FINAL EXAMINATION

CREDIT TRANSACTIONS

ANSWER EACH QUESTION BRIEFLY, LOGICALLY, AND CONCISELY.

I

B obtained a loan from XYZ Bank in the amount of P 1,450,000.00, payable in three years. To secure payment of the said loan, B mortgaged his parcel of land with an area of 500 square meters. Three years had lapsed however, and yet B was not able to settle his obligation with the bank. Accordingly, the latter initiated foreclosure proceedings. Prior to the proceedings though, B has caused the construction of a house in the said parcel of land which he and his wife made use of as their permanent abode. B therefore is of the opinion that the foreclosure proceedings initiated by the bank should not include the house because: (a) the subject of the mortgage is limited to the parcel of land upon which his house was erected; and (b) the house is a family home, which under the law is exempt from execution or forced sale. Is B’s contention correct? Explain. (10 points)

II

Distinguish Equity of Redemption from Right of Redemption. (5 points)

III

X owes Y the amount of P 500,000.00. Z serves as the guarantor. When X failed to pay his obligation, demand was made for the payment of the obligation. He also demanded payment from Z who pointed to the properties of X located in the Philippines valued at P 300,000.00. Unfortunately, however, because of lack of prudence on the part of Y, X was able to dispose of the same. Y then filed a case for collection of sum of money against X. C was able to prove that he no longer has any property to answer for his obligation. Could Y compel Z to pay? If yes, how much? Explain. (10 points)

IV

May a person be bound as a surety where there is a stipulation that he acts merely as a guarantor? Explain. (5 points)

V

A obtains a loan of P500.00 from B and delivers to the latter a piece of coconut land as security

for the payment of the loan. In the deed executed, A agreed that B would avail of the fruits of the land

during the time that the loan remains unpaid, without saying that the value of said fruits should be

applied to the interest or capital of the loan. State the nature of the contract between the parties.

Explain. (5 points)

VI

On December 1, 1996, Borrower executed a chattel mortgage in favour of the Bank to secure a loan of Three Million (P3,000,000.00) Pesos. In due time the loan was paid.

On December 1, 1997, Borrower obtained another loan for Two Million (P2,000,000.00) Pesos which the Bank granted under the same security as that which secured the first loan.

For the second loan, Borrower merely delivered a promissory note; no new chattel mortgage agreement was executed as the parties relied on a provision in the 1996 chattel mortgage agreement which included future debts as among the obligations secured by the mortgage. The provision read:

“In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal, or as a new loan, this mortgage shall also stand as security for the payment of said promissory note or notes without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the promissory note or notes were existing on date hereof.”

As Borrower failed to pay the second loan, the Bank proceeded to foreclose the Chattel Mortgage.

Borrower sued the Bank claiming that the mortgage was no longer in force. Borrower claiming that a fresh chattel mortgage should have been executed when the second loan was granted.

a) Decide the case. (10 points)b) Suppose the chattel mortgage was not registered, would its validity and effectiveness be impaired? (5

points)

VII

A constructed a house on a lot which he was leasing from Y. Later, X executed a chattel

mortgage over said house in favour of Z as security for loan obtained from the latter. Still later, X

acquired ownership of the land where his house was constructed, after which he mortgaged both house

and land in favour of a bank, which mortgage was annotated on the Torrens Certificate of Title (TCT).

When X failed to pay his loan to the bank, the latter, being the highest bidder at the foreclosure sale,

foreclosed the mortgage and acquired X’s house and lot. Learning of the proceedings conducted by the

bank, Z is now demanding that the bank reconvey to him X’s house or pay X’s loan to him plus interests.

Is Z’s demand against the bank valid and sustainable? Explain. ( 10 points)