GUEVARRA, ROBERT ARVIN G.

ASSIGNMENT PART TWO

1. What is an affidavit of good faith, explain its significance in the chattel

mortgage?

An affidavit of good faith is an oath in a contract 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 purposes and that the same is a just
and valid, existing obligation and one not entered into for the purpose of fraud. Said
affidavit is essential in binding third persons in a chattel mortgage.

2. What is the legal ramification there is affidavit of good faith in a chattel

mortgage, explain with legal basis.

The legal ramification of affidavit of good faith in Chattel Mortgage is when it is

accompanied by an affidavit for the purpose of transforming an already valid mortgage to
a preferred mortgage as parse in Cebu International Finance Corp. vs. CA, GR No.
107554

3. What is the purpose of an affidavit of good faith in a chattel mortgage?

It is for the purpose of securing the obligations specified in the conditions thereof and for
no other purposes and that the same is a just and valid, existing obligation and one not
entered into for the purpose of fraud.

4. Discuss exhaustively the case of Cebu International Finance Corp. vs. CA, GR
No. 107554

Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay,
authorizing the latter to sell the cargo vessel owned by Dy and christened LCT
"Asiatic."Through a Deed of Absolute Sale, Ang Tay sold the subject vessel to private
responden t Robert Ong Ong paid the purchase price by issuing three (3) checks.
However, since the payment was not made in cash, it was specifically stipulated in the
deed of sale that the "LCT Asiatic shall not be registered or transferred to Robert Ong
until complete payment. "Thereafter, Ong obtained possession of the subject vessel. He,
likewise, obtained copies of the unnotarized deed of sale allegedly to be shown to the
banks to enable him to acquire a loan to replenish his (Ong's) capital. Without the
knowledge of Ang Tay, Ong had his copies of the deed of sale notarized. Ong presented
the notarized deed to the Philippine Coast Guard which subsequently issued him a
Certificate of Ownership and a Certificate of Philippine Register[6]over the subject
vessel. Ong also succeeded in having the name of the vessel changed to LCT "Orient
 Hope."

Then Ong acquired a loan from petitioner but Ong defaulted in the payment of the
monthly installments, petitioner demended delivery of the mortgaged vessel.Then the
check of Ong bounce. As a result thereof, Ang Tay and Jacinto Dy filed a civil case for
rescission and replevin with damages against Ong and his wife. The trial court granted
petitioner's prayer for replevin. The vessel was seized and placed in the custody of the
trial court. However, Ang Tay posted a counter bond and the vessel was returned to his
possession. The Court of Appeals affirmed the trial court's decision and declared the
chattel mortgage on the subject vessel null and void.

The court held that in the prevailing jurisprudence is that a mortgagee has a right to rely
in good faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of or does
not have a valid title to the mortgaged property, the mortgagee or transferee in good faith
is nonetheless entitled to protection. Although this rule generally pertains to real property,
particularly registered land, it may also be applied by analogy to personal property, in this
case specifically, since ship owners are, likewise, required by law to register their vessels
with the Philippine Coast Guard.

The chattel mortgage constituted on a vessel by the buyer who was able to register the
vessel in his name despite the agreement with the seller that the vessel would not be so
registered until after full payment of the price which do not appear in the buyer’s copy of
the deed of sale is valid, for the mortgagee has the right to rely in good faith on the
certificate of registration . furthermore the court rule Petitioner's bad faith is further
demonstrated, Ang Tay avers, by its failure to comply with the following requirements of
P.D. No. 1521 or the Ship Mortgage Decree of 1978.

5. What are the characteristics of a chattel mortgage?

The characteristics of chattel mortgage are the following; that it is a Formal Contract
where it must becin a public instrument and recorded in the Chattel Mortgage Register; It
is an Accessory Contract, where the existence depends upon an existing valid principal
obligation; and a Unilateral Contract the obligation is only on the part of the creditor to
free the chattel from encumbrance upon the payment of the principal obligation.

6. Distinguish a contract of Chattel Mortgage from a Contract of Pledge?

As to the necessity of delivery, in Chattel Mortgage, delivery of personal property to the

mortgagee is not necessary while in a Contract of Pledge, it is necessary.
 As to the requirement of registration, registration in Chattel Mortgage Register is
required by law for validity while in Pledge, registration is not necessary.

The contract of pledge can be a continuing security, that, it may secure future
advancement. On the other hand, a chattel mortgage can only cover obligation existing at
the time of the mortgage is constituted. It may not cover future advancements.

7. Distinguish a contract of Chattel Mortgage from a contract Real Estate

Mortgage?

As to the subject matter, in Chattel Mortgage, it involves personal property whereas in

Real Estate Mortgage, it involves real property.
As to guaranty of future obligations, Chattel Mortgage cannot guaranty future obligations
because it requires immediate recording while in Real Estate Mortgage, it may guaranty
future obligations.

As to the Registration, Chattel Mortgage must be registered once recorded in the entry
book and Chattel Mortgage Registry while in Real Estate Mortgage, it must be registered
once recorded in the entry book.

8. What is the proper subject matter of the CHATTLE MORTGAGE?

The proper subject matter of Chattel Mortgage is personal or movable property such as
 Shares of stock in a corporation
 An interest in business, for it is personal property capable of appropriation
 Machinery treated by the parties as personal property subsequently
installed on leased land
 Vessels but it is essential that the mortgage is recorded in the office of the
Philippine Coast Guard of the port of documentation of such vessels
 Motor vehicles but the mortgage must also be registered in the Land
Transportation Commision (now LTO)
 House of mixed materials
 House intended to be demolished
 House built on rented land

9. Is this an absolute rule?

It is not an absolute rule as provided in Article 415 and 416 of the Civil Code which
mention what are deemed real property and personal property, respectively, supply no
 absolute criterion for discriminating between the two kinds of propert for puposes of the
application of Mortgage Law

10. Discuss exhaustively the case of Navarro vs. Pineda, 9 SCRA 631 (1963) and
case of Tumulad vs. Vicencio, 41 SCRA 143 (1971)

In the case of Navarro v. Pineda, Pineda and his mother executed real estate and chattel
mortgages in favor of Navarro, to secure a loan they got from the latter. The REM
covered a parcel of land owned by the mother while the chattel mortgage covered a
residential house. Due to the failure to pay the loan, they asked for
extensions to pay for the loan. On the second extension, Pineda executed a promise
wherein in case of default in payment, he wouldn’t ask for any additional extension and
there would be no need for any formal demand. In spite of this, they still failed to pay.
Navarro then filed for the foreclosure of the mortgages. The court did not predicate its
decision declaring the deed of chattel mortgage valid solely on the ground that the house
mortgaged was erected on the land which belonged to a third person, but also and
principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in
the mortgage to consider the house as chattel "for its smallness and mixed materials
of sawali and wood" for purposes of the application of the Chattel Mortgage Law, it was
held that under certain conditions, "a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by
agreement, treat as personal property that which by nature would be real property" that
the court rule in his favor. In other words
Where a house stands on a rented land belonging to another person, it may be the
subject matter of a chattel mortgage as personal property if so stipulated in the document
of mortgage, and in an action by the mortgagee for the foreclosure, the validity of the
chattel mortgage cannot be assailed by one of the parties to the contract of
mortgage. That in the case the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel mortgage,
appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my personal
properties", a residential house and a truck. The mortgagor himself grouped the house
with the truck, which is, inherently a movable property. The house which was not even
declared for taxation purposes was small and made of light construction materials: G.I.
sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to
another.

In the case of Tumulad v. Vicencio, Alberta Vicencio and Emiliano Simeon received a
loan of P4, 800 from Gavino and Generosa Tumalad. To guaranty said loan, Vicencio
executed a chattel mortgage in favor of Tumalad over their house of strong materials
which stood on a land which was rented from the Madrigal & Company, Inc. When
 Vicencio defaulted in paying, the house was extrajudicially foreclosed, pursuant to their
contract. It was sold to Tumalad and they instituted a Civil case in the Municipal Court of
Manila to have Vicencio vacate the house and pay rent.

The Supreme Court held that athough a building is by itself an immovable property,
parties to a contract may treat as personal property that which by nature would be real
property and it would be valid and good only insofar as the contracting parties are
concerned. By principle of estoppel, the owner declaring his house to be a chattel may no
longer subsequently claim otherwise.

When Vicencio executed the Chattel Mortgage, it specifically provides that the
mortgagor cedes, sells and transfers by way of Chattel mortgage. They intended to treat it
as chattel therefore are now estopped from claiming otherwise. Also the house stood on
rented land which was held in previous jurisprudence to be personalty since it was placed
on the land by one who had only temporary right over the property thus it does not
become immobilized by attachment. In other words, before the expiration of the 1-year
period within which the judgment-debtor or mortgagor may redeem the property, the
purchaser thereof is not entitled, as a matter of right, to possession of the same. Thus,
while it is true that the Rules of Court allow the purchaser to receive the rentals if the
purchased property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received and the
same will be duly credited against the redemption price when the said debtor or
mortgagor effects the redemption. Differently stated, the rentals receivable from tenants,
although they may be collected by the purchaser during the redemption period, do not
belong to the latter but still pertain to the debtor of mortgagor. The rationale for the Rule,
it seems, is to secure for the benefit of the debtor or mortgagor, the payment of the
redemption amount and the consequent return to him of his properties sold at public
auction.

11. What are ‘AFTER-ACQUIRED PORPERTIES”?

After-acquired property is a property which is acquired by a borrower after a security

agreement is signed, by a debtor after a bankruptcy case is commenced, or by a
testator after a will is made

12. What are “AFTER-INCURRED OBLIGATIONS”?

After-incurred obligations must, at the time they are contracted, only be accurately
described in a proper instrument.while a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these future debts are
accurately described, a chattel mortgage, however, can only cover obligations existing at
the time the mortgage is constituted.
13. Where should a chattel mortgage be registered to bind 3rd persons?

Registration shall be done in the Register of Deeds where the mortgagor resides
and when the property is situated somewhere else and it also needs to be registered also
in the Register of Deeds of the area where the property is situated. Further requirements
are also required such in case of vehicles there is a need of an LTO

14. Is registration of a chattel mortgage in the chattel mortgage register necessary

for the validity of the contract?

Yes, the registration of a chattel mortgage in the chattel mortgage register necessary for
the validity of the contract

In accordance with Article 2125 of the Civil Code, an unregistered chattel mortgage is
binding between the parties because registration is necessary only for the purpose of
binding third persons.

15. Is an unregistered chattel mortgage valid and binding?

In accordance with Article 2125 of the Civil Code, an unregistered chattel mortgage is
binding between the parties because registration is necessary only for the purpose of
binding third persons.

16. Discuss the case of Filipinas Marble Corp. vs. IAC, May 30, 1986

Filipinas Marble Corporation filed a complaint for the annulment of the deeds of
mortgage and deed of assignment which it executed in favor of the Development Bank of
the Philippines (DBP) to secure theloan contending that there was no loan at all to secure
since what DBP just lent to petitioner with its right hand, it also got back with its left
hand; and that, there was failure of consideration with regard to the execution of said
deeds as the loan was never delivered to the petitioner. The petitioner further prayed that
pending the trial on the merits of the case, the trial court immediately issue a restraining
order and a writ of preliminary injunction against the sheriffs to enjoin the latter from
proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila
and in Romblon. DBP in its opposition to a writ of preliminary injunction said that under
PD 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already
amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that
under the same PD, no court can issue any restraining order or injunction against it to
stop the foreclosure since Filipinas Marble's arrearages had already reached at least 20%
of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner
could, at best, be accepted only in a technical sense because the money was received by
the officers of the petitioner acting in such capacity and, therefore, irrespective of
 whoever is responsible for placing them in their positions, their receipt of the money was
receipt by the petitioner corporation and that the complaint does not raise any substantial
controversy as to the amount due under the mortgage as the issues raised therein refer to
the propriety of the manner by which the proceeds of the loan were expended by the
petitioner's management, the allegedly precipitate manner with which DBP proceeded
with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease
rights. RTC held that it cannot enjoin DBP from complying with the mandatory
provisions of the said PD It having been shown that plaintiff's outstanding obligation
amounted to P151,957,641.72 and with arrearages reaching up to 81 % against said total
obligation, the Court finds the provisions of P.D. 385 applicable to the instant case. CA
upheld the trial court's decision.

The court held that a mortgage is a mere accessory contract and, thus, its validity would
depend on the validity of the loan secured by it. The court, however, reject the
petitioner's argument that since the chattel mortgage involved was not registered, the
same is null and void. Article 2125 of the Civil Code clearly provides that the non-
registration of the mortgage does not affect the immediate parties. It states:

In addition to the requisites stated in article 2085, it is indispensable, in order that a

mortgage may be validly constituted that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless
binding between the parties.

The petitioner cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP. There was no valid contract for failure of
consideration. Precisely, what the petitioner is trying to point out is that the DBP and
Bancom people who managed Filipinas Marble misspent the proceeds of the loan by
taking advantage of the positions that they were occupying in the corporation which
resulted in the latter's devastation instead of its rehabilitation. The petitioner does not
question the authority under which the loan was delivered but stresses that it is precisely
this authority which enabled the DBP and Bancom people to misspend and
misappropriate the proceeds of the loan thereby defeating its very purpose, that is, to
develop the projects of the corporation. Therefore, it is as if the loan was never delivered
to it and thus, there was failure on the part of the respondent DBP to deliver the
consideration for which the mortgage and the assignment of deed were executed.

17. What is meant by the term FORECLOSURE?

It is the remedy available to the mortgagee by which he subjects the mortgaged property
to the satisfaction of the obligation to secure that for which the mortgage was given.

18. What are the kinds of FORECLOSURE?

There is Judicial foreclosure where this is an ordinary action for foreclosure under Rule
68 of the Rules of Court. Another is Extrajudicial foreclosure happens when mortgagee is
 given a special power of attorney to sell the mortgaged property by public auction, under
Act No. 3135.

19. Provide and explain the procedure undertaken in a Judicial Foreclosure?

In judicial foreclosure, the first is must to be taken is that the judicial action must bring to
the proper court having jurisdiction. Second, order by the court for mortgagor to pay
mortgage debt if the court finds the complaint to be well-founded, within a period of not
less than 90 day not more than 120 days from the entry of judgment. Third, sale to the
highest bidder at public auction if the mortgagor fails to pay at the time directed in the
court order. Upon the confirmation of the sale, which operates to divest the rights of all
parties to the action and vest their rights to the purchaser. Upon execution of judgment in
the manner prescribed by the law on mortgages, the parties not being authorized to
change the procedure prescribed. Then the application of the proceeds of the Sale and
Execution of sheriff’s certificate. In the absence of Certificate of Sale, no title is passed
by the foreclosure proceedings to the vendee.

20. What are the remedies available to the CREDITOR in a foreclosure?

A creditor may recover, any deficiency in the mortgage account which is not realized in a
foreclosure sale. Then an independent civil action for the recovery of deficiency may be
filed even during the prescriptive period of redemption. After the auction sale is affected
and the resulting deficiency is ascertained, the mortgagee-creditor is entitled to secure a
deficiency judgment which may immediately be executed, whether or not the mortgagor
is still entitled to redeem the property sold.

Another remedy available to the creditor is when a mortgage may be foreclosed

extrajudicially where there is inserted in the contract a clause giving the mortgagee the
power, upon default of the debtor, to foreclose the mortgage by an extrajudicial sale of
the mortgaged property.

21. What is Insolvency?

Insolvency refer to the financial condition of a debtor that is generally unable to pay its or
his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets

22. Exhaustively distinguish Voluntary Insolvency from Involuntary insolvency.

In Insolvency Law, Voluntary Insolvency is where an insolvent debtor, owing debts

exceeding in amount the sum of one thousand pesos, may apply to be discharged from his
debts and liabilities by petition to the Court of First Instance of province or city in which
he has resided for six months next preceding the filing of such petition. In his petition he
shall set forth his of residence, the period of his residence therein immediately prior to
filing said petition, his inability to pay all his debts in full, his willingness to surrender all
his property, estate, and effects not exempt from execution for the benefit of his creditors,
and an application to be adjudged an insolvent. He shall annex to his petition a schedule
and inventory in the form herein-after provided. The filing of such petition shall be an act
of insolvency.

In Involuntary Insolvency is where an adjudication of insolvency may be made on the

petition of three or more creditors, residents of the Philippine Islands whose credits or
demands accrued in the Philippine Islands, and the amount of which credits or demands
are in the aggregate not less than one thousand pesos: Provided, That none of said
creditors has become a creditor by assignments, however made, within thirty days prior
to the filing of said petition. Such petition must be filed in the Court of First Instance of
the province or city in which the debtor resides or has his principal place of business, and
must be verified by at least three of the petitioners. The following shall be considered acts
of insolvency, and the petition for insolvency shall set forth one or more of insolvency
such acts: (1) That such person is about to depart or has departed from the Philippine
Islands, with intent to defraud his creditors; (2) that being absent from the Philippine
Islands, with intent to defraud his creditors, he remains absent; (3) that he conceals
himself to avoid the service of legal process for purpose of hindering or delaying or
defrauding his creditors; (4) that he conceals, or is removing, any of his property to avoid
its being attached or taken on legal process; (5) that he has suffered his property to
remain under attachment or legal process for three days for the purpose of hindering or
delaying or defrauding his creditors; (6) that he has confessed or offered to allow
judgment in favor of any creditor or claimant for the purpose of hindering or delaying or
defrauding any creditor or claimant; (7) that he has willfully suffered judgment to be
taken against him by default for the purpose of hindering or delaying or defrauding his
creditors; (8) that he has suffered or procured his property to be taken on legal process
with intent to give a preference to one or more of his creditors and thereby hinder, delay,
or defraud any one of his creditors; (9) that he has made any assignment, gift, sale,
conveyance, or transfer of his estate, property, rights, or credits with intent to delay,
defraud, or hinder his creditors; (10) that he has, in contemplation of insolvency, made
any payment, gift, grant, sale conveyance, or transfer of his estate, property, rights, or
credits; (11) that being a merchant or tradesman he has generally defaulted in the
payment of his current obligations for a period of thirty days; (12) that for a period of
thirty days he has failed, after demand, to pay any moneys deposited with him or received
by him in a fiduciary capacity; and (13) that an execution having been issued against him
on final judgment for money, he shall have been found to be without sufficient property
subject to execution to satisfy the judgment. The petitioners may, from time to time, by
leave of the court, amend and or amendments to relate back to and be received as
embraced in the original petition. The said petition shall be accompanied by a bond, 6
approved by the court, with at least two sureties, in such penal sum as the court shall
direct, conditioned that if the petition in insolvency be dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not be declared an insolvent, the
petitioners will pay to the debtor alleged in the petition to be insolvent all costs, expenses,
and damages occasioned by the proceedings dent, the in insolvency, together with a
reasonable counsel fee to be fixed by the court. The court may, upon motion, direct the
filing of an additional bond, with different sureties, when deemed necessary.
23. What is meant by SUSPENSION OF PAYMENTS?

Postponement by court order of the payment of debts of one who, while possessing
sufficient property to cover his
debts, foresees the impossibility of meeting them when they respectively fall due.

24. What are the existing rights and obligations of the parties in:

As provided in the Insolvency Law this are the rights and obligation of the parties
involved

A. Voluntary Insolvency
Sec. 18. Order of court declaring petitioner insolvent; Publication notice. – Upon
receiving and filing said petition, schedule, and inventory, the court, or the judge thereof
in vacation, shall make an order declaring the petitioner insolvent, and directing the
sheriff of the province or city in which the petition is filed to take possession of, and
safely keep, until the appointment of a receiver or assignee, all the deeds, vouchers,
books of account, papers, notes, bonds, bills, and securities of the debtor, and all his real
and personal property, estate, and effects, except such as may be by law exempt from
execution. 3 Said order shall further forbid the payment to the debtor of any debts due to
him and the delivery to the debtor, or to any person for him, and the transfer of any
property by him, and shall further appoint a time and place for a meeting of the creditors
to choose an assignee of the estate. Said order shall designate a newspaper of general
circulation published in the province or city in which the petition is filed, if there be one,
and if there be none, in a newspaper which, in the opinion of the judge, will best give
notice to the creditors of the said insolvent, and in the newspaper so designated said
order shall be published 4 as often as may be prescribed by the court or the judge The
time appointed for the election of an assignee shall not be less than two, nor more than
eight, weeks from the date of the order of adjudication. Upon the granting of said order
all civil proceedings pending against said insolvent shall be stayed. When a receiver is
appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon
deliver to such receiver or assignee chosen, as provided in this Act, the sheriff shall
thereupon deliver to such receiver or assignee, as the case may be, all the property,
assets, and belongings of the insolvent which have come into his possession, and he shall
be allowed and paid as compensation for his services the same expenses and fees as
would by law be collectible if the property had been levied upon and safely kept under
attachment.

B. Involuntary Insolvency
Sec. 20. Petition; Acts of insolvency. – An adjudication of insolvency may be made on
the petition of three or more creditors, residents of the Philippine Islands whose credits or
demands accrued in the Philippine Islands, and the amount of which credits or demands
are in the aggregate not less than one thousand pesos: Provided, That none of said
creditors has become a creditor by assignments, however made, within thirty days prior
to the filing of said petition. Such petition must be filed in the Court of First Instance of
the province or city in which the debtor resides or has his principal place of business, and
must be verified by at least three of the petitioners. The following shall be considered acts
of insolvency, and the petition for insolvency shall set forth one or more of insolvency
such acts: (1) That such person is about to depart or has departed from the Philippine
Islands, with intent to defraud his creditors; (2) that being absent from the Philippine
Islands, with intent to defraud his creditors, he remains absent; (3) that he conceals
himself to avoid the service of legal process for purpose of hindering or delaying or
defrauding his creditors; (4) that he conceals, or is removing, any of his property to avoid
its being attached or taken on legal process; (5) that he has suffered his property to
remain under attachment or legal process for three days for the purpose of hindering or
delaying or defrauding his creditors; (6) that he has confessed or offered to allow
judgment in favor of any creditor or claimant for the purpose of hindering or delaying or
defrauding any creditor or claimant; (7) that he has willfully suffered judgment to be
taken against him by default for the purpose of hindering or delaying or defrauding his
creditors; (8) that he has suffered or procured his property to be taken on legal process
with intent to give a preference to one or more of his creditors and thereby hinder, delay,
or defraud any one of his creditors; (9) that he has made any assignment, gift, sale,
conveyance, or transfer of his estate, property, rights, or credits with intent to delay,
defraud, or hinder his creditors; (10) that he has, in contemplation of insolvency, made
any payment, gift, grant, sale conveyance, or transfer of his estate, property, rights, or
credits; (11) that being a merchant or tradesman he has generally defaulted in the
payment of his current obligations for a period of thirty days; (12) that for a period of
thirty days he has failed, after demand, to pay any moneys deposited with him or received
by him in a fiduciary capacity; and (13) that an execution having been issued against him
on final judgment for money, he shall have been found to be without sufficient property
subject to execution to satisfy the judgment. The petitioners may, from time to time, by
leave of the court, amend and or amendments to relate back to and be received as
embraced in the original petition. The said petition shall be accompanied by a bond, 6
approved by the court, with at least two sureties, in such penal sum as the court shall
direct, conditioned that if the petition in insolvency be dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not be declared an insolvent, the
petitioners will pay to the debtor alleged in the petition to be insolvent all costs, expenses,
and damages occasioned by the proceedings dent, the in insolvency, together with a
reasonable counsel fee to be fixed by the court. The court may, upon motion, direct the
filing of an additional bond, with different sureties, when deemed necessary.
Sec. 21. Order to debtor to show cause. – Upon the filing of such creditors’ petition, the
court or a judge shall issue an order requiring such debtor to show cause, at a time and
place to be fixed by said court or judge, why he should not be adjudged an insolvent
debtor; and at the same time, or thereafter, upon good cause shown therefor, said court or
judge may make an order forbidding the payment of any debts, and the delivery of any
the court property belonging to such debtor to him or to any other person for his benefit
or the transfer of any property by him.

C. Suspension of Payments
Sec. 5. Creditors cited to appear. – Only creditors included in the schedule filed by the
debtor shall be cited to appear and take part in the meeting mentioned in section three,
and they shall be notified upon delivery or transmission to them of a copy of the order
calling the meeting to appear at same with the written evidences of their respective
claims, without which they shall not be admitted.

Sec. 6. Pending Execution. – If any execution be pending against the debtor it shall not be
consolidated with this proceeding, but the course thereof shall be suspended before sale
of property is made thereunder, provided the debtor makes a request therefor to the court
before which the proceeding for suspension of payments is pending, unless the execution
be against property especially mortgaged which is hereby exempted from the least the
provisions of this section. The suspension ordered by virtue of this section shall lapse
when three months shall have passed without the proposed agreement being accepted by
the creditors or as soon as it is denied. No creditor and the other than those mentioned in
section nine shall sue or institute proceedings to collect his claim from the debtor from
the moment that suspension of payments is applied for and while the proceedings are
pending.

Sec. 7. Creditors may be represented at the meeting by one or more lawyers or by any
person authorized by power of attorney, which document shall be presented and be
attached to the record.

Persons appearing for more than one creditor shall have only one personal vote, but the
claims presented by them shall be taken into consideration for the purpose of arriving at
the majority of the amount represented.

Sec. 8. Creditors necessary to hold a meeting; Meeting; Minutes of the meeting. – The
presence of the creditors representing at least three-fifths the liabilities shall be necessary
for holding a meeting. The meeting shall be held on the day and at the hour and place
designated, the judge, or commissioner deputized by him when he is absent from the
province where the meeting is held, acting as president and the clerk as secretary thereof,
subject to the following rules:

(a) The clerk shall prepare for insertion in the minutes of the meeting a statement of the
persons present and their claims; the judge, or, in default thereof, the commissioner, shall
examine the written evidences of the claims and the powers of attorney, if any. If the
persons present who have complied with the foregoing rules represent at least three-fifths
of the liabilities, the judge or commissioner shall declare the meeting open for business.

(b) The petition of the debtor, the schedule of debts and of property, the statement of
assets and liabilities, and the proposed agreement filed there- with shall be read forthwith
by the clerk, and the discussion shall be opened.

(c) The debtor may modify his proposition or propositions in view of the result of the
debate, or insist upon the ones already made, and the judge or commissioner, without
 further discussion, shall clearly and succinctly place these several propositions before the
meeting for a vote thereupon.

(d) The vote shall be taken by a call of names and shall be inserted in and the minutes; a
majority vote shall rule.

(e) To form a majority it is necessary –

1. That two-thirds of the creditors voting unite upon the same position.

2. That the claims represented by said majority vote amount to at least three-fifths of the
total liabilities of the debtor mentioned in the petition.

(f) After the result of the voting has been announced, all protests made against the
majority vote shall be drawn up, and there shall be inserted therein the proposition or
propositions voted upon, which, after having been read and approved, shall be signed by
the judge or commissioner together with all persons taking part in the voting; if any such
persons shall be unable to write, any person present shall sign, at their request, and the
clerk shall certify to all of the above.

Sec. 9. Persons who may refrain from voting. – Persons having claims for personal labor,
maintenance, expenses of last illness and funeral of the wife or children of the debtor,
incurred in the sixty days immediately preceding the filing of the petition, and persons
having legal or contractual mortgages, may refrain from attending the meeting and from
voting therein. Such persons shall not be bound by any agreement determined upon at
such meeting, but if they should join in the voting they shall be bound in the same
manner as are the other creditors.

Sec. 10. Rejection of agreement. – The proposed agreement shall be deemed rejected if
the number of creditors required for holding a meeting do not attend thereat, or if the two
majorities mentioned in rule (e) of section eight are not in favor thereof, even if the
negative vote itself does not receive such majorities.

25. Explain and properly illustrate the procedure undertaken in a

A. Voluntary Insolvency
(1)filing of the petition by the debtor praying for the declaration of insolvency. (2)
Issuance of an order of adjudication declaring the petitioner insolvent. (3) Publication and
service of the order. (4) Meeting of the creditors to elect the assignee in insolvency. (5)
Conveyance of the debtors property by the clerk of court to the assignee. (6). Liquidation
 of the debtors assets and payment of his debts. (7) Composition, if agreed upon. (8).
Dicharge of the debtor on his application except a corporation. (9)Objection, if any, to the
discharge. (10) Appeal to the Supreme Court in cetiorari.
B. Involuntary Insolvency

(1) Filing of the petition by the three or more creditors. (2) Issuance of order requring the
debtor to show cause why e should not be adjudged insolvent. (3) Service of order to
show cause. (4) Filing of answer or motion to dismiss. (5) Hearing of the case. (6).
Issuance of order or decision adjudging debtor insolvent. (7) Publication and service of
order.(8). Meeting of creditors for election of an assignee in insolvency. (9). Conveyance
of debtors property by the clerk of court to the assignee. (10). Liquidation of the debtors
assets and payment of debt (11) Composition, if agreed upon. (12) Discharge of the
debtor on his application, except in corporation. (13). Objection, if any, to the discharge.
(14) Appeal to the Supreme Court in certain cases
C. Suspension of Payments

(1) Filling of the petition by the debtor. (2) Inssuance by the court of an order calling a
meeting of creditors. (3). Publication of the order and service of summons(4) Meeting of
creditors for the consideration of the debtors proposition.(5) Approval by the creditors of
the debtors proposition.(6). The double majority rule applies. (7) Objection, if any, to the
decision must be made within 10 days following the meeting. (8). Issuance of order by
the court directing that the agreement be carried out in case the decision is declared valid,
or when no objection to said decision has been presented

26. What is meant by Antichresis?

Antichresis the creditor acquires the right to receive the fruits of an immovable of
his debtor, with the obligation to apply them to thepayment of the interest, if o
wing, and thereafter to the principal of his credit.

27. What are the characteristics of a Contract of Antichresis?

The characteristics of Antichresis are it is an accessory, and a formal contract

28. Distinguish Antichresis from Pacto De Retro Sale?

The antichresis is a mechanism through which an owner gives the rights of use of her
property to a tenant in exchange for a fixed amount of money payable at the signature of
the contract. Antichresis establishes a tenant usufruct, the right to use the property for a
limited term, usually for one required year and one optional year agreed by both parties,
after which the owner returns the lump sum of money and the tenant returns the property.

On the other hand a sale with pacto de retro transfers the legal title to the vendee a retro.
The essence of apacto de retro sale is that the title and ownership of the property sold are
 immediately vested in the vendee a retro, subject to the resolutory condition of
repurchase by a vendor a retro to repurchase the property within the period agreed upon
by them, or, in the absence thereof, as provided by law, vests upon the vendee a retro
absolute title and ownership over the property sold by operation of law. The failure of the
vendee a retro to consolidate his title under Article 1607 of the New Civil Code does not
impair such title and ownership because the method prescribed thereunder is merely for
the purpose of registering and consolidating titles to the property.

29. Distinguish Antichresis from Pledge?

Real property. As to perfection, the former is perfected by mere consent while the latter is
perfected by delivery of the thing pledged. As to control of subject matter, both
antichresis and pledge, the debtor loses control of the subject matter of the contract.

30. Distinguish Antichresis from Mortgage

As to delivery or non-delivery of the mortgaged thing, in antichresis, real property is

delivered to creditor while in mortgage, debtor usually retains possession of the thing. As
to right to the fruits, in antichresis, creditor acquires only the right to receive the fruits of
the property hence, it does not produce a real right whereas in mortgage, creditor does not
have any right to receive the fruits but the mortgage creates a real right over the property.

31. State the Rights of an Antichretic Creditor?

The right of an Antichretic Creditor are the following;(1)That he has the right to the fruits
and income of the thing,(2)to retain the thing until the debt is paid ,(3)to have he thing
sold upon non-payment at maturity,(4)he has preference to the proceeds of the sale of the
thing,and(5) to be reimbursed for his expense for machinery and other improvements on
the land. Andfor sums paid as land taxes

32. State the Obligations of an Antichretic Creditor ?

Antichretic Creditor has the obligation to to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit. The creditor is also obliged, unless
there is a stipulation to the contrary, is obliged to pay the taxes and charges upon the
estate

33. What is meant by Concurrence of Credits?

Concurrence of Credits this implies the possession by two or more creditors of equal right
or privileges over the same property of equal rights or privilegesover the same property
or all of the debtors.

34. What is meant by Preference of Credits?

 Preference of Credits this is the right held by a creditor to be preferred in the payment of
his claim above others out of the debtor’s asset. It is the right to be paid first.

35. What is meant by the term LIEN?

Lien is a right to keep possession of property belonging to another person until a debt
owed by that person is discharged. That is usually a formal document signed by the party
to whom money is owed and sometimes by the debtor who agrees to the amount due ,
where a lien carries with it the right to sell property, if necessary, to obtain the money.

36. What is meant by the term preference?

In connection to credit preference applies only to claims which do not attach to specific
properties, where this is the right of the creditor to preferred in the payment of claim to
the debtor’s assets.

37. When is the Rule on Preference of credit applicable?

Rule on Preference of credit applicable when thereare two(2) or more creditors; with
separate and distinct calims; against the same debtor and who has insufficient property
when the following circumstance is present then the rule can apply.

38. What is the order of payment to be followed if the debtor’s assets have been
liquidated for payment of his debts?

The order of payment to be followed if the debtor’s assets have been liquidated for
payment of his debts are as follow:

1. Those credits which enjoy preference with respect to specific movable, excluded all
others to the extent of the value of the personal property to which the preference refers
(Article 2246).

2. If there are two or more credits with respect to the same specific movable property,
they shall be satisfied pro‐rata, after the payment of duties, taxes, and fees due the State
or any subdivision thereof (Art. 2247, NCC).

3. Those credits which enjoy preference in relation to specific real property or real rights,
exclude all others to the extent of the value of the immovable or real right to which the
preference refers (Art. 2248,NNC)

4. If there are two or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro rata, after the payment of the taxes and assessments
upon the immovable property or real right (Art. 2249, NCC).
 5. The excess, if any, after the payment of the credits which enjoy preference with respect
to specific property, real or personal, shall be added to the free property which the debtor
may have, for the payment of the other credits (Art. 2250, NCC).

6. Those credits which do not enjoy any preference with respect to specific property and
those which enjoy preference, as to the amount not paid, shall be satisfied according to
the following rules:
a. In the order established in Article 2244;
b. Common credits referred to in Article 2245 shall enjoy no preference and shall be paid
pro rata regardless of dated (Art. 2251, NCC).

39. What is the general rule with respect to payment of debts by the debtor?

The general rule is a debtor is liable with all his property, whether it is present and
future, for the fulfilment of his obligation.

40. What are the exceptions

The exceptions are the following: 1. Family home constituted jointly by husband and
wife or by unmarried head of a family (art 152, FC) 2. Right to receive support as well as
any money or property obtained as such support. (Art 205, FC) 3. Tools and implements
necessarily used by him in his trade or employment; 4. Two horses, or two cows, or two
carabaos or other Beast of burden, such as the debtor may select, not exceeding one
thousand pesos in value and necessarily used by him in his ordinary occupation; 5. His
necessary clothing and that of all his family; 6. Household furniture and utensils
necessary for housekeeping and used for that purpose by the debtor; 7. Provisions for
individual or family use insufficient for three months; 8. The professional libraries of
attorney’s, judges, physicians, pharmacists, dentist, engineers, surveyors, clergyman,
teachers and others professionals, not exceeding three thousand pesos in value; 9. One
fishing boat and net, not exceeding the total value of one thousand pesos, the property of
any fisherman, by the lawful use of which he earns a livelihood; 10. So much of the
earnings of the debtor for his personal services within which the month preceding the
levy as are necessary for the support of his family; 11. Lettered gravestones; 12. All
moneys, benefits, privileges or annuities accruing or in any manner growing out of any
life insurance, if the annual premiums paid don not exceed five hundred pesos, and if
they exceed the sum, a like exemption shall exist which shall bear the same proportion to
the moneys, benefits, privileges and annuities so accruing or growing out of such
insurance the said five hundred pesos bears to the whole premiums paid; 13. Copyrights
and other properties especially exempted by law (Sec 12, Rule 39) 14. Property under
Legal custody and of the public dominion.

41. State the purposes of the Insolvency Law?

 The purpose of the Insolvency Law is that the debtor may be permitted to suspend
payments or be discharged from his debts and liabilities. That it has
effect an equitable distribution of property of the insolvent or bankrupt,among his
creditors.

42. What are the kinds of Insolvency Proceedings?

The kind of Insolvency Proceeding are Bankruptcy,

Liquidation,Administration,Receivership, and Company Voluntary Arrangement (CVA)

43. Distinguish Voluntary Insolvency Proceeding from Involuntary Insolvency

Proceed

The difference between Voluntary Insolvency Proceeding there is no need the insolvency
to be alleged while in Involuntary Insolvency Proceed the creditors mus rpove the
insolvency. In terms posting bonds Voluntary posting bonds by the creditors not required
on the other had Involuntary creditors is required. As to the issuance of Liquidation Oder
Voluntary is issued without trial while Involuntary is issued with trial.

44. What is meant by the “date of cleavage”? Illustrate.

Date of Cleavage refers to the filing date of a voluntary-bankruptcy petition. It is the

cutoff date as to dischargeability of debts in bankruptcy. The debts existing at the date of
cleavage are only dischargeable. Example is A creditor by assignment of credit made
within 30 days from the date of cleavage shall be disqualified as petitioning creditor.

45. What is the Double Indemnity Rule?

Double indemnity rule refers to oayment to a converned employee of the prescribed

inreases or adjustmenrs in the wage rates, which was not paid by an employer in an
amount equivalent to twice the unpaid benefit.