CREDIT TRANSACTIONS B.

Unilateral – Loan produces obligations only for the borrower; those of the lender
LOANS are either incidental to ownership or consequences of the borrower’s rights and
Arts. 1933-1934 duties.

I. Bailment defined: A consignment of goods for sale V. Distinctions and Differences:

Also, the delivery of property by one person to another in trust for a specific
purpose, with a contract, express or implied, that the trust shall be faithfully As to: Commodatum Mutuum
executed and the property returned or duly accounted for when the special
purpose is accomplished or kept until the bailor reclaims it. (p. 2, de Leon, 2002 A. Character Essentially gratuitous Naturally gratuitous
ed.)
B. Object Non-fungible object (but may be Object is money or
consumable) fungible thing
II. Parties:
 Bailor - giver; one who delivers the possession or custody C. Purpose Transfer its use Transfer ownership
 Bailee - recipient; the party who receives the possession or custody of the thing
D. Effect Restoration of the very things loaned Restoration of an equal
delivered
quantity and quality
III. Classes E. Risk On the lender (as owner) On the borrower (as
A. Commodatum – Loan for Use; thebailor delivers to the bailee (borrower) a non- debtor of a generic thing)
consumable thing so that the latter may use it for a certain time and return the
identical (the same) thing F. Duration May be claimed before the end of May not be claimed until
B. Mutuum – Simple Loan or Loan of Consumption; the lender delivers to the the term if urgently needed (1946) the term expires or is
borrower money or other consumable thing upon the condition that the latter forfeited
shall pay the same amount of the same kind and quality

Other classification of (contractual) bailment:

A. Those for the sole benefit of the bailor CHAPTER 1
- gratuitous deposit (1965) COMMODATUM
- mandatum – bailment of goods without recompense where the mandatory SECTION 1 - Nature of Commodatum
or person to whom the property is delivered undertakes to do some act with
respect to the same; as simply to carry it, or keep it, or otherwise to do Arts.1935-1940
something with respect to it gratuitously. I. Contract of Commodatum:
B. Those for the sole benefit of the bailee A. Concept – It is a contract whereby one party gratuitously delivers (not obligates to
- commodatum deliver) to the other a non-fungible thing for temporary use under the obligation
- mutuum (gratuitous simple loan) to return the very thing borrowed (1933).
C. Those for the benefit of both parties
*Commodatum is essentially gratuitous, thus, if any compensation is given by the
- deposit for a compensation (1965)
bailee, the contract ceases to be commodatum.
- involuntary deposit (1996[2], 1997[2]), pledge
- bailment for hire – arises when goods are left with the bailee for some use a. Kinds – Commodatum is divided into
or service by him and is always for some compensation 1. ordinarycommodatum, and
2. precarium (no time or use stipulated, or use merely tolerated; 1947)
IV. Characteristics: - one where the bailor may demand the thing at will
A. Real – Loan is perfected by delivery of the thing loaned; a promise or agreement to - a contract by which the owner of a thing, at the request of
give a loan is not the true contract of loan but an innominate one (pactum de another person, gives the latter the thing for use as long as the
commodandovelmutuando) (1934) owner shall please, such as
a. A promise or agreement to give a loan (contract to lend) is perfected by i. if neither the duration of the contract nor the use of the
consent; and may be covered by the Statue of Frauds, if by its terms and loan thing loaned is stipulated; or
is not to be given within a year (1403, par. a)
 ii. if the use of the thing is merely tolerated (1947) ii) He cannot compensate with the lender’s debts (1287).
 He does not answer for damages not due to his fault, but only due to use
b. Pactum de commodando (accepted promise to deliver something by way of
(1943)
commodatum) is valid but no commodatum is perfected until delivery.
 He is liable for fortuitous events, if (1942) –
B. Requisites: i) The thing is devoted to a different use (1942)
a. Capacity – no special capacity is required. Any person entitled to possession ii) If return of the thing is delayed by the borrower (mora)
(usufructuary or lessee) may be a lender, so long as his rights to the thing are  If appraised, he answers for the price unless the contrary is
not strictly personal. stipulated (as the appraisal indicates that risk is on the
1) The lender need not be the owner (1938) borrower);
i) A thief may be a bailor (Manresa)  If the borrower lends it to a strangerIf the borrower did not save
ii) A lessee may constitute the contract of commodatum it when he could, choosing to save his own property (1942)
b. Object: must be non-fungible, but may be consumable so long as the use instead.
agreed upon will not consume it. It may be real or personal. (1936)  Two or more borrowers are solidarilyliable (1945) for the security of the
c. Consideration: the contract must be gratuitous, or it ceases to be lender.
commodatum (1933, 1935) i) Reason: The commodatum was constituted on their joint
d. Form: no special form is required but the thing must be delivered (1934) personal guaranty (Manresa)

SECTION 2. - Obligations of the Bailee SECTION 3. - Obligations of the Bailor

ARts. 1941-19745
I. Rights and Obligations of the Parties -
A. Rights and Obligations of the Borrower: Arts. 1946-1952
a. He has a personal right to use the thing; but not to use the fruits unless so **The primary obligation of the bailor is to allow the bailee the use of the thing loaned.
stipulated (1935, 1940) (and the use of the fruits must only be incidental to the
use of the thing itself; if it is the main cause, the contract may be one of I. Rights and Obligations of the Parties
usufruct) A. Effects as to the Lender (merely accidental, to avoid unjust consequences)
1) He can neither lend nor lease the thing to a stranger who is not a a. To pay extraordinary expenses of preservation, if notified by the borrower.
member of his household (1939; 1942, par. 5) because the contract is 1) Extraordinary expenses arising on the occasion of the actual use are
personal (1939) borne equally (1949)
- members of the household can use the thing loaned unless: b. To answer for damages to the borrower if due to defects known and not
(1) there is a stipulation to the contrary, and disclosed (1951). He does not answer for unknown defects, unlike in a sale
(2) the nature of the thing forbids such use or lease, because commodatum is gratuitous.
1) The lender cannot evade liability by abandonment of the thing
b. Duties:
1) To preserve the thing as bonus pater familias(1163) II. Termination
2) To incur expenses required by the use and preservation of the thing, A. Causes of Extinguishment
without reimbursement (1941) a. Expiration of the time or use stipulated or according to custom
3) To return the thing at the expiration of the contract. b. By claim of the lender due to urgent permanent necessity (1946)
i) The borrower can not retain the thing on account of the lender’s 1) Unless the contract is precarium, when he may claim it back any time
obligations, even for (extraordinary) expenses (1944) except for i. Instances or precarium (1947):
damages under 1951 (for failure on the bailor’s part to notify the aa) if neither the duration of the contract nor the use to which
bailee of hidden vices [flaws]). the thing loaned should be devoted, has been stipulated;
or
Moreover, the failure of the bailee to return the thing loaned did bb) if the use of the thing is merely tolerated by the owner
not mean adverse possession. He held it in trust for the owner 2) If the need of the lender is merely temporary, the contract is only
until he repudiated the trust by declaring the properties in his suspended (1946)
name for taxation purposes.
 D. Effects: Obligation of the borrower (only)
c. Destruction of the thing
a. To return the thing or amount borrowed at the period stipulated or fixed
d. Death of the borrower, or lender, unless there is a stipulation that the
according to general rules:
contract passes to the heirs of either or both parties (1178, 1311)
e. Ingratitude of the borrower (765) that entitles the lender to claim back the 1) If the thing borrowed is money, he must return the numerical value (1)
thing (1948), and consisting in in the currency stipulated or (2) in legal tender (1249) except in case of
1) An offense against the person, honor, or property of the lender, his wife, extraordinary inflation (1250)
or children under his parental authority
2) Imputation of any criminal offense, or any act involving moral turpitude, 2) If the thing borrowed is not money, to return the same amount (in
even if the borrower should prove it, unless the crime or act has been equal kind and quality) even if the price has changed (1955) or else its
committed against the borrower himself, his wife or children under his value at the time the contract was perfected.
authority b. To pay interest where it is expressly agreed in writing (1956), subject to the
3) Undue refusal to support the lender provisions of the Usury Law (1957, 1961)
1) Where the stipulation to pay interest is verbal, the voluntary payment
CHAPTER 2 is valid as a performance of a natural obligation
SIMPLE LOAN OR MUTUUM c. Interest paid even if not stipulated, is not recoverable, it being proof of a
Arts. 1953-1961 tacit contract or a natural obligation
I. Simple Loan (Mutuum, Loan of Consumption) 1) Except where it is proved that the interest was paid by error
A. Concept: It is a contract whereby one party delivers to money or a fungible thing, (solutioindebiti) (1960)
on the condition of returning the same kind, amount and quality.
Proof if error is difficult, because the absence of stipulation is not
a. If the object loaned is not fungible (should be non-consumable), but the sufficient evidence that payment was due to mistake.
borrower is to return another of the same kind and quality, it is barter (1954) 2) Interest payable in kind is appraised at the current price at the time of
b. VS lease: a loan signifies the giving of a sum of money, goods or credit to payment (1958)
another, with a promise to repay, but not a promise to return the same 3) Interest due does not earn interest in the absence of agreement, and
thing; a contract of lease of property is not a “loan”, and hence, the Usury without prejudice to Art. 2212 (1958)
Law is not applicable
B. Kinds E. Bank deposits, whether fixed, savings or current are governed by the provisions
a. Gratuitous, and concerning simple loan (1980)
b. With interest (Planiol considers the latter a variety of lease, being a lease of
money) Title XII. - DEPOSIT
C. Requisites
a. Capacity of the parties: No special capacity is required to be a lender except CHAPTER 1
ownership DEPOSIT IN GENERAL AND ITS DIFFERENT KINDS
b. Object: money or fungible things; if not money, the contract is barter (1954)
c. Consideration: gratuitous (liberality) or onerous (interest) Arts. 1962-1967
d. Form: No special form is needed; but there must be delivery, as the contract
is real I. Concept: It is a contract whereby one party delivers a thing to another exclusively for
safekeeping, with the obligation of returning it upon demand.
1) An accepted promise to deliver something by say of simple loan may
be subject to the Statute of Frauds if not to be performed within one II. Characteristics:
year. This contract is consensual as distinguished from loan which is A. It is a real contract perfected by delivery (1963)
real. B. It is naturally (generally, de Leon) gratuitous, unless the contrary is stipulated or
the depositary is engaged in the storage of goods (1965)
 C. The purpose is primarily custody, where the custody is secondary, it is not deposit. - In judicial deposit (receivership) real or personal property may be
included (2006)
D. The contract is unilateral or bilateral, according to whether it is gratuitous or c. Formalities: except for delivery, no formalities are required to perfect the
compensated. agreement (1963)
E. The depositary can not make use of the thing deposited without express
permission (1977)
F. Only movables can be object of contractual deposit (1966) SECTION 2. - Obligations of the Depositary

III. Kinds: Arts. 1972-1991

A. a) Extrajudicial (voluntary or necessary) I. Rights and Obligations of the Parties
1) voluntary – by mutual consent; by the will of the depositor A. Obligations of the depositary (2 primary obligations)
2) necessary – in compliance with legal obligation; because of a calamity; a. To preserve the thing (1972) without using it, unless expressly permitted;
travelers in inns, hotels, common carriers otherwise the depositary will answer for damage (1977)
b) Judicial (receivership or sequestration) 1) An agreement that the depositary may use the thing deposited is valid
B. a) Regular – where the depositary can not use the thing deposited (1978)
b) Irregular – where the depositary may use the thing deposited 2) He can not delegate custody without permission (1973) nor to a
person manifestly careless or unfit, even if authorized to delegate.
3) The depositary may change the way (manner) of the deposit,
CHAPTER 2 provided:
VOLUNTARY DEPOSIT i) Circumstances allow the presumption that the depositor would
agree if he knew the facts
SECTION 1. - General Provisions ii) The depositor is notified and is agreeable unless delay in
awaiting his decision would cause danger (1974)
Arts. 1968-1971 4) The depositary must take steps to preserve the value of the securities
I. Voluntary Deposit deposited and collect interest thereon
A. Kinds i) Except in case of safe deposit boxes (1975)
a. Where the deposit is by the will of the depositor (complete freedom of ii) If the parties stipulate otherwise
action); 5) The depositary is to keep the secret of the deposit (1981)
b. Where the deposit is by two claimants, and the thing is to be delivered to b. To return the thing –
the one found to be entitled to it (1968) 1) To return it to the depositor or his successor or to a third person
B. Requisites designated in the contract
a. Capacity of the parties: No special capacity is required – the depositor need i) But if the depositor loses capacity after making the deposit, the
not be the owner of the thing and may be incapacitated (to contract) return must be to the guardian or administrator of his property
1) Where the depositor is capable and the depositary is incapable (1986)
i) The depositor may recover the thing while in the depositary’s ii) If the thing belongs to a third party: The depositary cannot
possession compel the depositor prove that he is the owner.
ii) If the depositary alienates the thing he must return the price or aa) But if he learns that the thing
amount of enrichment (1971) aaa) is stolen, and
2) Where the depositor is incapable, and the depositary is capable. The bbb) who the real owner is, he must notify the latter
depositary may be compelled to return the thing by the guardian (owner). If the owner does not claim it within
(administrator) or by the depositor himself if he should acquire 1 month, the depositary is relieved from
capacity (1970 & 1986). Capacity is required in the depositor for liability by returning the thing to the depositor
claiming the return, but not for making the deposit. (1984)
b. Object: must be corporeal andmovable in extra-judicial deposit (1966) bb) The rule is not applicable to a deposit by a finder of lost
- Reason: the purpose of the contract is to ensure restoration of things property
that may disappear iii) If there are several depositors -
 aa) As to things divisible: Each may only claim his share (1985)  If the thing is stolen and the owner is known, he may delay the
bb) As to things not divisible or if the deposit is solidary, any of return for 30 days (1984)
the depositors may claim the whole (1985)  If the depositary reasonably believes that the depositor did not
cc) If the contract designates the person to whom return acquire the thing lawfully, he may return it immediately, if the
should be made, the thing must be returned to that person deposit is gratuitous (1984)
2) What is to be returned 6) Set off
i) If money, he must return the amount plus interest if: 7) Bank’s failure to return amount – failure of the bank to return the
aa) The depositary is in mora amount deposited will not constitute estafa through misappropriation
bb) The depositary uses the things deposited without punishable under Art. 315 par. 1(b) of the RPC
permission 8) When bank officials may be guilty of estafa:
ii) If the thing is specific, he must return the thing, plus fruits and If the bank entered in its records or books the amount of only
accessions (1983), except: 305,821.92 out of the deposits of P1,145,546, the bank officials may
aa) If the thing was lost,and the depositary received another in be guilty of estafa through misappropriation
replacement, he must restore the latter to the depositor 9) Earnest money: considered a deposit and must be returned if sale did
(1990) not materialize
bb) If the heir of the depositary sells the thing, not knowing it i) When an amount is delivered as a deposit or earnest money and
is deposited, he must return the price or assign the action the purchase did not materialize, it is just that the deposit be
against the alienee (1991) returned
c. The responsibility of the Depositary for violation of his obligation, shall be
iii) If the thing is generic or fungible, the depositary may commingle governed by Title I, Book IV (1972, par.2)
articles of the same kind and quality (1976)
3. Form or manner of return SECTION 3. - Obligations of the Depositor
i) If the thing is sealed and locked, the depositary must return it in
the same condition; Arts. 1992-1995
aa) If the seal and lock are broken by the depositary’s fault, he
must answer for damages. Fault of the depositary is I. Rights and Obligations of the Parties
presumed (1981) A. Obligations of the Depositor
bb) The contents and value shall be based on that stated by a. To pay the compensation agreed upon
the depositor unless the contrary is proved (1981) b. To reimburse expenses for the preservation of the thing deposited
ii) The depositary is presumed authorized to open the box if the key gratuitously (1992))
is delivered or instructions call for its opening (1982) 1) This does not include useful expenses according to Manresa
4. Place of return c. To indemnify the depositary for damages he may have suffered by reason of
i) If stipulated, at the place designated, at the expense of the the deposit
depositor 1) This includes damages due to defects of the thing and all others due to
ii) If there is no stipulation, at the place where the thing is when the deposit unless:
claimed, even if not the place where it was originally deposited, i) The depositor was not aware; or
so long as the depositary did not act maliciously (1987). This ii) The depositary was notified; or
rule is an exception to 1251 iii) The depositary knew without notice (1993)
5. Time of return B. Security of the Depositary: He may retain the thing deposited as pledge, until full
i) Return may be claimed by the depositor at any time, even if a payment of what is owed on account of the deposit, including remuneration
term was stipulated, unless stipulated
aa) The thing is garnished, or attached
bb) The depositary is notified of another’s objection (1988) II. Termination of the contract
cc) Or the depositary exercises the right of retention under A. Extinguishment. Besides general causes (except compensation) the
1994 following extinguish the deposit:
a. By claim of the deposit by the depositor at any time
 CHAPTER 4
b. By renunciation of the depositary, unless the deposit is for a consideration SEQUESTRATION OR JUDICIAL DEPOSIT
(1989) Arts. 2005-2009
1) The depositary who may have just reason for not keeping the deposit I. Judicial Deposit (Sequestration) of Property in Litigation
may, even before the term expires, return it to the depositor, and if the A. Special rule
latter should refuse, he may obtain consignation from the court. (1989) a. The deposit includes real and personal property (1786)
i) The reasons must be real and serious; for example: excessive b. The depositary cannot be relieved until:
period, need to go abroad, serious danger of loss 1) The controversy is finished;
ii) Reasons at the time the deposit was accepted, and not properly 2) Upon the court’s order; or
invoked at that time, are unavailing 3) Any other legal cause (1787)
c. Death of either party, if the deposit is gratuitous c. The depositary is to observe the diligence of a good father of a family (2008)
d. But deposit is not extinguished by compensation (1200) B. The Rules of Court govern as to matters not provided by the NCC
C. Distinguished from Extra-Judicial Deposit:

CHAPTER 3
NECESSARY DEPOSIT Judicial Deposit Extra-Judicial Deposit
By court order By the will of the parties
Arts. 1996-2004
To secure the owner’s right For safe-keeping
I. Necessary deposit (1996)
A. Kinds May be real or personal property Personal property only
a. Those made in compliance with legal obligations (1996); they are governed Remuneratory Generally gratuitous
by the law, or in default thereof, by the rules of voluntary deposit (1997)
For the benefit of the owner For the benefit of the
b. Those made on the occasion of a calamity (fire, shipwreck, pillage, etc.)
(1996) depositor
c. Deposit of goods by transients in inns and hotels,
1) Provided:
i) Notice is given to the keeper or his employees; and WAREHOUSE RECEIPTS ACT
ii) Travelers take the precautions advised by the innkeeper and (Act No. 2137, as amended)
employees as to the care and supervision of the goods (1998)
2) The liability of innkeepers includes: I. Concept
i) Damages to goods by their servants or employees A. Definitions
ii) Damages caused by strangers, except in case of robbery by an 1. Warehouse - the building or place where goods are deposited and stored
armed bandor force majeure (2000) for profit
iii) Damages to vehicles, animals and articles introduced in the hotel 2. Warehouseman - a person lawfully engaged in the business of storing
annexes (1999) goods for profit
3) Award of damages include exemplary or corrective ones, in case of 3. Warehouse receipt - a written acknowledgment by a warehouseman that he
wantonness or malevolence has received and holds certain goods therein described in store for the
4) The liability of innkeepers is not avoided by notices to the contrary, or person to whom it is issued
stipulations suppressing or diminishing such liability (2003) Also, a simple written contract between the owner of the goods and the
5) Hotelkeepers have the right to retain things brought by the guest to warehouseman to pay the compensation for that service
the hotel as security:  Delivery - voluntary transfer of possession from person to another
i) For credits on account of lodging; and  Goods - chattels or merchandise in storage, or which has been or is about
ii) For supplies usually furnished to guests (2004) to be stored
d. Passengers with common carriers  Holder - a person who has both actual possession of such receipts and a
right of property therein
 To purchase – includes to take as mortgage or pledge
  Purchaser – includes mortgagee and pledgee C. Purpose of indicating the above terms – for protection of depositor and his
 Nature of warehouse receipt successors-in-interest
1. It is a kind of “document of title” to goods as used by the Civil Code in D. Effect of omission of any of the essential terms
relation to sales 1. Validity of the receipt is not affected
2. It is a bilateral contract (It imports that the goods are in the hands of the 2. Warehouseman may be liable for damages to those injured by his omission
warehouseman, at the same time, it is a symbolical representation of the 3. Negotiability of the receipt is not affected
property/goods itself/themselves) 4. The contract is converted into an ordinary deposit
3. It is not a negotiable instrument within the meaning of the Negotiable E. What terms cannot be included in a receipt
Instruments Law 1. Those contrary to the provisions of the Warehouse Receipts Law. Examples:
C. Who may issue a warehouse receipt a) Exemption from liability for misdelivery (Sec. 10)
1. Any warehouseman b) Exemption from giving notice in case of sale of the goods deposited
2. A duly authorized officer or agent of a warehouseman (Secs. 33-34)
2. Provision for exemption from liability for warehouseman’s negligence
II. Form (Sec. 2) Example: “For account and at the risk of the depositor”
A. General rule: No particular form is required a) Degree of diligence required - diligence of a good father of a family
B. However, the following terms must be indicated:
1. Location of the warehouse where the goods are stored – important II. Kinds of warehouse receipts
especially if warehouseman has more than one warehouse A. Non-negotiable – one in which it is stated that the goods will be delivered to the
2. Date of issue of the receipt – prima facie evidence of depositor or any specified person (Sec. 4)
a) the date of perfection of the contract; and 1. The words “non-negotiable” or “not negotiable” must be placed on the face
b) the date when storage charges begins to run of the receipt (Sec. 7)
3. Consecutive number of receipt – the purpose is to identify each receipt with 2. Effect of failure to mark - it may be considered negotiable by the holder for
the goods for which it was issued value who supposed it to be negotiable
a) No requirement as to when the consecutive numbering begins B. Negotiable - one in which it is stated that the goods will be delivered (1) to the
4. A statement whether the goods received will be delivered (1) to bearer, (2) bearer or (2) to the order of any person named therein (Sec. 5)
to a specified person, or (3) to a specified person or his order 1. Effect of the words “Non-negotiable” inserted in the receipt – negotiability is
a) Importance: determines the person or persons who shall be entitled not affected
to the possession of the goods deposited 2. If more than one receipt is issued for the same goods – “duplicate” shall be
5. Rate of storage charges placed on the face of copies other than the original
a) If no agreement as to storage charges, the depositor shall pay the a) Effect of omission – warehouseman shall be liable for damages caused
customary or reasonable compensation for the services of the to purchaser for value of subsequent receipt supposing it to be original
warehouseman even if purchase is after delivery by warehouseman to the holder of
6. Description of the goods or of the packages containing them the original receipt (Sec. 6)
a) Purpose: to identify the goods and return the same upon surrender of b) What “duplicate” means – it is a representation and warranty
the warehouse receipt i) that the duplicate is an accurate copy of the original receipt; and
b) But incorrect description does not invalidate the warehouse receipt ii) that the duplicate is properly issued and uncancelled at the date
when the identity of the goods is fully established by other evidence of the issue of the duplicate
7. Signature of the warehouseman or of his authorized agent aa) but the duplicate shall impose no other liability on the
a) Significance – best evidence that the warehouseman has received the warehouseman (Sec. 15)
goods described in the receipt
8. Warehouseman’s ownership of or interest in the goods III. Obligations of warehouseman
a) Purpose – to prevent abuses A. To take care of the goods entrusted to his safekeeping (Sec. 21)
b) Effect of omission to state warehouseman’s interest – he may be 1. Degree of diligence required – that of a bonus pater familia
criminally liable 2. Liability for loss or injury may be limited to an agreed value of the property
9. Statement of advances made and liabilities incurred 3. Commingling of goods
a) Purpose – to preserve the lien of the lien of the warehouseman over
the goods stored or the proceeds thereof in his hands
 a) General rule: The warehouseman shall not commingle goods
belonging to different depositors (or of the same depositor if covered
by separate receipts) (Sec. 22)
b) Exception: He may commingle goods if
i) authorized by agreement or by custom; or
ii) if the goods are fungible (Sec. 24.) (cf. Art. 1976, NCC)
Effect: The different owners become the co-owners of the whole mass)
B. To deliver the goods upon demand by the holder or depositor (Sec. 8)
1. Demand must be accompanied with: (Sec. 8)
a) An offer to satisfy the warehouseman’s lien
i) What constitutes warehouseman’s lien (Sec. 27)
aa) All lawful charges for storage and preservation
 All lawful claims for money advanced, interest, insurance,
transportation, labor, weighing, cooperating, etc. in
relation to the goods
cc) All reasonable charges and expenses for notice and
advertisements of sale, and for sale of the goods in case of
default in satisfying the warehouseman’s lien
ii) Where receipt is negotiable, lien includes: (Sec. 30)
 All charges for storage of the goods subsequent to the date
of the receipt; and
 All charges expressly enumerated in the receipt, provided
these are within the terms of Sec. 27
 Amount of charges need not be stated in the receipt
iii) Against what property lien may be enforced:
aa) Goods belonging to the depositor who is liable to the
warehouseman;
bb) Goods belonging to others which have been deposited by
the depositor who can make a valid pledge
iv) How lien is lost
aa) by surrendering possession of the goods; or
bb) by wrongfully refusing to deliver the goods (Sec. 29)
v) How lien is enforced
aa) by refusing to deliver the goods until the lien is satisfied
(Sec. 31)
bb) by causing the extrajudicial sale of the property and
applying the proceeds to the value of the lien (Secs. 33-34)
cc) by filing a civil action for collection of the unpaid charges
(Sec. 32)
dd) by availing of such other remedies allowed by law for
enforcement of lien against personal property
b) An offer to surrender negotiable warehouse receipt, properly indorsed,
if necessary; and
c) A readiness and willingness to sign an acknowledgment of the fact of
delivery if so requested by the warehouseman
2. To whom delivery must be made (Sec. 9)
a) Person lawfully entitled to the goods or his agent
Examples:
i) Person to whom a competent court has ordered the delivery of
the goods (Secs. 14 & 17))
ii) Attaching creditor (Sec. 25)
iii) Purchaser in case of sale of the goods to enforce the
warehouseman’s lien (Sec. 33) or where the goods are
perishable or hazardous (Sec. 34)
b) Person entitled to delivery under a non-negotiable receipt or with
written authority
c) Person in possession of a negotiable receipt
3. Misdelivery (Sec. 10)
a) What it constitute:
i) Delivery to one who is not in fact lawfully entitled to the
possession of the goods
ii) Delivery after he had been requested, by the person lawfully
entitled to possession, not to make delivery
iii) Delivery after he had information that the delivery about to be
made was to one not lawfully entitled to possession, i.e., notice
of adverse claim of a third person
b) Liability for misdelivery – warehouseman is liable as for conversion
i) Conversion defined – unauthorized assumption and exercise of
the right of ownership over goods belonging to another through
the alteration of their condition or the exclusion of the owner’s
right
4. Where goods are covered by a negotiable receipt
a) The warehouseman cannot be compelled to deliver up the actual
possession of the goods until the receipt is surrendered to him or
impounded by the court (Sec. 25)
b) Receipt must be cancelled when goods are delivered (Sec. 11)
i) Effect of failure to cancel – warehouseman is liable to purchaser
for value in good faith of such receipt regardless of whether the
purchase was before or after the delivery of the goods
Exception: If the goods are sold to satisfy a warehouseman’s
lien, or because of their perishable or hazardous nature
(Sec. 36)
c) Receipt must be cancelled or marked when part of the goods are
delivered (Sec. 12)
i) Effect of failure to cancel or mark - warehouseman is liable to
purchaser for value in good faith of such receipt, for failure to
deliver all the goods, regardless of whether the purchase was
before or after the delivery of the goods
 Exception: Sec. 36 (supra) i) directly or indirectly from a transfer made by the depositor at
d) Attachment or levy upon the goods the time or subsequent to the deposit for storage; or
i) General rule: the goods cannot be attached by garnishment or ii) from his warehouseman’s lien
be levied upon under an execution unless: (Sec. 25)  Where there are adverse claimants: (Secs. 17-18)
aa) the receipt is first surrendered; or a) The warehouseman may refuse to deliver the goods either to the
bb) its negotiation is enjoined; or depositor (or any person claiming under him) or the adverse claimant
cc) the document is impounded by the court b) He may require all adverse claimants to interplead
ii) Exceptions: *Otherwise, the warehouseman is not excused from liability (Sec. 19)
aa) if the person depositing the goods is not the owner or is 9. Liability for non-existence or misdescription of goods (Sec. 20)
one who has no right to convey title to the goods binding a) General rule: warehouseman is liable to the holder of a receipt for
upon the owner; or damages caused by
bb) actions for recovery or manual delivery of the goods by the i) the non-existence of the goods; or
real owner; or ii) the failure of the goods to correspond with the description in the
cc) where the attachment is made before the issuance of the receipt
negotiable receipt b) Exception: he is not liable if the description consists merely of marks
iii) Creditors’s remedies or labels upon the goods or upon the packages containing them
aa) Creditors may attach, by injunction or otherwise, the
receipt IV. Negotiation of negotiable receipt
A. How
5. Liability for altered receipts (Sec. 13)
1. By delivery: (Sec. 37)
a) Immaterial alteration (tenor of the receipt is not changed) whether
a) Where the warehouseman undertakes to deliver the goods to the
fraudulent or not - warehouseman is liable on the altered receipt
bearer;
according to its original tenor
b) Where the warehouseman undertakes to deliver the goods to the
b) Material alteration (tenor of the receipt is changed) which is
order of a specified person, and such person or a subsequent indorsee
authorized – warehouseman is liable according to the terms of the
has indorsed it in blank or to bearer;
receipt as altered
2. Byindorsement: (Sec. 38)
c) Material alteration innocently made (even if unauthorized) –
a) Where the warehouseman undertakes to deliver the goods to the
warehouseman is liable on the altered receipt according to its original
order of a specified person
tenor
b) Where a bearer document is indorsed to a specified person, the same
d) Material alteration fraudulently made – warehouseman is liable only to
may be negotiated by indorsement of such person (either in blank, to
deliver the goods according to the tenor of the original receipt even to
bearer, or to another specified person)
the alterer and to any person with notice of the alteration;
B. Who may negotiate (Sec. 40)
Butto a purchaser of the receipt for value without notice, the
1. The owner of the receipt; or
warehouseman is liable according to the original tenor of the receipt
2. Any person to whom the possession or custody of the receipt has been
6. Where negotiable receipt is lost or destroyed (Sec. 14)
entrusted by the owner, if:
a) Court may order the delivery of the goods:
a) by terms of the receipt, the warehouseman undertakes to deliver the
i) upon satisfactory proof the loss or destruction; and
goods to the order of the person to whom the possession or custody
ii) upon giving of a bond with sufficient sureties to be approved by
of the receipt has been entrusted; or
the court
b) at the time of such entrusting, the receipt is in such form that it may
b) But delivery pursuant to a court order does not relieve the
be negotiated by delivery
warehouseman from liability to the holder of the receipt for value
without notice C. Rights of person to whom a receipt has been negotiated: he acquires
i) Remedy of warehouseman – implead the surety 1. the title of the person negotiating the receipt over the goods covered by the
7. Where warehouseman claims ownership over the goods receipt;
a) He cannot refuse to deliver the goods unless his title or right is 2. the title of the person (owner or depositor) to whose order the goods were
derived: to be delivered by the terms of the receipt, over such goods; and
 3. the direct obligation of the warehouseman to hold possession of the goods A. A non-negotiable warehouse receipt cannot be negotiated but it can be
for him, as if the warehouseman directly contracted with him (Sec. 41) transferred by delivery
D. Rights of transferee of an order negotiable receipt (not negotiated): he acquires B. Effect of indorsement: the transferee acquires no additional right
1. the title to the goods as against the transferor; (Sec. 42) C Rights of transferee of a non-negotiable receipt: he acquires
2. the right to compel the transferor to indorse the receipt (Sec. 43) 1. the title to the goods as against the transferor;
a) Negotiation shall take effect as of the time when the indorsement is 2. the right to notify the warehouseman of the transfer thereof; and
actually made 3. the right, thereafter, to acquire the obligation of the warehouseman to hold
E. Warranties on sale of receipt (Sec. 44) the goods for him (Sec. 42)
1. A person who for value negotiates or transfers a receipt warrants: VI. Criminal offenses
a) that the receipt is genuine; A. Offenses criminally liable
b) that he has legal right to negotiate or transfer it; 1. Issuance of receipt for goods not received (Sec. 50)
c) that he has no knowledge of any fact which would impair the validity 2. Fraudulent issuance of receipt containing any false statement (Sec. 51)
or worth of the receipt; and 3. Issuance of unmarked duplicate or additional receipts knowing a former
d) that he has a right to transfer the title to the goods and that the goods receipt is outstanding and uncancelled (Sec. 52)
are merchantable or fit for a particular purpose, if such warranties 4. Issuance of receipt for warehouseman’s goods without stating such fact (Sec.
have been implied 53)
2. But the indorser is not liable for any failure on the part of the 5. Delivery of goods covered by negotiable receipt without obtaining
warehouseman or previous indorsers to fulfill their respective obligations possession thereof (Sec. 54)
(Sec. 45) Exception:Secs. 14 (by court order for lost receipt) and 36 (sale of
goods to satisfy warehouseman’s lien or because of their
3. Likewise, a mortgagee, pledgee or holder for security of a receipt who (in
perishable/hazardous nature)
good faith) demands or receives payment of the debt for which such receipt
6. Negotiation of receipt for mortgaged goods (Sec. 55)
is security, shall not be deemed to warrant the genuineness of such receipt
or the quantity or quality of the goods described therein (Sec. 46)
F. Validity of negotiation as against the real owner CONTRACTS OF SECURITY
1. If the receipt is acquired from the real owner’s agent (regardless of how he
acquired it from the owner) within his actual or apparent authority, the I. Kinds of Security Contracts
purchaser for value in good faith acquires title to the goods as against the A. Of personal security: Guaranty and suretyship
real owner (Sec. 47)
Guaranty - By guaranty a person, called the guarantor, binds himself to the
2. If the receipt is stolen or lost, the purchaser, who for value and in good faith
creditor to fulfill the obligation of the principal debtor in case the latter should fail
acquires it from the thief or finder, does not acquire any title as against the
to do so.
real owner (de Leon, citing C.J.S.)
Suretyship - If a person binds himself solidarily with the principal debtor, the
G. Effect of subsequent negotiation of a previously negotiated/ transferred receipt:
provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such
(Sec. 48)
case the contract is called a suretyship
1. It shall have, in the hands of aindorsee/transferee for value and in good
faith, the same effect as if the first purchaser of the goods or receipt had ** the surety is the insurer of the debt; while the guarantor is the insurer of the
expressly authorized the subsequent negotiation debtor’s solvency
H. Effect of negotiation on vendor’s lien:
B. Of real security:
1. No seller’s lien or stoppage in transitu shall defeat the rights of a purchaser
a. Real Estate Mortgage
for value in good faith to whom the receipt is negotiated
b. Chattel Mortgage
2. The warehouseman shall not be obliged to deliver or justified in delivering
c. Pledge
the goods to an unpaid seller unless the receipt is first surrendered for
d. Antichresis
cancellation.
V. Transfer of non-negotiable receipt (Sec. 39) II. Causa for these accessory contracts is the same causa for the obligation of the debtor in
the principal contract for which the security is given.
 B. By extent
a. Indefinite or Unlimited or Simple – covers the principal obligation,
accessories and costs incurred after the guarantor has been judicially asked
Title XV. - GUARANTY to pay (2055)
1) If the guaranty is given without the knowledge or consent of the
CHAPTER 1 debtor, 1236 and 1237 apply
NATURE AND EXTENT OF GUARANTY b. Limited – excluding accessory obligations
Arts. 2047-2048
C. By the persons guaranteed
I. Concept: It is a contract whereby a third person, other than the debtor, binds himself to
a. Guaranty proper
the performance of a principal obligation, either principally or subsidiarily, in case the
b. Sub-guaranty
debtor should fail to perform.
D. By the liability of the guarantor
II. Characteristic Features: The contract is
a. Normal of ordinary (subsidiary or guaranty proper)
Accessory to a principal obligation (although the causa may be the same for both)
b. Solidary (suretyship)
A. Subsidiary: Normally the guarantor is liable only if the principal does not perform, International Finance Corporation vs. Imperial Textile Mills, Inc., G.R. 160324,
unless he binds himself in solidum with the debtor (suretyship). Nov. 15, 2005
a. But a solidary guarantor does not lose his character as such guarantor vis-à-
When the obligor undertakes to be “jointly and severally” liable, it means
vis the debtor
that the obligation is solidary. If solidary liability was instituted to
A guarantor, even if solidary, differs from a solidary debtor: “guarantee” a principal obligation, the law deems the contract to be one of
suretyship.

Solidary Guarantor Solidary Debtor II. Elements of guaranty:

May recover the entire payment from the Can recover only the co- A. Parties
debtor (2066) debtor’s share a. Qualifications of guarantor
a) If proposed by the debtor, the guarantor must be possessed of the
Released by extension of the period Not released by following qualifications (2056)
extension i) He must be capable of contracting obligations
Has action for counter-bond and No action except for
reimbursement, besides subrogation contribution ii) He must have sufficientproperty to answer for the debt
His obligation is accessory Bound under a principal guaranteed
obligation aa) Therefore the insolvencyof the guarantor entitles the
creditor to demand another guarantor, unless the insolvent
B. Consensual (perfected by mere consent) but is covered by the Statute of Frauds guarantor was chosen by the creditor (2057)
(1403, 2b) being a “special promise to answer for the debt, default, or miscarriage iii) He must possess integrity (honesty): Conviction of the guarantor
of another. Hence, an oral contract of guaranty is not enforceable. of a crime involving dishonesty has the same effect as insolvency
C. Gratuitous or onerous according to stipulation (2057)
a. But guaranty is presumed to be gratuitous aa) “Integrity” is a matter of opinion and is required only at
the time of perfection of the contract. Its subsequent
Arts. 2049-2057 disappearance makes it optional in the creditor to demand
another guarantor (may be waived).
I. Kinds
A. By its origin 2) If chosen by the creditor – the latter may waive all requirements other
a. Conventional – constituted by contract than the legal capacity to contract
b. Legal – required by substantive or procedural law 3) Consent
c. Judicial – required by a court from a litigant
B. Subject matter and conditions
a. Debts that may be guaranteed: The principal obligation must be valid, as
“guaranty cannot exist without a valid obligation” (2052)
1) But voidable, unenforceable or natural obligations may be guaranteed
(2052)
b. Future debts, of unknown amount as yet, may be guaranteed; but there can
be no action against the guarantor until the debt is liquidated (2053)
Arts. 2058-2065
c. Retrospective application
I.
Olbes vs. China Banking Corporation, G.R. 152082, March 10, 2006
Facts:
To secure the payment of the [PNs], [petitioners] Ramon Olbes and
Ricardo Olbes executed on November 12, 1990 in favor of Chinabank a
suretyship agreement whereby they jointly and severally undertook to pay
upon maturity any and all obligations for which the borrower corporation
maythenorthereafter be indebted to Creditor (Chinabank) to the extent of
one million pesos (P1,000,000) plus interests and attorney’s fees. The last PN
was executed by OO&M on January 23, 1990.
Issue:
May Olbes be held liable for obligations obtained before the execution
of the suretyship agreement?
Held:
Yes.
The rule on the retrospective application of a suretyship agreement
admits of exceptions. The Court referred to one in Willex Plastic Industries,
Corp. vs. CA.There, we held that no liability attaches under a contract of
suretyship for defaults occurring before it is entered into unless an intent to
be so liable is indicated. Indeed, as we said in an old but still very much
applicable case of Bank of the Philippine Islands vs. Foerster, although a
contract of suretyship is ordinarily not to be construed as retrospective, in
the end the intention of the parties, as revealed by the evidence, is
controlling. Put in another way, the rule that bonds or other contracts of
suretyship are ordinarily not to be construed as retrospective must yield to
the intention of the contracting parties as revealed by the evidence, and
does not interfere with the use of ordinary tests and canons of
interpretation which apply in regard to other contracts.
C. Form
a. Guaranty is governed by the Statute of Frauds (1403), since it is a “special
promise to answer for the debt, default, or miscarriage of another”.
CHAPTER 2
EFFECTS OF GUARANTY
SECTION 1. - Effects of Guaranty
Between the Guarantor and the Creditor
Effect of guaranty between creditor and guarantor
A. Obligation of the creditor – to pay the guarantor the compensation stipulated, if
any
B. Obligation of the guarantor – to pay or perform the obligation (in money or in
species) if the debtor fails or is unable to do so.
a. What is to be paid:
1) The guarantor can bind himself for less, but not bind himself to more,
than the debtor. If he does, it shall be reduced to the limits of the
debtor’s obligations. (2054)
When guarantor is liable for more than the principal obligation:
Commonwealth Insurance Corporation vs. CA, G.R. 130886, January
29, 2004
In Republic vs. Court of Appeals and R & B Surety and Insurance
Company, Inc., we have sustained the principle that if a surety upon
demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The
increased liability is not because of the contract but because of the
default and the necessity of judicial collection.
b. When – if the guarantor pays before the due date, he can not proceed
against the debtor until the date arrives, unless the debtor
ratified the payment (2069)
c. It is the duty of the guarantor to notify the debtor of the payment;
otherwise:
1) The debtor may interpose against the guarantor all defenses available
against the creditor
2) If the debtor pays, not knowing that the guarantor paid already, the
guarantor must recover from the creditor (2070)
i) This is an exception to the rule on solution indebiti
ii) If the guaranty is gratuitous and notice to the debtor is
prevented by fortuitous event, the debtor must reimburse the
guarantor, if the creditor is insolvent
C. Privileges of the guarantor
a. Benefit of Exhaustion (excusion)
Excussion is the right of the guarantor to have all the properties of the
debtor and all legal remedies against him first exhausted before he can be
compelled to pay the creditor. (2058)
Duty of the creditor: (pp.829-830, Paras. Vol. 5)
1. exhaust all the property of the debtor
2. resort to all the legal remedies against the debtor
3. prove that the debtor is still unable to pay (Note: just because
the debtor has been declared insolvent does not mean that he
cannot pay, for part of his assets may still be available to the
creditor. One way of proving inability to pay is to prove an
UNSATISFIED writ of execution that has been returned. (Machet
vs. Hospicio de San Jose, supra)
4. notify the guarantor of the debtor’s inability to pay, otherwise if
the guarantor is prejudiced by lack of notice, he cannot be made
to pay unless of course there is a waiver on the part of the
guarantor (RocesHermanos, Inc. vs. China Insurance and Surety
Co., Inc., Aug. 9 1941)
Procedure in enforcing obligation against principal debtor and
guarantor:
1. The suit must be brought against the principal debtor alone. The
only exception is when the guarantor has no right of excussion
under the c ases mentioned in 2059.
2. The creditor shall ask the court to notify the guarantor of the
action
3. The guarantor may appear so that he may, if he so desires, set up
such defenses as are granted him by law
4. Even if judgment should be rendered against the principal debtor
and the guarantor in case of the latter’s appearance, the benefit
of excussion remains unimpaired
1) When benefit of excussion available: To avail of it, the guarantor must:
i) Interpose it as soon as the creditor makes a demand upon the
guarantor for payment
aa) But the creditor may sue the debtor and guarantor jointly
when there is no guarantor’s right to exhaustion under
2059. Otherwise, the creditor shall ask the court to notify
the guarantor.
bb) The interposition of the benefit of exhaustion must be
made before the judgment is rendered against the
guarantor.
cc) The benefit of exhaustion cannot be claimed for the first
time on appeal
ii) Point out to the creditor leviable property of the debtor within
the Philippines sufficient to cover the debt (2060)
2) Effect of benefit
i) No execution may be enforced against the guarantor until the
writ against the debtor is returned unsatisfied (2056)
ii) The creditor who is negligent in exhausting the property
designated is liable for its value, if the debtor becomes insolvent
and cannot pay as a result of such negligence. (2061)
aa) “as a result” means “following”
3) The benefit of exhaustion is not available (2059):
i) When the guarantor expressly waived it
ii) When he is solidarilybound
iii) When the debtor is judicially declared insolvent
iv) When the debtor cannot be sued in the Philippines or absconds
v) When the guaranty is in the form of mortgage of the guarantor’s
property
vi) If it may be presumed that execution would not result in
satisfaction
vii) When the guarantor, upon the creditor’s demand for payment
from him fails to set up such benefit against the creditor and to
point out to the latter available property to cover the debt
4) But the right to excussion is for the benefit of the of the guarantor and
it not a defense for the debtor to raise and use to evade liability.
b. Benefit of division
1) General Rule: When there are several guarantors for one and the
same debtor and debt, the obligation to answer for the same is divided
among all of them. The creditor may only claim from each debtor his
corresponding share, unless solidarity has been expressly stipulated.
(2065)
2) When division is not available: The benefit of division ceases in the
same cases and for the same causes as that of exhaustion (2065,
par.2). Except Nos.(v), (iii), (iv) and (vi) above.
Therefore: the benefit of division ceases as follows (2059):
i) if the guarantor has expressly renounced the benefit of division
ii) if the guarantor has bound himself solidarily
iii) in case of insolvency of the debtor (not applicable according to
JBL)
iv) when the debtor has absconded or he cannot be sued within the
Phils (not applicable according to JBL)
v) If it may be presumed that execution would not result in
satisfaction
3) Time to invoke the benefit of division: same as for the benefit of
exhaustion
 4) Division applies if each and all guarantors secure the entire debt; but 1) Extent of Recovery - Indemnity will include: (Keyword TIED)
not if each guarantor answers for a separate portion. i) The total amount of the debt
ii) Legal interest from the day payment was made known to the
D. Defenses of the Guarantor: debtor, even if it produced no interest for the creditor
a. Defenses of the debtor: The guarantor may set up against the creditor all iii) Expenses incurred by the guarantor after demand for payment
defenses which pertain to the principal debtor and are inherent in the debt; was notified to the debtor
but not those purely personal to the debtor (e.g., incapacity) (2081) iv) Losses and damages, when proper
1) The surety may invoke fraud, violence, prior payment, res judicata, b. Action in subrogation to all the rights of the creditor (to recover the amount
prescription, and other of the same class which may weaken or paid to the creditor, not merely the nominal amount) (2067)
destroy the vinculum juris between the debtor and creditor. 1) Exception:
2) Defenses purely personal: Besides minority, it includes incapacity and i) If the guarantor compromises with the creditor he may not
other vices of consent which the principal debtor may waive; unless recover more than the amount really paid
the guarantor was ignorant of the vice, as he could not then waive the ii) If the guaranty is constituted without the knowledge of the
defect. debtor
b. Defenses peculiar to guaranty: Merger, novation, extension of time, etc., 2) Subrogation takes place by operation of law (by payment to the
which invalidate the contract between the creditor and surety. (See creditor) and requires no express assignment by the creditor (1302)
Extinguishment of Guaranty) 3) Subrogation also includes pledges or mortgages in favor of the creditor
4) If payment is partial, the creditor retains his priority over the payor for
the balance of the original credit (1304)
SECTION 2. - Effects of Guaranty 5) Payment must be made in due time and notified to the debtor
Between the Debtor and the Guarantor 6) When there is no subrogation
c. The two actions compared:
Arts. 2066-2072 1) Advantage of subrogation (over reimbursement)
I. Effects of guaranty between guarantor and debtor i) By subrogation the right to foreclose pledges and mortgages is
A. Before payment by the guarantor. The Guarantor has the right (2071) – acquired
a. To receive the compensation agreed upon 2) Advantages of reimbursement (over subrogation)
b. To demand relief from the guaranty, against the action of the creditor, or i) When the original earns no interest, the guarantor is entitled to
security against the danger of the debtor’s insolvency, in the following cases: interest from payment
1) When the guarantor is sued for payment ii) If the principal debt is about to prescribe, action for
2) In case of bankruptcy or insolvency of the debtor reimbursement is not affected
3) When the debt has become demandable, because the period for its iii) If payment is partial, the balance enjoys no priority over the
payment has expired action of reimbursement
4) When the debtor bound himself to relieve him from the guaranty C. Guaranty given without consent or against will of the debtor (2072)
within a specified period and the period has expired a. If a person requests another to guarantee the debt of a third person who is
5) After 10 years, if the obligation has no fixed term or maturity, unless it not present, the guarantor who pays may ask reimbursement from
can not be extinguished before the lapse of 10 years 1) The person requesting; or
6) If there are reasonable grounds to fear that the debtor intends to 2) The debtor
abscond
7) If the principal debtor is in imminent danger of insolvency (2071)
c. But the relief must be without prejudice to the creditor’s rights
d. Action for relief has for its object to secure release of the guarantor or a
counterbond to indemnify the guarantor (2071)
B. Rights of the guarantor after payment: The guarantor has two alternative actions:
a. Action for reimbursement: The guarantor who pays for the debtor must be SECTION 3. - Effects of Guaranty as Between Co-Guarantors
indemnified by the latter, even if the guaranty was given without the
debtor’s knowledge, and even if the guaranty was solidary (2066) Arts. 2073-2075
I. Effects between co-guarantors: E. Remission of the debt
a. If in favor of the debtor, it releases the guarantor (1273)
A. Contribution: When there are several guarantors, each guaranteeing the entire
b. If in favor of one co-guarantor, without the consent of the others, it benefits
debt, the one who paid may demand from the others their proportionate share
the latter to the extent of the share of the one released (2078)
(2073)
F. Merger
B. In case of insolvency of one co-guarantors (after payment) his corresponding share
a. Between creditor and debtor: The guaranty and the debt are both
must be borne by all the others (including the one who paid) in proportion (2073,
extinguished (1276)
p.2)
b. Between the creditor and guarantor: The guaranty is extinguished; the
a. Compare the above rule with that of contribution among solidary debtors principal debt subsists
c. Between debtor and guarantor: The guaranty is extinguished, (2076)
C. Defenses of co-guarantors: They may invoke against the payer the same defenses because the debtor cannot be his own guarantor
available to the debtor against the creditor, except those purely personal to the 1) But the sub-guarantor, if any, is not released
debtor (2074) 2) Other securities (pledges, mortgages) are not affected
G. Compensation
CHAPTER 3 The guarantor may set up compensation for what the creditor may owe the
EXTINGUISHMENT OF GUARANTY principal debtor or to the guarantor (1280)
Arts. 2076-2081
H. Novation
I. Extinction of guaranty a. When the principal obligation is extinguished, the guaranty is extinguished
A. Negligence of the creditor b. When the principal obligation is modified:
a. Negligence of creditor in exhausting the property of the debtor (2061) 1) IF the new obligation is less burdensome, the guaranty subsists
b. Impossibility of subrogation: Guarantors are released if by some act of the 2) If the new obligation is more burdensome, the guaranty is
creditor they cannot be subrogated to the rights, mortgages, and privileges extinguished, if the guarantor did not consent
of the creditor (2080) i) If the debt is merely increased, the guarantor is liable for the
1) If by negligence of the creditor, other securities given by the debtor or original debt only (2054)
lost, the creditor cannot proceed against the guarantor who relied on
such securities I. Effect of death of surety
B. Extension of payment
Stronghold Insurance Company, Inc. vs. Republic-Asahi Glass Corporation, G.R.
a. Requisites:
147561, June 22, 2006
1) The extension must be express. Mere forbearance or delay of the
creditor in collecting or suing for the credit does not release the A surety’s liability under the performance bond it issues is solidary. The death of
guarantor. the principal obligor does not, as a rule, extinguish the obligation and the solidary
b. The extension must be granted by the creditor. If the contract stipulates for nature of that liability.
an automatic extension, the same does not release the guarantor.
c. The extension must be without the guarantor’s consent, express or implied
C. Payment of the principal debt by the debtor
a. Where in a bond the debtor and surety have solidarily bound themselves,
but have limited the liability of the surety to a lesser amount than that due
from the principal debtor, any payment as the latter may have made on
account of such obligation must be applied first to the unsecured portion of
CHAPTER 4
the debt, for, as regards the principal debtor, the obligation is more onerous
LEGAL AND JUDICIAL BONDS
as to the amount not secured.
Arts. 2082-2084
b. If the creditor accepts another thing in payment (dacion en pago) the
guaranty is extinguished and does not revive even if the thing is Title XVI. - PLEDGE, MORTGAGE AND ANTICHRESIS
subsequently lost by eviction, unless the obligation is facultative (2077)
CHAPTER 1
D. Accidental loss of the thing before default
 PROVISIONS COMMON TO PLEDGE AND MORTGAGE c. The creditor is not entitled to possess and enjoy the security (2140)
Arts. 2085-2092 1) He must apply the fruits of the pledge to the interest or principal of
the debt (2120) (as in antichresis)
Definitions:
E. Pledge and Mortgage are indivisible, even if the principal debt is divided (2089)
Pledge - an accessory obligation whereby personal property of the debtor or a third
a. Partial payment does not entitle the debtor to partial discharge
person is delivered to the creditor or to a third person by common agreement, to secure the
performance of a principal obligation, usually a loan. (2093) 1) Except when the pledge or mortgage covers several things, each
Real mortgage – a contract in which the debtor (or a third person) guarantees to the guaranteeing only a determinate portion of the credit. (2089)
creditor the fulfillment of a principal obligation, subjecting for the faithful compliance therewith
b. The security is indivisible even if the several debtors are not solidarily bound
a real property in case of non-fulfillment of said obligation at the time stipulated.
(2090)
Chattel mortgage – is a contract by virtue of which personal property is recorded in the
F. A promise to constitute a pledge or mortgage gives rise to a personal action only
Chattel Mortgage Register as a security for the performance of an obligation. (2140)
(2092)
REAL SECURITY
CHAPTER 2
(Pledge and Mortgage)
PLEDGE
I. Common Characteristics (2085) Arts. 2093-2096
A. They must be constituted to secure fulfillment of a principal obligation I. Concept – Pledge is an accessory, real, unilateral contract by virtue of which the debtor
(accessoriness) (2085) delivers to the creditor or a third person movable property as security for the
performance of a specific obligation upon the fulfillment of which the thing must be
a. They may secure all kinds of obligations, pure or conditional (2091)
returned with its accessions and accessories.
b. The principal obligation may be future, but the security obligation does not
come into existence until the principal does. (2053, as to guaranty)
II. Requisites:
c. The principal obligation may be natural, voidable or unenforceable (2086, a. that it be constituted to secure the fulfillment of a principal obligation (2085)
2052) provided the fact is known to the pledgor or mortgagor. b. that the pledgor be the absolute owner of the thing pledged (ibid.)
c. that the person constituting the pledge has the free disposal of the property, and
B. These contracts can be constituted only by the absolute owner of the thing in the absence thereof, that he be legally authorized for the purpose (ibid.), and
pledged or mortgaged. d. that the thing pledged be placed in the possession of the creditor, or of a third
a. But the pledgor or mortgagor need not be a party to the principal obligation person by common agreement (2093)
(2085, last par.)
b. A mortgage of property not owned by the mortgagor is void. Even when III. Elements
such mortgage is registered and the creditor buys the mortgaged property A. Parties (Capacity) (2085)
upon its foreclosure, the creditor cannot be deemed to acquire a valid title a. A pledgor who is not the debtor, has the rights of a guarantor (2066 to
as a bona fide purchaser, since the creditor could acquire no better rights a 2070): reimbursement and subrogation; and 2077 to 2081: (release) and is
purchaser than those it had as mortgage not prejudiced by any waiver of defenses by the debtor (2120)
C. The one constituting the pledge or mortgage should have the free disposal of the B. The object (thing given) must be (a) movable; (b) within the commerce of man; (c)
property, or should be legally authorized for the purpose (2085, par.3) susceptible of possession (2094). It may be money, goods or credits, and includes
D. Things pledged or mortgaged may be alienated at the instance of the creditor, for their fruits, interest and earnings. (2120)
payment of the principal obligation (2087)
a. A mortgagor is not entitled to the exhaustion of the property of the principal a. Incorporeal rights may be pledged if represented by documents, which must
debtor. The benefit applied only to personal guaranty and not to real be delivered and indorsed (if negotiable) to the creditor (2095)
guaranty.
b. The creditor may not appropriate or dispose of the security. A stipulation to
the contrary (pactumcommissorium) is VOID (2088) C. Consideration: As to the debtor, it is either liberality of the compensation
Pactumcommmissorium is a stipulation in pledge, mortgage or antichresis stipulated; as to the pledgee, the consideration of the principal credit supports the
that the creditor can appropriate the things given as security if the debt is pledge
not paid.
 D. Form: No particular form is required as between the parties, but the thing must bb) With notice to the debtor and pledgor, stating the amount
be delivered to the creditor or to a stranger (2092) for which the thing will be sold
a. To affect third persons there must be a public instrument, giving a
description of the thing pledged and the date (2096) cc) Thepledgor or owner may bid at the sale and must be
preferred if he offers the same as the highest bidder
IV. Classes: Voluntary and Legal dd) The pledgee may bid, but this offer is void if he is the only
A. Voluntary (conventional) – created by the will of the parties bidder
B. Legal – created by operation of law ee) The bids must be for payment at once (2114); if not, a bid
accepted operates as payment to the pledge, in so far as
Arts. 2097-2120 the debtor or owner is concerned (2114) (risk of collection
is on the pledge)
I. Effects as to the Pledgee -
ff) If at hefirst auction, the thing is not sold, another must be
A. Rights of the pledgee held with the same formalities; if still there is no sale, the
a. To the retention of the thing in his possession or in that of the third person creditor may appropriate the thing, issuing acquittance in
to whom it has been delivered, until the debt is paid (2098) full (2112, second part)
gg) The sale extinguishes the obligation, regardless of the
1) He may use the thing pledged only if authorized or if its preservation proceeds. There can be no reimbursement for excess,
so requires. Otherwise, the pledgor may ask for the deposit of the unless otherwise agreed; and no recoveryof deficiency
thing. (2104) notwithstanding any stipulation to the contrary
2) The pledge can not deposit the thing pledged with a third person, g. To collect credits pledged if they fall due before redemption (2118)
unless authorized (2100) 1) But he must apply the proceeds to the credit and pay the surplus to
b. To the reimbursement of the expenses for the preservation (2099) the pledgor
c. To compensate fruits, income, dividends or interest earned or produced by
the thing pledged with those due the creditor (2102) B. Obligations of the pledgee (preservation and restitution)
1) If none are owing, or if there is an excess, they shall be applied to the a. Preservation
principal of the debt (2102, par.1) 1) The creditor shall take care of the thing pledged with the diligence of a
2) Offspring of animals pledged belong to the pledgor but are subject to bonus pater familias; and is liable for its loss or deterioration (2099)
the pledge if there is no contrary stipulation. i) He must not use the thing pledged unless authorized or its
d. To institute actions of recovery and defense. The creditor may being actions preservation so requires; otherwise the pledgor may ask that it
belonging to the owner in order to defend and recover the thing pledged. be deposited (2104)
e. To preference of credit (2241, No.4) ii) The pledgee of pawn tickets must renew them when necessary
f. To cause the sale of the security 2) The pledgee is responsible for acts of his agents or employees (2100)
1) Grounds - 3) The pledgee cannot deposit the thing pledged with a third person,
i) Precautionary: If, without fault of the pledgee, the thing runs unless there is a stipulation authorizing it (2100)
the risk of destruction, impairment or diminution in value, he 4) The pledgee must advise the pledgor without delay of any danger to
may cause it to be sold in a public sale; unless the pledgor the thing pledged (2107, par.2)
demands its return, offering another in its stead, of the same 5) If through negligence or willful act of the pledge, the thing is in danger
kind and not of inferior value (2107) of loss or impairment, the pledgor may require its deposit with a third
aa) If sold, the price is substituted for the security (2108) person (2106)
ii) Foreclosure: if the credit is not paid in due time (2112) 6) If there are reasonable grounds to fear the destruction or impairment
of the thing pledged without fault of the pledge, the pledgor may
2) Foreclosure sale may be - demand its return, upon offering another thing in pledge, of the same
i) Judicial (by action), or kind and not of inferior quality (2107) unless the pledge causes same
ii) Extra-judicial (before a Notary Public or Clerk of Court) to be publicly sold under 2108
aa) At public auction
b. Restitution
1) The pledge must return the pledge when the debt is paid (2098)
 2) The return of the thing pledged to the pledgor or owner extinguishes B. Cases of retention: The following are examples of legal pledges:
the pledge (not the principal debt) (2100) a. Possessor in good faith – the possessor in good faith, for necessary and
i) A stipulation to the contrary shall be void useful expenses (546)
ii) Presumption: If subsequent to the perfection of the pledge, the b. Usufructuary – for taxes and extraordinary expenses
pledgor, or another person who derives title from him, is in c. Agent – for expenses advanced and damages caused by the agency (1914)
possession of the thing pledged, it is presumed prima facie that d. Mechanic’s lien – the person who executes work on a movable for the
the pledge returned it (2110) payment thereof (1731)
e. Depositary – for expenses by reason of the deposit (1994)
I. Effects as to the pledgor f. Hotelkeeper – for credits for lodging and supplies furnished to travelers
A. Rights of the pledgor (2123)
a. The pledgor remains the owner of the thing pledged, until its sale, unless the
thing is expropriated (2103)
1) The pledgor may alienate the security with the consent of the pledgee.
Ownership passes to the transferee upon consent of the pledgee, but CHAPTER 3
the latter remains in possession. (2097) MORTGAGE
b. He may demand the deposit of the thing, if endangered by fault or Chapter 3 - Mortgage (Real Estate)
negligence of the pledge (2106) or used by the pledge (2104) Arts. 2124-2131
c. He may substitute another thing if endangered without the fault of pledgee I. Concept
(2107) provided it is of the same kind and not of inferior quality A. As a right – it is a real right over immovable constituted by the owner to
d. The pledgor is entitled to bid and to preference at the foreclosure sale (2113) guarantee an obligation which if not paid is to be satisfied from the proceeds of
e. He has the right to the return of the thing pledged upon extinction of the the sale of such property
principal obligation (2098) B. As a contract – it is a contract whereby the debtor guarantees the performance of
B. Obligations of the pledgor a principal obligation subjecting as security therefor real properties or real rights
a. He must notify the pledgee of flaws of the thing known to him otherwise he in case such obligation is not complied with within the time stipulated
answers for damages, like the bailor in commodatum (2101)
II. Elements
II. Extinguishment of the pledge A. Parties
A. By extinction of the principal obligation a. The mortgagor (who need not be the principal debtor) must have free
B. By destruction or loss of the thing pledged disposal and be the absolute owner of the security; otherwise, he must be
C. By return of the pledge properly authorized (2085)
D. By renunciation by the pledgee or abandonment of the pledge in writing, even 1) Where a mortgage is a nullity, having been executed by an
without return, or consent of the pledgor unauthorized person, registration with the Register of Deeds will
E. By redemption of the party having any right in or to the thing pledged (2117) not validate it
F. By other causes of extinguishments of ordinary obligations
B. Object – which may only be:
a) Immovables;
Arts. 2121-2122
b) Alienable real rights imposed upon immovables, in accordance with the
I. Legal pledges (right of retention) law (2124)
A. These pledges are governed by the rules of conventional pledge as to: C. Consideration – same as pledge
a. Possession D. Form – for validity (2125)
b. Care and preservation a. Between the parties
c. Sale of the thing pledged (2121) b. As to strangers – the document in which the mortgage appears must be
1) The sale may be made only after demand of the sum due (2122) recorded in the Registry of Property of the province where the land is
2) Within one month after such demand located (2125)
i) If no sale takes place within such period, the debtor may require F. Supplementary Laws
the return of the thing retained, unless delay is justified - PD 1529 – Property Registration Decree
3) The excess of the price over the debt must be returned to the debtor
III. Classes For a person to validly constitute a valid mortgage on real estate, he must
A. Voluntary – one which is agreed to between the parties or constituted by the will be the absolute owner thereof as required by Article 2085 of the New Civil
of the owner of the property on which it is created Code. The mortgagor must be the owner, otherwise the mortgage is void.
B. Legal – one required by law to be executed on certain persons In a contract of mortgage, the mortgagor remains to be the owner of the
a. Persons in whose favor the law establishes a mortgage have no other right property although the property is subjected to a lien. A mortgage is
than to demand the execution and recording of a document in which the regarded as nothing more than a mere lien, encumbrance, or security for a
mortgage is formalized (2125) debt, and passes no title or estate to the mortgagee and gives him no right
C. Equitable mortgage (see 1602) – one which, although it lacks the proper or claim to the possession of the property. In this kind of contract, the
formalities of a mortgage, shows the intention of the parties to make the property mortgaged is merely delivered to the mortgagee to secure the
property as a security for a debt fulfillment of the principal obligation. Such delivery does not empower the
IV. Effects mortgagee to convey any portion thereof in favor of another person as the
 As to the property mortgaged right to dispose is an attribute of ownership. The right to dispose includes
a. A real right is created – the mortgage directly and immediately subjects the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee,
the property upon which it is imposed, whoever the possessor may be, to not being the owner of the property, cannot dispose of the whole or part
the fulfillment of the obligation secured (2126) thereof nor cause the impairment of the security in any manner without
1) The creditor may demand payment from the possessor of the violating the foregoing rule. The mortgagee only owns the mortgage
mortgaged property, of the part of the credit secured by the credit, not the property itself.
property which he possesses, in the terms and with the formalities
established by law (2129); that is to say, from the possessor of the b) A “mortgagee in possession” is subject to the rules of antichresis
mortgaged property of the principal debtor c) Remedies of mortgage creditor
1. In case of second mortgage
b. Extension to accessions and accessories
V. Foreclosure – Modes
1) The mortgage extends to (2127)
A. Judicial (See Rule 68, Rules of Court)
i) Natural accessions
B. Extrajudicial (available only if mortgagee is given special power or express
ii) Improvements
authority in the deed or any document annexed thereto)
iii) Growing fruits
a. Governed by Act 3135 and A.M. No. 99-10-05-0, Aug. 7, 2001
iv) Rents and income not yet received when the obligation
b. Procedure
becomes due
1. Filing of application with the Executive Judge through the Clerk of
v) Indemnity granted or owing to the proprietor -
Court
aa) From insurers of property;
2. Posting of Notices for not less than 20 days in at least 3 public
bb) In virtue of expropriation for public use
places, namely, Office of the Sheriff, Register of Deeds and
vi) Movables incorporated to the mortgaged tenement
Assessor’s Office
2) Whether the estate remains in the possession of the mortgagor or
it passes into the hands of third persons
Sec. 3, Act. 3135: Notice shall be given by posting notices of the
3) With the declarations, amplifications, and limitations established by
sale for not less than 20 days in at least 3 public places of the
law
municipality or city where the property is situated and if such
c. Pactum de non alienando – Stipulations forbidding the owner from
property is worth more than P400.00, such notice shall also
alienating the immovable are void (2130)
published once a week for three consecutive weeks in a newspaper
of general circulation.
B. Effects as to the mortgagee
- contents of notice:
a) The mortgage credit may be alienated or assigned to a third person, in
i. correct number of the certificate of title
whole in part, with the formalities required by law (2128)
ii. correct technical description of the real property to be
But the mortgagee cannot alienate the property
sold
Manlapat vs. CA, G.R. 125585, June 8, 2005
 - Object of notice: to inform the public of the nature and with the exception of the redemption period, in which case it is Section 78
condition of the property sold, and of the time, place and of R.A. 337 which applies (Ponce de Leon v. Rehabilitation Finance
terms of the sale Corporation, 36 SCRA 289 (1970)). Under Section 78, the mortgagor may
redeem the property sold on foreclosure “even after confirmation by the
- Personal notice to mortgagor not generally required (esp. if court of the foreclosure sale” which right may be exercised within a period
there is no contractual stipulation therefor) of one (1) year, counted from the date of registration of the certificate of
sale in the Registry of Property (Government Service Insurance System v.
3.Public sale Court of First Instance of Iloilo, Branch III, 175 SCRA 19 (1989); Limpin v.
4.Certificate of sale Intermediate Appellate Court, 166 SCRA 87 (1988); Quimson v. Philippine
5.Confirmatory deed of sale, if there is no redemption National Bank, 36 SCRA 26 (1970)). [Cases enclosed in parentheses appear
as footnotes in the original text.]
c. Deficiency – rule
In extrajudicial foreclosure of mortgage, the mortgagee has the right to The one-year redemption period also applies to an extrajudicial
recover the deficiency from the debtor. foreclosure of real estate mortgage, pursuant to Act No. 3135 as amended.
The General Banking Law of 2000, however, shortens this period in case
VI. Redemption the mortgagor is a juridical person. In such a case, under the second
A. Rules paragraph of Section 47 of the new law, the mortgagor’s right to redeem
a. Judicial foreclosure – No right of redemption but only equity of terminates upon the registration of the certificate of foreclosure sale with
redemption which should be exercised within a period of not less than 90 the pertinent Register of Deeds. Since that registration is required to be
days but not more than 120 days from the entry of judgment (Sec. 2, Rule made not later than three months after foreclosure, the redemption
68) (But see the General Banking Act of 2000) period is effectively limited to not more than three months from
b. Extrajudicial foreclosure: extrajudicial foreclosure. It is understood that the redemption period is still
1. For natural debtor – within 1 year from date of registration of one year if the mortgagor is not a juridical entity, such as an individual or a
certificate of sale natural person.
2. For juridical debtor – within 3 months from foreclosure but not
after the registration of the certificate of sale B. How done
c. Right of redemption vs. equity of redemption a. Formal offer to redeem
Right of Redemption Distinguished from Equity of Redemption. The right 1. To whom notice to redeem is given
of redemption exists only in the case of extra-judicial foreclosure. Act aa) Officer who made the sale
3135 grants the mortgagor the right of redemption within one (1) year bb) Register of Deeds
from the registration of the sheriff’s certificate of foreclosure sale. No such b. Action together with consignation of redemption price within the period
right is recognized in a judicial foreclosure, except only where the C. What is to be paid
mortgagee is the Philippine National Bank (PNB) or a bank or banking a. Purchase price
institution. In the event of judicial foreclosure, if the mortgagee is not PNB b. 1% monthly interest
or a bank or banking institution, the foreclosure sale, when confirmed by c. Taxes, if any
an order of the court, shall operate to divest the rights of all the parties to d. Necessary expenses for preservation
the action and vest their rights in the purchaser. There then exists only
what is known as the equity of redemption which is simply the right of the D. Effect of death of mortgagor: the mortgagee may avail of the following
defendant mortgagor to extinguish the mortgage and retain ownership of alternative remedies:
the property by paying the secured debt within the 90-day period after the a. Waive the mortgage and claim the entire debt from the estate of the
judgment becomes final, or even after the foreclosure sale but prior to its mortgagor as an ordinary claim
confirmation. (Huerta Alba Resort, Inc. v. Court of Appeals, G.R. No. b. Foreclose the mortgage judicially and prove the deficiency as an ordinary
128567, Sept. 1, 2000). claim; and
c. Rely on the mortgage exclusively, or other security and foreclose the same
Right of Redemption
at anytime, before it is barred by prescription, without the right to file a
In sum, for judicial foreclosures in favor of banks, banking or credit claim for any deficiency
institutions, it is the procedure laid out in Rule 68 which shall be followed, E. Remedies of mortgagee in equitable mortgage
 a. Action for reformation of the instrument into a loan with equitable 1) The parties may stipulate that the interest be compensated by the
mortgage fruits, provided that if the value of the fruits exceed the interest
b. Alleging as defense that the real intention of the parties was a loan with allowed by the usury laws, the excess shall apply to the capital
equitable mortgage which, in effect, is an action for reformation of the (2133)
instrument 2) A provision in a contract that the full amount of the indebtedness
c. Judicial objection or opposition to the registration of the affidavit of must be returned to the lenders before the borrowers could
consolidation of ownership on the ground that the real intention of the demand the return of the property is contrary to an antichretic
parties was a loan with equitable mortgage contract wherein the products of the land should be applied to the
interest and then to the principal (Verzosa vs. Bucag, L-8031, Oct.
CHAPTER 4 29, 1955)
ANTICHRESIS b. Right of foreclosure – the creditor does not acquire ownership of the
immovable for non-payment of the debt (2137)
Chapter 4 -Antichresis
Arts. 2132-2139 B. Obligations of the antichretic creditor
I. Concept - It is a real right, established to secure the performance of an obligation and a. To bear necessary expenses necessary for preservation and repair
whereby the holder acquires the right to receive fruits of an 1) These deductible from the fruits (2134)
immovable with the obligation to apply them to the payment of b. To pay the taxes and charges upon the estate
interest, if owing, and thereafter to the principal of the credit 1) Reason: Otherwise the debtor could deprive the creditor of the
(2132) security by not paying taxes and causing forfeiture
- Possession by the creditor is not essential, thus, the debtor 2) Exception: When the contrary is stipulated
could remain in possession, tilling the land as tenant for the 3) Effect of non-fulfillment: The creditor is liable for damages (2135)
creditor 4) These taxes are deductible from the fruits
A. Similarities and differences with Real Estate Mortgage
a. Similarities
1) Both are indivisible;
2) They must be constituted by the debtor or a stranger CHAPTER 5
3) They may be constituted on immovables (but these must be fruit- CHATTEL MORTGAGE
bearing in antichresis) Arts. 2140-2141
4) Both may secure all kinds of obligations I. Concept (Art. 2140 and Act. 1508)
5) Both are accessory contracts II. Nature and characteristics (See common characteristics)
b. Differences A. Obligations that may be secured
1) Antichresis gives a right to the fruits III. Elements
2) Antichresis is perfected even without delivery A. Parties – The mortgagor must have capacity to encumber the property
II. Elements B. Object – It may only be constituted on movable property
A. Parties: The contract of antichresis may be established by one having the right to a. This may include
encumber property 1) Interest in a business
B. Object: It may be constituted only on immovables giving fruits 2) Ungathered crops
C. Causa: See other contracts of security (accessory) 3) Vessels
D. Formalities: i) But the mortgages of vessels are subject to special rules
a. The amount of the principal and the interest must be specified in writing, 4) Certificates of stock
otherwise the contract is void 5) Large cattle
b. It must be in a public instrument to affect third persons or recorded if the 6) Stock in trade
property involved is registered b. A chattel mortgage over immovables is generally void
III. Effects C. Causa – see other contracts of security (accessory)
A. Rights of the antichretic creditor D. Form
a. To receive the fruits, applying them at their actual value, as of the time of a. To bind the parties – the instrument need only conform substantially to
application, to the interest and then to the capital (2132) that form contained in Sec 5 of Act 1508
 b. To bind third persons - the following additional requirements must be A. Kinds
observed: a. Judicial, or
1) Affidavit of good faith subscribed by the parties b. Extra-judicial
2) Sufficient description of the property mortgaged 1) Requisites:
3) Registration i) Sale at public auction thirty days after the debtor’s default (if
i) Place the debtor refuses to surrender the chattel, action must be
aa) General rule: the registries of the place where the brought for its delivery)
mortgagor resides and where the property is located ii) Notice of sale to be posted in two public places 10 days
bb) Exceptions before the sale, and notice likewise to be given to the
 Mortage of vessels must be registered in the mortgagor in writing, personally or by mail
office of the Coast Guard of the port of iii) Conducted by a public officer (sheriff or notary public)
documentation (PD 1512 – Ship Mortgage iv) In the municipality where the mortgagor resides or where
Decree) the property is located
 Mortgage of shares of stock must be registered aa) Except: when some other place is stipulated
in the province where the corporation has it 2) Procedure (See. A.M. No. 99-10-05-0, Aug. 7, 2001)
principal office 3) Disposition of proceeds
 Mortgage over motor vehicles, in order to i) Application
affect third persons, should be registered not aa) Costs and expenses of the sale
only with the Chattel Mortgage Registry but bb) The principal obligation and interests
also in the Land Transportation Office cc) Claims of subsequent mortgagees
IV. Effect of mortgage dd) The balance, if any, to the mortgagor
A. What it covers – The mortgage covers only the property described in the contract ii) In case of deficiency
and excludes like or substituted property thereafter acquired, any thing in the  In case of sale of personal property on installments (1484)
contract to the contrary notwithstanding  Right of redemption
a. Exception – in case of stock contained in stores, drugstores, or similar Does the right of redemption exist over personal property? No law or
business of a “revolving or floating” nature jurisprudence establishes or affirms such right. Indeed, no such right exists.
V. Discharge of mortgage (Sec. 8, Act. 1508) (Paray vs. Rodriguez, G.R. No. 132287, January 24, 2006)
A. Requisites
The right of redemption over mortgaged real property sold extrajudicially is
a. That there has been a performance or tender of performance of the
established by Act No. 3135, as amended. The said law does not extend the same
condition
benefit to personal property. In fact, there is no law in our statute books which
b. That there has been a request (for the discharge) made by the person
vests the right of redemption over personal property. Act No. 1508, or the Chattel
entitled to redeem
Mortgage Law, ostensibly could have served as the vehicle for any legislative
B. Effect of failure to discharge the mortgage within ten days – the mortgagee is
intent to bestow a right of redemption over personal property, since that law
liable to pay P20 and all damages occasioned thereby
governs the extrajudicial sale of mortgaged personal property, but the statute is
VI. Redemption (before foreclosure) (Sec. 13, Act. 1508)
definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure,
A. Who may redeem – the following may redeem:
extensively relied upon by the Court of Appeals, starkly utters that the right of
a. The mortgagor
redemption applies to real properties, not personal properties, sold on execution.
b. Subsequent mortgagees
c. Subsequent attaching creditors
Tellingly, this Court, as early as 1927, rejected the proposition that personal
B. What must be paid by the redemptioner
property may be covered by the right of redemption. In Sibal 1.º v. Valdez, the
a. The principal obligation and interests thereon
Court ruled that sugar cane crops are personal property, and thus, not subject to
b. Costs and expenses incurred by any breach, before the sale
the right of redemption. No countervailing statute has been enacted since then
that would accord the right of redemption over personal property, hence the
C. Effects of redemption
Court can affirm this decades-old ruling as effective to date.
a. The redemptioner is subrogated to the rights of the mortgagee
1) He may, therefore, foreclose the mortgage in the same manner
VII. Foreclosure
VIII. Distinctions 1) Pledge
2) Chattel mortgage
Chattel Real e. Refectionary credits
As to Pledge Antichresis
Mortgage Mortgage f. Claims for laborer’s wages
On On On g. Other claims and credits
Object On movables
movables immovables immovables C. Rules as to preferred credits on specific movables
By the By the By the D. As to specific immovable property
Possession By the creditor
debtor debtor creditor E. Ordinary preferred credits
Formal Formal Formal
Perfection Real contract CHAPTER 3
contract contract contract
Public instrument ORDER OF PREFERENCE OF CREDITS
containing Chapter 3 - Order of Preference of Credits
Recorded Recorded Recorded
Form to description of the
public public public Arts. 2246-2251
bind ies thing pledged
instrument instrument instrument I. Order of payment
and the date
thereof A. Resumè:
a. Absolutely preferred credits
a. An oral mortgage (chattel or real) is invalid ab initio; an oral pledge is valid b. Specially preferred credits
inter parte 1) AS to specific chattels
b. Pledge is perfected by delivery (real contract); mortgage (chattel or real) is 2) AS to specific immovables
perfected by execution of the writing c. Ordinary preferred credits
d. Non-preferred credits

Title XIX. - CONCURRENCE AND PREFERENCE

OFCREDITS

CHAPTER 1
GENERAL PROVISIONS

CHAPTER 2
CLASSIFICATION OF CREDITS

Arts. 2241-2245
I. Classification of credits
A. General classification
a. Absolutely preferred
b. Specially preferred
c. Ordinary preferred
d. Common credits

B. As to specific movable property

a. Duties, taxes, etc.
b. Claims arising from misappropriation, etc.
c. Claim for unpaid price of movables sold
d. Credits guaranteed by