Docshare - Tips Credit Transaction

San Beda College of Law 1
MEMORY AID IN CIVIL LAW

CREDIT TRANSACTIONS 2. Unilateral Contract - once the subject matter has
been delivered, it creates obligations on the part of
only one of the parties (i.e. borrower).
CREDIT TRANSACTIONS
 All transactions involving the purchase or loan of  Kinds:
goods, services, or money in the present with a 1. Commodatum – when the bailor (lender) delivers to
promise to pay or deliver in the future the bailee (borrower) a non-consumable thing so that
the latter may use it for a certain time and return
Contracts of security the identical thing.
Types:  Kinds of commodatum:
1. Secured transactions or contracts of real security a. Ordinary Commodatum – use by the borrower of
- supported by a collateral or an encumbrance of the thing is for a certain period of time
property b. Precarium - one whereby the bailor may demand
2. Unsecured transactions or contracts of personal the thing loaned at will and it exists in the
security - supported only by a promise or following cases:
personal commitment of another such as a i. neither the duration nor purpose of the
guarantor or surety contract is stipulated
ii. the use of the thing is merely tolerated by
Security the owner
 Something given, deposited, or serving as a
means to ensure fulfilment or enforcement of an
obligation or of protecting some interest in
property 2. Simple loan or mutuum – where the lender delivers
 Types of Security to the borrower money or other consumable thing
a. personal – when an individual becomes upon the condition that the latter shall pay the same
surety or guarantor amount of the same kind and quality.
b. real or property – when a mortgage, pledge,
antichresis, charge or lien or other device Commodatum Mutuum
used to have property held, out of which the Key: COPS-LOTR
person to be made secure can be 1. Object
compensated for loss Non-consumable Consumable
2. Cause
Bailment Gratuitous May or may not be
 The delivery of property of one person to another gratuitous
in trust for a specific purpose, with a contract, 3. Purpose
express or implied, that the trust shall be Use or temporary Consumption
possession
faithfully executed and the property returned or
4. Subject Matter
duly accounted for when the special purpose is
Real or personal Only personal
accomplished or kept until the bailor claims it. property property
5. Ownership of the thing
 Parties: Retained by the Passes to the debtor
1. bailor - the giver; one who delivers property bailor
2. bailee- the recipient; one who receives the 6. Thing to be returned
custody or possession of the thing thus delivered Exact thing loaned Equal amount of the
same kind and
quality
7. Who bears risk of loss
LOAN (Articles 1933 – 1961) Bailor Debtor
8. When to return
 A contract wherein one of the parties delivers to In case of urgent Only after the
need, even before expiration of the
another, either something not consumable so that
the expiration of the term
the latter may use the same for a certain time term
and return it or money or other consumable
thing, upon the condition that the same amount
of the same kind and quality shall be paid. (Art
Loan Credit
1933)
Delivery by one party Ability of a person to
and the receipt of borrow money or
Characteristics: other party of a things by virtue of
1. Real Contract – delivery of the thing loaned is given sum of money the trust or
necessary for the perfection of the contract or other consumable confidence reposed
NOTE: An accepted promise to make a future thing upon an by the lender that he
loan is a consensual contract, and therefore agreement, express will pay what he
binding upon the parties but it is only after or implied, to repay promised.
delivery, will the real contract of loan arise. (Art the same.
1934)
CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)

Loan Credit a. when he keeps it longer than the period
1. Interest taken at Interest is taken in stipulated, or after the accomplishment of its use
the expiration of the advance b. when he lends or leases it to third persons who
credit are not members of his household
2. Always on a Always on a single c. when the thing loaned has been delivered with
double name paper name paper (i.e. appraisal of its value
(two signatures promissory note with
d. when, being able to save either of the thing
appear with both no indorse-ment
parties held liable other than the borrowed or his own things, he chose to save the
for payment) maker) latter; or
e. when the bailee devoted the thing for any
COMMODATUM (Articles 1935 – 1952) purpose different from that for which it has been
 Nature: loaned (Art 1942)
3. To be liable for the deterioration of thing loaned (a)
1. PURPOSE: Bailee in commodatum acquires the if expressly stipulated; (b) if guilty of fault or
temporary use of the thing but not its fruits negligence; or (c) if he devotes the thing to any
(unless stipulated as an incidental part of the purpose different from that for which it has been
contract).(Art 1935) loaned
4. To pay for extraordinary expenses arising from the
 Use must be temporary, otherwise the
actual use of the thing by the bailee, which shall be
contract may be a deposit.
borne equally by both the bailor and the bailee, even
though the bailee acted without fault, unless there is
2. CAUSE: Essentially gratuitous; it ceases to be a
a stipulation to the contrary (Art 1949 par 2)
commodatum if any compensation is to be paid
5. To return the thing loaned
by the borrower who acquires the use, in such
case there arises a lease contract.  The bailee has no right to retain the thing loaned
as security for claims he has against the bailor
 Similar to a donation in that it confers a
even for extraordinary expenses except for a
benefit to the recipient. The presumption is
claim for damages suffered because of the flaws
that the bailor has loaned the thing for
of the thing loaned.
having no need therefor.
NOTES:
3. SUBJECT MATTER: Generally non-consumable
whether real or personal but if the consumable  However, the bailee’s right extends no
goods are not for consumption as when they are further than retention of the thing loaned
merely for exhibition, consumable goods may be until he is reimbursed for the damages
the subject of the commodatum. (Art 1936) suffered by him.
 He cannot lawfully sell the thing to satisfy
4. Bailor need not be the owner of the thing owned such damages without court’s approval.
(Art. 1938) since by the loan, ownership does not  In case there are two or more bailees, their
pass to the borrower. obligation shall be solidary.
 A mere lessee or usufructuary may lend but
the borrower or bailee himself may not lend Obligations of the bailor (Art 1946 – Art 1952):
nor lease the thing loaned to him to a third 1. To respect the duration of the loan
person (Art 1932[2]) GENERAL RULE: Allow the bailee the use of the
thing loaned for the duration of the period stipulated
5. Purely Personal (Art 1939): or until the accomplishment of the purpose for which
 Death of either party terminates the contract the commodatum was instituted.
unless by stipulation, the commodatum is EXCEPTIONS:
transmitted to the heirs of either or both a. In case of urgent need in which case
parties. bailee may demand its return or temporary use;
 Bailee can neither lend nor lease the object b. The bailor may demand immediate return
of the contract to a third person. of the thing if the bailee commits any act of
ingratitude specified in Art. 765.
2. To refund to the bailee extraordinary expenses for

NOTE:Use of the thing loaned may extend to the preservation of the thing loaned, provided the
members of the bailee’s household except: bailee brings the same to the knowledge of the bailor
a. contrary stipulation; before incurring them, except when they are so
b. nature of the thing forbids such use urgent that the reply to the notification cannot be
awaited without danger.
Obligations of the Bailee: (Arts 1941 – 1945)
1. To pay for the ordinary expenses for the use and 3. To be liable to the bailee for damages for known
preservation of the thing loaned. (Art 1941) hidden flaws.
2. To be liable for the loss of the thing even if it  Requisites:
should be through a fortuitous event in the a. There is flaw or defect in the thing loaned;
following cases: (KLAS D) b. The flaw or defect is hidden;
c. The bailor is aware thereof;
CIVIL LAW COMMITTEE


d. He does not advise the bailee of the same; its use (Tolentino vs
and Gonzales, 50 Phil 558
e. The bailee suffers damages by reason of said 1927)
flaw or defect
Loan Sale
1. Real contract Consensual contract
2. Generally Bilateral and

NOTES:
unilateral because reciprocal
 If the above requisites concur, the bailee has only borrower has
the right of retention for damages. obligations
 The bailor cannot exempt himself from the
payment of expenses or damages by NOTE: If the property is “sold”, but the real intent is
abandoning the thing to the bailee. only to give the object as security for a debt – as when
the “price” is comparatively small – there really is a
SIMPLE LOAN OR MUTUUM (Art 1953 – 1961) contract of loan with an “equitable mortgage.”
 A contract whereby one party delivers to
another, money or other consumable thing with Commodatum/
Barter
the understanding that the same amount of the Mutuum
same kind and quality shall be paid. (Art. 1953)
1. Subject matter is Subject matter is
money or fungible non-fungible, (non
NOTES: things consumable) things
 The mere issuance of the checks does not result
in the perfection of the contract of loan. The 2. In commodatum, The thing with
Civil Code provides that the delivery of bills of the bailee is bound equivalent value is
exchange and mercantile documents, such as to return the given in return for
checks, shall produce the effect of payment only identical thing what has been
borrowed when the received
when they have been encashed (Gerales vs. CA time has expired or
218 SCRA 638). It is only after the checks have purpose served
produced the effect of payment that the contract
of loan may be deemed perfected. 3. Mutuum may be Onerous, actually a
 The obligation is “to pay” and not to return gratuitous and mutual sale
because the consumption of the thing loaned is commodatum is
always gratuitous
the distinguishing character of the contract of
mutuum from that of commodatum.
 No estafa is committed by a person who refuses
to pay his debt or denies its existence.
Simple Loan/Mutuum Rent  Form of Payment (Art 1955):

1. If the thing loaned is money - payment must be made
1. Delivery of money Delivery of some non-
or some consumable consumable thing in in the currency stipulated, if it is possible; otherwise
thing with a promise order that the other it is payable in the currency which is legal tender in
to pay an equivalent may use it during a the Philippines and in case of extraordinary inflation
of the same kind and certain period and or deflation, the basisi of payment shall be the value
quality return it to the of the currency at the time of the creation of the
former. obligation
2. If what was loaned is a fungible thing other than
2. There is a transfer There is no transfer money - the borrower is under obligation to pay the
of ownership of the of ownership of the lender another thing of the same kind, quality and
thing delivered thing delivered
quantity. In case it is impossible to do so, the
borrower shall pay its value at the time of the
3. Relationship Relationship is that perfection of the loan.
between the parties of a landlord and
is that of obligor- tenant Interest
obligee  The compensation allowed by law or fixed by the
parties for the loan or forbearance of money, goods
4. Creditor receives Owner of the or credits
payment for his loan property rented
 Requisites for Demandability: (ELI)
receives
compensation or 1. must be expressly stipulated
price either in Exceptions:
money, provisions, a. indemnity for damages
chattels, or labor b. interest accruing from unpaid interest
2. must be lawful
from the occupant 3. must be in writing
thereof in return for
CIVIL LAW COMMITTEE

 Central Bank Circular No. 905 (Dec. 10, 1982)
Compound Interest removed the Usury Law ceiling on interest rates for
GENERAL RULE: Unpaid interest shall not earn secured and unsecured loans, regardless of maturity.
interest.
EXCEPTIONS: Validity of unconscionable interest rate in a loan
1. when judicially demanded Supreme Court in Sps. Solangon vs. Jose Salazar,
2. when there is an express stipulation (must be G.R. No. 125944, June 29, 2001, said that since the usury
in writing in view of Art. 1956) law had been repealed by CB Cir. No. 905 there is no
more maximum rate of interest and the rate will just
Guidelines for the application of proper interest depend on the mutual agreement of the parties (citing
rates Lim Law vs. Olympic Sawmill Co., 129 SCRA 439). But the
1. If there is stipulation: that rate shall be applied Supreme Court said that nothing in said circular grants
2. The following are the rules of thumb for the lenders carta blanche authority to raise interest rates to
application/imposition of interest rates: level which will either enslave their borrowers or lead to
a) When an obligation, regardless of its source, a hemorrhaging of their assets (citing Almeda vs. CA, 256
i.e., law, contracts, quasi-contracts, delicts SCRS 292). In Medel vs. CA, 299 SCRA 481, it was ruled
or quasi-delicts is breached, the contravenor that while stipulated interest of 5.5% per month on a
can be held liable for damages. loan is usurious pursuant to CB Circular No. 905, the
b) With regard particularly to an award of same must be equitably reduced for being iniquitous,
interest in the concept of actual and unconscionable and exorbitant. It is contrary to morals,
compensatory damages, the rate of interest, (contra bonos mores). It was reduced to 12% per annum
as well as the accrual thereof, is imposed, as in consonant with justice and fair play.
follows:
i. When the obligation breached consists of DEPOSIT (Articles 1962 – 2009)
payment of a sum of money (loan or
forbearance of money), the interest shall  A contract constituted from the moment a person
be that which is stipulated or agreed receives a thing belonging to another, with the
upon by the parties. In absence of an obligation of safely keeping it and of returning the
agreement, the rate shall be the legal same.
rate (i.e. 12% per annum) computed from
default. Characteristics:
NOTE: The interest due shall itself earn 1. Real Contract - contract is perfected by the
legal interest from the time it is delivery of the subject matter.
judicially demanded 2. Unilateral (gratutitous deposit) - only the
ii. In other cases, the rate of interest shall depositary has an obligation.
be six percent (6%) per annum. 3. Bilateral (onerous deposit) - gives rise to
NOTE: No interest, however, shall be obligations on the part of both the depositary
adjudged on unliquidated claims or and depositor.
damages except when or until the
demand can be established with Deposit Mutuum
reasonable certainty. When the demand 1. Purpose
cannot be established, the interest shall Principal purpose is Principal purpose is
begin to run only from the date of the safekeeping or consumption
judgment of the court is made. custody
iii. When the judgment of the court awarding 2. When to Return
a sum of money becomes final and Depositor can The lender must wait
executory, the rate of legal interest, demand the return of until the expiration
whether the case falls under paragraph i the subject matter at of the period granted
will to the debtor
or ii above, shall be 12% per annum from
3. Subject Matter
such finality until its satisfaction, this Subject matter may Subject matter is
interim period being deemed to be by be movable or only money or other
then an equivalent to a forbearance of immovable property fungible thing
credit. (Eastern Shipping Lines vs. CA, 4. Relationship
July 12, 1994) Relationship is that Relationship is that
of lender (creditor) of depositor and
NOTES: and borrower depositary.
(debtor).
 Central Bank Circular No. 416 fixing the rate of
interest at 12% per annum deals with loans, 5. Compensation
forbearance of any money, goods or credits and There can be NO compensation of
judgments involving such loans, or forbearance in compensation of things deposited with
the absence of express agreement to such rate credits. each other (except
 Interest as indemnity for damages is payable only by mutual
in case of default or non-performance of the agreement).
contract. As they are distinct claims, they may be
demanded separately. (Sentinel Insurance Co., Deposit Commodatum
Inc. vs CA, 182 SCRA 517)
CIVIL LAW COMMITTEE

1. Purpose is 1. Purpose is the 3. property saved from destruction without
Safekeeping transfer of the use knowledge of the owner
2. May be gratuitous 2. Essentially and NOTES:
always gratuitous
 Article 1966 does not embrace incorporeal property,
3. Movable/corporeal 3. Both movable and such as rights and actions, for it follows the person of
things only in case of immovable may be the owner, wherever he goes.
extrajudicial deposit the object  A contract for the rent of safety deposit boxes is
not an ordinary contract of lease of things but a
 Kinds of Deposit: special kind of deposit; hence, it is not to be strictly
1. Judicial (Sequestration) –takes place when an governed by the provisions on deposit. The relation
attachment or seizure of property in litigation is between a bank and its customer is that of a bailor
ordered. and bailee. (CA Agro vs CA, 219 SCRA 426)
2. Extra-judicial Obligations of the Depositary (Art 1972 –1991):

a. Voluntary – one wherein the delivery is made 1. To keep the thing safely (Art 1972)
by the will of the depositor or by two or more  Exercise over the thing deposited the same
persons each of whom believes himself diligence as he would exercise over his property
entitled to the thing deposited. (Arts 1968 – 2. To return the thing (Art 1972)
1995)  Person to whom the thing must be returned:
b. Necessary – one made in compliance with a a. Depositor, to his heirs and successors, or the
legal obligation, or on the occasion of any person who may have been designated in the
calamity, or by travellers in hotels and inns contract
(Arts 1996 - 2004), or by travellers with b. If the depositary is capacitated - he is subject to
common carriers (Art 1734 – 1735). all the obligations of a depositary whether or not
NOTE: The chief difference between a voluntary the depositor is capacitated. If the depositor is
deposit and a necessary deposit is that in the incapacitated, the depositary must return the
former, the depositor has a complete freedom in property to the legal representative of the
choosing the depositary, whereas in the latter, incapacitated or to the depositor himself if he
there is lack of free choice in the depositor. should acquire capacity (Art 1970).
c. If the depositor is capacitated and the depositary
Judicial Extra-judicial is incapacitated - the latter does not incur the
1. Creation obligation of a depositary but he is liable:
Will of the court Will of the parties i..to return the thing deposited while still in his
or contract possession;
2. Purpose ii.to pay the depositor the amount which he
Security or to insure Custody and may have benefited himself with the thing or
the right of a party safekeeping
its price subject to the right of any third
to property or to
recover in case of
person who acquired the thing in good faith
favorable judgment (Art 1971)
3. Subject Matter  Time of return:

Movables or Movables only a. Upon demand even though a specified period
immovables,
or time for such return may have been fixed
but generally
immovables except when the thing is judicially attached
while in the depositary’s possession or should he
4. Cause have been notified of the opposition of a third
Always onerous May be compen- person to the return or the removal of the thing
sated or not, but
deposited. (Art 1998)
generally gratuitous
b. If deposit gratuitous, the depositary may
return the thing deposited notwithstanding that a
5. When must the thing be returned period has been fixed for the deposit if
Upon order of the Upon demand of justifiable reasons exists for its return.
court or when depositor
c. If the deposit is for a valuable
litigation is ended
consideration, the depositary has no right to
6. In whose behalf it is held return the thing deposited before the expiration
Person who has a Depositor or third of the time designated even if he should suffer
right person designated
inconvenience as a consequence.(Art 1989)
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
goods  The depositor is liable for the loss of the thing
deposited under Article 1973 if:
CIVIL LAW COMMITTEE

a. he transfers the instructions of the depositor cannot be done
deposit with a third person without authority without opening it)
although there is no negligence on his part ii. necessity
and the third person; 8. To change the way of the deposit if under the
b. he deposits the thing circumstances, the depositary may reasonably
with a third person who is manifestly careless presume that the depositor would consent to the
or unfit although authorized even in the change if he knew of the facts of the situation,
absence of negligence; or provided, that the former notifies the depositor
c. the thing is lost thereof and wait for his decision, unless delay would
through the negligence of his employees cause danger
whether the latter are manifestly careless or 9. To pay interest on sums converted to personal use if
not. the deposit consists of money (Art 1983)
4. If the thing deposited should earn interest (Art 10. To be liable for loss through fortuitous event (SUDA):
1975): (Art 1979):
a. to collect interest and the capital itself as it a. if stipulated
fall due b. if he uses the thing without the depositor's
b. to take steps to preserve its value and rights permission
corresponding to it c. if he delays its return
5. Not to commingle things deposited if so d. if he allows others to use it, even though he
stipulated (Art 1976) himself may have been authorized to use the
6. Not to make use of the thing deposited unless same
authorized (Art 1977)
GENERAL RULE: Deposit is for safekeeping of NOTES:
the subject matter and not for use. The  Fixed, savings, and current deposits of money in
unauthorized use by the depositary would make banks and similar institutions shall be governed by
him liable for damages. the provisions concerning simple loan. (Art 1980)
EXCEPTIONS:  The general rule is that a bank can compensate or
1. When the preservation of the thing deposited set off the deposit in its hands for the payment of
requires its use any indebtedness to it on the part of the depositor.
2. When authorized by the depositor In true deposit, compensation is not allowed.
NOTE: The permission to use is NOT presumed Irregular deposit Mutuum
except when such use is necessary for the
preservation of the thing deposited. 1. The consumable 1. Lender is bound
thing deposited may by the provisions of
Effect if permission to use is given (Art 1978): be demanded at will the contract and
1. If thing deposited is non-consumable, by the depositor cannot demand
the contract loses the character of a deposit restitution until the
and acquires that of a commodatum despite time for payment, as
the fact that the parties may have provided in the
contract, has arisen
denominated it as a deposit, unless
safekeeping is still the principal purpose.
2. The only benefit is 2. Essential cause for
2. If thing deposited consists of that which accrues the transaction is the
money/consumable things, the contract is to the depositor necessity of the
converted into a simple loan or mutuum borrower
unless safekeeping is still the principal
purpose in which case it is called an irregular 3. The irregular 3. Common creditors
deposit. Example: bank deposits are irregular depositor has a enjoy no preference
deposits in nature but governed by law on preference over in the distribution of
loans. other creditors with the debtor’s
respect to the thing property
7. When the thing deposited is delivered sealed and
deposited
closed :
a. to return the thing deposited in the same
condition
Rule when there are two or more depositors (Art
b. to pay for damages should the seal or lock be
1985):
broken through his fault, which is presumed
1. If thing deposited is divisible and depositors are not
unless proved otherwise
solidary: Each depositor can demand only his
c. to keep the secret of the deposit when the
proportionate share thereto.
seal or lock is broken with or without his fault
2. If obligation is solidary or if thing is not divisible:
(Art 1981)
Rules on active solidarity shall apply, i.e. each one of
NOTE: The depositary is authorized to open
the solidary depositors may do whatever may be
the thing deposited which is closed and
useful to the others but not anything which may be
sealed when (Art 1982):
prejudicial to the latter, (Art. 1212) and the
i. there is presumed authority (i.e. when the
depositary may return the thing to anyone of the
key has been delivered to him or the
solidary depositors unless a demand, judicial or
extrajudicial, for its return has been made by one of
CIVIL LAW COMMITTEE

them in which case, delivery should be made to  The keepers of hotels or inns shall be responsible as
him (Art. 1214). depositaries for the deposit of effects made by
3. Return to one of depositors stipulated. The travellers provided:
depositary is bound to return it only to the person a. Notice was given to them or to their employees
designated although he has not made any demand of the effects brought by the guest; and
for its return. b. The guests take the precautions which said hotel-
keepers or their substitutes advised relative to
NOTES: the care and vigilance of their effects.
 The depositary may retain the thing in pledge NOTES:
until full payment of what may be due him by  Liability extends to vehicles, animals and articles
reason of the deposit (Art 1994). which have been introduced or placed in the annexes
 The depositor’s heir who in good faith may have of the hotel.
sold the thing which he did not know was  Liability shall EXCLUDE losses which proceed from
deposited, shall only be bound to return the price force majeure. The act of a thief or robber is not
he may have received or to assign his right of deemed force majeure unless done with the use of
action against the buyer in case the price has not arms or irresistible force.
been paid him (Art 1991).  The hotel-keeper cannot free himself from the
responsibility by posting notices to the effect that he
Obligations of the Depositor (Art 1992 – 1995): is not liable for the articles brought by the guest. Any
1. To pay expenses for preservation stipulation to such effect shall be void.
a. If the deposit is gratuitous, the depositor is
obliged to reimburse the depositary for  Notice is necessary only for suing civil liability but
expenses incurred for the preservation of the not in criminal liability.
thing deposited (Art 1992)
b. If the deposit is for valuable consideration, GUARANTY (Articles 2047 – 2084)
expenses for preservation are borne by the
depositary unless there is a contrary  A contract whereby a person (guarantor) binds
stipulation himself to the creditor to fulfil the obligation of the
2. To pay loses incurred by the depositary due to principal debtor in case the latter fail to do so.
the character of the thing deposited
 Classification of Guaranty:
GENERAL RULE: The depositor shall reimburse the 1. In the Broad sense:
depositary for any loss arising from the character of a. Personal - the guaranty is the credit given by the
the thing deposited. person who guarantees the fulfilment of the
EXCEPTIONS: principal obligation.
1. at the time of the deposit, the depositor was b. Real - the guaranty is the property, movable or
not aware of the dangerous character of the immovable.
thing
2. when depositor was not expected to know the
dangerous character of the thing
3. when the depositor notified the depository of
the same 2. As to its Origin
4. the depositary was aware of it without advice a. Conventional - agreed upon by the parties.
from the depositor b. Legal - one imposed by virtue of a provision of a
law.
Extinguishment of Voluntary Deposit (Art 1995) c. Judicial - one which is required by a court to
1. Loss or destruction of the thing deposited guarantee the eventual right of one of the
2. In case of gratuitous deposit, upon the death of parties in a case.
either the depositor or the depositary 3. As to Consideration
3. Other causes, such as return of the thing, a. Gratuitous - the guarantor does not receive any
novation, merger, expiration of the term price or remuneration for acting as such.
fulfilment of the resolutory condition, etc (Art b. Onerous - the guarantor receives valuable
1231) consideration.
4. As to the Person guaranteed
Necessary Deposits a. Single - one constituted solely to guarantee or
1. Made in compliance with a legal obligation secure performance by the debtor of the
2. Made on the occasion of any calamity such as principal obligation.
fire, storm, flood, pillage, shipwreck or other b. Double or sub-guaranty - one constituted to
similar events (deposito miserable) secure the fulfilment by the guarantor of a prior
3. Made by travellers in hotels and inns or by guaranty.
travellers with common carrier 5. As to Scope and Extent
a. Definite - the guaranty is limited to the principal
obligation only, or to a specific portion thereof.
b. Indefinite or simple - one which not only
includes the principal obligation but also all its
Deposit by Travellers in hotels and inns: accessories including judicial costs
CIVIL LAW COMMITTEE

262) as an original promissory and debtor from the
SURETYSHIP beginning.
5. Undertaking is to creditor and not to debtor.
 A contract whereby a person (surety) binds NOTE: The surety makes no covenant or agreement
himself solidarily with the principal debtor with the principal that it will fulfil the obligation
 A relation which exists where one person guaranteed for the benefit of the principal. Such a
(principal) has undertaken an obligation and promise is not implied by law either; and this is true
another person (surety) is also under a direct and even where under the contract the creditor is given
primary obligation or other duty to the obligee, the right to sue the principal, or the latter and the
who is entitled to but one performance, and as surety at the same time. (Arranz vs. Manila Fidelity
between the two who are bound, the second & Surety Co., Inc., 101 Phil. 272)
rather than the first should perform (Agro 6. Surety is not entitled to notice of principal’s default
Conglomerates, Inc. vs. CA, 348 SCRA 450) NOTE: The creditor owes no duty of active diligence
NOTES: to take care of the interest of the surety and the
 The reference in Article 2047 to solidary surety is bound to take notice of the principal’s
default and to perform the obligation. He cannot
obligations does not mean that suretyship is
complain that the creditor has not notified him in the
withdrawn from the applicable provisions
absence of a special agreement to that effect.
governing guaranty. A surety is almost the same
(Palmares vs CA, 288 SCRA 422)
as a solidary debtor, except that he himself is a
7. Prior demand by the creditor upon principal is not
principal debtor.
required
 In suretyship, there is but one contract, and the NOTE: As soon as the principal is in default, the
surety is bound by the same agreement which surety likewise is in default.
binds the principal. A surety is usually bound with 8. Surety is not exonerated by neglect of creditor to
the principal by the same instrument, executed sue principal
at the same time and upon the same
consideration (Palmares vs CA, 288 SCRA 422) Characteristics of Guaranty and Suretyship:
 It is not for the obligee to see to it that the 1. Accessory - It is indispensable condition for its
principal debtor pays the debt or fulfill the existence that there must be a principal obligation.
contract, but for the surety to see to it that the NOTES:
principal debtor pays or performs (Paramount  Guaranty may be constituted to guarantee the
Insurance Corp vs CA, 310 SCRA 377) performance of a voidable or unenforceable
contract. It may also guarantee a natural
Nature of Surety’s undertaking: obligation. (Art 2052)
1. Liability is contractual and accessory but direct
NOTE: He directly, primarily and equally binds
 The guarantor cannot bind himself for more than
the principal debtor and even if he does, his
himself with the principal as original promisor,
liability shall be reduced to the limits of that of
although he possesses no direct or personal
the debtor.
interest over the latter’s obligation, nor does he
2. Subsidiary and Conditional - takes effect only in case
receive any benefits therefrom. (PNB vs CA, 198
the principal debtor fails in his obligation.
SCRA 767)
2. Liability limited by the terms of the contract.
NOTES:
NOTE: It cannot be extended by implication
beyond the terms of the contract (PNB vs CA, 198  The guarantor cannot bind himself for more than
SCRA 767) the principal debtor and even if he does, his
3. Liability arises only if principal debtor is held liability shall be reduced to the limits of that of
liable. the debtor. But a guarantor may bind himself for
NOTES: less than that of the principal (Art 2054)
 The creditor may sue separately or together  A guaranty may be given as security for future
the principal debtor and the surety. Where debts, the amount of which is not yet known;
there are several sureties, the obligee may there can be no claim against the guarantor until
proceed against any one of them. the debt is liquidated. A conditional obligation
 In the absence of collusion, the surety is may also be secured. (Art 2053)
3. Unilateral - may be entered even w/o the
bound by a judgment against the principal
intervention of the principal debtor, in which case
even though he was not a party to the
Art. 1236 and 1237 shall apply and it gives rise only
proceedings. The nature of its undertaking
to a duty on the part of the guarantor in relation to
makes it privy to all proceedings against its
the creditor and not vice versa.
principal (Finman General Assurance Corp.
4. Nominate
vs. Salik, 188 SCRA 740)
5. Consensual
6. It is a contract between the guarantor/surety and
4. Surety is not entitled to the benefit of
creditor.
exhaustion
NOTE: He assumes a solidary liability for the
NOTES:
fulfilment of the principal obligation (Towers
Assurance Corp vs. Ororama Supermart, 80 SCRA  Acceptance of guaranty by creditor and notice
thereof to guarantor:
CIVIL LAW COMMITTEE

 In declaring that guaranty must be NOTE: However, in a real guaranty, like pledge and
express, the law refers solely and mortgage, a person may guarantee his own obligation
exclusively to the obligation of the with his personal or real properties.
guarantor because it is he alone who
binds himself by his acceptance. With Guaranty Suretyship
respect to the creditor, no such
requirement is needed because he binds 1. Liability depends 1. Surety assumes
upon an independent liability as regular
himself to nothing.
agreement to pay the party to the
 However, when there is merely an offer obligation if primary undertaking
of a guaranty, or merely a conditional debtor fails to do so
guaranty, in the sense that it requires
action by the creditor before the 2. Collateral under- 2. Surety is an
obligation becomes fixed, it does not taking original promisor
become binding until it is accepted and
until notice of such acceptance by the 3. Guarantor is 3. Surety is
secondarily liable primarily liable
creditor is given to, or acquired by, the
guarantor, or until he has notice or 4. Guarantor binds 4. Surety undertakes
knowledge that the creditor has himself to pay if to pay if the principal
performed the condition and intends to the principal DOES NOT PAY
act upon the guaranty. CANNOT PAY
 But in any case, the creditor is not
precluded from waiving the requirement 5. Insurer of 5. Insurer of the
solvency of debtor debt
of notice.
 The consideration of the guaranty is the same 6. Guarantor can 6. Surety cannot
as the consideration of the principal avail of the benefit avail of the benefit of
obligation. of excussion and excussion and division
 The creditor may proceed against the division in case
creditor proceeds
guarantor although he has no right of action against him
against the principal debtor.
7. Not presumed. It must be expressed and reduced
Indorsement Guaranty
in writing.
NOTE: A power of attorney to loan money does 1. Primarily of 1. Contract of
not authorize the agent to make the principal transfer security
liable as a surety for the payment of the debt of
a third person. (BPI vs. Coster, 47 Phil. 594) 2. Unless the note is 2. Failure in either or
8. Falls under the Statute of Frauds since it is a promptly presented both of these
“special promise to answer for the debt, default for payment at particulars does not
or miscarriage of another”. maturity and due generally work as an
9. Strictly interpreted against the creditor and in notice of dishonor absolute discharge of
favor of the guarantor/surety and is not to be given to the indorser a guarantor’s
within a reasonable liability, but his is
extended beyond its terms or specified limits. time he will be discharged only to
(Magdalena Estates, Inc. vs Rodriguez, 18 SCRA discharged abso- the extent of the loss
967) The rule of strictissimi juris commonly lutely from all which he may have
pertains to an accommodation surety because the liability thereon, suffered in
latter acts without motive of pecuniary gain and whether he has consequence thereof
hence, should be protected against unjust suffered any actual
pecuniary impoverishment by imposing on the damage or not
principal, duties akin to those of a fiduciary.
3. Indorser does not 3. Guarantor
warrant the solvency. warrants the solvency
NOTES:
He is answerable on a of the promisor
 The rule will apply only after it has been strict compliance
definitely ascertained that the contract is with the law by the
one of suretyship or guaranty. It cannot be holder, whether the
used as an aid in determining whether a promisor is solvent or
party’s undertaking is that of a surety or not
guarantor. (Palmares vs CA, 288 SCRA 292)
4. Indorser can be 4. Guarantor cannot be
 It does not apply in case of compensated sued as promisor sued as promisor
sureties.
10. It is a contract which requires that the guarantor Guaranty Warranty
must be a person distinct form the debtor
because a person cannot be the personal
guarantor of himself.
CIVIL LAW COMMITTEE


A contract by which a An undertaking that
person is bound to the title, quality, or Extent of Guarantor’s liability: (Art 2055)
another for the quantity of the 1. Where the guaranty definite: It is limited in whole or
fulfilment of a subject matter of the in part to the principal debt, to the exclusion of
promise or contract is what it
accessories.
engagement of a has been represented
third party to be, and relates to 2. Where guaranty indefinite or simple: It shall
some agreement comprise not only the principal obligation, but also
made ordinarily by all its accessories, including the judicial costs,
the party who makes provided with respect to the latter, that the
the warranty guarantor shall only be liable for those costs incurred
after he has been judicially required to pay.
NOTES:
 A guaranty is gratuitous, unless there is a Qualifications of a guarantor: (Arts 2056-2057)
stipulation to the contrary. The cause of the 1. possesses integrity
contract is the same cause which supports the 2. capacity to bind himself
obligation as to the principal debtor. 3. has sufficient property to answer for the
obligation which he guarantees
 The peculiar nature of a guaranty or surety
agreement is that is is regarded as valid despite NOTES:
the absence of any direct consideration received
by the guarantor or surety either from the  The qualifications need only be present at the time
principal debtor or from the creditor; a of the perfection of the contract.
consideration moving to the principal alone will  The subsequent loss of the integrity or property or
suffice. supervening incapacity of the guarantor would not
 It is never necessary that the guarantor or surety operate to exonerate the guarantor or the eventual
should receive any part or benefit, if such there liability he has contracted, and the contract of
be, accruing to the principal. (Willex Plastic guaranty continues.
Industries Corp. vs. CA, 256 SCRA 478)  However, the creditor may demand another
guarantor with the proper qualifications. But he may
waive it if he chooses and hold the guarantor to his
bargain.
Double or sub-guaranty (Art 2051 2nd par) Benefit of Excussion (Art 2058)
 One constituted to guarantee the obligation of a  The right by which the guarantor cannot be
guarantor compelled to pay the creditor unless the latter has
exhausted all the properties of the principal debtor,
Continuing guaranty (Art 2053) and has resorted to all of the legal remedies against
 One which is not limited to a single transaction such debtor.
but which contemplates a future course of
dealings, covering a series of transactions NOTE:
generally for an indefinite time or until revoked.  Not applicable to a contract of suretyship (Arts 2047,
par. 2; 2059[2])
NOTES:  Cannot even begin to take place before judgment has
 Prospective in operation (Diño vs CA, 216 SCRA 9) been obtained against the debtor (Baylon vs CA, 312
 Construed as continuing when by the terms SCRA 502)
thereof it is evident that the object is to give a
standing credit to the principal debtor to be used When Guarantor is not entitled to the benefit of
from time to time either indefinitely or until a excussion: (PAIRS)
certain period, especially if the right to recall the 1. If it may be presumed that an execution on the
guaranty is expressly reserved (Diño vs CA, 216 property of the principal debtor would not result in
SCRA 9) the satisfaction of the obligation
 “Future debts” may also refer to debts existing at  Not necessary that the debtor be judicially
the time of the constitution of the guaranty but declared insolvent or bankrupt
the amount thereof is unknown and not to debts 2. When he has absconded, or cannot be sued within
not yet incurred and existing at that time. the Philippines unless he has left a manager or
 Exception to the concept of continuing guaranty representative
is chattel mortgage. A chattel mortgage can 3. In case of insolvency of the debtor
only cover obligations existing at the time the  Must be actual
mortgage is constituted and not those contracted 4. If the guarantor has expressly renounced it
subsequent to the execution thereof (The Belgian 5. If he has bound himself solidarily with the debtor
Catholic Missionaries, Inc. vs. Magallanes Press,
Inc., 49 Phil 647). An exception to this is in case Other grounds: (BIPS)
of stocks in department stores, drug stores, etc. 6. If he is a judicial bondsman or sub-surety
(Torres vs. Limjap, 56 Phil 141).
CIVIL LAW COMMITTEE


7. If he fails to interpose it as a defense before be rendered against him and principal debtor. His
judgment is rendered against him voluntary appearance does not constitute a
8. If the guarantor does not set up the benefit renunciation of his right to excussion (see Art.
against the creditor upon the latter’s demand for 2059(1)).
payment from him, and point out to the creditor  Guarantor cannot set up the defenses if he does
available property to the debtor within Philippine not appear and it may no longer be possible for
territory, sufficient to cover the amount of the him to question the validity of the judgment
debt (Art 2060) rendered against the debtor.
 Demand can be made only after judgment on 2. A guarantor is entitled to be heard before and
the debt execution can be issued against him where he is not
 Demand must be actual; joining the a party in the case involving his principal (procedural
guarantor in the suit against the principal due process).
debtor is not the demand intended by law
9. Where the pledge or mortgage has been given by Guarantor’s Right of Indemnity or Reimbursement (Art
him as special security 2066)
GENERAL RULE: Guaranty is a contract of indemnity.
Benefit of Division (Art 2065) The guarantor who makes payment is entitled to be
 Should there be several guarantors of only one reimbursed by the principal debtor.
debtor and for the same debt, the obligation to
answer for the same is divided among all. NOTE: The indemnity consists of: (DIED)
 Liability: Joint 1. Total amount of the debt – no right to demand
reimbursement until he has actually paid the
NOTES: debt, unless by the terms of the contract, he is
given the right before making payment. He
 The creditor can claim from the guarantors only cannot collect more than what he has paid.
the shares they are respectively bound to pay 2. Legal interest thereon from the time the
except when solidarity is stipulated or if any of payment was made known (notice of payment in
the circumstances enumerated in Article 2059 effect a demand so that if the debtor does not
should take place. pay immediately, he incurs in delay) to the
 The right of contribution of guarantors who pays debtor, even though it did not earn interest for
requires that the payment must have been made the creditor. Guarantor’s right to legal interest
(a) in virtue of a judicial demand, or (b) because is granted by law by virtue of the payment he has
the principal debtor is insolvent (Art 2073). made.
 If any of the guarantors should be insolvent, his 3. Expenses incurred by the guarantor after having
share shall be borne by the others including the notified the debtor that payment has been
paying guarantor in the same joint proportion demanded of him by the creditor; only those
following the rule in solidary obligations. expenses that the guarantor has to satisfy in
 The above rule shall not be applicable unless the accordance with law as a consequence of the
guaranty (Art. 2055) not those which depend
payment has been made in virtue of a judicial
upon his will or own acts or his fault for these are
demand or unless the principal debtor is
his exclusive personal responsibility and it is not
insolvent.
just that they be shouldered by the debtor.
 The right to contribution or reimbursement from 4. Damages if they are due in accordance
his co-guarantors is acquired ipso jure by virtue with law. General rules on damages apply.
of said payment without the need of obtaining
from the creditor any prior cession of rights to EXCEPTIONS:
such guarantor. 1. Where the guaranty is constituted without the
 The co-guarantors may set up against the one knowledge or against the will of the principal
who paid, the same defenses which have debtor, the guarantor can recover only insofar as
pertained to the principal debtor against the the payment had been beneficial to the debtor
creditor and which are not purely personal to the (Art. 2050).
debtor. (Art 2074) 2. Payment by a third person who does not intend
to be reimbursed by the debtor is deemed to be
Procedure when creditor sues: (Art. 2062) a donation, which, however, requires the
 The creditor must sue the principal alone; the debtor’s consent. But the payment is in any case
guarantor cannot be sued with his principal, valid as to the creditor who has accepted it (Art.
much less alone except in Art. 2059. 1238).
3. Waiver of the right to demand reimbursement.
1. Notice to guarantor of the action
 The guarantor must be NOTIFIED so that he Guarantor’s right to Subrogation (ART.2067)
may appear, if he so desires, and set up  Subrogation transfers to the person subrogated, the
defenses he may want to offer. credit with all the rights thereto appertaining either
against the debtor or against third persons, be they
 If the guarantor appears, he is still given the
guarantors or possessors of mortgages, subject to
benefit of exhaustion even if judgment should
stipulation in conventional subrogation.
CIVIL LAW COMMITTEE

(a) obtain release from the guaranty; or
NOTE: This right of subrogation is necessary to (b) demand a security that shall protect him from
enable the guarantor to enforce the indemnity given any proceedings by the creditor, and against the
in Art. 2066. danger of insolvency of the debtor
 It arises by operation of law upon payment by the
guarantor. It is not necessary that the creditor Art. 2066 Art. 2071
cede to the guarantor the former’s rights against Provides for the Provides for his
the debtor. enforcement of the protection before he
rights of the has paid but after he
 It is not a contractual right. The right of guarantor/surety has become liable
guarantor who has paid a debt to subrogation against the debtor
does not stand upon contract but upon the after he has paid the
principles of natural justice. debt
Gives a right of Protective remedy
 The guarantor is subrogated by virtue of the action after payment before payment.
payment to the rights of the creditor, not those Substantive right Preliminary remedy
of the debtor.
 Guarantor cannot exercise the right of Extinguishment of guaranty: (RA2CE2)
redemption of his principal (Urrutia & Co vs 1. Release in favor of one of the guarantors, without
Morena and Reyes, 28 Phil 261) the consent of the others, benefits all to the extent
of the share of the guarantor to whom it has been
Effect of Payment by Guarantor granted (Art 2078);
1. Without notice to debtor: (Art 2068) 2. If the creditor voluntarily accepts immovable or
 The debtor may interpose against the other properties in payment of the debt, even if he
guarantor those defenses which he could have should afterwards lose the same through eviction or
set up against the creditor at the time the conveyance of property (Art 2077);
payment was made, e.g. the debtor can set 3. Whenever by some act of the creditor, the
up against the guarantor the defense of guarantors even though they are solidarily liable
previous extinguishment of the obligation by cannot be subrogated to the rights, mortgages and
payment. preferences of the former (Art 2080);
4. For the same causes as all other obligations (Art
2. Before Maturity (Art 2069) 1231);
 Not entitled to reimbursement unless the 5. When the principal obligation is extinguished;
payment was made with the consent or has 6. Extension granted to the debtor by the creditor
been ratified by the debtor without the consent of the guarantor (Art 2079)
Effect of Repeat Payment by debtor: (Art 2070) BOND

GENERAL RULE: Before guarantor pays the creditor,  An undertaking that is sufficiently secured, and not
he must first notify the debtor (Art. 2068). If he fails cash or currency
to give such notice and the debtor repeats payment,
the guarantor can only collect from the creditor and Bondsman (Art 2082)
guarantor has no cause of action against the debtor  A surety offered in virtue of a provision of law or a
for the return of the amount paid by guarantor even judicial order. He must have the qualifications
if the creditor should become insolvent. required of a guarantor and in special laws like the
Rules of Court.
EXCEPTION: The guarantor can still claim
reimbursement from the debtor in spite of lack of NOTES:
notice if the following conditions are present: (PIG)  Judicial bonds constitute merely a special class of
a. guarantor was prevented by fortuitous event contracts of guaranty by the fact that they are given
to advise the debtor of the payment; and “in virtue… of a judicial order.”
b. the creditor becomes insolvent;  If the person required to give a legal or judicial bond
c. the guaranty is gratuitous. should not be able to do so, a pledge or mortgage
sufficient to cover the obligation shall admitted in
Right of Guarantor to proceed against debtor lieu thereof (Art 2083)
before payment  A judicial bondsman and the sub-surety are NOT
GENERAL RULE: Guarantor has no cause of action entitled to the benefit of excussion because they are
against debtor until after the former has paid the not mere guarantors, but sureties whose liability is
obligation primary and solidary. (Art 2084)
EXCEPTION: Article 2071
PLEDGE, MORTGAGE AND ANTICHRESIS
NOTES: I. Common Elements of Pledge, Mortgage, and
 Article 2071 is applicable and available to the Antichresis (Articles 2085 – 2092)
surety. (Manila Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494) A. Essential Requisites (SOD) (Art 2085)
 Remedy of guarantor: 1. Secures the fulfillment of a principal obligation;
CIVIL LAW COMMITTEE

2. Pledgor, mortgagor, antichretic debtor must be NOTE: The security contract remains valid; only the
the absolute owner of the thing pledged or prohibited stipulation is void.
mortgaged; and C. Capability to secure all kinds of obligations, i.e.
 The reason being that in anticipation of a pure or conditional (Art 2091)
possible foreclosure sale in case of default
which is still a sale, the rule is that the seller D. Indivisibility (Art 2089)
must be the owner of the thing sold (Cavite GENERAL RULE: A pledge, mortgage, or antichresis is
Development Bank vs. Lim, 324 SCRA 346) indivisible, even though the debt may be divided among
3. Pledgor, mortgagor, antichretic debtor must have the successors in interest of the debtor or of the
free disposal of their property, or be legally creditor.
authorized for such purpose.  Their indivisibility is not affected by the fact that the
debtors are jointly or not solidarily liable.
NOTES:
 Third persons can pledge or mortgage their own Consequences of indivisibility:
property to secure the principal obligation. 1. Single thing – Every portion of the property pledged
or mortgaged is answerable for the whole obligation
 It is not necessarily void simply because the
2. Several things – All of the several things pledged or
accommodation pledgor or mortgagor did not
mortgaged are liable for the totality of the debt
benefit from the same. So long as valid consent
3. Debtor’s heir/creditor’s heir - Neither the debtor’s
was given, the fact that the loan was given solely
heir who has paid part of the debt cannot ask for
for the benefit of the principal debtor would not
proportionate extinguishment, nor creditor’s heir
invalidate the mortgage (GSIS vs CA, 170 SCRA
who received his share of the debt return the pledge
533)
or cancel the mortgage as long as the debt is not
 The accommodation pledgor or mortgagor, completely satisfied.
without expressly assuming personal liability for
such debt, is not liable for the payment of any EXCEPTIONS:
deficiency, should the property not be sufficient 1. Where each one of several things guarantees a
to cover the debt (Bank of America vs. American determinate portion of the credit
Realty Corporation, 321 SCRA 659). 2. Where only a portion of the loan was released
 The accommodation pledgor or mortgagor is not 3. Where there was failure of consideration.
solidarily bound with the principal obligor but his 4. Where there is no debtor-creditor relationship
liability extents only to the property pledged or
mortgaged. Should there be any deficiency, the NOTES:
creditor has recourse on the principal debtor who  The mere embodiment of a real estate mortgage and
remains to be primarily bound. a chattel mortgage in one document does not have
 The law grants to the accommodation pledgor or the effect of fusing both securities into an indivisible
mortgagor the same rights as a guarantor and he whole.
cannot be prejudiced by any waiver of defense by  The mortgagee, therefore, may legally foreclose the
the principal debtor. real estate mortgage extrajudicially and waive the
chattel mortgage foreclosure, and maintain instead a
B. Prohibition against Pactum Commissorium (Art personal action for the recovery of the unpaid
2088; 2137) balance of the credit (Phil. Bank of Commerce vs.
Macadaeg, 109 Phil 981)
Pactum Commissorium
 Stipulation whereby the thing pledged or E. When the principal obligation becomes due, the
mortgaged, or under antichresis shall things in which the pledge, mortgage, or
automatically become the property of the antichresis consists may be alienated for the
creditor in the event of non-payment of the debt payment to the creditor. (Art. 2087)
within the term fixed.
NOTES:
Requisites:
 If the debtor fails to comply with the obligation at
1. There should be a pledge, mortgage, or
the time it falls due, the creditor is merely entitled
antichresis of property by way of security for the
to move for the sale of the thing pledged or
payment of the principal obligation; and
mortgaged in order to collect the amount of his claim
2. There should be a stipulation for an automatic
from the proceeds.
appropriation by the creditor of the property in
event of nonpayment of the obligation within the  If he wishes to secure a title to the mortgaged
stipulated period. property, he can buy it in the foreclosure sale
(Montevirgin vs. CA, 112 SCRA 641)
GENERAL RULE: Pactum Commissorium is forbidden
by law and is declared null and void. F. Pledgor, mortgagor, antichretic debtor retains
EXCEPTION: The pledgee may appropriate the thing ownership of the thing given as a security
pledged if after the first and second auctions, the
thing is not sold. (Art 2112) PLEDGE (Arts 2093 – 2123)
CIVIL LAW COMMITTEE


 A contract wherein the debtor delivers to the  Insofar as the pledgor is concerned, the cause is the
creditor or to a third person a movable or principal obligation.
document evidencing incorporeal rights for the
 If the pledgor is not the debtor, the cause is the
purpose of securing fulfilment of a principal
compensation stipulated for the pledge or the mere
obligation with the understanding that when the
liberality of the pledgor.
obligation is fulfilled, the thing delivered shall be
returned with all its fruits and accessions.
Extent of pledge: Unless stipulated otherwise, pledge
extends to the fruits, interests or earnings of the thing.
 Special Requisites (in addition to the common
essential requisites): Rights and Obligations of a Pledgor
1. Possession of the thing pledged must be Rights Obligations
transferred to the creditor or a third person by 1. To demand return in 1. To advise the
agreement (Art 2093); case of reasonable pledgee of the
2. It can only cover movable property and grounds to fear flaws of the thing
incorporeal rights evidenced by documents of destruction or (Art 2101)
title and the instruments proving the right impairment of the thing 2. Not to demand
pledged shall be delivered to the creditor, and if without the pledgee’s the return of the
negotiable must be endorsed (Art 2094); and fault, subject to the thing until after
3. The description of the thing pledged and the duty of replacement full payment of
(Art 2107) the debt,
date must appear in a public instrument to bind
2. To bid and be including interest
third persons, but not for the validity of the preferred at the public due thereon and
contract (Art 2096). auction (Art 2113) expenses incurred
3. To alienate the thing for its
 Kinds: pledged provided the preservation (Art
1. Conventional /Voluntary – created by contract pledgee consents to the 2105)
2. Legal – created by operation of law (examples: sale (Art 2097)
Art. 546, 1731 and 1914 NCC) 4. To ask that the thing
pledged be deposited
(Arts 2104 & 2106)
NOTES:
 The provisions of possession, care and sale of the Rights of the Pledgee
thing as well as on the termination of the pledge KEY: D SBC BA2R2OPS2
governing conventional pledges are applicable to 1. Option to demand replacement or immediate
pledges created by operation of law (Art 2121) payment of the debt in case of deception as to substance
 Unlike, however, in conventional pledge where or quality (Art 2109)
the debtor is not entitled to the excess unless it 2. To sell at public auction in case of reasonable
is otherwise agreed, in legal pledge, the grounds to fear destruction or impairment of the thing
remainder of the price of the sale after payment without his fault (Art 2108)
of the debt and expenses, shall be delivered to 3. To bring actions pertaining to the owner (Art 2103)
the debtor. 4. To choose which of several things pledged shall be
 In legal pledge, there is no definite period for the sold
payment of the principal obligation. The pledgee 5. To bid at the public auction (Art 2113)
must make a demand for the payment of the 6. To appropriate the thing in case of failure of the 2 nd
amount due him; otherwise he cannot exercise public auction (Art 2112)
the right of sale at public auction (Art 2122) 7. To apply said fruits, interests or earnings to the
interest, if any, then to the principal of the credit (Art
Characteristics: 2102)
1. Real contract – it is 8. To retain excess value received in the public sale
perfected by the delivery of the thing pledged (Art 2115)
by the debtor who is called the pledgor to the 9. To retain the thing until after full payment of the
creditor who is called the pledgee, or to a third debt (Art 2098)
person by common agreement; 10. To be reimbursed for the expenses made for the
2. Accessory contract – preservation of the thing pledged (Art 2099)
it has no independent existence of its own; 11. To object to the alienation of the thing
3. Unilateral contract – 12. To possess the thing (Art 2098)
it creates an obligation solely on the part of the 13. To sell at public auction in case of non-payment of
creditor to return the thing subject thereof upon debt at maturity (Art 2112)
the fulfilment of the principal obligation; and To choose which of the several things pledged shall be
4. Subsidiary contract – sold (Art 2119)
the obligation incurred does not arise until the 14. Option to demand replacement or immediate
fulfilment of the principal obligation which is payment of the debt in case of deception as to substance
secured. or quality (Art 2109)
15. To sell at public auction in case of reasonable
Consideration in pledge: grounds to fear destruction or impairment of the thing
without his fault (Art 2108)
16. To bring actions pertaining to the owner (Art 2103)
CIVIL LAW COMMITTEE

17. To choose which of several things pledged shall 3. Statement in writing by the pledgee that he
be sold renounces or abandons the pledge (Art 2111)
18. To bid at the public auction (Art 2113) 4. Payment of the debt (Art 2105)
19. To appropriate the thing in case of failure of the 5. Sale of thing pledged at public auction (Art 2115)
2nd public auction (Art 2112) NOTE: The possession by the debtor or owner of the
20. To apply said fruits, interests or earnings to the thing pledged subsequent to the perfection of the pledge
interest, if any, then to the principal of the credit gives rise to a prima facie presumption that the thing has
(Art 2102) been returned and, therefore, that the pledge has been
21. To retain excess value received extinguished but not the principal obligation itself. (Art
in the public sale (Art 2115) 2110)
22. To retain the thing until after full payment of the
debt (Art 2098) Requirements for sale of thing pledged at public
23. To be reimbursed for the expenses made for the auction: (Art 2112)
preservation of the thing pledged (Art 2099) 1. The debt is due and unpaid
24. To object to the alienation of the thing 2. Sale must be at a public auction
25. To possess the thing (Art 2098) 3. there must be notice to the pledgor and owner,
26. To sell at public auction in case of non-payment stating the amount due
of debt at maturity (Art 2112) 4. Sale must be with the intervention of a notary public
27. To choose which of the several things pledged
shall be sold (Art 2119) Effect of sale of the thing pledged: (Art 2115)
1. The sale of the thing pledged shall extinguish the
Obligations of the Pledgee principal obligation, whether or not the proceeds of
KEY: CUDA3 the sale are equal to the amount of the principal
1. Take care of the thing with the diligence of a good obligation, interest and expenses in a proper case
father of a family (Art 2099) 2. If the price of the sale is more than the amount due
2. Not to use thing unless authorized or by the owner the creditor, the debtor is not entitled to the excess
or its preservation requires its use (Art 2104) unless the contrary is provided
3. Not to deposit the thing with a 3 rd person unless so 3. If the price of the sale is less, the creditor is not
stipulated (Art 2100) entitled to recover the deficiency even if there is a
4. Responsibility for acts of agents and employees as stipulation to that effect
regards the thing (Art 2100)
5. To advise pledgor of danger to the thing (Art 2107) REAL ESTATE MORTGAGE (Articles 2124-
6. To advise pledgor of the result of the public 2131)
auction (Art 2116)
 A contract whereby the debtor secures to the
RIGHT OF PLEDGOR TO SUBSTITUTE THING creditor the fulfilment of a principal obligation,
PLEDGED (ART.2107) specially subjecting to such security immovable
 Requisites: property or real rights over immovable property in
1. The pledgor has reasonable grounds to fear case the principal obligation is not complied with at
the destruction or impairment of the thin the time stipulated.
pledged
2. There is no fault on the part of the pledgee Characteristics of the contract:
3. The pledgor is offering in place of the thing, 1. Real
another thing in pledge which is of the same 2. Accessory
kind and quality as the former 3. Subsidiary
4. The pledge does not choose to exercise his 4. Unilateral – it creates only an obligation on the
right to cause the thing pledged to be sold at part of the creditor who must free the property
public auction from the encumbrance once the obligation is
NOTE: The pledgee’s right to have the thing pledged fulfilled.
sold at public sale granted under the Article 2108 is
superior to that given to the pledgor to substitute the
thing pledged under Article 2107.
NOTES:
Prohibition against double pledge  As an accessory contract, its consideration is that of
 Property which has been lawfully pledged to one the principal contract from which it receives life.
creditor cannot be pledged to another as long as
 A mortgage does not involve a transfer, cession or
the first one subsists.
conveyance of property but only constitutes a lien
NOTE: Possession of a creditor of the thing pledged is
thereon. Until discharged, it follows the property
an essential requisite of pledge.
wherever it goes and subsists notwithstanding
changes of ownership.
Extinguishment of Pledge (CRAPS)
1. For the same causes as all other obligations (Art  A mortgage gives the mortgagee no right or claim to
1231) the possession of the property, and therefore, a
2. Return of the thing pledged by the pledgee to mere mortgagee has no right to eject an occupant of
the pledgor (Art 2110) the property mortgaged unless the mortgage should
CIVIL LAW COMMITTEE


contain some provision to that effect. The only thing pledged and
right of a mortgagee in case of non-payment of a date of pledge
debt secured by mortgage would be to foreclose appear in a public
the mortgage and have the encumbered property instrument
sold to satisfy the outstanding indebtedness. If
the possession is transferred to the mortgagee, it Extent of Mortgage:
must not expressly be for purpose of applying the  Absent express stipulation to the contrary, the
fruits to the interest then to the principal of the mortgage includes the accessions, improvements,
credit, for then it would be an antichresis. growing fruits and income of the property not yet
received when the obligation becomes due and to the
 It is not an essential requisite that the principal
amount of the indemnity granted or owing to the
of the mortgage credit bears interest, or that the
proprietor from the insurers of the property
interest as compensation for the use of the
mortgaged, or in virtue of expropriation for public
principal and enjoyment of its fruits be in the
use (Art 2127)
form of a certain percent thereof.
Object of Mortgage:
 Special Requisites (in addition to the common
 Future property cannot be an object of a contract of
essential requisites):
mortgage (Art 2085[2]) However, a stipulation
1. It can cover only immovable property and
subjecting to the mortgage lien, properties
alienable real rights imposed upon immovables
(improvements) which the mortgagor may
(Art 2124);
subsequently acquire install, or use in connection
2. It must appear in a public instrument (Art. 2125);
with real property already mortgaged belonging to
and
the mortgagor is valid (People’s Bank and Trust Co.
3. Registration in the registry of property is
vs. Dahican Lumber Co., 20 SCRA 84)
necessary to bind third persons, but not for the
validity of the contract (Art 2125).
Special Rights:
 An order for foreclosure cannot be refused on 1. Mortgagor - To alienate the mortgaged property but
the ground that the mortgage had not been the mortgage shall remain attached to the property.
registered provided no innocent third parties
are involved. NOTE: A stipulation forbidding the owner from alienating
NOTE: Where a mortgage is not valid or false, the the immovable mortgage shall be void (Art 2130) being
principal obligation which it guarantees is not contrary to public policy inasmuch as the transmission of
rendered null and void. What is lost only is the right property should not be unduly impeded.
to foreclose the mortgage as a special remedy for
satisfying or settling the indebtedness which is the 2. Mortgagee - To claim from a 3rd person in possession
principal obligation but the mortgage deed remains of the mortgaged property the payment of the part
as evidence or proof of a personal obligation of the of the credit secured by the which said third person
debtor and the amount due to the creditor may be possesses (Art 2129)
enforced in an ordinary personal action. NOTE: It is necessary that prior demand for payment
must have been made on the debtor and the latter failed
 Kinds: to pay (BPI vs Concepcion & Hijos, Inc., 53 Phil 906)
1. Voluntary – agreed to by the parties or
constituted by the will of the owner of the Foreclosure
property on which it is created  The remedy available to the mortgagee by which he
2. Legal – one required by law to be executed in subjects the mortgaged property to the satisfaction
favour of certain persons of the obligation to secure that for which the
 The persons in whose favour the law mortgage was given
establishes a mortgage have no other right
than to demand the execution and the NOTES:
recording of the document in which the
mortgage is formalized (Art 2125 par 2)  It denotes the procedure adopted by the mortgagee
3. Equitable – one which, although lacking the to terminate the rights of the mortgagor on the
formalities of a mortgage, shows the intention of property and includes the sale itself (DBP vs
the parties to make the property a security for a Zaragoza, 84 SCRA 668)
debt  Foreclosure is valid where the debtor is in default in
the payment of his obligation (Gobonseng, Jr. vs CA,
PLEDGE REAL MORTGAGE 246 SCRA 472)
1. Constituted on 1. Constituted on
movables immovables  Kinds:
2. Property is 2. Delivery is not 1. Judicial – ordinary action for foreclosure under Rule
delivered to pledgee necessary 68 of the Rules of Court
or by common 2. Extrajudicial – when mortgagee is given a special
consent to a third
power of attorney to sell the mortgaged property by
person
public auction, under Act No. 3135
3. Not valid against 3. Not valid against
third persons unless a third persons unless
description of the registered Judicial Extrajudicial
CIVIL LAW COMMITTEE

foreclosure foreclosure void for the property must be sold to the highest
1. There is court 1. No court bidder. Parties cannot, by agreement, contravene
intervention intervention the law and interfere with the lawful procedure of
2. Decisions are 2. Not appealable the courts (BPI vs Yulo, 31 Phil 476)
appealable because it is
immediately Extrajudicial foreclosure real property (Act No. 3135)
executory
3. Order of court 3. Foreclosure does
 The law covers only real estate mortgages. It is
cuts off all rights of not cut off right of intended merely to regulate the extrajudicial sale of
the parties all parties involved the property mortgaged if and when the mortgagee is
impleaded given a special power of express authority to do so in
4. There is equity 4. There is right of the deed itself or in a document annexed thereto.
of redemption redemption  The authority to sell is not extinguished by the death
except on banks of the mortgagor (or mortgagee) as it is an essential
which provides for and inseparable part of a bilateral agreement (Perez
a right of
vs PNB, 17 SCRA 833).
redemption
5. Period of 5. Period to redeem  No sale can be legally made outside the province in
redemption starts start from date of which the property sold is situated; and in case the
from the finality of registration of place within said province in which the sale is to be
the judgment until certificate of sale made is the subject of stipulation, such sale shall be
order of made in the said place in the municipal building of
confirmation the municipality in which the property or part
6. No need for a 6. Special power of thereof is situated.
special power of attorney in favor of
attorney in the mortgagee is
Procedure for extrajudicial foreclosure of both real
contract of needed in the
mortgage contract
estate mortgage under Act No. 3135 and chattel
mortgage under Act No. 1508 (A.M. No. 99-10-05-0,
January 15, 2000)
NOTES:
1. Filing of application before the Executive Judge
 A foreclosure sale retroacts to the date of through the Clerk of Court
registration of the mortgage and that a person 2. Clerk of Court will examine whether the requirement
who takes a mortgage in good faith and for of the law have been complied with, that is, whether
valuable consideration, the record showing clear the notice of sale has been posted for not less than
title to the mortgagor, will be protected against 20 days in at least three (3) public places of the
equitable claims on the title in favor of third municipality or city where the property is situated,
persons, of which he had no actual or and if the same is worth more than P400.00, that
constructive notice (St. Dominic Corporation vs. such notice has been published once a week for at
IAC 151 SCRA 577). least three (3) consecutive weeks in a newspaper of
 Where there is a right to redeem, inadequacy of general circulation in the city of municipality
price is not material because the judgment 3. The certificate of sale must be approved by the
debtor may reacquire the property or else sell his Executive Judge
right to redeem and thus recover any loss he 4. Where the application concerns extrajudicial
claims to have suffered by reason of the price foreclosure of real mortgages in different locations
obtained at the auction sale and consequently covering one indebtedness, only one filing fee
not sufficient to set aside the sale. Mere corresponding to such debt shall be collected
inadequacy of the price obtained at the sheriff’s 5. The Clerk of Court shall issue certificate of payment
sale will not be sufficient to set aside the sale indicating the amount of indebtedness, the filing fees
unless “the price is so inadequate as to shock the collected, the mortgages sought to be foreclosed,
conscience of the court” taking into consideration the description of the real estates and their
the peculiar circumstances attendant thereto. respective locations
(Sulit vs. CA, 268 SCRA 441) 6. The notice of sale shall be published in a newspaper
 Should there remain a balance due to the of general circulation pursuant to Section 1, PD No.
mortgagee after applying the proceeds of the 1079
sale, the mortgagee is entitled to recover the 7. The application of shall be raffled among all sheriffs
deficiency. This rule applies both to judicial and 8. After the redemption period has expired, the Clerk of
extra-judicial foreclosure real mortgage. Court shall archive the records.
9. No auction sale shall be held unless there are at least
 The action to recover a deficiency after two (2) participating bidders, otherwise the sale shall
foreclosure prescribes after 10 years from the
be postponed to another date. If on the new date
time the right of action accrues (Arts 1142 &
set forth for the sale there shall not be at least two
1144).
bidders, the sale shall then proceed. The names of
the bidders shall be reported to the Sheriff of the
Stipulation of upset price or “tipo”
Notary Public, who conducted the sale to the Clerk of
 It is a stipulation in a mortgage of real property Court before the issuance of the certificate of sale.
of minimum price at which the property shall be
sold, to become operative in the event of a NOTES:
foreclosure sale at public auction. It is null and
CIVIL LAW COMMITTEE

 The Mortgagor and Mortgagee have no right to sale. Applies only to extrajudicial foreclosure of real
waive the posting and publication requirements mortgage.
under Act. No. 3135. Notices are given to secure
bidders and prevent a sacrifice of the property. NOTE: The right of redemption, as long as within the
Clearly, the statutory requirements of posting period prescribed, may be exercised irrespective of
and publication are mandated, not for the whether or not the mortgagee has subsequently conveyed
mortgagor’s benefit, but for the public or third the property to some other party (Sta. Ignacia Rural
persons. Failure to comply with the statutory Bank, Inc. vs. CA, 230 SCRA 513)
requirements as to publication of notice of
auction sale constitutes a jurisdictional defect Period of Redemption
which invalidates the sale.Lack of republication 1. Extra-judicial (Act #3135)
of notice of foreclosure sale made subsequently a. natural person – one year from registration of
after the original date renders such sale void the certificate of sale with Registry of Deeds
(PNB vs. Nepomuceno Productions Inc., G.R. No. b. juridical person – same rule as natural person
139479. December 27, 2002). c. juridical person (mortgagee is bank) - three
months after foreclosure or before registration
 Sec 3 of Act 3135 does not require personal or
of certificate of foreclosure which ever is earlier
any particular notice on the mortgagor much less
(sec. 47, of General Banking Law)
on his successors-in-interest where there is no
2. Judicial – before confirmation of the sale by the
contractual stipulation therefor. Hence, unless
court
required in the mortgage contract, the lack of
such notice is not a ground to set aside a
NOTE: Allowing a redemption after the lapse of the
foreclosure sale.
statutory period, when the buyer at the foreclosure sale
 Neither does Sec 3 require posting of notice of does not object but even consents to the redemption,
sale on the mortgage property and the certificate will uphold the policy of the law which is to aid rather
of posting is not required, much less considered than defeat the right of redemption. There is nothing in
indispensable, for the validity of a foreclosure the law which prevents a waiver of the statutory period
sale. for redemption (Ramirez vs CA, 219 SCRA 598).
Amount of the redemption price:

Redemption 1. Mortgagee is not a bank (Act No. 3135, in relation to
 It is the transaction by which the mortgagor Sec. 28, Rule 39 of Rules of Court)
reacquires or buys back the property which may a. purchase price of the property
have passed under the mortgage, or divests the b. 1% interest per month on the purchase price
property of the lien which the mortgage may c. taxes paid and amount of purchaser’s prior lien,
have created. if any, with the same rate of interest computed
from the date of registration of sale, up to the
NOTES: time of redemption
 A sale by the mortgagor to a third party of the 2. Mortgagee is a bank (GBL 2000)
mortgaged property during the period for a. amount due under the mortgage deed
redemption transfers only the right to redeem b. interest
the property and the right to possess, use and c. cost and expenses
enjoy the same during said period. NOTE: Redemption price in this case is reduced by
 Where sale with assumption of mortgage not the income received from the property
registered and made without the consent of the
mortgagee, the buyer, thereof, was not validly
substituted as debtor and, hence, had no right to
redeem (Bonnevie vs. CA, 125 SCRA 122).
 Kinds:
1. Equity of Redemption – right of mortgagor to
ANTICHRESIS (Articles 2132 -2139)
redeem the mortgaged property after his default
in the performance of the conditions of the
 A contract whereby the creditor acquires the right to
mortgage within the 90-day period from the date
receive the fruits of an immovable of the debtor,
of the service of the order of foreclosure or even
with the obligation to apply them to the payment of
thereafter but before the confirmation of the
the interest, if owing, and thereafter to the principal
sale. Applies to judicial foreclosure of real
of his credit (Art 2132)
mortgage and chattel mortgage foreclosure.
Characteristics
NOTE: Redemption of the banking institutions is
1. Accessory contract – it secures the performance of a
allowed within one year from confirmation of sale.
principal obligation
2. Formal contract – it must be in a specified form to be
2. Right of Redemption – right of mortgagor to
valid, i.e., “in writing.” (Art 2134)
redeem the mortgaged property within one year
from the date of registration of the certificate of
CIVIL LAW COMMITTEE

 Special Requisites (in addition to the common b. by stipulation to the contrary
essential requisites): 2 To apply all the fruits, after receiving them, to the
1. It can cover only the fruits of an immovable payment of interest, if owing, and thereafter to the
property; (Art 2132) principal
2. Delivery of the immovable is necessary for the 3 To render an account of the fruits to the debtor
creditor to receive the fruits and not that the 4 To bear the expenses necessary for its preservation
contract shall be binding; and repair
3. Amount of principal and interest must be
specified in writing (Art. 2134); and Remedies of creditor in case of non-payment of debt
4. Express agreement that debtor will give
possession of the property to creditor and that 1. Bring an action for specific performance; or
the latter will apply the fruits to the interest, if 2. Petition for the sale of the real property as in a
any, then to the principal of his credit. (Art 2132) foreclosure of mortgages under Rule 68 of the Rules
of Court.(Art 2137)
NOTE: The obligation to pay interest is not of the
essence of the contract of antichresis, there being NOTES:
nothing in the Code to show that antichresis is only  The parties, however, may agree on an extrajudicial
applicable to securing the payment of interest- foreclosure in the same manner as they are allowed
bearing loans. On the contrary, antichresis is in contracts of mortgage and pledge (Tavera vs. El
susceptible of guaranteeing all kinds of obligations, Hogar Filipino, Inc., 68 Phil 712).
pure or conditional
 A stipulation authorizing the antichretic creditor to
appropriate the property upon the non-payment of
Antichresis Pledge the debt within the agreed period is void (Art 2088).
1. Refers to real 1. Refers to personal
property property
2. Perfected by mere 2. Perfected by CHATTEL MORTGAGE (Articles 2140-
consent delivery of the thing 2141)
pledged
3. Consensual contract 3. Real Contract  A contract by virtue of which personal property is
recorded in the Chattel Mortgage Register as a
security for the performance of an obligation (Art
2140).
Antichresis Real Mortgage Characteristics

1. Property is 1. Debtor usually 1. Accessory contract – it is for the purpose of securing
delivered to creditor retains possession of the performance of a principal obligation
the property 2. Formal contract – registration in the Chattel
2. Creditor acquires 2. Creditor does not Mortgage Register is indispensable for its validity
only the right to have any right to 3. Unilateral contract – it produces only obligations on
receive the fruits of receive the fruits; the part of the creditor to free the thing from the
the property, hence, but the mortgage
encumbrance on fulfilment of the obligation.
it does not produce a creates a real right
real right over the property
3. The creditor, 3. The creditor has  Special Requisites (in addition to the common
unless there is no such obligation essential requisites):
stipulation to the 1. It can cover only personal or movable property in
contrary, is obliged general; however, the parties may treat as personal
to pay the taxes and property that which by its nature would be real
charges upon the property;
estate 2. Registration of the mortgage with the Chattel
4. It is expressly 4. There is no such
Mortgage Register where the mortgagor resides; if
stipulated that the obligation on part of
creditor given mortgagee property is located in a different province,
possession of the registration in both provinces required;
property shall apply 3. Description of the property as would enable the
all the fruits thereof parties or other persons to identify the same after
to the payment of reasonable investigation and inquiry; and
interest, if owing, 4. Accompanied by an affidavit of good faith to bind
and thereafter to the third persons, but not for the validity of the
principal contract.
Subject matter of both is real property
5. It can cover only obligations existing at the time the
mortgage is constituted.
Obligations of antichretic creditor: NOTE: A mortgage containing a stipulation in regard
1 To pay taxes and charges on the estate, including to future advances in the credit will take effect only
necessary expenses from the date the same are made and not from the
NOTE: Creditor may avoid said obligation by: date of the mortgage (Jaca vs Davao Lumber Co.,
a. compelling debtor to reacquire 113 SCRA 107)
enjoyment of the property or
CIVIL LAW COMMITTEE

Effect of registration: Creates a real right mortgage only as against third persons without notice
 The registration of the chattel mortgage is an like creditors and subsequent encumbrancers.
effective and binding notice to other creditors of
its existence and creates a real right or a lien Foreclosure of Chattel Mortgage
which, being recorded, follows the chattel NOTES:
wherever it goes. The registration gives the  Foreclosure sale in chattel mortgage is by public
mortgagee symbolical possession (Northern auction under Act No. 1508, but the parties may
Motors, Inc. vs. Coquia, 68 SCRA 374). stipulate that it be by private sale.
 The mortgagee may, after thirty (30) days from the
Effect of failure to register chattel mortgage in the
time of the condition broken, cause the mortgaged
chattel mortgage registry
property to be sold at public auction by a public
 Article 2140 makes the recording in the Chattel officer. The 30-day period is also a grace period for
Mortgage Register an essential requisite but if the the mortgagor to discharge the mortgage obligation.
instrument is not recorded, the mortgage is After the sale of the chattel at public auction, the
nevertheless binding between the parties. But right of redemption is no longer available to the
the person in whose favour the law establishes a mortgagor (Cabral vs. Evangelista, 28 SCRA 1000).
mortgage has no other right than to demand the
execution and the recording of the document. Application of proceed of sale:
1. Costs and expenses of keeping and sale
2. Payment of the obligation secured by the
Chattel Mortgage Pledge mortgage
1. Delivery of the 1. Delivery of the 3. Claims of persons holding subsequent mortgages
personal property thing pledged is in their order
to the mortgage is necessary 4. The balance, if any, shall be paid to the
not necessary mortgagor or person holding under him
2. registration in 2. registration not
the Chattel necessary to be NOTES:
Mortgage Registry valid
is necessary for its
 The creditor may maintain an action for the
deficiency, except if the chattel mortgage is
validity
constituted as security for the purchase of personal
3. If property is 3. Debtor is not
property payable in instalments (Art. 1484).
foreclosed, the entitled to excess
excess over the unless otherwise  The action for deficiency may be brought within ten
amount due goes to agreed or except in (10) years from the time the cause of action accrues
the debtor case of legal (Arts 1141 and 1142).
pledge  Only equity of redemption is available to the
4. If there is 4. If there is mortgagor; the latter can no longer redeem after the
deficiency after deficiency, creditor confirmation of the foreclosure sale.
foreclosure, is not entitled to
creditor is entitled recover Right of redemption
to recover the notwithstanding  When the condition of a chattel mortgage is broken
deficiency from the any stipulation to the following may redeem:
debtor, except the contrary a) mortgagor;
under Art. 1484 b) person holding a subsequent mortgage; or
Subject matter of both is movable c) subsequent attaching creditor.
property
 An attaching creditor who so redeems shall be
subrogated to the rights of the mortgagee and
Affidavit of Good Faith
entitled to foreclose the mortgage in the same
 Oath in a contract of chattel mortgage wherein manner that the mortgagee could foreclose it.
the parties "severally swear that the mortgage is
made for the purpose of securing the obligation  The redemption is made by paying or delivering to
specified in the conditions thereof and for no the mortgagee the amount due on such mortgage and
other purposes and that the same is a just and the costs, and expenses incurred by such breach of
valid obligation and one not entered into for the condition before the sale thereof (Sec 13, Act No.
purpose of fraud.” (Sec. 5, Chattel Mortgage Law) 1508).
Effect of absence Right to possession of foreclosed property

The special affidavit is required only for the 1. Real mortgage – After the redemption period has
purpose of transforming an already valid expired, the purchaser of the property has the right
mortgage into “preferred mortgage.” Thus, it is to a conveyance and to be placed in possession
not necessary for the validity of the chattel thereof.
mortgage itself but only to give it a preferred
status. In other words, its absence vitiates the NOTES:
CIVIL LAW COMMITTEE


 Purchaser is not obliged to bring a separate 1. Present property – those provided under Arts. 155
suit for possession. He must invoke the aid of and 205 of the Family Code, Sec. 13, Rule 39 of
the courts and ask for a WRIT OF POSSESSION. the Rules of Court, and Sec. 118 of the Public
Land Act
 Section 7 of Act No. 3135 allows the
2. Future property – a debtor who obtains a
purchaser to take possession of the
discharge from his debts on account of his
foreclosed property during the period of
insolvency, is not liable for the unsatisfied claims
redemption upon filing of an ex parte
of his creditors with said property subject to
application and approval of a bond.
certain exceptions expressly provided by law.
(Secs. 68, 69, The Insolvency Law [Act No. 1956])
2. Chattel mortgage – When default occurs and the
3. Property under legal custody and those owned by
creditor desires to foreclose, the creditor has the
municipal corporations necessary for
right to take the property as a preliminary step
governmental purposes
for its sale.
NOTE: Where the debtor refuses to yield the
General Categories of Credit:
property, the creditor’s remedy is to institute an
1. Special Preferred Credits - those listed in Arts.
action either to effect judicial foreclosure
2241 and 2242 shall be considered as mortgages and
directly or to secure possession (REPLEVIN) as a
pledges of real or personal property or liens (Art. 2243).
preliminary to the sale contemplated in Section
Hence, they are not included in the insolvent debtor's
14 or Act. No. 1508
assets.
CONCURRENCE AND PREFERENCE OF CREDITS
NOTES:
(Articles 2236 – 2251)
 Arts. 2241 and 2242 do not give the order of
Concurrence of Credits preference or priority of payment. They merely
 Possession by two or more creditors of equal enumerate the credits which enjoy preference with
rights or privileges over the same property or all respect to specific movables or immovables. With
of the property of the debtor respect to the same specific movables or
immovables, creditors, with the exception of the
Preference of Credits State (No. 1), merely concur.
 Right held by a creditor to be preferred in the  They only find application when there is a
payment of his claim above others out of the concurrence of credits, i.e., when the same specific
debtor’s assets. property of the debtor is subjected to the claims of
several creditors and the value of such property is
NOTES: insufficient to pay in full all the creditors. In such a
 The rules on preference of credits apply only situation, the question of preference will arise.
when two or more creditors have separate and  Article 2242 makes no distinction between registered
distinct claims against the same debtor who has and unregistered vendor’s lien (No. 2). Hence, any
insufficient property. lien of that kind enjoys the preferred credit status.
 Preference creates no lien on property, and, Unlike the unpaid price of real property sold,
mortgage credits (No. 5), in order to be given
therefore, gives no interest in property, specific
preference, should be recorded in the Registry of
or general, to the preferred creditor but a
Property. But a recorded mortgage credit is superior
preference in application of the proceeds after
to an unrecorded unpaid vendor’s lien (De Barretto
the sale. (Molina vs. Somes, 31 Phil. 76)
vs. Villanueva, 1 SCRA 288)
 The preferential right of credit attains
significance only after the properties of the
 The priority rule applies to credits annotated in the
debtor have been inventoried and liquidated, and Registry of Property. As to credits mentioned in No. 7
the claims held by his various creditors have been of Article 2242, there is preference among the
established. (DBP vs. NLRC, 183 SCRA 328) attachments or executions according to the order of
the time they were levied upon the property. The
pro rata rule in Article 2249 does not apply;
Preference of Lien
otherwise, the result would be absurd. The
Credit
preference of a credit annotated by an attachment
Applies only to Creates a charge
claims which do on a particular or execution could be defeated by simply obtaining a
not attach to property writ of attachment or execution, no matter how
specific much later (Manabat vs Laguna Federation of
properties Facomas, Inc., 19 SCRA 621).
 The last paragraph of Article 2241 applies only
Liability of debtor’s property for his obligations when the right of ownership in such property
GENERAL RULE: Debtor is liable with all his continues in the debtor, and, therefore, it is not
property, present and future, for the fulfilment of his applicable to cases where the debtor has parted with
obligations. (Art 2236) his ownership therein, as where he has sold the
property (Peña vs. Mitchell, 9 Phil 587)
EXEMPT PROPERTY:
CIVIL LAW COMMITTEE


2. Ordinary Preferred Credits - those listed in necessary by the deterioration or destruction of the
Art. 2244 as amended by Art. 110 of the Labor thing as it formerly existed.
Code.
NOTES: ORDER OF PREFERENCE OF CREDITS
 The provision not only enumerates the preferred
credits with respect to other property, real and  Arts. 2241 and 2242, jointly with Arts. 2246 to 2249
personal, of the debtor, but also gives their order establish a two-tier order of preference:
of preference “in the order named”. 1. First tier – includes taxes, duties and fees due on
specific movable or immovable property;
 In contrast with Articles 2241 and 2242, Article
2. Second tier – all other special preferred (non-tax)
2244 creates no liens on determinate property
credits shall be satisfied pro-rata, out of any residual
which follow such property. What Article 2244
value of the specific property to which such credits
creates are simply rights in favour of certain
relate.
creditors to have the cash and other assets of the
insolvent applied in a certain sequence or order
NOTES:
of priority.
 Article 2244, particularly par (14) item (1)  The pro-rata rule does not apply to credits annotated
in the Registry of Property by virtue of a judicial
thereof, is not applicable to obligations of the
State as it is a recognized doctrine that the State
is always solvent. It is inconceivable for the State
to voluntarily initiate insolvency or general
liquidation proceedings or to be subjected to
order, by attachments and executions, which are
such proceedings under its own laws.
preferred as to “later credits”. In satisfying several
credits annotated by attachments or executions, the
3. Common Credits – those listed under Art. 2245,
rule is still preference according to the priority of
which shall be paid pro rata regardless of dates.
the credits in the order of time.
NOTE: Ordinary Preferred and Common Credits cover
only “free property” of the debtor, or those not  In order to make the pro rating provided in Art 2249
subjected to Special Preferred Credit. fully effective, the preferred creditors enumerated
in Nos. 2 to 14 of Art 2242 must necessarily be
Effects of Article 110 of Labor Code to Art 2244: convened, and the import of their claims
1. Removed the one-year limitation found in No. 2 ascertained. There must be first some proceeding
of Art. 2244 where the claims of all the preferred creditors may
2. Moving up the claims for unpaid wages (and other be bindingly adjudicated, e.g. insolvency, settlement
monetary claims) of laborers or workers of of decedent’s estate, or other liquidation
insolvent from second priority to first priority in proceedings except where there are not more than
the order of preference established by Art. 2244 one creditor.
NOTES:
 In case of bankruptcy or liquidation of the
employer’s business, the unpaid wages and other
monetary claims of the employees shall be given
first preference and shall be paid in full before
the claims of the government and other creditors
may be paid. The terms, “declaration” of
bankruptcy, or “judicial” liquidation have been
eliminated, nevertheless, according to the SC,
bankruptcy or liquidation proceedings are still
necessary for the operation of the preference
accorded to workers under Art. 110 of the Labor
Code. (DBP vs. NLRC 183 SCRA 328; RA No. 6715
Sec 10)
 In case of rehabilitation, the preference of credit
granted to employees under Art 110 of the Labor
Code is not applicable (Rubberworld [Phils.] vs
CA, 305 SCRA 722).
Refectionary Credit
 Indebtedness incurred in the repair or
reconstruction of something previously made,
such repair or reconstruction being made
CIVIL LAW COMMITTEE

 Credits which do not enjoy any preference with

respect to specific property because they are not
among those mentioned in Arts. 2241 and 2242
and those while included in said articles are
unpaid because the value of the property to
which the preference refers is less than the
preferred credit or credits, shall be satisfied in
the order established in Art. 2244 with reference
to other real and/or personal property.
 Common credits or those which do not fall under
Arts. 2241, 2242, and 2244 do not enjoy any
preference and shall be paid pro rata regardless
of dates.
CIVIL LAW COMMITTEE


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San Beda College of Law 1

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

2. To refund to the bailee extraordinary expenses for

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

1. Real contract Consensual contract

2. Generally Bilateral and

Simple Loan/Mutuum Rent  Form of Payment (Art 1955):

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

2. Extra-judicial Obligations of the Depositary (Art 1972 –1991):

3. Subject Matter  Time of return:

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

Effect of Repeat Payment by debtor: (Art 2070) BOND

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

Amount of the redemption price:

MEMORY AID IN CIVIL LAW

Antichresis Real Mortgage Characteristics

MEMORY AID IN CIVIL LAW

Effect of absence Right to possession of foreclosed property

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

 Credits which do not enjoy any preference with

CIVIL LAW COMMITTEE

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