulted and the bank extra-judicially foreclosed on the real estate mortgage.
The bank, which was the sole bidder for P75 million, won the award.
a. Can the bank sue Marquez for the deficiency of P25 million? Explain. (2%)
b. If the bank opts to file an action for collection against the corporation, can it afterwards
institute a real action to foreclose the mortgage? Explain. (2%)
c. Can the bank foreclose on the pledged shares of Marquez and recover the deficiency
from the corporation? Explain. (2%)
X obtained a loan for Php50Million from SSS Bank. The collateral is his vacation house in
Baguio City under a real estate mortgage. X needed more funds for his business so he again
borrowed another Php10Million, this time from BBB Bank, another bank, using the same
collateral. The loan secured from SSS Bank fell due and X defaulted.
a. If SSS Bank forecloses the real estate mortgage, what rights, if any, are left with 888 Bank
as mo1igagee also? (2%)
b. If the value of the Baguio property is less than the amount of loan, what would be the
recourse of SSS Bank? BBB Bank? (2%)
c. If the value of the property is more that the amount of the loan, who will benefit from
the excess value of the property? (2%)
d. If X defaulted with its loan in favor of BBB Bank but fully paid his loan with SSS Bank,
can BBB Bank foreclose the real mortgage executed in its favor? (2%)
e. Does X have any legal remedy after the foreclosure in the event that later on he has the
rnoney to pay for the loan? (1%)
f.

If SSS Bank and BBB Bank abandon their rights under the real estate mortgage, is there
any legal recourse available to them? (1%)
VIII

X obtained a Php10Million loan from BBB Banking Corporation. The loan is secured by Real
Estate Mortgage on his vacation house in Tagaytay City. The original Deed of Real Estate
Mortgage for the Php10Million was duly registered. The Deed of Real Estate Mortgage also
provides that "The mortgagor also agrees that this mortgage will secure the payment of
additional loans or credit accommodations that may be granted by the mortgagee ... "
Subsequently, because he needed more funds, he obtained another Php5Million loan. On due

dates of both loans, X failed to pay the Php5Million but fully paid the Php10Million. BBB
Banking Corporation instituted extrajudicial foreclosure proceedings.
a. Will the extrajudicial foreclosure prosper considering that the additional Php5Million
was not covered by the registration? (5%)
b. What is the meaning of a "dragnet clause" in a Deed of Real Estate Mortgage? Under
what circumstances will the "dragnet clause" be applicable? ( 5%)

FROM CIVIL LAW

2013

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%)
III. Amador obtained a loan of P300,000 from Basilio payable on March25, 2012. As security for the
payment of his loan, Amador constituted a mortgage on his residential house and lot in Basilio's
favor. Cacho, a good friend of Amador, guaranteed and obligated himself to pay Basilio, in case
Amador fails to pay his loan at maturity.

III. (1) If Amador fails to pay Basilio his loan on March 25, 2012, can Basilio compel Cacho to
pay? (1%)
(A) No, Basilio cannot compel Cacho to pay because as guarantor, Cacho can
invoke the principle of excussion, i.e., all the assets of Basilio must first be
exhausted.
(B) No, Basilio cannot compel Cacho to pay because Basilio has not exhausted the
available remedies against Amador.
(C) Yes, Basilio can compel Cacho to pay because the nature of Cacho's undertaking
indicates that he has bound himself solidarily with Amador.
(D) Yes, Basilio can compel Cacho who bound himself to unconditionally pay in case
Amador fails to pay; thus the benefit of excussion will not apply.
III. (2) If Amador sells his residential house and lot to Diego, can Basilio foreclose the real
estate mortgage? (1%)
(A) Yes, Basilio can foreclose the real estate mortgage because real estate mortgage
creates a real right that attaches to the property.
(B) Yes, Basilio can foreclose the real estate mortgage. It is binding upon Diego as
the mortgage is embodied in a public instrument.
(C) No, Basilio cannot foreclose the real estate mortgage. The sale confers
ownership on the buyer, Diego, who must therefore consent.
(D) No, Basilio cannot foreclose the real estate mortgage. To deprive the new owner
of ownership and possession is unjustand inequitable.

2009
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%)