Professional Documents
Culture Documents
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for payment) maker) 3. To be liable for the deterioration of thing loaned (a)
if expressly stipulated; (b) if guilty of fault or
COMMODATUM (Articles 1935 1952) negligence; or (c) if he devotes the thing to any
Nature: purpose different from that for which it has been
loaned
1. PURPOSE: Bailee in commodatum acquires the 4. To pay for extraordinary expenses arising from the
temporary use of the thing but not its fruits actual use of the thing by the bailee, which shall be
(unless stipulated as an incidental part of the borne equally by both the bailor and the bailee, even
contract).(Art 1935) though the bailee acted without fault, unless there is
Use must be temporary, otherwise the a stipulation to the contrary (Art 1949 par 2)
contract may be a deposit. 5. To return the thing loaned
The bailee has no right to retain the thing loaned
2. CAUSE: Essentially gratuitous; it ceases to be a as security for claims he has against the bailor
commodatum if any compensation is to be paid even for extraordinary expenses except for a
by the borrower who acquires the use, in such claim for damages suffered because of the flaws
case there arises a lease contract. of the thing loaned.
Similar to a donation in that it confers a
benefit to the recipient. The presumption is NOTES:
that the bailor has loaned the thing for However, the bailees right extends no
having no need therefor. further than retention of the thing loaned
until he is reimbursed for the damages
3. SUBJECT MATTER: Generally non-consumable suffered by him.
whether real or personal but if the consumable He cannot lawfully sell the thing to satisfy
goods are not for consumption as when they are such damages without courts approval.
merely for exhibition, consumable goods may be
the subject of the commodatum. (Art 1936)
In case there are two or more bailees, their
obligation shall be solidary.
4. Bailor need not be the owner of the thing owned
(Art. 1938) since by the loan, ownership does not Obligations of the bailor (Art 1946 Art 1952):
pass to the borrower. 1. To respect the duration of the loan
A mere lessee or usufructuary may lend but GENERAL RULE: Allow the bailee the use of the
the borrower or bailee himself may not lend thing loaned for the duration of the period stipulated
nor lease the thing loaned to him to a third or until the accomplishment of the purpose for which
person (Art 1932[2]) the commodatum was instituted.
EXCEPTIONS:
5. Purely Personal (Art 1939): a. In case of urgent need in which case
Death of either party terminates the contract bailee may demand its return or temporary use;
unless by stipulation, the commodatum is b. The bailor may demand immediate return
transmitted to the heirs of either or both of the thing if the bailee commits any act of
parties. ingratitude specified in Art. 765.
Bailee can neither lend nor lease the object
of the contract to a third person. 2. To refund to the bailee extraordinary expenses for
the preservation of the thing loaned, provided the
bailee brings the same to the knowledge of the bailor
before incurring them, except when they are so
NOTE:Use of the thing loaned may extend to urgent that the reply to the notification cannot be
members of the bailees household except: awaited without danger.
a. contrary stipulation;
b. nature of the thing forbids such use 3. To be liable to the bailee for damages for known
hidden flaws.
Obligations of the Bailee: (Arts 1941 1945) Requisites:
1. To pay for the ordinary expenses for the use and a. There is flaw or defect in the thing loaned;
preservation of the thing loaned. (Art 1941) b. The flaw or defect is hidden;
2. To be liable for the loss of the thing even if it c. The bailor is aware thereof;
should be through a fortuitous event in the d. He does not advise the bailee of the same; and
following cases: (KLAS D) e. The bailee suffers damages by reason of said flaw
a. when he keeps it longer than the period or defect
stipulated, or after the accomplishment of its
use
b. when he lends or leases it to third persons
who are not members of his household
c. when the thing loaned has been delivered NOTES:
with appraisal of its value If the above requisites concur, the bailee has the
d. when, being able to save either of the thing right of retention for damages.
borrowed or his own things, he chose to save The bailor cannot exempt himself from the
the latter; or payment of expenses or damages by abandoning
e. when the bailee devoted the thing for any the thing to the bailee.
purpose different from that for which it has
been loaned (Art 1942) SIMPLE LOAN OR MUTUUM (Art 1953 1961)
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A contract whereby one party delivers to another, money or fungible non-fungible, (non
money or other consumable thing with the things consumable) things
understanding that the same amount of the same
kind and quality shall be paid. (Art. 1953) 2. In commodatum, The thing with
the bailee is bound equivalent value is
to return the given in return for
NOTES: identical thing what has been
The mere issuance of the checks does not result borrowed when the received
in the perfection of the contract of loan. The time has expired or
Civil Code provides that the delivery of bills of purpose served
exchange and mercantile documents, such as
3. Mutuum may be Onerous, actually a
checks, shall produce the effect of payment only
gratuitous and mutual sale
when they have been encashed (Gerales vs. CA commodatum is
218 SCRA 638). It is only after the checks have always gratuitous
produced the effect of payment that the contract
of loan may be deemed perfected.
The obligation is to pay and not to return
because the consumption of the thing loaned is
the distinguishing character of the contract of
mutuum from that of commodatum. Form of Payment (Art 1955):
No estafa is committed by a person who refuses 1. If the thing loaned is money - payment must be made
to pay his debt or denies its existence. in the currency stipulated, if it is possible; otherwise
it is payable in the currency which is legal tender in
Simple Loan/Mutuum Rent the Philippines and in case of extraordinary inflation
or deflation, the basisi of payment shall be the value
1. Delivery of money Delivery of some non- of the currency at the time of the creation of the
or some consumable consumable thing in obligation
thing with a promise order that the other 2. If what was loaned is a fungible thing other than
to pay an equivalent may use it during a money - the borrower is under obligation to pay the
of the same kind and certain period and lender another thing of the same kind, quality and
quality return it to the
quantity. In case it is impossible to do so, the
former.
borrower shall pay its value at the time of the
2. There is a transfer There is no transfer perfection of the loan.
of ownership of the of ownership of the
thing delivered thing delivered Interest
The compensation allowed by law or fixed by the
parties for the loan or forbearance of money, goods
3. Relationship Relationship is that or credits
between the parties of a landlord and Requisites for Demandability: (ELI)
is that of obligor- tenant
obligee 1. must be expressly stipulated
Exceptions:
4. Creditor receives Owner of the a. indemnity for damages
payment for his loan property rented b. interest accruing from unpaid interest
receives 2. must be lawful
compensation or 3. must be in writing
price either in
money, provisions, Compound Interest
chattels, or labor GENERAL RULE: Unpaid interest shall not earn interest.
from the occupant EXCEPTIONS:
thereof in return for 1. when judicially demanded
its use (Tolentino vs 2. when there is an express stipulation (must be in
Gonzales, 50 Phil 558 writing in view of Art. 1956)
1927)
Guidelines for the application of proper interest rates
Loan Sale 1. If there is stipulation: that rate shall be applied
2. The following are the rules of thumb for the
1. Real contract Consensual contract application/imposition of interest rates:
a) When an obligation, regardless of its source, i.e.,
2. Generally Bilateral and law, contracts, quasi-contracts, delicts or quasi-
unilateral because reciprocal
delicts is breached, the contravenor can be held
only borrower has
obligations liable for damages.
b) With regard particularly to an award of interest
NOTE: If the property is sold, but the real intent is in the concept of actual and compensatory
only to give the object as security for a debt as damages, the rate of interest, as well as the
when the price is comparatively small there really accrual thereof, is imposed, as follows:
is a contract of loan with an equitable mortgage. i. When the obligation breached consists of
payment of a sum of money (loan or
Commodatum/ forbearance of money), the interest shall be
Barter that which is stipulated or agreed upon by
Mutuum
the parties. In absence of an agreement, the
1. Subject matter is Subject matter is
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GENERAL RULE: Contract of deposit is gratuitous What to return: product, accessories, and
(Art 1965) accessions of the thing deposited (Art 1983)
EXCEPTIONS: 3. Not to deposit the thing with a third person unless
1. when there is contrary stipulation authorized by express stipulation (Art 1973)
2. depositary is engaged in business of storing The depositor is liable for the loss of the thing
goods deposited under Article 1973 if:
3. property saved from destruction without a. he transfers the deposit
knowledge of the owner with a third person without authority although
there is no negligence on his part and the third
NOTES: person;
Article 1966 does not embrace incorporeal b. he deposits the thing
property, such as rights and actions, for it follows with a third person who is manifestly careless or
the person of the owner, wherever he goes. unfit although authorized even in the absence of
A contract for the rent of safety deposit boxes negligence; or
is not an ordinary contract of lease of things but c. the thing is lost through
a special kind of deposit; hence, it is not to be the negligence of his employees whether the
strictly governed by the provisions on deposit. latter are manifestly careless or not.
The relation between a bank and its customer is 4. If the thing deposited should earn interest (Art 1975):
that of a bailor and bailee. (CA Agro vs CA, 219 a. to collect interest and the capital itself as it fall
SCRA 426) due
b. to take steps to preserve its value and rights
Obligations of the Depositary (Art 1972 1991): corresponding to it
1. To keep the thing safely (Art 1972) 5. Not to commingle things deposited if so stipulated
Exercise over the thing deposited the same (Art 1976)
diligence as he would exercise over his 6. Not to make use of the thing deposited unless
property authorized (Art 1977)
2. To return the thing (Art 1972) GENERAL RULE: Deposit is for safekeeping of the
Person to whom the thing must be subject matter and not for use. The unauthorized use
returned: by the depositary would make him liable for
a. Depositor, to his heirs and successors, or the damages.
person who may have been designated in the EXCEPTIONS:
contract 1. When the preservation of the thing deposited
b. If the depositary is capacitated - he is subject requires its use
to all the obligations of a depositary whether 2. When authorized by the depositor
or not the depositor is capacitated. If the
depositor is incapacitated, the depositary NOTE: The permission to use is NOT presumed except
must return the property to the legal when such use is necessary for the preservation of
representative of the incapacitated or to the the thing deposited.
depositor himself if he should acquire
capacity (Art 1970). Effect if permission to use is given (Art 1978):
c. If the depositor is capacitated and the 1. If thing deposited is non-consumable,
depositary is incapacitated - the latter does the contract loses the character of a deposit and
not incur the obligation of a depositary but acquires that of a commodatum despite the fact
he is liable: that the parties may have denominated it as a
i..to return the thing deposited while still deposit, unless safekeeping is still the principal
in his possession; purpose.
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Assurance Corp vs. Ororama Supermart, 80 SCRA Acceptance of guaranty by creditor and notice
262) as an original promissory and debtor from thereof to guarantor:
the beginning. In declaring that guaranty must be express,
5. Undertaking is to creditor and not to debtor.
the law refers solely and exclusively to the
NOTE: The surety makes no covenant or
obligation of the guarantor because it is he
agreement with the principal that it will fulfil
alone who binds himself by his acceptance.
the obligation guaranteed for the benefit of the
With respect to the creditor, no such
principal. Such a promise is not implied by law
requirement is needed because he binds
either; and this is true even where under the
himself to nothing.
contract the creditor is given the right to sue the
principal, or the latter and the surety at the However, when there is merely an offer of a
same time. (Arranz vs. Manila Fidelity & Surety guaranty, or merely a conditional guaranty,
Co., Inc., 101 Phil. 272) in the sense that it requires action by the
6. Surety is not entitled to notice of principals creditor before the obligation becomes fixed,
default it does not become binding until it is
NOTE: The creditor owes no duty of active accepted and until notice of such acceptance
diligence to take care of the interest of the by the creditor is given to, or acquired by,
surety and the surety is bound to take notice of the guarantor, or until he has notice or
the principals default and to perform the knowledge that the creditor has performed
obligation. He cannot complain that the creditor the condition and intends to act upon the
has not notified him in the absence of a special guaranty.
agreement to that effect. (Palmares vs CA, 288 But in any case, the creditor is not precluded
SCRA 422) from waiving the requirement of notice.
7. Prior demand by the creditor upon principal is The consideration of the guaranty is the same as
not required the consideration of the principal obligation.
NOTE: As soon as the principal is in default, the
surety likewise is in default.
The creditor may proceed against the guarantor
8. Surety is not exonerated by neglect of creditor although he has no right of action against the
to sue principal principal debtor.
7. Not presumed. It must be expressed and reduced in
Characteristics of Guaranty and Suretyship: writing.
1. Accessory - It is indispensable condition for its NOTE: A power of attorney to loan money does not
existence that there must be a principal authorize the agent to make the principal liable as a
obligation. surety for the payment of the debt of a third person.
NOTES: (BPI vs. Coster, 47 Phil. 594)
8. Falls under the Statute of Frauds since it is a special
Guaranty may be constituted to guarantee promise to answer for the debt, default or
the performance of a voidable or miscarriage of another.
unenforceable contract. It may also 9. Strictly interpreted against the creditor and in favor
guarantee a natural obligation. (Art 2052) of the guarantor/surety and is not to be extended
The guarantor cannot bind himself for more beyond its terms or specified limits. (Magdalena
than the principal debtor and even if he does, Estates, Inc. vs Rodriguez, 18 SCRA 967) The rule of
his liability shall be reduced to the limits of strictissimi juris commonly pertains to an
that of the debtor. accommodation surety because the latter acts
2. Subsidiary and Conditional - takes effect only in without motive of pecuniary gain and hence, should
case the principal debtor fails in his obligation. be protected against unjust pecuniary
impoverishment by imposing on the principal, duties
NOTES: akin to those of a fiduciary.
The guarantor cannot bind himself for more
than the principal debtor and even if he does, NOTES:
his liability shall be reduced to the limits of The rule will apply only after it has been
that of the debtor. But a guarantor may bind definitely ascertained that the contract is one of
himself for less than that of the principal (Art suretyship or guaranty. It cannot be used as an
2054) aid in determining whether a partys undertaking
A guaranty may be given as security for future is that of a surety or guarantor. (Palmares vs CA,
debts, the amount of which is not yet known; 288 SCRA 292)
there can be no claim against the guarantor It does not apply in case of compensated
until the debt is liquidated. A conditional sureties.
obligation may also be secured. (Art 2053) 10. It is a contract which requires that the guarantor
3. Unilateral - may be entered even w/o the must be a person distinct form the debtor because a
intervention of the principal debtor, in which person cannot be the personal guarantor of himself.
case Art. 1236 and 1237 shall apply and it gives NOTE: However, in a real guaranty, like pledge and
rise only to a duty on the part of the guarantor in mortgage, a person may guarantee his own obligation
relation to the creditor and not vice versa. with his personal or real properties.
4. Nominate
5. Consensual Guaranty Suretyship
6. It is a contract between the guarantor/surety and
creditor.
NOTES:
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NOTES: NOTES:
A guaranty is gratuitous, unless there is a The qualifications need only be present at the time
stipulation to the contrary. The cause of the of the perfection of the contract.
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accordance with law as a consequence of the the guarantor can only collect from the creditor and
guaranty (Art. 2055) not those which depend guarantor has no cause of action against the debtor for
upon his will or own acts or his fault for these the return of the amount paid by guarantor even if the
are his exclusive personal responsibility and it creditor should become insolvent.
is not just that they be shouldered by the
debtor. EXCEPTION: The guarantor can still claim
4. Damages if they are due in accordance reimbursement from the debtor in spite of lack of notice
with law. General rules on damages apply. if the following conditions are present: (PIG)
a. guarantor was prevented by fortuitous event to
EXCEPTIONS: advise the debtor of the payment; and
1. Where the guaranty is constituted without b. the creditor becomes insolvent;
the knowledge or against the will of the c. the guaranty is gratuitous.
principal debtor, the guarantor can recover
only insofar as the payment had been Right of Guarantor to proceed against debtor before
beneficial to the debtor (Art. 2050). payment
2. Payment by a third person who does not GENERAL RULE: Guarantor has no cause of action
intend to be reimbursed by the debtor is against debtor until after the former has paid the
deemed to be a donation, which, however, obligation
requires the debtors consent. But the EXCEPTION: Article 2071
payment is in any case valid as to the creditor
who has accepted it (Art. 1238). NOTES:
3. Waiver of the right to demand Article 2071 is applicable and available to the surety.
reimbursement. (Manila Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494)
Guarantors right to Subrogation (ART.2067)
Subrogation transfers to the person subrogated, Remedy of guarantor:
the credit with all the rights thereto appertaining (a) obtain release from the guaranty; or
either against the debtor or against third persons, (b) demand a security that shall protect him from
be they guarantors or possessors of mortgages, any proceedings by the creditor, and against the
subject to stipulation in conventional danger of insolvency of the debtor
subrogation.
Art. 2066 Art. 2071
NOTE: This right of subrogation is necessary to Provides for the Provides for his
enforcement of the protection before he
enable the guarantor to enforce the indemnity given rights of the has paid but after he
in Art. 2066. guarantor/surety has become liable
It arises by operation of law upon payment by the against the debtor
guarantor. It is not necessary that the creditor after he has paid the
cede to the guarantor the formers rights against debt
the debtor. Gives a right of Protective remedy
action after payment before payment.
It is not a contractual right. The right of Substantive right Preliminary remedy
guarantor who has paid a debt to subrogation
does not stand upon contract but upon the Extinguishment of guaranty: (RA2CE2)
principles of natural justice. 1. Release in favor of one of the guarantors, without
The guarantor is subrogated by virtue of the the consent of the others, benefits all to the extent
payment to the rights of the creditor, not those of the share of the guarantor to whom it has been
of the debtor. granted (Art 2078);
Guarantor cannot exercise the right of 2. If the creditor voluntarily accepts immovable or
redemption of his principal (Urrutia & Co vs other properties in payment of the debt, even if he
Morena and Reyes, 28 Phil 261) should afterwards lose the same through eviction or
conveyance of property (Art 2077);
Effect of Payment by Guarantor 3. Whenever by some act of the creditor, the guarantors
1. Without notice to debtor: (Art 2068) even though they are solidarily liable cannot be
The debtor may interpose against the subrogated to the rights, mortgages and preferences
of the former (Art 2080);
guarantor those defenses which he could have
4. For the same causes as all other obligations (Art
set up against the creditor at the time the
1231);
payment was made, e.g. the debtor can set
5. When the principal obligation is extinguished;
up against the guarantor the defense of
6. Extension granted to the debtor by the creditor
previous extinguishment of the obligation by
without the consent of the guarantor (Art 2079)
payment.
BOND
2. Before Maturity (Art 2069)
An undertaking that is sufficiently secured, and not
Not entitled to reimbursement unless the cash or currency
payment was made with the consent or has
been ratified by the debtor Bondsman (Art 2082)
A surety offered in virtue of a provision of law or a
Effect of Repeat Payment by debtor: (Art 2070) judicial order. He must have the qualifications
GENERAL RULE: Before guarantor pays the creditor, required of a guarantor and in special laws like the
he must first notify the debtor (Art. 2068). If he fails Rules of Court.
to give such notice and the debtor repeats payment,
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NOTES: Requisites:
Judicial bonds constitute merely a special class of 1. There should be a pledge, mortgage, or antichresis of
contracts of guaranty by the fact that they are property by way of security for the payment of the
given in virtue of a judicial order. principal obligation; and
If the person required to give a legal or judicial 2. There should be a stipulation for an automatic
appropriation by the creditor of the property in
bond should not be able to do so, a pledge or
event of nonpayment of the obligation within the
mortgage sufficient to cover the obligation shall
stipulated period.
admitted in lieu thereof (Art 2083)
A judicial bondsman and the sub-surety are NOT GENERAL RULE: Pactum Commissorium is forbidden by
entitled to the benefit of excussion because they law and is declared null and void.
are not mere guarantors, but sureties whose EXCEPTION: The pledgee may appropriate the thing
liability is primary and solidary. (Art 2084) pledged if after the first and second auctions, the thing
is not sold. (Art 2112)
PLEDGE, MORTGAGE AND ANTICHRESIS
I. Common Elements of Pledge, Mortgage, and NOTE: The security contract remains valid; only the
Antichresis (Articles 2085 2092) prohibited stipulation is void.
C. Capability to secure all kinds of obligations, i.e.
A. Essential Requisites (SOD) (Art 2085) pure or conditional (Art 2091)
1. Secures the fulfillment of a principal obligation;
2. Pledgor, mortgagor, antichretic debtor must be D. Indivisibility (Art 2089)
the absolute owner of the thing pledged or GENERAL RULE: A pledge, mortgage, or antichresis is
mortgaged; and indivisible, even though the debt may be divided among
The reason being that in anticipation of a the successors in interest of the debtor or of the creditor.
possible foreclosure sale in case of default Their indivisibility is not affected by the fact that the
which is still a sale, the rule is that the seller debtors are jointly or not solidarily liable.
must be the owner of the thing sold (Cavite
Development Bank vs. Lim, 324 SCRA 346) Consequences of indivisibility:
3. Pledgor, mortgagor, antichretic debtor must have 1. Single thing Every portion of the property pledged
free disposal of their property, or be legally or mortgaged is answerable for the whole obligation
authorized for such purpose. 2. Several things All of the several things pledged or
mortgaged are liable for the totality of the debt
NOTES: 3. Debtors heir/creditors heir - Neither the debtors
Third persons can pledge or mortgage their own heir who has paid part of the debt cannot ask for
property to secure the principal obligation. proportionate extinguishment, nor creditors heir
It is not necessarily void simply because the who received his share of the debt return the pledge
accommodation pledgor or mortgagor did not or cancel the mortgage as long as the debt is not
benefit from the same. So long as valid consent completely satisfied.
was given, the fact that the loan was given solely
for the benefit of the principal debtor would not EXCEPTIONS:
invalidate the mortgage (GSIS vs CA, 170 SCRA 1. Where each one of several things guarantees a
533) determinate portion of the credit
The accommodation pledgor or mortgagor, 2. Where only a portion of the loan was released
without expressly assuming personal liability for 3. Where there was failure of consideration.
such debt, is not liable for the payment of any 4. Where there is no debtor-creditor relationship
deficiency, should the property not be sufficient
to cover the debt (Bank of America vs. American NOTES:
Realty Corporation, 321 SCRA 659). The mere embodiment of a real estate mortgage and
The accommodation pledgor or mortgagor is not a chattel mortgage in one document does not have
solidarily bound with the principal obligor but his the effect of fusing both securities into an indivisible
liability extents only to the property pledged or whole.
mortgaged. Should there be any deficiency, the The mortgagee, therefore, may legally foreclose the
creditor has recourse on the principal debtor who real estate mortgage extrajudicially and waive the
remains to be primarily bound. chattel mortgage foreclosure, and maintain instead a
The law grants to the accommodation pledgor or personal action for the recovery of the unpaid
mortgagor the same rights as a guarantor and he balance of the credit (Phil. Bank of Commerce vs.
cannot be prejudiced by any waiver of defense by Macadaeg, 109 Phil 981)
the principal debtor.
E. When the principal obligation becomes due, the
B. Prohibition against Pactum Commissorium (Art things in which the pledge, mortgage, or
2088; 2137) antichresis consists may be alienated for the
payment to the creditor. (Art. 2087)
Pactum Commissorium
Stipulation whereby the thing pledged or NOTES:
mortgaged, or under antichresis shall If the debtor fails to comply with the obligation at
automatically become the property of the the time it falls due, the creditor is merely entitled
creditor in the event of non-payment of the debt to move for the sale of the thing pledged or
within the term fixed. mortgaged in order to collect the amount of his claim
from the proceeds.
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19. To appropriate the thing in case of failure of the pledge has been extinguished but not the principal
2nd public auction (Art 2112) obligation itself. (Art 2110)
20. To apply said fruits, interests or earnings to the
interest, if any, then to the principal of the credit Requirements for sale of thing pledged at public
(Art 2102) auction: (Art 2112)
21. To retain excess value received 1. The debt is due and unpaid
in the public sale (Art 2115) 2. Sale must be at a public auction
22. To retain the thing until after full payment of the 3. there must be notice to the pledgor and owner,
debt (Art 2098) stating the amount due
23. To be reimbursed for the expenses made for the 4. Sale must be with the intervention of a notary public
preservation of the thing pledged (Art 2099)
24. To object to the alienation of the thing Effect of sale of the thing pledged: (Art 2115)
25. To possess the thing (Art 2098) 1. The sale of the thing pledged shall extinguish the
26. To sell at public auction in case of non-payment principal obligation, whether or not the proceeds of
of debt at maturity (Art 2112) the sale are equal to the amount of the principal
27. To choose which of the several things pledged obligation, interest and expenses in a proper case
shall be sold (Art 2119) 2. If the price of the sale is more than the amount due
the creditor, the debtor is not entitled to the excess
Obligations of the Pledgee unless the contrary is provided
KEY: CUDA3 3. If the price of the sale is less, the creditor is not
1. Take care of the thing with the diligence of a good entitled to recover the deficiency even if there is a
father of a family (Art 2099) stipulation to that effect
2. Not to use thing unless authorized or by the owner
or its preservation requires its use (Art 2104) REAL ESTATE MORTGAGE (Articles 2124-2131)
3. Not to deposit the thing with a 3 rd person unless so
stipulated (Art 2100) A contract whereby the debtor secures to the
4. Responsibility for acts of agents and employees as creditor the fulfilment of a principal obligation,
regards the thing (Art 2100) specially subjecting to such security immovable
5. To advise pledgor of danger to the thing (Art 2107) property or real rights over immovable property in
6. To advise pledgor of the result of the public case the principal obligation is not complied with at
auction (Art 2116) the time stipulated.
Special Requisites (in addition to the common with real property already mortgaged belonging to
essential requisites): the mortgagor is valid (Peoples Bank and Trust Co.
1. It can cover only immovable property and vs. Dahican Lumber Co., 20 SCRA 84)
alienable real rights imposed upon immovables
(Art 2124); Special Rights:
2. It must appear in a public instrument (Art. 2125); 1. Mortgagor - To alienate the mortgaged property but
and the mortgage shall remain attached to the property.
3. Registration in the registry of property is
necessary to bind third persons, but not for the NOTE: A stipulation forbidding the owner from alienating
validity of the contract (Art 2125). the immovable mortgage shall be void (Art 2130) being
An order for foreclosure cannot be refused on contrary to public policy inasmuch as the transmission of
the ground that the mortgage had not been property should not be unduly impeded.
registered provided no innocent third parties
are involved. 2. Mortgagee - To claim from a 3rd person in possession
NOTE: Where a mortgage is not valid or false, the of the mortgaged property the payment of the part
principal obligation which it guarantees is not of the credit secured by the which said third person
rendered null and void. What is lost only is the right possesses (Art 2129)
to foreclose the mortgage as a special remedy for NOTE: It is necessary that prior demand for payment
satisfying or settling the indebtedness which is the must have been made on the debtor and the latter failed
principal obligation but the mortgage deed remains to pay (BPI vs Concepcion & Hijos, Inc., 53 Phil 906)
as evidence or proof of a personal obligation of the
debtor and the amount due to the creditor may be Foreclosure
enforced in an ordinary personal action. The remedy available to the mortgagee by which he
subjects the mortgaged property to the satisfaction
Kinds: of the obligation to secure that for which the
1. Voluntary agreed to by the parties or mortgage was given
constituted by the will of the owner of the
property on which it is created NOTES:
2. Legal one required by law to be executed in It denotes the procedure adopted by the mortgagee
favour of certain persons to terminate the rights of the mortgagor on the
The persons in whose favour the law property and includes the sale itself (DBP vs
establishes a mortgage have no other right Zaragoza, 84 SCRA 668)
than to demand the execution and the Foreclosure is valid where the debtor is in default in
recording of the document in which the the payment of his obligation (Gobonseng, Jr. vs CA,
mortgage is formalized (Art 2125 par 2) 246 SCRA 472)
3. Equitable one which, although lacking the
formalities of a mortgage, shows the intention of Kinds:
the parties to make the property a security for a 1. Judicial ordinary action for foreclosure under Rule
debt 68 of the Rules of Court
2. Extrajudicial when mortgagee is given a special
PLEDGE REAL MORTGAGE power of attorney to sell the mortgaged property by
1. Constituted on 1. Constituted on public auction, under Act No. 3135
movables immovables
2. Property is 2. Delivery is not
delivered to pledgee necessary Judicial Extrajudicial
or by common foreclosure foreclosure
consent to a third 1. There is court 1. No court
person intervention intervention
3. Not valid against 3. Not valid against 2. Decisions are 2. Not appealable
third persons unless a third persons unless appealable because it is
description of the registered immediately
thing pledged and executory
date of pledge 3. Order of court 3. Foreclosure does
appear in a public cuts off all rights of not cut off right of
instrument the parties all parties involved
impleaded
Extent of Mortgage: 4. There is equity 4. There is right of
of redemption redemption
Absent express stipulation to the contrary, the
except on banks
mortgage includes the accessions, improvements, which provides for
growing fruits and income of the property not yet a right of
received when the obligation becomes due and to redemption
the amount of the indemnity granted or owing to 5. Period of 5. Period to redeem
the proprietor from the insurers of the property redemption starts start from date of
mortgaged, or in virtue of expropriation for from the finality of registration of
public use (Art 2127) the judgment until certificate of sale
order of
confirmation
Object of Mortgage:
6. No need for a 6. Special power of
Future property cannot be an object of a contract special power of attorney in favor of
of mortgage (Art 2085[2]) However, a stipulation attorney in the mortgagee is
subjecting to the mortgage lien, properties contract of needed in the
(improvements) which the mortgagor may mortgage contract
subsequently acquire install, or use in connection
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Remedies of creditor in case of non-payment of Effect of failure to register chattel mortgage in the
debt chattel mortgage registry
Article 2140 makes the recording in the Chattel
1. Bring an action for specific performance; or Mortgage Register an essential requisite but if the
2. Petition for the sale of the real property as in a instrument is not recorded, the mortgage is
foreclosure of mortgages under Rule 68 of the nevertheless binding between the parties. But the
Rules of Court.(Art 2137) person in whose favour the law establishes a
mortgage has no other right than to demand the
NOTES: execution and the recording of the document.
The parties, however, may agree on an
extrajudicial foreclosure in the same manner as
they are allowed in contracts of mortgage and Chattel Mortgage Pledge
pledge (Tavera vs. El Hogar Filipino, Inc., 68 Phil 1. Delivery of the 1. Delivery of the
712). personal property thing pledged is
A stipulation authorizing the antichretic creditor to the mortgage is necessary
to appropriate the property upon the non- not necessary
payment of the debt within the agreed period is 2. registration in 2. registration not
void (Art 2088). the Chattel necessary to be
Mortgage Registry valid
CHATTEL MORTGAGE (Articles 2140-2141) is necessary for its
validity
A contract by virtue of which personal property is 3. If property is 3. Debtor is not
recorded in the Chattel Mortgage Register as a foreclosed, the entitled to excess
security for the performance of an obligation (Art excess over the unless otherwise
2140). amount due goes to agreed or except in
the debtor case of legal
Characteristics pledge
1. Accessory contract it is for the purpose of 4. If there is 4. If there is
securing the performance of a principal deficiency after deficiency, creditor
obligation foreclosure, is not entitled to
2. Formal contract registration in the Chattel creditor is entitled recover
Mortgage Register is indispensable for its validity to recover the notwithstanding
3. Unilateral contract it produces only obligations deficiency from the any stipulation to
on the part of the creditor to free the thing from debtor, except the contrary
the encumbrance on fulfilment of the obligation. under Art. 1484
Subject matter of both is movable
Special Requisites (in addition to the common property
essential requisites):
1. It can cover only personal or movable property in Affidavit of Good Faith
general; however, the parties may treat as Oath in a contract of chattel mortgage wherein the
personal property that which by its nature would parties "severally swear that the mortgage is made
be real property; for the purpose of securing the obligation specified in
2. Registration of the mortgage with the Chattel the conditions thereof and for no other purposes and
Mortgage Register where the mortgagor resides; if that the same is a just and valid obligation and one
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not entered into for the purpose of fraud. (Sec. 1. Real mortgage After the redemption period has
5, Chattel Mortgage Law) expired, the purchaser of the property has the right
to a conveyance and to be placed in possession
Effect of absence thereof.
The special affidavit is required only for the
purpose of transforming an already valid NOTES:
mortgage into preferred mortgage. Thus, it is Purchaser is not obliged to bring a separate suit
not necessary for the validity of the chattel for possession. He must invoke the aid of the
mortgage itself but only to give it a preferred courts and ask for a WRIT OF POSSESSION.
status. In other words, its absence vitiates the Section 7 of Act No. 3135 allows the purchaser to
mortgage only as against third persons without
take possession of the foreclosed property during
notice like creditors and subsequent
the period of redemption upon filing of an ex
encumbrancers.
parte application and approval of a bond.
Foreclosure of Chattel Mortgage
2. Chattel mortgage When default occurs and the
NOTES:
creditor desires to foreclose, the creditor has the
Foreclosure sale in chattel mortgage is by public right to take the property as a preliminary step for
auction under Act No. 1508, but the parties may its sale.
stipulate that it be by private sale. NOTE: Where the debtor refuses to yield the
The mortgagee may, after thirty (30) days from property, the creditors remedy is to institute an
the time of the condition broken, cause the action either to effect judicial foreclosure directly or
mortgaged property to be sold at public auction to secure possession (REPLEVIN) as a preliminary to
by a public officer. The 30-day period is also a the sale contemplated in Section 14 or Act. No. 1508
grace period for the mortgagor to discharge the
mortgage obligation. After the sale of the chattel CONCURRENCE AND PREFERENCE OF CREDITS (Articles
at public auction, the right of redemption is no 2236 2251)
longer available to the mortgagor (Cabral vs.
Evangelista, 28 SCRA 1000). Concurrence of Credits
Possession by two or more creditors of equal rights or
Application of proceed of sale: privileges over the same property or all of the
1. Costs and expenses of keeping and sale property of the debtor
2. Payment of the obligation secured by the
mortgage Preference of Credits
3. Claims of persons holding subsequent Right held by a creditor to be preferred in the
mortgages in their order payment of his claim above others out of the debtors
4. The balance, if any, shall be paid to the assets.
mortgagor or person holding under him
NOTES:
NOTES: The rules on preference of credits apply only when
The creditor may maintain an action for the two or more creditors have separate and distinct
deficiency, except if the chattel mortgage is claims against the same debtor who has insufficient
constituted as security for the purchase of property.
personal property payable in instalments (Art. Preference creates no lien on property, and,
1484). therefore, gives no interest in property, specific or
The action for deficiency may be brought within general, to the preferred creditor but a preference
ten (10) years from the time the cause of action in application of the proceeds after the sale. (Molina
accrues (Arts 1141 and 1142). vs. Somes, 31 Phil. 76)
Only equity of redemption is available to the The preferential right of credit attains significance
mortgagor; the latter can no longer redeem after only after the properties of the debtor have been
the confirmation of the foreclosure sale. inventoried and liquidated, and the claims held by
his various creditors have been established. (DBP vs.
Right of redemption NLRC, 183 SCRA 328)
When the condition of a chattel mortgage is
broken the following may redeem: Preference of Lien
a) mortgagor; Credit
b) person holding a subsequent mortgage; or Applies only to Creates a charge
c) subsequent attaching creditor. claims which do on a particular
not attach to property
An attaching creditor who so redeems shall be specific
subrogated to the rights of the mortgagee and properties
entitled to foreclose the mortgage in the same
manner that the mortgagee could foreclose it. Liability of debtors property for his obligations
The redemption is made by paying or delivering GENERAL RULE: Debtor is liable with all his property,
to the mortgagee the amount due on such present and future, for the fulfilment of his obligations.
mortgage and the costs, and expenses incurred by (Art 2236)
such breach of condition before the sale thereof
(Sec 13, Act No. 1508). EXEMPT PROPERTY:
1. Present property those provided under Arts. 155
Right to possession of foreclosed property and 205 of the Family Code, Sec. 13, Rule 39 of
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the Rules of Court, and Sec. 118 of the Public The provision not only enumerates the preferred
Land Act credits with respect to other property, real and
2. Future property a debtor who obtains a personal, of the debtor, but also gives their order of
discharge from his debts on account of his preference in the order named.
insolvency, is not liable for the unsatisfied In contrast with Articles 2241 and 2242, Article 2244
claims of his creditors with said property
creates no liens on determinate property which
subject to certain exceptions expressly
follow such property. What Article 2244 creates are
provided by law. (Secs. 68, 69, The Insolvency
simply rights in favour of certain creditors to have
Law [Act No. 1956])
the cash and other assets of the insolvent applied in
3. Property under legal custody and those
a certain sequence or order of priority.
owned by municipal corporations necessary
for governmental purposes Article 2244, particularly par (14) item (1) thereof, is
not applicable to obligations of the State as it is a
General Categories of Credit: recognized doctrine that the State is always solvent.
1. Special Preferred Credits - those listed in Arts. It is inconceivable for the State to voluntarily initiate
2241 and 2242 shall be considered as mortgages and insolvency or general liquidation proceedings or to be
pledges of real or personal property or liens (Art. subjected to such proceedings under its own laws.
2243). Hence, they are not included in the insolvent
debtor's assets. 3. Common Credits those listed under Art. 2245,
which shall be paid pro rata regardless of dates.
NOTES: NOTE: Ordinary Preferred and Common Credits cover
Arts. 2241 and 2242 do not give the order of only free property of the debtor, or those not
subjected to Special Preferred Credit.
preference or priority of payment. They merely
enumerate the credits which enjoy preference
Effects of Article 110 of Labor Code to Art 2244:
with respect to specific movables or immovables.
1. Removed the one-year limitation found in No. 2 of
With respect to the same specific movables or
Art. 2244
immovables, creditors, with the exception of the
2. Moving up the claims for unpaid wages (and other
State (No. 1), merely concur.
monetary claims) of laborers or workers of insolvent
They only find application when there is a from second priority to first priority in the order of
concurrence of credits, i.e., when the same preference established by Art. 2244
specific property of the debtor is subjected to
the claims of several creditors and the value of
such property is insufficient to pay in full all the
creditors. In such a situation, the question of
preference will arise. NOTES:
Article 2242 makes no distinction between In case of bankruptcy or liquidation of the employers
registered and unregistered vendors lien (No. 2). business, the unpaid wages and other monetary
Hence, any lien of that kind enjoys the preferred claims of the employees shall be given first
credit status. Unlike the unpaid price of real preference and shall be paid in full before the claims
property sold, mortgage credits (No. 5), in order of the government and other creditors may be paid.
to be given preference, should be recorded in the The terms, declaration of bankruptcy, or judicial
Registry of Property. But a recorded mortgage liquidation have been eliminated, nevertheless,
credit is superior to an unrecorded unpaid according to the SC, bankruptcy or liquidation
vendors lien (De Barretto vs. Villanueva, 1 SCRA proceedings are still necessary for the operation of
288) the preference accorded to workers under Art. 110 of
The priority rule applies to credits annotated in the Labor Code. (DBP vs. NLRC 183 SCRA 328; RA No.
the Registry of Property. As to credits mentioned 6715 Sec 10)
in No. 7 of Article 2242, there is preference In case of rehabilitation, the preference of credit
among the attachments or executions according granted to employees under Art 110 of the Labor
to the order of the time they were levied upon Code is not applicable (Rubberworld [Phils.] vs CA,
the property. The pro rata rule in Article 2249 305 SCRA 722).
does not apply; otherwise, the result would be
absurd. The preference of a credit annotated by Refectionary Credit
an attachment or execution could be defeated by Indebtedness incurred in the repair or reconstruction
simply obtaining a writ of attachment or of something previously made, such repair or
execution, no matter how much later (Manabat reconstruction being made necessary by the
vs Laguna Federation of Facomas, Inc., 19 SCRA deterioration or destruction of the thing as it
621). formerly existed.
The last paragraph of Article 2241 applies
only when the right of ownership in such property ORDER OF PREFERENCE OF CREDITS
continues in the debtor, and, therefore, it is not
applicable to cases where the debtor has parted Arts. 2241 and 2242, jointly with Arts. 2246 to 2249
with his ownership therein, as where he has sold establish a two-tier order of preference:
the property (Pea vs. Mitchell, 9 Phil 587) 1. First tier includes taxes, duties and fees due on
specific movable or immovable property;
2. Ordinary Preferred Credits - those listed in Art. 2. Second tier all other special preferred (non-tax)
2244 as amended by Art. 110 of the Labor Code. credits shall be satisfied pro-rata, out of any residual
NOTES: value of the specific property to which such credits
relate.
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of dates.
NOTES:
The pro-rata rule does not apply to credits
annotated in the Registry of Property by virtue of
a judicial