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REVIEWER IN CIVIL LAW REVIEW II

MANILA LAW COLLEGE

I. REAL ESTATE MORTGAGE

REAL ESTATE MORTGAGE - a contract whereby the debtor secures to the creditor the
fulfilment of the principal obligation, specially subjecting to such security immovable
property or real rights over immovable property in case the principal obligation is not
fulfilled at the time stipulated.
 REGISTRATION: A mortgage, whether registered or not is binding between the
parties, registration being necessary only to make the same valid against third
persons. Registration only operates as a notice of the mortgage to others, but
neither adds to its validity nor convert an invalid mortgage into a valid one between
the parties.

II. CHATTEL MORTGAGE

CHATTEL MORTGAGE – a contract by virtue of which a personal property is recorded

in the Chattel Mortgage Register as a security for the performance of an obligation.
 REGISTRATION: Registration is tantamount to the symbolic delivery of the
mortgage to the mortgagee, which is equivalent to actual delivery. The registration
of the chattel mortgage is an effective and binding notice to other creditors of its
existence and creates a real right or a lien which being recorded, follows the chattel
wherever it goes. The registration gives the mortgagee symbolical possession. It
adds nothing to the instrument and affects nobody’s right except as a specie of
notice. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties. However, the person in whose favor the law establishes a
mortgage has no other right than to demand the execution and the recording of the
document.
 DELIVERY: By a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. If the
movable, instead of being recorded, is delivered to the creditor or a third person, the
contract is a pledge and not a chattel mortgage. In chattel mortgage, delivery is not
necessary.
 AFFIDAVIT OF GOOD FAITH – is an oath in a contract of chattel mortgage wherein
the parties severally swear that the mortgage is made for the purpose of securing
obligation specified in the conditions thereof and for no other purposes and that the
same is a just and valid, existing obligation, and one not entered into for the purpose
of fraud.
 The absence of an affidavit of good faith does not affect the validity of the contract.
The absence of the affidavit vitiates the mortgage only as against third persons
without notice like creditors and subsequent encumbrances, but its absence is not
fatal between the parties.

III. PLEDGE

 DELIVERY: The Civil Code provides that in addition to the requisites prescribed in
Art. 2085, it is necessary in order to constitute a contract of pledge that the thing
pledged be placed in the possession of the creditor, or of a third person by common
agreement. The law requires actual delivery and a mere symbolic delivery is not
sufficient.

LOAN vs. DEPOSIT

1. As to purpose, the purpose of loan is to grant use to the borrower, while the purpose
of deposit is safekeeping by depositary.
2. Generally, the borrower in a contract of loan pays only at the end of the period
stipulated in the contract; whereas, in deposit, the return of the thing deposited can
be demanded by the depositor at any time.
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3. As to relationship of the parties, in contract of loan the relationship is that of a lender

and a borrower; while in deposit, the relationship is that of depositor and depositary.
4. There can be compensation of credits in a contract of loan; whereas no
compensation of things deposited with each other in deposit, except by mutual
agreement.

 LOAN OF A MOTOR VEHICLE: It is basic and elementary in this jurisdiction that

what determines the validity of a contract, in general, is the presence of the
elements constituting the same, namely: 1) consent of the contracting parties; 2)
object certain which is the subject matter of the contract; and 3) cause or
consideration of the contract which is established. It is settled that a mortgage is a
mere accessory contract and its validity would depend on the validity of the loan
secured by it. It cannot exist as an independent contract since its consideration is
the same as that of the principal contract. Since it has been established that there
was no cause or consideration for the promissory note, it follows that the chattel
mortgage has no leg to stand on. Hence, it must be extinguished and cannot have
any legal effect on petitioners.

VI. DEPOSIT

 BANK DEPOSIT – Deposits of money in banks and similar institutions shall be

governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the
parties.

VII. GUARANTY vs. SURETYSHIP (LIABILITIES ASSUMED)

Distinction between Guaranty and Suretyship

1. The obligation in guaranty is secondary, whereas in suretyship it is primary.
2. In guaranty, the undertaking is to pay if the principal debtor cannot pay; while in
suretyship the undertaking is to pay if the principal debtor does not pay.
3. Liability in guaranty depends upon an independent agreement to pay the obligations
of the principal if he fails to do so; while in suretyship, the surety assumes the liability
as a regular party.
4. The guarantor insures the solvency of the principal debtor; whereas, the surety
insures the debt.
5. In guaranty, the guarantor is subsidiarily liable; while in suretyship, the surety binds
himself solidarily with the principal debtor.
6. In guaranty, the guarantor is entitled to the benefit of excussion; whereas in
suretyship, the surety is not entitled to the benefit of excussion.

VIII. REMEDIES OF GUARANTOR

BENEFIT OF EXCUSSION – a right by which the guarantor cannot be compelled to pay

the creditor unless the latter has exhausted all the properties of the principal debtor and
has resorted to all legal remedies against such debtor.

Requisites:
1) The guarantor must set up the right of excussion against the creditor upon the
latter’s demand for payment from him; and
2) He must point out to the creditor the available property of the debtor (not exempted
from execution) found within the Philippine territory.

ANTICHRESIS – a contract whereby the creditor acquires the right to receive the fruits
of an immovable of the debtor, with the obligation to apply them to the payment of
interest, if owing, and thereafter to the principal of his credit.
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 In a contract of antichresis, property is delivered to creditor.

 The creditor acquires only the right to receive the fruits of the property; but does not
produce a real right unless registered in the Registry of Property.
 Antichresis covers only the fruits of real property, but not the immovable itself.
 Delivery of the immovable is necessary for the creditor to receive the fruits and not
that the contract shall be binding.
 The fruits of the immovable which is the object of the antichresis must be appraised
at their actual market value at the time of the application. The property delivered
stands as a security for the payment of the obligation of the debtor in antichresis.
Hence, the debtor cannot demand its return until the debt is totally paid.
 The antichretic creditor does not acquire ownership of the real estate since what was
transferred is not the ownership but merely the right to receive fruits. Therefore, the
remedies available to him in case of non-payment are:
1) File an action for specific performance; or
2) File a petition for the public sale of the property.

INDUSTRIAL PARTNER vs. CAPITALIST PARTNER (PROFITS & LOSSES)

PROFITS AND LOSSES

 ART. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion. In the absence of
stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital.
 ART. 1798. If the partners have agreed to intrust to a third person the designation of
the share of each one in the profits and losses, such designation may be impugned
only when it is manifestly inequitable. In no case may a partner who has begun to
execute the decision of the third person, or who has not impugned the same within a
period of three (3) months from the time he had knowledge thereof, complain of such
decision. The designation of losses and profits cannot be intrusted to one of the
partners.
 Art. 1799. A stipulation which excludes one or more partners from any share in the
profits or losses is void.

LIMITED PARTNERSHIP (NAME OF PARTNERSHIP)

 ART. 1846. The surname of a limited partner shall not appear in the partnership
name unless:
1) It is also the surname of a general partner; or
2) Prior to the time when the limited partner became such, the business has been
carried on under a name in which his surname appeared.

A limited partner whose surname appears in a partnership name contrary to the

provisions of the first paragraph is liable as a general partner to partnership creditors
who extend credit to the partnership without actual knowledge that he is not a
general partner.

XII. RECTO LAW

RECTO LAW refers to sale of movables payable in instalments and limiting the right
of seller, in case of default by the buyer, to one of three remedies

1. Exact fulfilment should the buyer failed to pay

2. Cancel the sale if buyer fails to pay two or more instalments
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3. Foreclose on chattel mortgage if buyer fails to pay two or more instalments. He

shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void.

XIII. MACEDA LAW

MACEDA LAW is applicable to sales of immovable property on instalments. The

most important features are:

1) After having paid installments for at least two years, the buyer is entitled to a
mandatory grace period of one month for every year of instalment payments
made, to pay the unpaid instalments without interest.

If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value equivalent to fifty percent (50%) of the total payments made, and after five
(5) years of instalments, an additional five percent (5%) every year but not to
exceed ninety percent (90%) of the total payments made.

2) In case the installments paid were less than two (2) years, the seller shall give
the buyer a grace period of not less than sixty (60) days. If the buyer fails to pay
the instalments due at the expiration of the grace period, the seller may cancel
the contract after thirty (30) days from receipt by the buyer of the notice of
cancellation or demand for rescission by notarial act.

XIV. WARRANTIES IN CONTRACT OF SALE

REDHIBITORY DEFECT ON SALES OF ANIMAL

 The sale of animals suffering from contagious diseases shall be void.
 It shall also be void if the use or service for which they are acquired has been
stated in the contract, and they are found to be unfit therefor.
 If the hidden defect of animals, even in case a professional inspection has been
made, should be of such a nature that expert knowledge is not sufficient to
discover it, the defect shall be considered as redhibitory. But if the veterinarian,
through ignorance or bad faith should fail to discover or disclose it, he shall be
liable for damages.

XVI. IMPLIED NEW LEASE (TACITA RECONDUCCION, ART. 1670)

TACITA RECONDUCCION
 If at the end of the contract the lessee should continue enjoying the thing leased for
fifteen (15) days with the acquiescence of the lessor, and unless a notice to the
contrary by either party has been previously given, it is understood that there is an
implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the contract shall be
revived.
 Tacita Reconduccion refers to the right of the lessee to continue enjoying the
material or de facto possession of the thing leased within a period of time fixed by
law.
 It arises if at the end of the contract, the lessee should continue enjoying the thing
leased for at least fifteen (15) days with the acquiescence of the lessor, and unless a
notice to the contrary by either party has previously been given.
 Effect of the implied new lease: It is understood that there is an implied new lease
if: (1) the period of the new lease is not that stated in the original contract, but the
time established in Articles 1682 and 1687; and (2) the other terms of the original
contract shall be revived.

KINDS OF REDEMPTION
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1. EQUITY OF REDEMPTION – Right of mortgagor to redeem the mortgaged property

after his default in the performance of the conditions of the mortgage but before the
sale of the mortgaged property or confirmation of sale. The mortgagor pays the
secured debt within the period specified.

 Where applicable: Judicial foreclosure of real estate mortgage and Chattel

mortgage foreclosure
XPN: There is no right of redemption from a judicial foreclosure sale after the
confirmation of the sale, except those granted by banks and financial institution
as provided by the General Banking Act.
 If the mortgagee is a bank, the mortgagor may exercise a right of redemption and
this rule applies even if the foreclosure is judicial in accordance with Rule 68 of
the Rules of Court.
 Period to exercise: Within 90-120 days from the date of the service of the order
of foreclosure or even thereafter but before the order of confirmation of the sale.

2. RIGHT OF REDEMPTION – Right of the mortgagor to redeem the mortgaged

property within one year from the date of registration of the certificate of sale. It
applies in case of extrajudicial foreclosure.
 Where applicable: Extrajudicial foreclosure
 Period to exercise: Within one (1) year from the date of registration of the
certificate of sale (Rules of Court Sec. 6, Act No. 3135; Sec. 28, Rule 39).
 The right of redemption, as long as within the period prescribed, may be
exercised regardless of whether or not the mortgagee has subsequently
conveyed the property to some other party (Sta. Ignacia Rural Bank v. CA, G.R.
No. 97812, March 1, 1994).

1. RESCISSIBLE CONTRACT
Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth (1/4) of the value of the things which are the
object thereof

2. UNENFORCEABLE CONTRACT
Those entered into the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers.

3. EQUITABLE MORTGAGE – one which lacks the proper formalities or other

requisites prescribed by law for a mortgage, but shows the intention of the parties to
make the property subject of a contract as security of a debt and contains nothing
impossible or contrary to law.
Examples of Equitable Mortgage
1) When the price of a sale with right to repurchase is unusually inadequate;
2) When the vendor remains in possession as lessee or otherwise;
3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
4) When the purchaser retains for himself a part of the purchase price;
5) When he vendor binds himself to pay the taxes on the thing sold;
6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.