PROVISIONS COMMON TO PLEDGE AND MORTGAGE (Art 2085-2123)

PLEDGE (definition) - A contract by virtue of which the debtor delivers to the c

reditor or to a third person a movable or document evidencing incorporeal rights
for the purpose of securing the fulfillment of a principal obligation with the
understanding that when the obligation is fulfilled, the thing delivered shall b
e returned with all its fruits and accessions.
Essential Requisites to Contracts of Pledge and Mortgage
1. constituted to secure the fulfillment of a principal obligation
2. pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged
3. the persons constituting the pledge or mortgage have the free disposal of the
ir property, and in the absence thereof, that they be legally authorized for the
purpose
4. cannot exist without a valid obligation
5. when the principal obligation becomes due, the thing in which the pledge or m
ortgage consists may be alienated for the payment to the creditor.
* third persons not parties to the principal obligation may secure the latter b
y pledging or mortgaging their own property
* but may be constituted to secure fulfillment of a voidable or unenforceable or
natural obligation
* in case of pledge, the thing pledged must be delivered to the creditor or to a
third person by common agreement
* in case of mortgage, as a general rule, the mortagagor retains he possession o
f the property mortgaged
Kinds of Pledge:
1. Voluntary or conventional created by agreement of the parties
2. Legal - created by operation of law
Characteristics of Pledge:
1. real - perfected by delivery
2. accessory - has no independent existence of its own
3. unilateral - creates obligation solely on the part of the creditor to return
the thing subject upon the fulfillment of the principal obligation
4. subsidiary obligation incurred does not arise until the fulfillment of the pr
incipal obligation
Cause or Consideration in Pledge
1. principal obligation in so far as the pledgor is concerned
2. compensation stipulated for the pledge or mere liberality of the pledgor if p
ledgor is not the debtor
Important Points:
1. future property cannot be pledged or mortgaged
2. pledge or mortgage executed by one who is not the owner of the property ple
dged or mortgaged is without legal existence and registration cannot validate it
.
3. mortgage of a conjugal property by one of the spouses is valid only as to of
the entire property
4. in case of property covered by Torrens title a mortgagee has the right to rel
y upon what appears in the certificate of title and does not have to inquire fur
ther.
5. pledgor or mortgagor has free disposal of property
6. thing pledged or mortgaged may be alienated.
7. creditor not required to sue to enforce his credit
8. pledgor or mortgagor may be third person
Not validnot
MORTGAGE
PLEDGE
Constituted
Property
Delivery isagainst
onnecessay
delivered
movables
immovables
3rd persons
to the pledgee,
unless aordescription
by common of
consent
the thing
to a pledged
3rd person
and the
Not
datevalid
of theagainst
pledge3rdappear
persons
in if
a not
public
registered
instrument
Right of Creditor where Debtor fails to Comply with his Obligation
1. creditor is merely entitled to move for the sale of the thing pledged or mort
gaged with the formalities required by law in order to collect
2. creditor cannot appropriate to himself the thing nor can he dispose of the sa
me as owner.
Prohibition against pactum commissorium
1. stipulation is null and void - stipulation where thing or mortgaged shall a
utomatically become the property of the creditor in the event of nonpayment of t
he debt within the term fixed
2. Requisites of pactum commissorium:
a. there should be a pledge or mortgage
b. there should be a stipulation for an automatic appropriation by the creditor
of the property in the event of nonpayment
3. Effect on Security Contract
-nullity of the stipulation does not affect validity and efficacy of the princi
pal contract
Permissible Stipulations with regard to pactum commissorium:
1. subsequent modification of original contract by agreement of parties
2. subsequent voluntary act of the debtor making cession of property in payment
of the debt
3. promise to assign or sell said property in payment of the obligation if, upon
its maturity, it is not paid
4. authorizing the mortgagee to take possession of the mortgaged premises upon t
he foreclosure of a mortgage
5. if after the first and second auctions, the thing is not sold
Important Points:
1. debtor-owner bears the risk of loss of the property
2. pledge or mortgage is indivisible:
a. every portion of the property is answerable for the whole obligation
b. when several things are pledged or mortgaged, all of them are liable for the
totality of the debt. Creditor does not have to divide his action by distributin
g the debt, among the various things pledged or mortgaged
c. the debtor s heir who has paid a part of the debt cannot ask for the proportion
ate extinction of the pledge or mortgage nor can the creditor s heir who has recei
ved his share of the debt return the pledge or cancel the mortgages if the debt
is not yet completely satisfied
d. EXCEPTIONS to the rule of INDIVISIBILITY:
i. where each one of several things guarantees determinate portion of credit
ii. where only portion of loan was released
iii. where there was failure of consideration
3. rule that real property, consisting of several lots should be sold separately
, applies to sales in execution, and not to foreclosure of mortgages
4. the mere embodiment of a real estate mortgage and a chattel mortgage in one d
ocument does not have the effect of fusing both securities into an indivisible w
hole
5. contract of pledge or mortgage may secure all kinds of obligation, be they pu
re or subject to a suspensive or resolutory condition
6. a promise to constitute pledge or mortgage creates no real right, only a pers
onal right biding upon the parties, only right of action to compel the fulfillme
nt of the promise but there is no pledge or mortgage yet
7. under RPC, estafa is committed by a person who, pretending to be the owner
of any real property, shall convey, sell, encumber or mortgage the same knowing
that the real property is encumbered shall dispose of the same as unencumbered.
It is essential that fraud or deceit be practiced upon the vendee at the time of
 the sale.
PROVISIONS APPLICABLE ONLY TO PLEDGE
1. transfer of possession to the creditor or to third person by common agreement
is essential in pledge
- ACTUAL DELIVERY is important
- CONSTRUCTIVE delivery or symbolic delivery of the key to the warehouse is suff
icient to show that the depositary appointed by common consent of the parties w
as legally placed in possession.
2. all movables within commerce of men may be pledged as long as susceptible of
possession
3. incorporeal right, evidenced by:
a. negotiable instruments;
b. bills of lading;
c. shares of stock;
d. bonds;
e. warehouse receipts ;and
f. similar documents
may be pledged. The instruments pledged shall be delivered to the creditor and i
f negotiable, must be indorsed.
4. pledge shall take effect against 3rd persons only if the ff appears in a publ
ic instrument:
a. description of the thing pledged
b. date of the pledge
5. thing pledged may be alienated by the pledgor or owner only if with the conse
nt of the pledgee. Ownership of the thing pledged is transmitted to the vendee o
r transferee as soon as the pledgee consents to the alienation, butt he latter s
hall continue in possession
6. contract of pledge gives right to the creditor to retain the thing in his pos
session or in that of a third person to whim it has been delivered, until the de
bt is paid
7. creditor :
a. shall take care of the thing pledged with the diligence of a good father of a
family.
b. has the right to the reimbursement of the expenses made for its preservation
is liable for its loss or deterioration by reason of fraud, negligence, delay o
r violation of the terms of the contract, and not due to fortuitous event
c. may bring the actions which pertain to the owner of the thing in order to rec
over it from, or defend it against a 3rd person
d. cannot use the thing without the authority of the owner, and if he should do
so, or misuse the thing, the owner may ask that it be judicially or extrajudicia
lly deposited.
e. may use the thing if it is necessary for the preservation of the thing
f. may either claim another thing in pledge or demand immediate payment of the p
rincipal obligation if he is deceived on the substance or quality of the thing.
8.
pledgee:
a. cannot deposit the thing pledged with a third person, unless there is a stipu
lation authorizing him to do so
b. is responsible for the acts of his agents or employees with respect to the th
ing pledged
c. has no right to use the thing or to appropriate the fruits without the autho
rity of the owner can apply the fruits, income , dividends or interest earned o
r produced by the thing pledged to the payment of the interest, and thereafter t
o the principal of his credit. Unless there is stipulation to the contrary, the
interest and earnings of the right pledged and in case of animals, their offspri
ngs are included in the pledge.
d. may cause public sale of the thing pledged if, without fault on his part, the
re is danger of destruction, impairment or dimunition in value of the thing. The
proceeds of the auction shall be a security for the principal obligation.
9. pledgor :
a. has the responsibility for flaws of the thing pledged.
b. cannot ask for the return of the thing against the will of the creditor, unle
ss and until he has paid the debt and its interest, with expenses in a proper ca
se
c. is allowed to substitute the thing which is in danger of destruction or impa
irment without any fault on the part of the pledgee, with another thing of the s
ame kind and quality
d. may require that the thing be deposited with a 3rd person if through the neg
ligence or wilfull act of the pledgee the thing is in danger of being lost or im
paired
Extinguishment of Pledge
* If the thing pledged is returned by the pledgee to the pledgor or owner, pledg
e is extinguished
* A statement in writing by the pledgee that he renounces or abandons the pledge
is sufficient to extinguish. For t his purpose, neither the acceptance by the p
ledgor o owner, nor the return of the thing pledged is necessary, the pledgee be
coming a depositary.
* If subsequent to the perfection of the pledge, the thing is in the possession
of the pledgor or owner, there is prima facie presumption that the thing has bee
n returned by the pledgee
* If the thing is in the possession of 3rd person who has received it from the p
ledgor or owner after the constitution of the pledge, there is prima facie presu
mption that the thing has been returned by the pledgee.
Formalities required Sale by a Creditor if credit not paid in due time:
1. the debt is due and unpaid
2. the sale must be at a public auction
3. there must be notice to the pledgor and owner, stating the amount due, and
4. the sale must be made with the intervention of a notary public the th
* The pledgee may appropriate the thing if after the first and second auctions,
the thing is not sold.
* At the public auction, the pledgor or owner may bid.
* Pledgor or owner shall have a better right if he should offer the same terms
as the highest bidder
* Pledgee may also bid, but his offer shall not be valid if he is the only bidde
r. All bids at the public auction shall ofer to pay the purchase price at once.
BIDS MUST BE FOR CASH. If any other bid is accepted, the pledgee is deemed to h
ave received the purchase price, as far as the pledgor or owner is concerned.
Effect of the Sale of the thing pledged
1. extinguishes the principal obligation whether the price of the sale is more o
r less than the amount due
2. if the price is more than amount due, the debtor is not entitled to the exc
ess unless the contrary is provided
3. if the price of the sale is less, neither is the creditor entitled to recover
the deficiency. Contrary stipulation is void.
* After public auction, the pledgee shall promptly advise the pledgor or owner
of the result.
* Any third person who has any right in the thing may satisfy the principal obli
gation as soon as the latter becomes due and demandable
* The right of choice given to the pledgee as to which of the things pledged he
shall cause to be sold is limited only by stipulation. After sufficient propert
y has been sold to satisfy the obligation plus interest and expenses, no more sh
all be sold.
* A 3rd person who is not a party to the principal obligation may secure the lat
ter by pledging his own property. He has the same as a guarantor and he cannot b
e prejudiced by any waiver of defense by the principal obligor
Legal Pledges:
1. Necessary expenses shall be refunded to every possessor, but only possessor
in good faith may retain the thing until he has been reimbursed
Useful expenses shall be refunded only to the possessor I n good faith with the
same right of retention, the person who has defeated him in the possession havi
ng the option of refunding the amount of the expenses or of paying the increase
in value which the thing may have acquired and by reason thereof (art 546)
2. He who has executed work upon a movable has a right to retain it by way of pl
edge until he is paid. (art 1731)
3. The agent may retain the things which are the objects of agency until the pri
ncipal effects the reimbursement and pays the indemnity. (art 1914)
4. The laborer s wages shall be a lien on the goods manufactured or the work done
(art 1707)
Special Laws apply to pawnshops and establishment which are engaged in making lo
ans secured by pledges. Provisions of the Civil Code shall apply subsidiarily.
REAL MORTGAGE (Arts. 2124-2131) - It is a contract whereby the debtor secures to
the creditor the fulfillment of a principal obligation, specially subjecting to
such security immovable property or real rights over immovable property in case
the principal obligation is not complied with at the time stipulated.
Objects of Real Mortgage
1. immovables
2. alienable real rights in accordance with the laws, imposed upon immovables
* future property cannot be object of mortgage
Important Points:
1. As a general rule, the mortgagor retains possession of the property he may de
liver said property to the mortgagee without altering the nature of the contract
of mortgage.
2. It is not an essential requisite that the principal of the credit bears inter
est, or that the interest as compensation for the use of the principal and the e
njoyment of its fruits be in the form of a certain percent thereof.

Kinds of Mortagage:
1. voluntary
2. legal
3. equitable one which, although it lacks the proper formalities of a mortgage s
hows the intention of the parties to make the property as a security for a debt
(provisions governing equitable mortgage - arts 1365, 1450, 1454, 1602, 1603, 16
04 and 1607)
Essential Requisites of Mortgage
1. constituted to secure the fulfillment of a principal obligation
2. pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged
3. the persons constituting the pledge or mortgage have the free disposal of the
ir property, and in the absence thereof, that they be legally authorized for the
purpose
4. cannot exist without a valid obligation
5. when the principal obligation becomes due, the thing in which the pledge or m
ortgage consists may be alienated for the payment to the creditor.
6. appears in a public document duly recorded in the Registry of Property to be
validly constituted
*legal mortgage the persons in whose favor the law establishes a mortgage hav
e on other right than to demand the execution and the recording of the document
in which the mortgage is formalized.
Incidents of Registration of Mortgage
1. Mortgagee entitled to registration of mortgage as a matter of right
2. Proceedings for registration do not determine validity of mortgage or its eff
ect
3. Registration is without prejudice to better right of third parties
4. Mortgage deed once duly registered forms part of the records for the registra
tion of the property mortgaged
5. Mortgage by surviving spouse of his/her undivided share of conjugal property
can be registered
Effect of Invalidity of Mortgage on principal obligation:
1. principal obligation remains valid
2. mortgage deed remains as evidence of a personal obligation
Effect of Mortgage:
1. creates real rights, a lien inseparable from the property mortgaged, enforcea
ble against the whole world
2. creates merely an encumbrance
Extent of Mortgage
a. the natural accessions
b. to the improvements,
c. growing fruits
d. the rents or income not yet received when the obligation becomes due,
e. to the amount of the indemnity granted or owing to the proprietor from the in
surers of the property,
f. in virtue of expropriation for public use, with the declarations, amplific
ations and limitations established by law, whether the estate remains in the pos
session of the mortgagor, or it passes into the hands of a third person.

Important Points:
1. Stipulation in mortgage contract including after-acquired properties is valid
.
2. Attachment of lien is retroactive
3. Stipulation is necessary for mortgage to secure future advancements
4. Mortgage is a continuing security until the full amount of advances are paid.
5. Mortgage credit may be alienated or assigned to a third person, in whole or i
n part, with the formalities required by law.
a. Alienation or assignment is valid even if not registered. Registration is nec
essary only to affect 3rd persons.
6. Creditor may claim from a 3rd person in possession of the property the paymen
t of the part of the credit secured by the property
7. Stipulation forbidding the owner from alienating the immovable mortgaged shal
l be void.
Laws governing Mortgage:
1. New Civil Code
2. PD 1952
3. Revised Administrative Code
4. RA 4882 , as regards aliens becoming mortgages
Foreclosure of Mortgage - It is the remedy available to the mortgagee by w
hich he subjects the mortgaged property to the satisfaction of the obligation to
secure which the mortgage was given.
Kinds of Foreclosure
1. judicial
2. extrajudicial
* both should be distinguished from execution sale which is governed by Rule 39
of the Rules of Court
Judicial Foreclosure
(governed by Rule 68 of Rules of Court)
1. May be availed of by bringing an action in the proper court which has jurisdi
ction over the area wherein the real property involved or apportion thereof is
situated
2. If the court finds the complaint to be well-founded, it shall order the mort
gagor to pay the amount due with interest and other charges within a period of n
ot less than 90 days nor more than 120 days from the entry of judgment.
3. If the mortgagor fails to pay at time directed, the court, upon motion, shall
order the property to be sold to the highest bidder at a public auction.
4. Upon confirmation of the sale by the court, also upon motion, it shall opera
tes to divest the rights of all parties to the action and to vest their rights t
o the purchaser subject to such rights of redemption as may be allowed by law
5. Before the confirmation, the court retains control of the proceedings.
6. The proceeds of the sale shall be applied to the payment of the:
a. Costs of the sale;
b. Amount due the mortgagee;
c. Claims of junior encumbrancers or persons holding subsequent mortgages in
the order of their priority; and
d. the balance, if any shall be paid to the mortgagor
7. Sheriff s certificate is executed, acknowledged and recorded to complete the fo
reclosure
Nature of Judicial Foreclosure Proceedings:
1. quasi in rem action
2. foreclosure is only the result or incident of the failure to pay debt
3. survives death of mortgagor
Extrajudicial Foreclosure
(governed by Act No, 3135, as amended)
1. express authority to sell is given to the mortgagee.
2. authority is not extinguished by death of mortgagor or mortgagee
3. public sale should be made after proper notice
4. surplus proceeds of foreclosure sale belong to the mortgagor
5. debtor has the right to redeem the property sold within 1 year from and after
the date of sale
6. remedy of party aggrieved by foreclosure is a petition to set aside sale and
cancellation of writ of possession.
Right of Mortgagee to recover deficiency
1. Mortgagee is entitled to recover deficiency
2. If the deficiency is embodied in a judgment, it is referred to as deficiency
judgment.
3. Action for recovery of deficiency may be filed even during redemption period.
4. Action to recover prescribes after 10 years from the time the right of action
accrues
Nature of Power of foreclosure by extrajudicial sale
1. conferred for mortgagee s protection
2. an ancillary stipulation
3. a prerogative of the mortgagee
Note: Stipulation of upset price in mortgage contract is void
Effect of inadequacy of price in foreclosure sale
1. Where there is right to redeem
a. GR: Inadequacy of price is immaterial because the judgment debtor may redeem
the property
b. EXCEPTION: the price is so inadequate as to shock the conscience of the court
taking into consideration the peculiar circumstances
2. Property may be sold for less than its fair market value upon the theory tha
t the lesser the price the easier for the owner to redeem.
3. The value of the mortgaged property has no bearing on the bid price at the pu
blic auction, provided that the public auction was regularly and honestly conduc
ted.
Waiver of security by creditor
1. Mortgagee may waive right to foreclose his mortgage and maintain a personal a
ction for recovery of theindebetness.
2. Mortgagee cannot have both remedies
Note: Foreclosure retroacts to the date of registration of mortgage
Redemption - It is a transaction by which the mortgagor reacquires the property
which may have passed under the mortgage or divests the property of the lien whi
ch the mortgage may have created.
Kinds of Redemption
1. equity of redemption
- right of the mortgagor to redeem the mortgaged property after his default in t
he performance of the conditions of the mortgage but before the sale of the mort
gaged property or confirmation of sale
2. right of redemption
- right of the mortgagor to redeem the property within a certain period after it
was sold for the satisfaction of the debt.

Equity of Redemption
1. exercised before confirmation of sale
2. second mortgagee acquires only the equity of redemption vested in the mortgag
or
3. taking physical possession not necessary for levy
4. can be levied upon by means of writ of execution
5. remedy of mortgagee to obtain possession is to bring a civil action either to
recover possession as a preliminary step to the sale or to obtain judicial fore
closure
Right of Redemption
1. may be exercised within 1 year from and after the date of registration of the
certificate of sale with the appropriate Registry of Deeds.
2. if no redemption is made within prescribed period, the purchaser has the abso
lute right to a writ of possession which is the final process to consummate extr
ajudicial foreclosure
3. effect of seasonable redemption is not to recover ownership which was never l
ost but the elimination from his title the lien created by the levy or attachme
nt.
4. sale by the mortgagor to a 3rd person during redemption period transfers only
the right to redeem the property and the right to possess, use and enjoy the sa
me during said period.
5. if sale to a 3rd person is not registered and made without the consent of the
mortagee, buyer was not validly substituted as a debtor thus has no right to re
deem
6. if extrajudicial foreclosure if effected with fraud, it is null nad void ab i
nitio.
CHATTEL MORTGAGE (Arts. 2140-2141) - It is a contract by virtue of which a pers
onal property is recorded in the Chattel Mortgage Register as security for the p
erformance of an obligation.
Note: If the movable, instead of being recorded is delivered to the creditor, it
is pledge and not chattel mortgage.

CHATTEL
PLEDGE
Involves
Delivery
Registration
Procedure
Procedure:
If the property
MORTGAGE
movable
of
:Art
the
Sec
is2112
personal
necessary
NOT
14
is
property
ofof
foreclosed,
sold,
necessary
Act
Civil
property
the
fordebtor
no 1508,
Code
validity
for
thevalidity
isexcess
asisnecessary
NOT
amended
notnecessary
over
entitled
the amount
to thedue
to the
goesexcess
to theUNLESS
debtor
it is otherwise
Creditor is entitled
agreedto deficiency
or in case fromof legalthe debtor
pledge EXCEPT if it is a security fo
r the purchase
Creditor is notofentitled
personaltoproperty
recover deficiency
in installments
notwithstanding any stipulation t
o the contrary
Laws governing Chattel Mortgage:
1. Chattel Mortgage Law, Act No. 1508, as amended
2. Civil Code
3. Revised Administrative Code
4. Revised Penal Code
5. Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels of domesti
c ownership
Important points:
The provisions of Civil Code on pledge shall be applicable to chattel mortgage o
nly insofar as they are not in conflict with the Chattel Mortgage Law
Subject matter of Chattel mortgage must be described and identified.
Extent of Chattel Mortgage - It is deemed to cover only the property described a
nd not like or substituted property thereafter acquired by the mortgagor and pla
ced in the same depositary as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding
Effect of Registration
1. creates real rights
2. adds nothing to mortgage
Note: Registration of assignment of mortgage is not required
Right of Redemption
1. when the condition of a chattel mortgage is broken, the ff may redeem:
a. mortgagor;
b. person holding a subsequent mortgage;
c. subsequent attaching creditor.
2. an attaching creditor who so redeems shall be subrogated to the rights of the
mortgagee and entitled to foreclose the mortgage in the same manner that the mo
rtgagee could foreclose it
3. the redemption is made by paying or delivering o the mortgagee the amount due
on such mortgage and the costs and expenses incurred by such breach of conditio
n before the sale
Foreclosure of Chattel Mortgage
1. public sale
2. private sale there is nothing illegal, immoral or against public order in an
agreement for the private sale of the personal properties covered by chattel mor
tgage
Period to Foreclose
1. After 30 days from the time of the condition is broken
2. The 30-day period is the minimum period after violation of the mortgage condi
tion for the creditor to cause the sale at public auction with at least 10 days
notice to the mortgagor and posting of public notice of time, place, and purpose
of such sale, and is a period of grace for the mortgagor, to discharge the obli
gation.
3. After the sale at public auction, the right of redemption is no longer availa
ble to the mortgagor
Civil Action to recover credit
1. independent action not required
2. mortgage lien deemed abandoned by obtaining a personal judgment
Right of Mortgagee to recover Deficiency
1. where mortgage foreclosed
- creditor may maintain action for deficiency although Chattel Mortgage Law is
silent on this point. Reason is chattel mortgage is only given as a security an
d not as payment of the debt.
2. where mortgage constituted as security for purchase of personal property paya
ble in installments
- no deficiency judgment can be asked and any agreement to the contrary shall be
void
3. where mortgaged property subsequently attached and sold
- mortgagee is entitle to deficiency judgment in an action for specific performa
nce
Application of proceeds of sale
1. costs and expenses of keeping and sale
2. payment of the obligation
3. claims of persons holding subsequent mortgages in their order
4. balance, if any, shall be paid to the mortgagor, or person holding under him
CONCURRENCE AND PREFERENCE OF CREDITS (Arts. 2236-2251)
Concurrence of credit - It implies possession by two or more creditors of equal
right or privileges over the same property or all of the property of a debtor
Preference of Credit - It is the right held by a creditor to be preferred in the
payment of his claim above other out of the debtor s assets
General Provisions:
1. the debtor is liable with all his property, present and future, for the fulfi
llment of his obligations, subjects to exemptions provided by law
- exempt property:
a. present property
1. family home (Arts 152, 153 & 155, NCC)
2. right to receive support as well as money or property obtained by such suppor
t shall not be levied upon on attachment or execution (Art 205, NCC)
3. Sec 13, Rule 39, Rules of Court
4. Sec 118, the public Land Act,( CA No. 141, as amended)
b. future property
- a debtor who obtains a discharge from his debts on account of insolvency, is n
ot liable for the unsatisfied claims of his creditors with said property (Secs.
68 & 69, Insolvency Law, Act No. 1956
c. property in custodia legis and of public dominion
2. insolvency shall be governed by the Insolvency Lae (Act No. 1956, as amended)
3. Exemption of conjugal property or absolute community or property provided tha
t:
a. Partnership or community subsists
b. Obligations of the insolvent spouse have not redounded to the benefit of the
family
4. if there is co-ownership, and one of the co-owners is the insolvent debtor, h
is undivided share or interest in the property shall be possessed by the assigne
e in insolvency proceedings because it is part of his assets
5. property held by the insolvent debtor as a trustee of an express or implied t
rust, shall be excluded from the insolvency proceedings
Classification of Credits
1. special preferred credits (Arts 2241 & 2242 of NCC)
a. considered as mortgages or pledges of real or personal property or liens with
in the purview of legal provisions governing insolvency
b. taxes due to the State shall first be satisfied
2.ordinary preferred credits (Art 2244)
- preferred in the order given by law
3.common credits (Art 2245)
- credits of any other kind or class, or by any other right or title not compris
ed in Arts 2241-2244 shall enjoy no preference

Order of Preference of Credit

a. credits which enjoy preference with respect to specific movables, exclude all
others to the extent of the value of the personal property to which the prefere
nce refers.
b. if there are 2 or more credits with respect to the same specific movable prop
erty, they shall be satisfied pro rata, after the payment of duties, taxes and f
ees due the State or any subdivision thereof
c. 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.
d. if there are 2 or more credits with respect to the same specific real propert
y or real rights, they shall be satisfied pro rata, after the payment of the tax
es and assessment of the taxes and assessments upon the immovable property or re
al right.
e. the excess, if any, after the payment of the credits which enjoy preference w
ith respect to specific property, real or personal, shall be added to the free p
roperty which the debtor may have, for the payment of other credits.
f. those credits which do not enjoy any preference with respect to specific prop
erty, and those which enjoy preference, as to the amount not paid, shall be sati
sfied according to the following rules:
- order established by Art 2244
- common credits referred to in Art 2245 shall be paid pro rata regardless of da
tes.
??
??
??
??
1