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2003 - TIROL - Credit Transactions

1) Stela has a better claim than Cecil over an electric generator that was mortgaged by Liza to Stela. According to precedent, a judgement creditor like Cecil only acquires an equity of redemption over property subject to a valid chattel mortgage in favor of another party, like Stela. 2) The sale of a mortgaged property by a bank through public auction cannot be nullified solely because the price was extremely low. Philippine law gives the owner the right to redeem the property, so a lower price makes redemption easier. 3) In a case where a bank foreclosed on a mortgage after the borrowers Janette and Jeanne defaulted on their loan, the bank can still

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Courtney Tirol
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109 views2 pages

2003 - TIROL - Credit Transactions

1) Stela has a better claim than Cecil over an electric generator that was mortgaged by Liza to Stela. According to precedent, a judgement creditor like Cecil only acquires an equity of redemption over property subject to a valid chattel mortgage in favor of another party, like Stela. 2) The sale of a mortgaged property by a bank through public auction cannot be nullified solely because the price was extremely low. Philippine law gives the owner the right to redeem the property, so a lower price makes redemption easier. 3) In a case where a bank foreclosed on a mortgage after the borrowers Janette and Jeanne defaulted on their loan, the bank can still

Uploaded by

Courtney Tirol
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TIROL, Courtney Allison P.

          14-
0707

2003

Topic: Right of an Attaching Creditor

QUESTION: To pay for her loan obtained from Stela, Liza constituted in Stela‘s favor a chattel
mortgage over an electric generator. Cecil, a creditor of Liza, levied on attachment the
generator. Stela filed a third party claim. Cecil opposed the claim. Rule on their conflicting
claims.

ANSWER: Stela has a better right. This issue pertains to the right of an attaching creditor vis-a-
vis a mortgagee. In Northern Motors v. Coquia, the Supreme Court stated that if all the
requirements of a chattel mortgage are present, a judgement creditor that attaches the same
mortgaged property shall only acquire an equity of redemption. It thus follows that the right of
the attaching creditor is subordinate to the lien of the mortgagee who has in his favor a valid
chattel mortgage. In this case, Stela has in her favor a chattel mortgage over the electric
generator. Meanwhile, Cecil is an attaching creditor. Hence, Stela has a better right over the
generator.

II

Topic: Foreclosure

QUESTION: May the sale at public auction by a bank of a property mortgaged to it be nullified
because the price was extremely low? Why?

ANSWER: No, the sale may not be nullified. In Spouses Rabat v. PNB, the Supreme Court
emphasized that the alleged gross inadequacy of the price is not material when the law gives
the owner the right to redeem, as when the sale is made at a public auction. This is because the
lower price makes it easier for the owner to effect the redemption. In this case, the sale was by
way of public auction by the bank-mortgagee. Hence, the extremely low price will not render the
sale null and void.

III

Topic: Foreclosure

QUESTION: Because of failure of Janette and Jeanne to pay their loan to X Bank, the latter
foreclosed on the mortgage constituted on their property which was put up by them as security
for the payment of the loan. The price paid for the property at the foreclosure sale was not
enough to liquidate the obligation. The bank sued for deficiency. In their answer, Janette and
Jeanne did not deny the existence of the loan nor the fact of their default. They, however,
interposed the defenses that the price at the auction was extremely low and that their loan,
despite the loan documents, was a long-term loan which had not yet matured. If you were the
judge, how would you rule on the case? Why? (6%)

ANSWER: I will rule in favor of X Bank. In Spouses Rabat v. PNB, the Supreme Court
explained that the fact that the property sold at public auction for a low price is not in itself
sufficient to annul the sale since the debtor still has the right of redemption, and upon the theory
that the lower the price, the easier it will be for him to effect the redemption. In this case, Janette
and Jeanne did not deny the existence of their default, and instead interposed the defense that
the price at the auction was extremely low. Since the inadequacy of the price is not material
when the sale is by way of public auction where they have the right of redemption, such price
will not nullify the sale. Hence, I will rule in favor of X Bank.

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