JAVIER, Christian Jade M.

BSAT – 4

POSITION PAPER IN BUSINESS LAW 4

1. Can an auction be withdrawn after the fall of the hammer?

 Article 1476 Section 2 states that a sale by auction is perfected when the
auctioneer announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any bidder may
retract his bid; and the auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without reserve.

In putting up the goods for sale, the seller is merely making an invitation to
those present to make offers which they do by making bids, one of which
is ultimately accepted. Each bid is an offer and the contract is perfected
only by the fall of the hammer or in other customary manner. It follows that
the bidder may retract his bid and the auctioneer may withdraw the goods
from sale any time before the hammer falls. However, if the has been
announced to be without reserve, the auctioneer cannot withdraw the
goods from sale once a bid has been made and the highest bidder has
a right to enforce his bid.

Withdrawal of the goods is equivalent to a rejection of the offer made by

any bidder

a) Auction with reserve

 In an auction with reserve, the auctioneer is the offeree and
has the power of acceptance. As offeree, he has the power
to reject all bids. Such rejection includes withdrawal of the
goods during the bidding process
b) Auction without reserve
 in an auction without reserve, the auctioneer is much like an
offeror, with the bidders competing to determine who will win
the power of acceptance. After the auctioneer calls for bids
on an article or lot, the article or lot is made within a
reasonable time.
 The winning bidder cannot retract his bid nor can the auctioneer
withdraw the goods since there is already a perfected contract.
Withdrawal from the contract by either party constitute a violation of
the Principle of Mutuality of Contracts.

2. What will happen to the excess of the foreclosed chattel mortgage?

JUDICIAL FORECLOSURE UNDER 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).
e. 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.