Credit+Transaction Reviewer

San Beda College of Law
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MEMORY AID IN CIVIL LAW
CREDIT TRANSACTIONS
CREDIT TRANSACTIONS All transactions involving the purchase or loan of goods, services, or money in the present with a promise to pay or deliver in the future Contracts of security Types: 1. Secured transactions or contracts of real security - supported by a collateral or an encumbrance of property 2. Unsecured transactions or contracts of personal security - supported only by a promise or personal commitment of another such as a guarantor or surety Security Something given, deposited, or serving as a means to ensure fulfilment or enforcement of an obligation or of protecting some interest in property Types of Security a. personal when an individual becomes surety or guarantor b. real or property when a mortgage, pledge, antichresis, charge or lien or other device used to have property held, out of which the person to be made secure can be compensated for loss Bailment The delivery of property of one person to another in trust for a specific purpose, with a contract, e press or implied, that the trust shall be faithfully e ecuted and the property returned or duly accounted for when the special purpose is accomplished or !ept until the bailor claims it. Parties: 1. bailor - the giver" one who delivers property 2. bailee- the recipient" one who receives the custody or possession of the thing thus delivered CIVIL LAW COMMITTEE LOAN (Articles !"" # !$ % A contract wherein one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it or money or other consumable thing, upon the condition that the same amount of the same !ind and #uality shall be paid. $Art 1%&&'
C&aracteristics: 1. Real Contract delivery of the thing loaned is necessary for the perfection of the contract NOTE: An accepted promise to ma!e a future loan is a consensual contract, and therefore binding upon the parties but it is only after delivery, will the real contract of loan arise. $Art 1%&(' 2. Unilateral Contract - once the sub)ect matter has been delivered, it creates obligations on the part of only one of the parties $i.e. borrower'. 'in(s: 1. Commodatum when the bailor $lender' delivers to the bailee $borrower' a non-consumable thing so that the latter may use it for a certain time and return the identical thing. 'in(s of commo(atum: a. Ordinary Commodatum use by the borrower of the thing is for a certain period of time b. Precarium - one whereby the bailor may demand the thing loaned at will and it e ists in the following cases* i. neither the duration nor purpose of the contract is stipulated ii. the use of the thing is merely tolerated by the owner
CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnai a Ha!!iman, Doro"#y $ayon S%BJECT HEADS: C#ri!"o&#er Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Ale,andro Ca!a-ar)Pro&er"y+, 'a. R#odora *errer).ill! and Succe!!ion+, Ian Dominic Pua)O-li(a"ion! and Con"rac"!+, S#a Eli,a# Dumama)Sale! and /ea!e+, Jo#n S"e&#en 0uiam-ao)PAT+, C#ri!"o&#er Ca-i(ao)Credi" Tran!ac"ion!+, /i(aya Ali&ao)Tor"! and Dama(e!+, An"#ony Pur(anan)/TD+, 'a. Rica!ion Tu(adi )Con1lic"! o1 /a2+

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2. Simple loan or mutuum where the lender delivers to the borrower money or other consumable thing upon the condition that the latter shall pay the same amount of the same !ind and #uality. Commo(atum )utuum 'ey: COPS*LOTR
1. Object ,onsumable 2. Cause -ratuitous .ay or may not be gratuitous 3. Purpose /se or temporary ,onsumption possession 4. Subject Matter 0eal or personal 1nly personal property property 5. Ownership of the thing 0etained by the 2asses to the debtor bailor 6. Thing to be returne 3 act thing loaned 3#ual amount of the same !ind and #uality !. "ho bears ris# of $oss 4ailor 5ebtor %. "hen to return 6n case of urgent 1nly after the need, even before e piration of the the e piration of the term term +on-consumable
CO))ODAT+) (Articles !", # !,-% Nature: 1. P+RPOSE: 4ailee in commodatum ac#uires the temporary use of the thing but not its fruits $unless stipulated as an incidental part of the contract'.$Art 1%&7' /se must be temporary, otherwise the contract may be a deposit. 2. CA+SE: 3ssentially gratuitous" it ceases to be a commodatum if any compensation is to be paid by the borrower who ac#uires the use, in such case there arises a lease contract. Similar to a donation in that it confers a benefit to the recipient. The presumption is that the bailor has loaned the thing for having no need therefor. &. S+B.ECT )ATTER: -enerally nonconsumable whether real or personal but if the consumable goods are not for consumption as when they are merely for e hibition, consumable goods may be the sub)ect of the commodatum. $Art 1%&8' (. 4ailor need not be the owner of the thing owned $Art. 1%&9' since by the loan, ownership does not pass to the borrower. A mere lessee or usufructuary may lend but the borrower or bailee himself may not lend nor lease the thing loaned to him to a third person $Art 1%&2:2;' ,/ Purely Personal (Art !"!%: 5eath of either party terminates the contract unless by stipulation, the commodatum is transmitted to the heirs of either or both parties. 4ailee can neither lend nor lease the ob)ect of the contract to a third person.
Loan
5elivery by one party and the receipt of other party of a given sum of money or other consumable thing upon an agreement, e press or implied, to repay the same.
Cre(it
Ability of a person to borrow money or things by virtue of the trust or confidence reposed by the lender that he will pay what he promised.
Loan
1. 6nterest ta!en at the e piration of the credit 2. Always on a double name paper $two signatures appear with both parties held liable for payment'
Cre(it
6nterest is ta!en in advance Always on a single name paper $i.e. promissory note with no indorse-ment other than the ma!er'
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NOTE:/se of the thing loaned may e tend to members of the bailee<s household e cept* a. contrary stipulation" b. nature of the thing forbids such use O0li1ations of t&e Bailee: (Arts !2 # !2,% 1. To pay for the ordinary e penses for the use and preservation of the thing loaned. $Art 1%(1' 2. To be liable for the loss of the thing even if it should be through a fortuitous event in the following cases* $'LAS D% a. when he 3eeps it longer than the period stipulated, or after the accomplishment of its use b. when he lends or leases it to third persons who are not members of his household c. when the thing loaned has been delivered with appraisal of its value d. when, being able to save either of the thing borrowed or his own things, he chose to save the latter" or e. when the bailee (evoted the thing for any purpose different from that for which it has been loaned $Art 1%(2' &. To be liable for the deterioration of thing loaned $a' if e pressly stipulated" $b' if guilty of fault or negligence" or $c' if he devotes the thing to any purpose different from that for which it has been loaned (. To pay for e traordinary e penses arising from the actual use of the thing by the bailee, which shall be borne e#ually by both the bailor and the bailee, even though the bailee acted without fault, unless there is a stipulation to the contrary $Art 1%(% par 2' 7. To return the thing loaned The bailee has no right to retain the thing loaned as security for claims he has against the bailor even for e traordinary e penses e cept for a claim for damages suffered because of the flaws of the thing loaned. CIVIL LAW COMMITTEE
NOTES*
=owever, the bailee<s right

e tends no further than retention of the thing loaned until he is reimbursed for the damages suffered by him. =e cannot lawfully sell the thing to satisfy such damages without court<s approval. 6n case there are two or more bailees, their obligation shall be solidary.
O0li1ations of t&e 0ailor (Art !2$ # Art !,-%: 1. To respect the duration of the loan GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted. EXCEPT ONS: a! n case of ur"ent need in which case bailee may demand its return or temporary use" #! The bailor may demand immediate return of the thing if t$e #ailee commits any act of in"ratitude specified in Art! %&' . 2. To refund to the bailee e traordinary e penses for the preservation of the thing loaned, provided the bailee brings the same to the !nowledge of the bailor before incurring them, e cept when they are so urgent that the reply to the notification cannot be awaited without danger. &. To be liable to the bailee for damages for !nown hidden flaws. Re4uisites: a. There is flaw or defect in the thing loaned" b. The flaw or defect is hidden" c. The bailor is aware thereof" d. =e does not advise the bailee of the same" and e. The bailee suffers damages by reason of said flaw or defect

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NOTES: 6f the above re#uisites concur, the bailee has the right of retention for damages. The bailor cannot e empt himself from the payment of e penses or damages by abandoning the thing to the bailee. SI)PLE LOAN OR )+T++) (Art !," # !$ % A contract whereby one party delivers to another, money or other consumable thing with the understanding that the same amount of the same !ind and #uality shall be paid. $Art. 1%7&' NOTES: The mere issuance of the chec!s does not result in the perfection of the contract of loan. The ,ivil ,ode provides that the delivery of bills of e change and mercantile documents, such as chec!s, shall produce the effect of payment only when they have been encashed $Gerales (s! CA )*+ SCRA &,+ '. 6t is only after the chec!s have produced the effect of payment that the contract of loan may be deemed perfected. The obligation is >to pay? and not to return because the consumption of the thing loaned is the distinguishing character of the contract of mutuum from that of commodatum. +o estafa is committed by a person who refuses to pay his debt or denies its e istence. Simple Loan5)utuum
1. 5elivery of money or some consumable thing with a promise to pay an e#uivalent of the same !ind and #uality 2. There is a transfer of ownership of the thing delivered 1.
&. 0elationship between the parties is that of obligorobligee (. ,reditor receives payment for his loan
0elationship is that of a landlord and tenant 1wner of the property rented receives compensation or price either in money, provisions, chattels, or labor from the occupant thereof in return for its use $Tolentino vs -on@ales, 7A 2hil 779 1%2B'
Loan
0eal contract
Sale
,onsensual contract 4ilateral reciprocal and
2. -enerally unilateral because only borrower has obligations
NOTE: 6f the property is >sold?, but the real intent is only to give the ob)ect as security for a debt as when the >price? is comparatively small there really is a contract of loan with an >e#uitable mortgage.? Commo(atum5 )utuum
1. Sub)ect matter is money or fungible things 2. 6n commodatum, the bailee is bound to return the identical thing borrowed when the time has e pired or purpose served &. .utuum may be gratuitous and commodatum is always gratuitous
Barter
Sub)ect matter is non-fungible, $non consumable' things The thing with e#uivalent value is given in return for what has been received
Rent
5elivery of some nonconsumable thing in order that the other may use it during a certain period and return it to the former. There is no transfer of ownership of the thing delivered
1nerous, actually a mutual sale
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6orm of Payment (Art !,,%: 1. 6f the thing loaned is money payment must be made in the currency stipulated, if it is possible" otherwise it is payable in the currency which is legal tender in the 2hilippines and in case of e traordinary inflation or deflation, the basisi of payment shall be the value of the currency at the time of the creation of the obligation 2. 6f what was loaned is a fun"i#le t$in" ot$er t$an money - the borrower is under obligation to pay the lender another thing of the same !ind, #uality and #uantity. 6n case it is impossible to do so, the borrower shall pay its value at the time of the perfection of the loan. Interest The compensation allowed by law or fi ed by the parties for the loan or forbearance of money, goods or credits 0e#uisites for 5emandability* (ELI% 1. must be e pressly stipulated 3 ceptions* a. indemnity for damages b. interest accruing from unpaid interest 2. must be lawful &. must be in writing Compoun( Interest GENERAL RULE: /npaid interest shall not earn interest. EXCEPT ONS: 1. when )udicially demanded 2. when there is an e press stipulation $must be in writing in view of Art. 1%78' 7ui(elines for t&e application of proper interest rates 1. 6f there is stipulation* that rate shall be applied 2. The following are the rules of thumb for the applicationCimposition of interest rates* a' Dhen an obligation, regardless of its source, i.e., law, contracts, #uasi-contracts, delicts or #uasi-delicts is CIVIL LAW COMMITTEE
breached, the contravenor can be held liable for damages. b' Dith regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows* i. Dhen the obligation breached consists of payment of a sum of money -loan or for#earance of money., the interest shall be that which is stipulated or agreed upon by the parties. 6n absence of an agreement, the rate shall be the legal rate $i.e. 12E per annum' computed from default. NOTE: The interest due shall itself earn legal interest from the time it is )udicially demanded ii. 6n other cases, the rate of interest shall be si percent $8E' per annum. NOTE: +o interest, however, shall be ad)udged on unli#uidated claims or damages e cept when or until the demand can be established with reasonable certainty. Dhen the demand cannot be established, the interest shall begin to run only from the date of the )udgment of the court is made. iii. Dhen the )udgment of the court awarding a sum of money becomes final and e/ecutory, the rate of legal interest, whether the case falls under paragraph i or ii above, shall be 12E per annum from such finality until its satisfaction, this interim period being deemed to be by then an e#uivalent to a forbearance of credit. $Eastern S$ippin" Lines (s! CA0 1uly *)0 *223' NOTES: Central 4an5 Circular No! 3*& fi ing the rate of interest at 12E per

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annum deals with loans, forbearance of any money, goods or credits and )udgments involving such loans, or forbearance in the absence of e press agreement to such rate 6nterest as indemnity for damages is payable only in case of default or non-performance of the contract. As they are distinct claims, they may be demanded separately. $Sentinel 6nsurance ,o., 6nc. vs ,A, 192 S,0A 71B' Central Ban3 Circular No/ !8, $5ec. 1A, 1%92' removed the /sury Faw ceiling on interest rates for secured and unsecured loans, regardless of maturity. 1. Real Contract - contract is perfected by the delivery of the sub)ect matter. 2. Unilateral -"ratutitous deposit. only the depositary has an obligation. &. 4ilateral -onerous deposit. gives rise to obligations on the part of both the depositary and depositor. Deposit )utuum
1. Purpose 2rincipal purpose is 2rincipal purpose is safe!eeping or consumption custody 2. "hen to &eturn 5epositor can The lender must wait demand the return of until the e piration the sub)ect matter at of the period granted will to the debtor 3. Subject Matter Sub)ect matter may Sub)ect matter is be movable or only money or other immovable property fungible thing 4. &e$ationship 0elationship is that 0elationship is that of lender $creditor' of depositor and and borrower depositary. $debtor'. 5. Co'pensation There can be +1 compensation of compensation of things deposited with credits. each other $e cept by mutual agreement'.
9ali(ity of unconsciona0le interest rate in a loan Supreme ,ourt in Sps! Solan"on (s! 1ose Sala6ar0 G!R! No! *)'2330 1une )20 )77*, said that since the usury law had been repealed by ,4 ,ir. +o. %A7 there is no more ma imum rate of interest and the rate will )ust depend on the mutual agreement of the parties $citing Lim La8 (s! Olympic Sa8mill Co!0 *)2 SCRA 3,2'. 4ut the Supreme ,ourt said that nothing in said circular grants lenders carta #lanc$e authority to raise interest rates to level which will either enslave their borrowers or lead to a hemorrhaging of their assets $citing Almeda (s! CA0 )'& SCRS )2) '. 6n 9edel (s! CA0 )22 SCRA 3+* , it was ruled that while stipulated interest of 7.7E per month on a loan is usurious pursuant to ,4 ,ircular +o. %A7, the same must be e#uitably reduced for being ini#uitous, unconscionable and e orbitant. 6t is contrary to morals, $contra #onos mores'. 6t was reduced to 12E per annum in consonant with )ustice and fair play. DEPOSIT (Articles !$- # -88!% A contract constituted from the moment a person receives a thing belonging to another, with the obligation of safely !eeping it and of returning the same.
Deposit
1. 2urpose is Safe!eeping 2. .ay be gratuitous &. .ovableCcorporeal things only in case of e tra)udicial deposit
Commo(atum
1. 2urpose is the transfer of the use 2. 3ssentially and always gratuitous &. 4oth movable and immovable may be the ob)ect
'in(s of Deposit: 1. Gudicial $Se#uestration' ta!es place when an attachment or sei@ure of property in litigation is ordered. 2. 3 tra-)udicial a. Holuntary one wherein the delivery is made by the will of the depositor or by two or more
C&aracteristics: CIVIL LAW COMMITTEE

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persons each of whom believes himself entitled to the thing deposited. $Arts 1%89 1%%7' b. +ecessary one made in compliance with a legal obligation, or on the occasion of any calamity, or by travellers in hotels and inns $Arts 1%%8 2AA(', or by travellers with common carriers $Art 1B&( 1B&7'. NOTE: The chief difference between a voluntary deposit and a necessary deposit is that in the former, the depositor has a complete freedom in choosing the depositary, whereas in the latter, there is lac! of free choice in the depositor. .u(icial E:tra*;u(icial
1. Creation Dill of the court Dill of the parties or contract 2. Purpose Security or to insure ,ustody and the right of a party safe!eeping to property or to recover in case of favorable )udgment 3. Subject Matter .ovables or .ovables only immovables, but generally immovables Always onerous 4. Cause .ay be compensated or not, but generally gratuitous
&. property saved from destruction without !nowledge of the owner NOTES: Article 1%88 does not embrace incorporeal property, such as rights and actions, for it follows the person of the owner, wherever he goes. A contract for the rent of safet) eposit bo*es is not an ordinary contract of lease of things but a special 5ind of deposit" hence, it is not to be strictly governed by the provisions on deposit. The relation between a ban! and its customer is that of a bailor and bailee. $,A Agro vs ,A, 21% S,0A (28' O0li1ations of t&e Depositary (Art !<# !! %: 1. To !eep the thing safely $Art 1%B2' 3 ercise over the thing deposited the same diligence as he would e ercise over his property 2. To return the thing $Art 1%B2' Person to =&om t&e t&in1 must 0e returne(: a. 5epositor, to his heirs and successors, or the person who may have been designated in the contract b. 6f the depositary is capacitated he is sub)ect to all the obligations of a depositary whether or not the depositor is capacitated. 6f the depositor is incapacitated, the depositary must return the property to the legal representative of the incapacitated or to the depositor himself if he should ac#uire capacity $Art 1%BA'. c. 6f the depositor is capacitated and the depositary is incapacitated - the latter does not incur the obligation of a depositary but he is liable* i..to return the thing deposited while still in his possession" ii.to pay the depositor the amount which he may have benefited himself with the thing or its price sub)ect to
5. "hen 'ust the thing be returne /pon order of the /pon demand of court or when depositor litigation is ended 6. (n whose beha$f it is he$ 2erson who has a 5epositor or third right person designated
GENERAL RULE: ,ontract of deposit is gratuitous $Art 1%87' EXCEPT ONS: 1. when there is contrary stipulation 2. depositary is engaged in business of storing goods
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the right of any third person who ac#uired the thing in good faith $Art 1%B1' Time of return: a/ Upon demand even though a specified period or time for such return may have been fi ed e cept when the thing is )udicially attached while in the depositary<s possession or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. $Art 1%%9' b. f deposit "ratuitous, the depositary may return the thing deposited notwithstanding that a period has been fi ed for the deposit if )ustifiable reasons e ists for its return. c. f t$e deposit is for a (alua#le consideration, the depositary has no right to return the thing deposited before the e piration of the time designated even if he should suffer inconvenience as a conse#uence.$Art 1%9%' (. 6f the thing deposited should earn interest $Art 1%B7'* a. to collect interest and the capital itself as it fall due b. to ta!e steps to preserve its value and rights corresponding to it 7. +ot to commingle things deposited if so stipulated $Art 1%B8' 8. +ot to ma!e use of the thing deposited unless authori@ed $Art 1%BB' GENERAL RULE: 5eposit is for safe!eeping of the sub)ect matter and not for use. The unauthori@ed use by the depositary would ma!e him liable for damages. EXCEPT ONS: 1. Dhen the preservation of the thing deposited re#uires its use 2. Dhen authori@ed by the depositor NOTE: The permission to use is +1T presumed e cept when such use is necessary for the preservation of the thing deposited. Effect if permission to use is 1i?en (Art !<@%: 1. 6f thing deposited is non-consumable, the contract loses the character of a deposit and ac#uires that of a commodatum despite the fact that the parties may have denominated it as a deposit, unless safe!eeping is still the principal purpose. 2. 6f thing deposited consists of moneyCconsumable things, the contract is converted into a simple loan or mutuum unless safe!eeping is still the principal purpose in which case it is called an irregular deposit. 3 ample* ban! deposits are irre"ular deposits in nature but governed by law on loans. B. Dhen the thing deposited is delivered sealed and closed * a. to return the thing deposited in the same condition b. to pay for damages should the seal or loc! be bro!en through
to return: product, accessories, and accessions of the thing deposited $Art 1%9&' &. +ot to deposit the thing with a third person unless authori@ed by e press stipulation $Art 1%B&' The depositor is liable for the loss of the thing deposited under Article 1%B& if* a. he transfers the deposit with a third person without authority although there is no negligence on his part and the third person" b. he deposits the thing with a third person who is manifestly careless or unfit although authori@ed even in the absence of negligence" or c. the thing is lost through the negligence of his employees whether the latter are manifestly careless or not. CIVIL LAW COMMITTEE
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his fault, which is presumed unless proved otherwise c. to !eep the secret of the deposit when the seal or loc! is bro!en with or without his fault $Art 1%91' NOTE: The depositary is authori@ed to open the thing deposited which is closed and sealed when $Art 1%92'* i. there is presumed authority $i.e. when the !ey has been delivered to him or the instructions of the depositor cannot be done without opening it' ii. necessity 9. To change the way of the deposit if under the circumstances, the depositary may reasonably presume that the depositor would consent to the change if he !new of the facts of the situation, provided, that the former notifies the depositor thereof and wait for his decision, unless delay would cause danger %. To pay interest on sums converted to personal use if the deposit consists of money $Art 1%9&' 1A. To be liable for loss through fortuitous event (S+DA%* $Art 1%B%'* a. if stipulated b. if he uses the thing without the depositorIs permission c. if he (elays its return d. if he allows others to use it, even though he himself may have been authori@ed to use the same NOTES: Ji ed, savings, and current deposits of money in ban!s and similar institutions shall be governed by the provisions concerning simple loan! $Art 1%9A' The general rule is that a ban! can compensate or set off the deposit in its hands for the payment of any indebtedness to it on the part of the depositor. 6n true deposit, compensation is not allowed. Irre1ular (eposit CIVIL LAW COMMITTEE
1. The consumable thing deposited may be demanded at will by the depositor
1. Fender is bound by the provisions of the contract and cannot demand restitution until the time for payment, as provided in the contract, has arisen 2. 3ssential cause for the transaction is the necessity of the borrower &. ,ommon creditors en)oy no preference in the distribution of the debtor<s property
2. The only benefit is that which accrues to the depositor &. The irregular depositor has a preference over other creditors with respect to the thing deposited
Rule =&en t&ere are t=o or more (epositors (Art !@,%: 1. f t$in" deposited is di(isi#le and depositors are not solidary* 3ach depositor can demand only his proportionate share thereto. 2. f o#li"ation is solidary or if t$in" is not di(isi#le* 0ules on active solidarity shall apply, i.e. each one of the solidary depositors may do whatever may be useful to the others but not anything which may be pre)udicial to the latter, $Art. 1212' and the depositary may return the thing to anyone of the solidary depositors unless a demand, )udicial or e tra)udicial, for its return has been made by one of them in which case, delivery should be made to him $Art. 121('. &. Return to one of depositors stipulated. The depositary is bound to return it only to the person designated although he has not made any demand for its return. NOTES: The depositary may retain the thing in pledge until full payment of what may be due him by reason of the deposit $Art 1%%('. The depositor<s heir who in good faith may have sold the thing which he did not !now was deposited, shall only be bound to return the price he
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may have received or to assign his right of action against the buyer in case the price has not been paid him $Art 1%%1'. O0li1ations of t&e Depositor (Art !!- # !!,%: 1. To pay e penses for preservation a. f t$e deposit is "ratuitous, the depositor is obliged to reimburse the depositary for e penses incurred for the preservation of the thing deposited $Art 1%%2' b. f t$e deposit is for (alua#le consideration, e penses for preservation are borne by the depositary unless there is a contrary stipulation 2. To pay loses incurred by the depositary due to the character of the thing deposited pillage, shipwrec! or other similar events $deposito misera#le' 3. .ade by travellers in hotels and inns or by travellers with common carrier
GENERAL RULE: The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited. EXCEPT ONS: 1. at the time of the deposit, the depositor was not a8are of the dangerous character of the thing 2. when depositor was not e/pected to 5no8 the dangerous character of the thing 3. when the depositor notified the depository of the same 4. the depositary 8as a8are of it 8it$out ad(ice from the depositor
E:tin1uis&ment of 9oluntary Deposit (Art !!,% 1. Foss or destruction of the thing deposited 2. 6n case of gratuitous deposit, upon the death of either the depositor or the depositary 3. 1ther causes, such as return of the thing, novation, merger, e piration of the term fulfilment of the resolutory condition, etc $Art 12&1' Necessary Deposits 1. .ade in compliance with a legal obligation 2. .ade on the occasion of any calamity such as fire, storm, flood, CIVIL LAW COMMITTEE
Deposit 0y Tra?ellers in &otels an( inns: The !eepers of hotels or inns shall be responsible as depositaries for the deposit of effects made by travellers pro(ided* a. +otice was given to them or to their employees of the effects brought by the guest" and b. The guests ta!e the precautions which said hotel-!eepers or their substitutes advised relative to the care and vigilance of their effects. NOTES: Fiability e tends to vehicles, animals and articles which have been introduced or placed in the anne es of the hotel. Fiability shall 3K,F/53 losses which proceed from force ma)eure. The act of a thief or robber is not deemed force ma)eure unless done with the use of arms or irresistible force. The hotel-!eeper cannot free himself from the responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation to such effect shall be void. +otice is necessary only for suing civil liability but not in criminal liability. 7+ARANTA (Articles -82< # -8@2% A contract whereby a person $guarantor' binds himself to the creditor to fulfil the obligation of the principal debtor in case t$e latter fail to do so.
Classification of 7uaranty: 1. 6n the 4road sense* a. 2ersonal - the guaranty is the credit given by the person who

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guarantees the fulfilment of the principal obligation. b. 0eal - the guaranty is the property, movable or immovable. rather than the first should perform $A"ro Con"lomerates0 nc! (s! CA0 ,3+ SCRA 3'7' NOTES: The reference in Article 2A(B to solidary obligations does not mean that suretyship is withdrawn from the applicable provisions governing guaranty. A surety is almost the same as a solidary debtor, e cept that he himself is a principal debtor. 6n suretyship, there is but one contract, and the surety is bound by the same agreement which binds the principal. A surety is usually bound with the principal by the same instrument, e ecuted at the same time and upon the same consideration $Palmares (s CA0 )++ SCRA 3))' 6t is not for the obligee to see to it that the principal debtor pays the debt or fulfill the contract, but for the surety to see to it that the principal debtor pays or performs $Paramount nsurance Corp (s CA0 ,*7 SCRA ,%%' Nature of SuretyCs un(erta3in1: 1. Lia#ility is contractual and accessory #ut direct NOTE: =e directly, primarily and e#ually binds himself with the principal as original promisor, although he possesses no direct or personal interest over the latter<s obligation, nor does he receive any benefits therefrom. $2+4 vs ,A, 1%9 S,0A B8B' 2. Lia#ility limited #y t$e terms of t$e contract! NOTE: 6t cannot be e tended by implication beyond the terms of the contract $2+4 vs ,A, 1%9 S,0A B8B' 3. Lia#ility arises only if principal de#tor is $eld lia#le! NOTES: The creditor may sue separately or together the principal debtor and the surety. Dhere there are several sureties, the obligee may proceed against any one of them. 6n the absence of collusion, the surety is bound by a )udgment
2. As to its Ori"in a. ,onventional - agreed upon by the parties. b. Fegal - one imposed by virtue of a provision of a law. c. Gudicial - one which is re#uired by a court to guarantee the eventual right of one of the parties in a case. &. As to Consideration a. -ratuitous - the guarantor does not receive any price or remuneration for acting as such. b. 1nerous - the guarantor receives valuable consideration. (. As to the Person "uaranteed a. Single - one constituted solely to guarantee or secure performance by the debtor of the principal obligation. b. 5ouble or sub-guaranty - one constituted to secure the fulfilment by the guarantor of a prior guaranty. 7. As to Scope and E/tent a. 5efinite - the guaranty is limited to the principal obligation only, or to a specific portion thereof. b. 6ndefinite or simple - one which not only includes the principal obligation but also all its accessories including )udicial costs S+RETASBIP A contract whereby a person $surety' binds himself solidarily with the principal debtor A relation which e ists where one person $principal' has underta!en an obligation and another person $surety' is also under a direct and primary obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, the second
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against the principal even though he was not a party to the proceedings. The nature of its underta!ing ma!es it privy to all proceedings against its principal $:inman General Assurance Corp! (s! Sali50 *++ SCRA %37' 4. Surety is not entitled to t$e #enefit of e/$austion NOTE: =e assumes a solidary liability for the fulfilment of the principal obligation $To8ers Assurance Corp (s! Ororama Supermart0 +7 SCRA )&)' as an original promissory and debtor from the beginning. 5. Underta5in" is to creditor and not to de#tor! NOTE: The surety ma!es no covenant or agreement 8it$ t$e principal that it will fulfil the obligation guaranteed for the benefit of the principal. Such a promise is not implied by law either" and this is true even where under the contract the creditor is given the right to sue the principal, or the latter and the surety at the same time. $Arran6 (s! 9anila :idelity ; Surety Co!0 nc!0 *7* P$il! )%)' 6. Surety is not entitled to notice of principal<s default NOTE: The creditor owes no duty of active diligence to ta!e care of the interest of the surety and the surety is bound to ta!e notice of the principal<s default and to perform the obligation. =e cannot complain that the creditor has not notified him in the absence of a special agreement to that effect. $ Palmares (s CA0 )++ SCRA 3))' 7. Prior demand #y t$e creditor upon principal is not re=uired NOTE: As soon as the principal is in default, the surety li!ewise is in default. 8. Surety is not e/onerated #y ne"lect of creditor to sue principal C&aracteristics of 7uaranty an( Suretys&ip: 1. Accessory - 6t is indispensable condition for its e istence that there must be a principal obligation. NOTES: CIVIL LAW COMMITTEE
-uaranty may be constituted to

guarantee the performance of a voidable or unenforceable contract. 6t may also guarantee a natural obligation. $Art 2A72' The guarantor cannot bind himself for more than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. 2. Su#sidiary and Conditional - ta!es effect only in case the principal debtor fails in his obligation. NOTES: The guarantor cannot bind himself for more than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. 4ut a guarantor may bind himself for less than that of the principal $Art 2A7(' A guaranty may be given as security for future debts, the amount of which is not yet !nown" there can be no claim against the guarantor until the debt is li#uidated. A conditional obligation may also be secured. $Art 2A7&' Unilateral - may be entered even wCo the intervention of the principal debtor, in which case Art. 12&8 and 12&B shall apply and it gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa. +ominate ,onsensual 6t is a contract between the guarantorCsurety and creditor. NOTES: Acceptance of 1uaranty 0y cre(itor an( notice t&ereof to 1uarantor: 6n declaring that guaranty must be e press, the law refers solely and e clusively to the obligation of the guarantor because it is he alone who binds himself by
3.
4. 5. 6.

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his acceptance. Dith respect to the creditor, no such re#uirement is needed because he binds himself to nothing. =owever, when there is merely an offer of a "uaranty, or merely a conditional "uaranty, in the sense that it re#uires action by the creditor before the obligation becomes fi ed, it does not become binding until it is accepted and until notice of such acceptance by the creditor is given to, or ac#uired by, the guarantor, or until he has notice or !nowledge that the creditor has performed the condition and intends to act upon the guaranty. 4ut in any case, the creditor is not precluded from waiving the re#uirement of notice. The consideration of the guaranty is the same as the consideration of the principal obligation. The creditor may proceed against the guarantor although he has no right of action against the principal debtor. B. +ot presumed. 6t must be e pressed and reduced in writing. NOTE: A power of attorney to loan money does not authori@e the agent to ma!e the principal liable as a surety for the payment of the debt of a third person. $4P (s! Coster0 3% P$il! '23' 9. Jalls under the Statute of Jrauds since it is a >special promise to answer for the debt, default or miscarriage of another?. %. Strictly interpreted against the creditor and in favor of the guarantorCsurety and is not to be e tended beyond its terms or specified limits. $9a"dalena Estates0 nc! (s Rodri"ue60 *+ SCRA 2&% ' The rule of strictissimi >uris commonly pertains to an accommodation surety because the latter acts without CIVIL LAW COMMITTEE
motive of pecuniary gain and hence, should be protected against un)ust pecuniary impoverishment by imposing on the principal, duties a!in to those of a fiduciary. NOTES: The rule will apply only after it has been definitely ascertained that the contract is one of suretyship or guaranty. 6t cannot be used as an aid in determining whether a party<s underta!ing is that of a surety or guarantor. $Palmares (s CA0 )++ SCRA )2)' 6t does not apply in case of compensated sureties. 1A. 6t is a contract which re#uires that the guarantor must be a person distinct form the debtor because a person cannot be the personal guarantor of himself. NOTE: =owever, in a real guaranty, li!e pledge and mortgage, a person may guarantee his own obligation with his personal or real properties. 7uaranty
1. Fiability depends upon an independent agreement to pay the obligation if primary debtor fails to do so 2. ,ollateral ta!ing underis
Suretys&ip
1. Surety assumes liability as regular party to the underta!ing 2. Surety is original promisor &. Surety primarily liable an is
&. -uarantor secondarily liable
4. -uarantor binds himself to pay if the principal ,A++1T 2AL 7. 6nsurer of solvency of debtor 8. -uarantor can avail of the benefit of e cussion and division in case creditor proceeds against him
(. Surety underta!es to pay if the principal 513S +1T 2AL 7. 6nsurer of the debt 8. Surety cannot avail of the benefit of e cussion and division
In(orsement
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1. 2rimarily transfer of 1. ,ontract security of
6t is never necessary that the

guarantor or surety should receive any part or benefit, if such there be, accruing to the principal. $Dille 2lastic 6ndustries ,orp. vs. ,A, 278 S,0A (B9'
2. /nless the note is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time he will be discharged absolutely from all liability thereon, whether he has suffered any actual damage or not &. 6ndorser does not warrant the solvency. =e is answerable on a strict compliance with the law by the holder, whether the promisor is solvent or not
(. 6ndorser can sued as promisor be
2. Jailure in either or both of these particulars does not generally wor! as an absolute discharge of a guarantor<s liability, but his is discharged only to the e tent of the loss which he may have suffered in conse#uence thereof
Dou0le or su0*1uaranty (Art -8, -n( par% 1ne constituted to guarantee the obligation of a guarantor Continuin1 1uaranty (Art -8,"% 1ne which is not limited to a single transaction but which contemplates a future course of dealings, covering a series of transactions generally for an indefinite time or until revo!ed. NOTES: 2rospective in operation $?i@o (s CA0 )*& SCRA 2' ,onstrued as continuing when by the terms thereof it is evident that the ob)ect is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is e pressly reserved $?i@o (s CA0 )*& SCRA 2' >Juture debts? may also refer to debts e isting at the time of the constitution of the guaranty but the amount thereof is un!nown and not to debts not yet incurred and e isting at that time. 3 ception to the concept of continuing guaranty is c$attel mort"a"e. A chattel mortgage can only cover obligations e isting at the time the mortgage is constituted and not those contracted subse#uent to the e ecution thereof -T$e 4el"ian Cat$olic 9issionaries0 nc! (s! 9a"allanes Press0 nc!0 32 P$il &3%.! An e ception to this is in case of stoc!s in department stores, drug stores, etc. -Torres (s! Lim>ap0 '& P$il *3*.!
&. -uarantor warrants the solvency of the promisor
(. -uarantor cannot be sued as promisor
7uaranty
A contract by which a person is bound to another for the fulfilment of a promise or engagement of a third party
>arranty
An underta!ing that the title, #uality, or #uantity of the sub)ect matter of the contract is what it has been represented to be, and relates to some agreement made ordinarily by the party who ma!es the warranty
NOTES: A guaranty is gratuitous, unless there is a stipulation to the contrary. The cause of the contract is the same cause which supports the obligation as to the principal debtor. The peculiar nature of a guaranty or surety agreement is that is is regarded as valid despite the absence of any direct consideration received by the guarantor or surety either from the principal debtor or from the creditor" a consideration moving to the principal alone will suffice. CIVIL LAW COMMITTEE

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E:tent of 7uarantorCs lia0ility: (Art -8,,% 1. Dhere the guaranty definite* 6t is limited in whole or in part to the principal debt, to the e clusion of accessories. 2. Dhere guaranty indefinite or simple* 6t shall comprise not only the principal obligation, but also all its accessories, including the )udicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been )udicially re#uired to pay. Dualifications of a 1uarantor: (Arts -8,$*-8,<% 1. possesses integrity 2. capacity to bind himself 3. has sufficient property to answer for the obligation which he guarantees NOTES: The #ualifications need only be present at the time of the perfection of the contract. The subse#uent loss of the integrity or property or supervening incapacity of the guarantor would not operate to e onerate the guarantor or the eventual liability he has contracted, and the contract of guaranty continues. =owever, the creditor may demand another guarantor with the proper #ualifications. 4ut he may waive it if he chooses and hold the guarantor to his bargain. Benefit of E:cussion (Art -8,@% The right by which the guarantor cannot be compelled to pay the creditor unless the latter has e hausted all the properties of the principal debtor, and has resorted to all of the legal remedies against such debtor. NOTE: +ot applicable to a contract of suretyship $Arts 2A(B, par. 2" 2A7%:2;' CIVIL LAW COMMITTEE
,annot even begin to ta!e place

before )udgment has been obtained against the debtor $4aylon vs ,A, &12 S,0A 7A2' >&en 7uarantor is not entitle( to t&e 0enefit of e:cussion: $2A60S' 1. 6f it may be presumed that an e ecution on the property of the principal debtor would not result in the satisfaction of the obligation +ot necessary that the debtor be )udicially declared insolvent or ban!rupt 2. Dhen he has absconded, or cannot be sued within the 2hilippines unless he has left a manager or representative &. 6n case of insolvency of the debtor .ust be actual (. 6f the guarantor has e pressly renounced it 7. 6f he has bound himself solidarily with the debtor Ot$er "rounds: (BIPS% 8. 6f he is a )udicial 0ondsman or subsurety B. 6f he fails to interpose it as a defense before )udgment is rendered against him 9. 6f the guarantor does not set up the benefit against the creditor upon the latter<s demand for payment from him, and point out to the creditor available property to the debtor within 2hilippine territory, sufficient to cover the amount of the debt $Art 2A8A' 5emand can be made only after )udgment on the debt 5emand must be actual" )oining the guarantor in the suit against the principal debtor is not the demand intended by law %. Dhere the pledge or mortgage has been given by him as special security Benefit of Di?ision (Art -8$,% Should there be se(eral "uarantors of only one de#tor and for the same de#t, the obligation to answer for the same is divided among all. Fiability* Goint

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NOTES: The creditor can claim from the guarantors only the shares they are respectively bound to pay e/cept 8$en solidarity is stipulated or if any of t$e circumstances enumerated in Article )7'2 s$ould ta5e place! The right of contribution of guarantors who pays re#uires that the payment must have been made $a' in virtue of a )udicial demand, or $b' because the principal debtor is insolvent $Art 2AB&'. 6f any of the guarantors should be insolvent, his share shall be borne by the others including the paying guarantor in the same )oint proportion following the rule in solidary obligations. The above rule shall not be applicable unless the payment has been made in virtue of a )udicial demand or unless the principal debtor is insolvent. The right to contribution or reimbursement from his coguarantors is ac#uired ipso >ure by virtue of said payment without the need of obtaining from the creditor any prior cession of rights to such guarantor. The co-guarantors may set up against the one who paid, the same defenses which have pertained to the principal debtor against the creditor and which are not purely personal to the debtor. $Art 2AB(' Proce(ure =&en cre(itor sues: $Art. 2A82' The creditor must sue the principal alone" the guarantor cannot be sued with his principal, much less alone e cept in Art. 2A7%. *! Notice to "uarantor of t$e action The guarantor must be +1T6J635 so that he may appear, if he so desires, and set up defenses he may want to offer. 6f the guarantor appears, he is still given the benefit of CIVIL LAW COMMITTEE e haustion even if )udgment should be rendered against him and principal debtor. =is voluntary appearance does not constitute a renunciation of his right to e cussion $see Art. 2A7%$1''. -uarantor cannot set up the defenses if he does not appear and it may no longer be possible for him to #uestion the validity of the )udgment rendered against the debtor. 2. A guarantor is entitled to be heard before and e ecution can be issued against him where he is not a party in the case involving his principal $procedural due process'. 7uarantorCs Ri1&t of In(emnity or Reim0ursement (Art -8$$% GENERAL RULE: -uaranty is a contract of indemnity. The guarantor who ma!es payment is entitled to be reimbursed by the principal debtor. NOTE: The indemnity consists of* (DIED% 1. Total amount of t$e e#t no right to demand reimbursement until he has actually paid the debt, unless by the terms of the contract, he is given the right before ma!ing payment. =e cannot collect more than what he has paid. 2. Le"al interest thereon from the time the payment was made !nown $notice of payment in effect a demand so that if the debtor does not pay immediately, he incurs in delay' to the debtor, even though it did not earn interest for the creditor. -uarantor<s right to legal interest is granted by law by virtue of the payment he has made. 3. +/penses incurred #y t$e "uarantor after having notified the debtor that payment has been demanded of him by the creditor" only those e penses that the guarantor has to satisfy in accordance with law as a conse#uence of the guaranty $Art. 2A77' not those which

198

depend upon his will or own acts or his fault for these are his e clusive personal responsibility and it is not )ust that they be shouldered by the debtor. 4. ,ama"es if they are due in accordance with law. -eneral rules on damages apply.
The guarantor is subrogated by

virtue of the payment to the rights of the creditor, not those of the debtor. -uarantor cannot e ercise the right of redemption of his principal $Urrutia ; Co (s 9orena and Reyes0 )+ P$il )&*' Effect of Payment 0y 7uarantor / >it&out notice to (e0tor: (Art -8$@% The debtor may interpose against the guarantor those defenses which he could have set up against the creditor at the time the payment was made, e.g. the debtor can set up against the guarantor the defense of previous e tinguishment of the obligation by payment. -/ Before )aturity (Art -8$!% +ot entitled to reimbursement unless the payment was made with the consent or has been ratified by the debtor Effect of Repeat Payment 0y (e0tor: (Art -8<8% GENERAL RULE: 4efore guarantor pays the creditor, he must first notify the debtor $Art. 2A89'. 6f he fails to give such notice and the debtor repeats payment, the guarantor can only collect from the creditor and guarantor has no cause of action against the debtor for the return of the amount paid by guarantor even if the creditor should become insolvent.
EXCEPT ONS: 1. Dhere the guaranty is constituted without the !nowledge or against the will of the principal debtor, the guarantor can recover only insofar as the payment had been beneficial to the debtor $Art. 2A7A'. 2. 2ayment by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which, however, re#uires the debtor<s consent. 4ut the payment is in any case valid as to the creditor who has accepted it $Art. 12&9'. &. Daiver of the right to demand reimbursement.
7uarantorCs ri1&t to Su0ro1ation (ART/-8$<% Subrogation transfers to the person subrogated, the credit with all the rights thereto appertaining either against the debtor or against third persons, be they guarantors or possessors of mortgages, sub)ect to stipulation in conventional subrogation. NOTE: This right of subrogation is necessary to enable the guarantor to enforce the indemnity given in Art. 2A88. 6t arises by operation of law upon payment by the guarantor. 6t is not necessary that the creditor cede to the guarantor the former<s rights against the debtor. 6t is not a contractual right. The right of guarantor who has paid a debt to subrogation does not stand upon contract but upon the principles of natural )ustice. CIVIL LAW COMMITTEE
EXCEPT ON: The guarantor can still claim reimbursement from the debtor in spite of lac! of notice if the following conditions are present* (PI7% a. guarantor was prevented by fortuitous event to advise the debtor of the payment" and b. the creditor becomes insolvent" c. the guaranty is 1ratuitous.
Ri1&t of 7uarantor to procee( a1ainst (e0tor before payment

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GENERAL RULE: -uarantor has no cause of action against debtor until after the former has paid the obligation EXCEPT ON: Article 2AB1
NOTES: Article 2AB1 is applicable and available to the surety. $ 9anila Surety ; :idelity Co!0 nc! (s 4atu Construction ; Co!0 *7* P$il 323' 0emedy of guarantor* $a' obtain release from the guaranty" or $b' demand a security that shall protect him from any proceedings by the creditor, and against the danger of insolvency of the debtor Art/ -8$$
2rovides for the enforcement of the rights of the guarantorCsurety against the debtor after he has paid the debt -ives a right of action after payment Substantive right
8. E tension granted to the debtor by the creditor without the consent of the guarantor $Art 2AB%' BOND An underta!ing that is sufficiently secured, and not cash or currency Bon(sman (Art -8@-% A surety offered in virtue of a provision of law or a )udicial order. =e must have the #ualifications re#uired of a guarantor and in special laws li!e the 0ules of ,ourt. NOTES: Gudicial bonds constitute merely a special class of contracts of guaranty by the fact that they are given >in virtueM of a )udicial order.? 6f the person re#uired to give a legal or )udicial bond should not be able to do so, a pledge or mortgage sufficient to cover the obligation shall admitted in lieu thereof $Art 2A9&' A )udicial bondsman and the subsurety are +1T entitled to the benefit of e cussion because they are not mere guarantors, but sureties whose liability is primary and solidary. $Art 2A9(' PLED7EE )ORT7A7E AND ANTICBRESIS I/ Common Elements of Ple(1eE )ort1a1eE an( Antic&resis (Articles -8@, # -8!-% A/ +ssentia$ &e-uisites (SOD% (Art -8@,% 1. Secures the fulfillment of a principal obligation" 2. 2ledgor, mortgagor, antichretic debtor must be the absolute owner of the thing pledged or mortgaged" and The reason being that in anticipation of a possible foreclosure sale in case of default which is still a sale, the rule is that the seller must be the owner of the thing sold $,avite 5evelopment 4an! vs. Fim, &2( S,0A &(8'
Art/ -8<
2rovides for his protection #efore he has paid but after he has become liable
2rotective remedy #efore payment. 2reliminary remedy
E:tin1uis&ment of 1uaranty: $0A2,32' 1. Release in favor of one of the guarantors, without the consent of the others, benefits all to the e tent of the share of the guarantor to whom it has been granted $Art 2AB9'" 2. 6f the creditor voluntarily accepts immovable or other properties in payment of the debt, even if he should afterwards lose the same through eviction or conveyance of property $Art 2ABB'" &. Dhenever by some act of the creditor, the guarantors even though they are solidarily liable cannot be subrogated to the rights, mortgages and preferences of the former $Art 2A9A'" (. Jor the same causes as all other obligations $Art 12&1'" 7. Dhen the principal obligation is e tinguished"
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&. 2ledgor, mortgagor, antichretic debtor must have free (isposal of their property, or be legally authori@ed for such purpose. NOTES: Third persons can pledge or mortgage their own property to secure the principal obligation. 6t is not necessarily void simply because the accommodation pledgor or mortgagor did not benefit from the same. So long as valid consent was given, the fact that the loan was given solely for the benefit of the principal debtor would not invalidate the mortgage $GS S (s CA0 *%7 SCRA ',,' The accommodation pledgor or mortgagor, without e pressly assuming personal liability for such debt, is not liable for the payment of any deficiency, should the property not be sufficient to cover the debt $4an5 of America (s! American Realty Corporation0 ,)* SCRA &'2'. The accommodation pledgor or mortgagor is not solidarily bound with the principal obligor but his liability e tents only to the property pledged or mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor who remains to be primarily bound. The law grants to the accommodation pledgor or mortgagor the same rights as a guarantor and he cannot be pre)udiced by any waiver of defense by the principal debtor. B/ Prohibition against Pactu' Co''issoriu' (Art -8@@F - "<% Pactum Commissorium Stipulation whereby the thing pled"ed or mort"a"ed, or under antic$resis shall automatically become the property of the creditor in the event of non-payment of the debt within the term fi ed. Re4uisites: 1. There should be a pledge, mortgage, or antichresis of property by way of CIVIL LAW COMMITTEE security for the payment of the principal obligation" and 2. There should be a stipulation for an automatic appropriation by the creditor of the property in event of nonpayment of the obligation within the stipulated period.
GENERAL RULE: 2actum ,ommissorium is forbidden by law and is declared null and void. EXCEPT ON: The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not sold. $Art 2112'
NOTE: The security contract remains valid" only the prohibited stipulation is void. C/ Capabi$it) to secure a$$ #in s of ob$igations. i.e. pure or con itiona$ (Art -8! % D/ (n i/isibi$it) (Art -8@!% GENERAL RULE: A pledge, mortgage, or antichresis is in i/isib$e, even though the debt may be divided among the successors in interest of the debtor or of the creditor. Their indivisibility is not affected by the fact that the debtors are )ointly or not solidarily liable. Conse4uences of in(i?isi0ility: 1. Sin"le t$in" 3very portion of the property pledged or mortgaged is answerable for the whole obligation 2. Se(eral t$in"s All of the several things pledged or mortgaged are liable for the totality of the debt &. ?e#tor<s $eirAcreditor<s $eir +either the debtor<s heir who has paid part of the debt cannot as! for proportionate e tinguishment, nor creditor<s heir who received his share of the debt return the pledge or cancel the mortgage as long as the debt is not completely satisfied. BEXCEPT ONS: 1. Dhere each one of several things guarantees a determinate portion of the credit 2. Dhere only a portion of the loan was released

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&. Dhere there was failure of consideration. (. Dhere there is no debtorcreditor relationship NOTES: The mere embodiment of a real estate mortgage and a chattel mortgage in one document does not have the effect of fusing both securities into an indivisible whole. The mortgagee, therefore, may legally foreclose the real estate mortgage e tra)udicially and waive the chattel mortgage foreclosure, and maintain instead a personal action for the recovery of the unpaid balance of the credit $2hil. 4an! of ,ommerce vs. .acadaeg, 1A% 2hil %91' E/ "hen the principa$ ob$igation beco'es ue. the things in which the p$e ge. 'ortgage. or antichresis consists 'a) be a$ienate for the pa)'ent to the cre itor. (Art/ -8@<% NOTES: 6f the debtor fails to comply with the obligation at the time it falls due, the creditor is merely entitled to move for the sale of the thing pledged or mortgaged in order to collect the amount of his claim from the proceeds. 6f he wishes to secure a title to the mortgaged property, he can buy it in the foreclosure sale $.ontevirgin vs. ,A, 112 S,0A 8(1' 0. P$e gor. 'ortgagor. antichretic ebtor retains ownership of the thing gi/en as a securit) PLED7E (Arts -8!" # - -"% A contract wherein the debtor delivers to the creditor or to a third person a movable or document evidencing incorporeal rights for the purpose of securing fulfilment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. Special Re4uisites 1in a ition to the co''on essentia$ re-uisites2: 1. 2ossession of the thing pledged must be transferred to the creditor or a third person by agreement $Art 2A%&'" 2. 6t can only cover movable property and incorporeal rights evidenced by documents of title and the instruments proving the right pledged shall be delivered to the creditor, and if negotiable must be endorsed $Art 2A%('" and &. The description of the thing pledged and the date must appear in a public instrument to bind third persons, but not for the validity of the contract $Art 2A%8'. 'in(s: 1. Con(entional AColuntary created by contract 2. Le"al created by operation of law $e amples* Art. 7(8, 1B&1 and 1%1( +,,' NOTES: The provisions of possession, care and sale of the thing as well as on the termination of the pledge governing conventional pledges are applicable to pledges created by operation of law $Art 2121' /nli!e, however, in conventional pledge where the debtor is not entitled to the e cess unless it is otherwise agreed, in legal pledge, the remainder of the price of the sale after payment of the debt and e penses, shall be delivered to the debtor. 6n legal pledge, there is no definite period for the payment of the principal obligation. The pledgee must ma!e a demand for the payment of the amount due him" otherwise he cannot e ercise the right of sale at public auction $Art 2122' C&aracteristics:
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1. Real contract it is perfected by the delivery of the thing pledged by the debtor who is called the pled"or to the creditor who is called the pled"ee, or to a third person by common agreement" Accessor y contract it has no independent e istence of its own" Unilater al contract it creates an obligation solely on the part of the creditor to return the thing sub)ect thereof upon the fulfilment of the principal obligation" and Su#sidiar y contract the obligation incurred does not arise until the fulfilment of the principal obligation which is secured. DEE: ? S4C 4A)R)OPS) 1. 1ption to (emand replacement or immediate payment of the debt in case of deception as to substance or #uality $Art 21A%' 2. To sell at public auction in case of reasonable grounds to fear destruction or impairment of the thing without his fault $Art 21A9' &. To 0ring actions pertaining to the owner $Art 21A&' (. To choose which of several things pledged shall be sold 7. To 0id at the public auction $Art 211&' 8. To appropriate the thing in case of failure of the 2nd public auction $Art 2112' B. To apply said fruits, interests or earnings to the interest, if any, then to the principal of the credit $Art 21A2' 9. To retain e cess value received in the public sale $Art 2117' %. To retain the thing until after full payment of the debt $Art 2A%9' 1A. To be reimbursed for the e penses made for the preservation of the thing pledged $Art 2A%%' 11. To ob)ect to the alienation of the thing 12. To possess the thing $Art 2A%9' 1&. To sell at public auction in case of non-payment of debt at maturity $Art 2112' To choose which of the several things pledged shall be sold $Art 211%' 1(. 1ption to (emand replacement or immediate payment of the debt in case of deception as to substance or #uality $Art 21A%' 17. To sell at public auction in case of reasonable grounds to fear destruction or impairment of the thing without his fault $Art 21A9' 18. To 0ring actions pertaining to the owner $Art 21A&' 1B. To choose which of several things pledged shall be sold 19. To 0id at the public auction $Art 211&' 1%. To appropriate the thing in case of failure of the 2nd public auction $Art 2112' 2A. To apply said fruits, interests or earnings to the interest, if any, then to the principal of the credit $Art 21A2'
2. &.
(.
Consi(eration in ple(1e: 6nsofar as the pledgor is concerned, the cause is the principal obligation. 6f the pledgor is not the debtor, the cause is the compensation stipulated for the pledge or the mere liberality of the pledgor. E:tent of ple(1e: /nless stipulated otherwise, pledge e tends to the fruits, interests or earnings of the thing. Ri1&ts an( O0li1ations of a Ple(1or Ri1&ts O0li1ations
1. To demand return in case of reasonable grounds to fear destruction or impairment of the thing without the pledgee<s fault, sub)ect to the duty of replacement $Art 21AB' 2. To bid and be preferred at the public auction $Art 211&' &. To alienate the thing pledged provided the pledgee consents to the sale $Art 2A%B' (. To as! that the thing pledged be deposited $Arts 21A( N 21A8' 1. To advise the pledgee of the flaws of the thing $Art 21A1' 2. +ot to demand the return of the thing until after full payment of the debt, including interest due thereon and e penses incurred for its preservation $Art 21A7'
Ri1&ts of t&e Ple(1ee CIVIL LAW COMMITTEE

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21. To retain e cess value received in the public sale $Art 2117' 22. To retain the thing until after full payment of the debt $Art 2A%9' 2&. To be reimbursed for the e penses made for the preservation of the thing pledged $Art 2A%%' 2(. To ob)ect to the alienation of the thing 27. To possess the thing $Art 2A%9' 28. To sell at public auction in case of non-payment of debt at maturity $Art 2112' 2B. To choose which of the several things pledged shall be sold $Art 211%' O0li1ations of t&e Ple(1ee DEE: CU?A, 1. Ta!e care of the thing with the diligence of a good father of a family $Art 2A%%' 2. Not to use thing unless authori@ed or by the owner or its preservation re#uires its use $Art 21A(' &. Not to deposit the thing with a & rd person unless so stipulated $Art 21AA' (. 0esponsibility for acts of agents and employees as regards the thing $Art 21AA' 7. To advise pledgor of danger to the thing $Art 21AB' 8. To advise pledgor of the result of the public auction $Art 2118' RI7BT O6 PLED7OR TO S+BSTIT+TE TBIN7 PLED7ED (ART/- 8<% Re4uisites: 1. The pledgor has reasonable grounds to fear the destruction or impairment of the thin pledged 2. There is no fault on the part of the pledgee &. The pledgor is offering in place of the thing, another thing in pledge which is of the same !ind and #uality as the former (. The pledge does not choose to e ercise his right to cause the thing pledged to be sold at public auction NOTE: The pledgee<s right to have the thing pledged sold at public sale granted under the Article 21A9 is superior to that given to the pledgor to substitute the thing pledged under Article 21AB. CIVIL LAW COMMITTEE
Pro&i0ition a1ainst (ou0le ple(1e 2roperty which has been lawfully pledged to one creditor cannot be pledged to another as long as the first one subsists. NOTE: 2ossession of a creditor of the thing pledged is an essential re#uisite of pledge. E:tin1uis&ment of Ple(1e (CRAPS% 1. Jor the same causes as all other obligations $Art 12&1' 2. Return of the thing pledged by the pledgee to the pledgor $Art 211A' &. Statement in 8ritin" by the pledgee that he renounces or abandons the pledge $Art 2111' (. Payment of the debt $Art 21A7' 7. Sale of thing pledged at public auction $Art 2117' NOTE: The possession by the debtor or owner of the thing pledged subse#uent to the perfection of the pledge gives rise to a prima facie presumption that the thing has been returned and, therefore, that the pledge has been e tinguished but not the principal obligation itself. $Art 211A' Re4uirements for sale of t&in1 ple(1e( at pu0lic auction: (Art - -% 1. The debt is due and unpaid 2. Sale must be at a public auction &. there must be notice to the pledgor and owner, stating the amount due (. Sale must be with the intervention of a notary public Effect of sale of t&e t&in1 ple(1e(: (Art - ,% 1. The sale of the thing pledged shall e tinguish the principal obligation, whether or not the proceeds of the sale are e#ual to the amount of the principal obligation, interest and e penses in a proper case 2. 6f the price of the sale is more than the amount due the creditor, the debtor is not entitled to the e cess unless the contrary is provided &. 6f the price of the sale is less, the creditor is not entitled to recover the deficiency even if there is a stipulation to that effect

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REAL ESTATE )ORT7A7E (Articles - -2*- " % A contract whereby the debtor secures to the creditor the fulfilment of a principal obligation, specially sub)ecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated.
6t is not an essential re#uisite that

the principal of the mortgage credit bears interest, or that the interest as compensation for the use of the principal and en)oyment of its fruits be in the form of a certain percent thereof. Special Re4uisites 1in a ition to the co''on essentia$ re-uisites2: 1. 6t can cover only immovable property and alienable real rights imposed upon immovables $Art 212('" 2. 6t must appear in a public instrument $Art. 2127'" and &. 0egistration in the registry of property is necessary to bind third persons, but not for the validity of the contract $Art 2127'. An order for foreclosure cannot be refused on the ground that the mortgage had not been registered provided no innocent third parties are involved. NOTE: Dhere a mortgage is not valid or false, the principal obligation which it guarantees is not rendered null and void. Dhat is lost only is the right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the principal obligation but the mortgage deed remains as evidence or proof of a personal obligation of the debtor and the amount due to the creditor may be enforced in an ordinary personal action. 'in(s: 1. Coluntary agreed to by the parties or constituted by the will of the owner of the property on which it is created 2. Le"al one re#uired by law to be e ecuted in favour of certain persons The persons in whose favour the law establishes a mortgage have no other right than to demand the e ecution and the recording of the document in which the mortgage is formali@ed $Art 2127 par 2' &. E=uita#le one which, although lac!ing the formalities of a
C&aracteristics of t&e contract: *! Real )! Accessory ,! Su#sidiary (. Unilateral it creates only an obligation on the part of the creditor who must free the property from the encumbrance once the obligation is fulfilled.
NOTES: As an accessory contract, its consideration is that of the principal contract from which it receives life. A mortgage does not involve a transfer, cession or conveyance of property but only constitutes a lien thereon. /ntil discharged, it follows the property wherever it goes and subsists notwithstanding changes of ownership. A mortgage gives the mortgagee no right or claim to the possession of the property, and therefore, a mere mortgagee has no right to e)ect an occupant of the property mortgaged unless the mortgage should contain some provision to that effect. The only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. 6f the possession is transferred to the mortgagee, it must not e pressly be for purpose of applying the fruits to the interest then to the principal of the credit, for then it would be an antichresis. CIVIL LAW COMMITTEE

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mortgage, shows the intention of the parties to ma!e the property a security for a debt PLED7E
1. ,onstituted on movables 2. 2roperty is delivered to pledgee or by common consent to a third person &. +ot valid against third persons unless a description of the thing pledged and date of pledge appear in a public instrument
transmission of property should not be unduly impeded. 2. )ort1a1ee * To claim from a &rd person in possession of the mortgaged property the payment of the part of the credit secured by the which said third person possesses $Art 212%' NOTE: 6t is necessary that prior demand for payment must have been made on the debtor and the latter failed to pay $4P (s Concepcion ; Fi>os0 nc!0 ', P$il 27&' 6oreclosure The remedy available to the mortgagee by which he sub)ects the mortgaged property to the satisfaction of the obligation to secure that for which the mortgage was given NOTES: 6t denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself $?4P (s Gara"o6a0 +3 SCRA &&+' Joreclosure is valid where the debtor is in default in the payment of his obligation $Go#onsen"0 1r! (s CA0 )3& SCRA 3%)' 'in(s: 1. Gudicial ordinary action for foreclosure under 0ule 89 of the 0ules of ,ourt 2. 3 tra)udicial when mortgagee is given a special power of attorney to sell the mortgaged property by public auction, under Act +o. &1&7 .u(icial foreclosure
1. There is court intervention 2. 5ecisions are appealable 3. 1rder of court cuts off all rights of the parties impleaded 4. There is e#uity
REAL )ORT7A7E
1. ,onstituted on immovables 2. 5elivery is not necessary
&. +ot valid against third persons unless registered
E:tent of )ort1a1e: Absent e press stipulation to the contrary, the mortgage includes the accessions, improvements, growing fruits and income of the property not yet received when the obligation becomes due and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of e propriation for public use $Art 212B' O0;ect of )ort1a1e: Juture property cannot be an ob)ect of a contract of mortgage $Art 2A97:2;' =owever, a stipulation sub)ecting to the mortgage lien, properties $improvements' which the mortgagor may subse#uently ac#uire install, or use in connection with real property already mortgaged belonging to the mortgagor is valid $2eople<s 4an! and Trust ,o. vs. 5ahican Fumber ,o., 2A S,0A 9(' Special Ri1&ts: 1. )ort1a1or * To alienate the mortgaged property but the mortgage shall remain attached to the property. NOTE: A stipulation forbidding the owner from alienating the immovable mortgage shall be void $Art 21&A' being contrary to public policy inasmuch as the CIVIL LAW COMMITTEE
E:tra;u(icial foreclosure
1. +o court intervention 2. +ot appealable because it is immediately e ecutory 3. Joreclosure does not cut off right of all parties involved 4. There is right of

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of redemption e cept on ban!s which provides for a right of redemption 5. 2eriod of redemption starts from the finality of the )udgment until order of confirmation 6. +o need for a special power of attorney in the contract of mortgage redemption
years from the time the right of action accrues $Arts 11(2 N 11(('. Stipulation of upset price or GtipoH 6t is a stipulation in a mortgage of real property of minimum price at which the property shall be sold, to become operative in the event of a foreclosure sale at public auction. 6t is null and void for the property must be sold to the highest bidder. 2arties cannot, by agreement, contravene the law and interfere with the lawful procedure of the courts $426 vs Lulo, &1 2hil (B8' E:tra;u(icial foreclosure real property (Act No/ " ",% The law covers only real estate mortgages. 6t is intended merely to regulate the e tra)udicial sale of the property mortgaged if and when the mortgagee is given a special power of e press authority to do so in the deed itself or in a document anne ed thereto. The authority to sell is not e tinguished by the death of the mortgagor $or mortgagee' as it is an essential and inseparable part of a bilateral agreement $Pere6 (s PN40 *% SCRA +,,'. +o sale can be legally made outside the province in which the property sold is situated" and in case the place within said province in which the sale is to be made is the sub)ect of stipulation, such sale shall be made in the said place in the municipal building of the municipality in which the property or part thereof is situated. Proce(ure for e:tra;u(icial foreclosure of 0ot& real estate mort1a1e un(er Act No/ " ", an( c&attel mort1a1e un(er Act No/ ,8@ -A!9! No! 22H*7H7'H70 1anuary *'0 )777. 1. Jiling of application before the 3 ecutive Gudge through the ,ler! of ,ourt 2. ,ler! of ,ourt will e amine whether the re#uirement of the law have been complied with, that is, whether the notice of sale has been posted for not less than 2A days in at least
5. 2eriod to redeem start from date of registration of certificate of sale 6. Special power of attorney in favor of mortgagee is needed in the contract
NOTES: A foreclosure sale retroacts to the date of registration of the mortgage and that a person who ta!es a mortgage in good faith and for valuable consideration, the record showing clear title to the mortgagor, will be protected against e#uitable claims on the title in favor of third persons, of which he had no actual or constructive notice $St! ?ominic Corporation (s! AC *'* SCRA '%% '. Dhere there is a right to redeem, inade#uacy of price is not material because the )udgment debtor may reac#uire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the auction sale and conse#uently not sufficient to set aside the sale. .ere inade#uacy of the price obtained at the sheriff<s sale will not be sufficient to set aside the sale unless >the price is so inade#uate as to shoc! the conscience of the court? ta!ing into consideration the peculiar circumstances attendant thereto. $Sulit (s! CA0 )&+ SCRA 33*. Should there remain a balance due to the mortgagee after applying the proceeds of the sale, the mortgagee is entitled to recover the deficiency. This rule applies both to )udicial and e tra-)udicial foreclosure real mortgage. The action to recover a deficiency after foreclosure prescribes after 1A CIVIL LAW COMMITTEE

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three $&' public places of the municipality or city where the property is situated, and if the same is worth more than 2(AA.AA, that such notice has been published once a wee! for at least three $&' consecutive wee!s in a newspaper of general circulation in the city of municipality The certificate of sale must be approved by the 3 ecutive Gudge Dhere the application concerns e tra)udicial foreclosure of real mortgages in different locations covering one indebtedness, only one filing fee corresponding to such debt shall be collected The ,ler! of ,ourt shall issue certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the description of the real estates and their respective locations The notice of sale shall be published in a newspaper of general circulation pursuant to Section 1, 25 +o. 1AB% The application of shall be raffled among all sheriffs After the redemption period has e pired, the ,ler! of ,ourt shall archive the records. +o auction sale shall be held unless there are at least two $2' participating bidders, otherwise the sale shall be postponed to another date. 6f on the new date set forth for the sale there shall not be at least two bidders, the sale shall then proceed. The names of the bidders shall be reported to the Sheriff of the +otary 2ublic, who conducted the sale to the ,ler! of ,ourt before the issuance of the certificate of sale. public or third persons. Jailure to comply with the statutory re#uirements as to publication of notice of auction sale constitutes a )urisdictional defect which invalidates the sale.Fac! of republication of notice of foreclosure sale made subse#uently after the original date renders such sale void -PN4 (s! Nepomuceno Productions nc!0 G!R! No! *,23%2! ?ecem#er )%0 )77).. Sec & of Act &1&7 does not re#uire personal or any particular notice on the mortgagor much less on his successors-in-interest where there is no contractual stipulation therefor. =ence, unless re#uired in the mortgage contract, the lac! of such notice is not a ground to set aside a foreclosure sale. +either does Sec & re#uire posting of notice of sale on the mortgage property and the certificate of posting is not re#uired, much less considered indispensable, for the validity of a foreclosure sale.
&. (.
7.
8. B. 9. %.
Re(emption 6t is the transaction by which the mortgagor reac#uires or buys bac! the property which may have passed under the mortgage, or divests the property of the lien which the mortgage may have created. NOTES: A sale by the mortgagor to a third party of the mortgaged property during the period for redemption transfers only the right to redeem the property and the right to possess, use and en)oy the same during said period. Dhere sale with assumption of mortgage not registered and made without the consent of the mortgagee, the buyer, thereof, was not validly substituted as debtor and, hence, had no right to redeem $4onne(ie (s! CA0 *)' SCRA *))'. 'in(s:
NOTES: The .ortgagor and .ortgagee have no right to waive the posting and publication re#uirements under Act. +o. &1&7. +otices are given to secure bidders and prevent a sacrifice of the property. ,learly, the statutory re#uirements of posting and publication are mandated, not for the mortgagor<s benefit, but for the CIVIL LAW COMMITTEE

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1. E=uity of Redemption right of mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage within the %A-day period from the date of the service of the order of foreclosure or even thereafter but before the confirmation of the sale. Applies to )udicial foreclosure of real mortgage and chattel mortgage foreclosure. NOTE: 0edemption of the ban!ing institutions is allowed within one year from confirmation of sale. 2. Ri"$t of Redemption right of mortgagor to redeem the mortgaged property within one year from the date of registration of the certificate of sale. Applies only to e tra)udicial foreclosure of real mortgage. NOTE: The right of redemption, as long as within the period prescribed, may be e ercised irrespective of whether or not the mortgagee has subse#uently conveyed the property to some other party $Sta! "nacia Rural 4an50 nc! (s! CA0 ),7 SCRA '*,' Perio( of Re(emption 1. 3 tra-)udicial $Act O&1&7' a. natural person one year from registration of the certificate of sale with 0egistry of 5eeds b. )uridical person same rule as natural person c. )uridical person $mortgagee is ban!' - three months after foreclosure or before registration of certificate of foreclosure which ever is earlier $sec. (B, of -eneral 4an!ing Faw' 2. Gudicial before confirmation of the sale by the court NOTE: Allowing a redemption after the lapse of the statutory period, when the buyer at the foreclosure sale does not ob)ect but even consents to the redemption, will uphold the policy of the law which is to aid rather than defeat the right of redemption. There is nothing in the law which prevents a waiver of CIVIL LAW COMMITTEE
the statutory period for redemption $0amire@ vs ,A, 21% S,0A 7%9'. Amount of t&e re(emption price: 1. .ortgagee is not a ban! $Act +o. &1&7, in relation to Sec. 29, 0ule &% of 0ules of ,ourt' a. purchase price of the property b. 1E interest per month on the purchase price c. ta es paid and amount of purchaser<s prior lien, if any, with the same rate of interest computed from the date of registration of sale, up to the time of redemption 2. .ortgagee is a ban! $-4F 2AAA' a. amount due under the mortgage deed b. interest c. cost and e penses NOTE: 0edemption price in this case is reduced by the income received from the property
ANTICBRESIS - "- *- "!%
(Articles
A contract whereby the creditor ac#uires the right to receive the fruits of an immovable of the debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit $Art 21&2'
C&aracteristics 1. Accessory contract it secures the performance of a principal obligation 2. :ormal contract it must be in a specified form to be valid, i.e., >in writing.? $Art 21&(' Special Re4uisites 1in a ition to the co''on essentia$ re-uisites2: 1. 6t can cover only the fruits of an immovable property" $Art 21&2' 2. 5elivery of the immovable is necessary for the creditor to receive

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the fruits and not that the contract shall be binding" &. Amount of principal and interest must be specified in writing $Art. 21&('" and (. 3 press agreement that debtor will give possession of the property to creditor and that the latter will apply the fruits to the interest, if any, then to the principal of his credit. $Art 21&2' NOTE: The obligation to pay interest is not of the essence of the contract of antichresis, there being nothing in the ,ode to show that antichresis is only applicable to securing the payment of interest-bearing loans. 1n the contrary, antichresis is susceptible of guaranteeing all !inds of obligations, pure or conditional Antic&resis
1. 0efers to real property 2. 2erfected by mere consent principal Sub)ect matter of both is real property
O0li1ations of antic&retic cre(itor: 1 To pay ta es and charges on the estate, including necessary e penses NOTE: ,reditor may avoid said obligation by* a. compelling debtor to reac#uire en)oyment of the property or b. by stipulation to the contrary 2 To apply all the fruits, after receiving them, to the payment of interest, if owing, and thereafter to the principal & To render an account of the fruits to the debtor ( To bear the e penses necessary for its preservation and repair Reme(ies of cre(itor in case of non* payment of (e0t 1. 4ring an action for specific performance" or 2. 2etition for the sale of the real property as in a foreclosure of mortgages under 0ule 89 of the 0ules of ,ourt.$Art 21&B' NOTES: The parties, however, may agree on an e tra)udicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge $Ta(era (s! El Fo"ar :ilipino0 nc!0 &+ P$il %*)'. A stipulation authori@ing the antichretic creditor to appropriate the property upon the non-payment of the debt within the agreed period is void $Art 2A99'. CBATTEL )ORT7A7E (Articles - 28*- 2 %
Ple(1e
1. 0efers to personal property 2. 2erfected by delivery of the thing pledged &. ,onsensual contract &. 0eal ,ontract
Antic&resis
1. 2roperty is delivered to creditor 2. ,reditor ac#uires only the right to receive the fruits of the property, hence, it does not produce a real right &. The creditor, unless there is stipulation to the contrary, is obliged to pay the ta es and charges upon the estate (. 6t is e pressly stipulated that the creditor given possession of the property shall apply all the fruits thereof to the payment of interest, if owing, and thereafter to the
Real )ort1a1e
1. 5ebtor usually retains possession of the property 2. ,reditor does not have any right to receive the fruits" but the mortgage creates a real right over the property &. The creditor has no such obligation
(. There is no such obligation on part of mortgagee
A contract by virtue of personal property is recorded ,hattel .ortgage 0egister security for the performance obligation $Art 21(A'.
which in the as a of an
C&aracteristics
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1. Accessory contract it is for the purpose of securing the performance of a principal obligation 2. :ormal contract registration in the ,hattel .ortgage 0egister is indispensable for its validity &. Unilateral contract it produces only obligations on the part of the creditor to free the thing from the encumbrance on fulfilment of the obligation. 1. Special Re4uisites 1in a ition to the co''on essentia$ re-uisites2: 6t can cover only personal or movable property in general" however, the parties may treat as personal property that which by its nature would be real property" 0egistration of the mortgage with the ,hattel .ortgage 0egister where the mortgagor resides" if property is located in a different province, registration in both provinces re#uired" 5escription of the property as would enable the parties or other persons to identify the same after reasonable investigation and in#uiry" and Accompanied by an affida(it of "ood fait$ to bind third persons, but not for the validity of the contract. 6t can cover only obligations e isting at the time the mortgage is constituted. NOTE: A mortgage containing a stipulation in regard to future advances in the credit will ta!e effect only from the date the same are made and not from the date of the mortgage $1aca (s ?a(ao Lum#er Co!0 **, SCRA *7%' Effect of failure to re1ister c&attel mort1a1e in t&e c&attel mort1a1e re1istry Article 21(A ma!es the recording in the ,hattel .ortgage 0egister an essential re#uisite but if the instrument is not recorded, the mortgage is ne(ert$eless #indin" #et8een t$e parties. 4ut the person in whose favour the law establishes a mortgage has no other right than to demand the e ecution and the recording of the document. C&attel )ort1a1e 1. 5elivery of the personal property to the mortgage is not necessary 2. registration in the ,hattel .ortgage 0egistry is necessary for its validity &. 6f property is foreclosed, the e/cess over the amount due goes to the debtor Ple(1e 1. 5elivery of the thing pledged is necessary 2. registration not necessary to be valid &. 5ebtor is not entitled to e/cess unless otherwise agreed or e cept in case of legal pledge (. 6f there is deficiency, creditor is not entitled to recover notwithstanding any stipulation to the contrary
2.
&.
(. 7.
(. 6f there is deficiency after foreclosure, creditor is entitled to recover the deficiency from the debtor, e cept under Art. 1(9( Sub)ect matter of both is movable property
Effect of re1istration: Creates a real ri"$t The registration of the chattel mortgage is an effective and binding notice to other creditors of its e istence and creates a real right or a lien which, being recorded, follows the chattel wherever it goes. The registration gives the mortgagee symbolical possession $Nort$ern 9otors0 nc! (s! Co=uia0 &+ SCRA ,%3'. CIVIL LAW COMMITTEE
Affi(a?it of 7oo( 6ait& 1ath in a contract of chattel mortgage wherein the parties Pseverally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a )ust and valid obligation and one not entered into for the purpose of fraud.? $Sec. 7, ,hattel .ortgage Faw'

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Effect of a0sence The special affidavit is re#uired only for the purpose of transforming an already valid mortgage into >preferred mortgage.? Thus, it is not necessary for the validity of the chattel mortgage itself but only to give it a preferred status. 6n other words, its absence vitiates the mortgage only as against third persons without notice li!e creditors and subse#uent encumbrancers. 6oreclosure of C&attel )ort1a1e NOTES: Joreclosure sale in chattel mortgage is by public auction under Act +o. 17A9, but the parties may stipulate that it be by private sale. The mortgagee may, after thirty $&A' days from the time of the condition bro!en, cause the mortgaged property to be sold at public auction by a public officer. The &A-day period is also a grace period for the mortgagor to discharge the mortgage obligation. After the sale of the chattel at public auction, the right of redemption is no longer available to the mortgagor $Ca#ral (s! E(an"elista0 )+ SCRA *777'. Application of procee( of sale: 1. ,osts and e penses of !eeping and sale 2. 2ayment of the obligation secured by the mortgage &. ,laims of persons holding subse#uent mortgages in their order (. The balance, if any, shall be paid to the mortgagor or person holding under him NOTES: The creditor may maintain an action for the deficiency, e cept if the chattel mortgage is constituted as security for the purchase of personal property paya#le in instalments $Art. 1(9('. The action for deficiency may be brought within ten $1A' years from the time the cause of action accrues $Arts 11(1 and 11(2'. CIVIL LAW COMMITTEE
1nly
e#uity of redemption is available to the mortgagor" the latter can no longer redeem after the confirmation of the foreclosure sale.
Ri1&t of re(emption Dhen the condition of a chattel mortgage is bro!en the following may redeem* a' mortgagor" b' person holding a subse#uent mortgage" or c' subse#uent attaching creditor. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it. The redemption is made by paying or delivering to the mortgagee the amount due on such mortgage and the costs, and e penses incurred by such breach of condition before the sale thereof $Sec 1&, Act +o. 17A9'. Ri1&t to possession of foreclose( property 1. 0eal mortgage After the redemption period has e pired, the purchaser of the property has the right to a conveyance and to be placed in possession thereof. NOTES: 2urchaser is not obliged to bring a separate suit for possession. =e must invo!e the aid of the courts and as! for a D06T 1J 21SS3SS61+. Section B of Act +o. &1&7 allows the purchaser to ta!e possession of the foreclosed property during the period of redemption upon filing of an e parte application and approval of a bond. 2. ,hattel mortgage Dhen default occurs and the creditor desires to foreclose, the creditor has the right to ta!e the property as a preliminary step for its sale.

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NOTE: Dhere the debtor refuses to yield the property, the creditor<s remedy is to institute an action either to effect )udicial foreclosure directly or to secure possession $032F3H6+' as a preliminary to the sale contemplated in Section 1( or Act. +o. 17A9 CONC+RRENCE AND PRE6ERENCE O6 CREDITS (Articles --"$ # --, % Concurrence of Cre(its 2ossession by two or more creditors of e#ual rights or privileges over the same property or all of the property of the debtor Preference of Cre(its 0ight held by a creditor to be preferred in the payment of his claim above others out of the debtor<s assets. NOTES: The rules on preference of credits apply only when two or more creditors have separate and distinct claims against the same debtor who has insufficient property! 2reference creates no lien on property, and, therefore, gives no interest in property, specific or general, to the preferred creditor but a preference in application of the proceeds after the sale. $9olina (s! Somes0 ,* P$il! %&' The preferential right of credit attains significance only after the properties of the debtor have been inventoried and li#uidated, and the claims held by his various creditors have been established. $?4P (s! NLRC0 *+, SCRA ,)+' Preference of Cre(it
Applies only to claims which do not attach to specific properties
GENERAL RULE: 5ebtor is liable with all his property, present and future, for the fulfilment of his obligations. $Art 22&8' EXE9PT PROPERTE: 1. 2resent property those provided under Arts. 177 and 2A7 of the Jamily ,ode, Sec. 1&, 0ule &% of the 0ules of ,ourt, and Sec. 119 of the 2ublic Fand Act 2. Juture property a debtor who obtains a discharge from his debts on account of his insolvency, is not liable for the unsatisfied claims of his creditors with said property sub)ect to certain e ceptions e pressly provided by law. $Secs. 89, 8%, The 6nsolvency Faw :Act +o. 1%78;' &. 2roperty under legal custody and those owned by municipal corporations necessary for governmental purposes
7eneral Cate1ories of Cre(it: 1. Specia$ Preferre Cre its - those listed in Arts. 22(1 and 22(2 shall be considered as mortgages and pledges of real or personal property or liens $Art. 22(&'. =ence, they are not included in the insolvent debtorIs assets. NOTES: Arts. 22(1 and 22(2 do not give the order of preference or priority of payment. They merely enumerate the credits which en)oy preference with respect to specific movables or immovables. Dith respect to the same specific movables or immovables, creditors, with t$e e/ception of t$e State -No! *. , merely concur. They only find application when there is a concurrence of credits, i.e., when the same specific property of the debtor is sub)ected to the claims of several creditors and the value of such property is insufficient to pay in full all the creditors. 6n such a situation, the #uestion of preference will arise.
Lien
,reates a charge on a particular property
Lia0ility of (e0torCs property for &is o0li1ations CIVIL LAW COMMITTEE

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MEMORY AID IN CIVIL LAW Article 22(2 ma!es no distinction

between registered and unregistered vendor<s lien $+o. 2'. =ence, any lien of that !ind en)oys the preferred credit status. /nli!e the unpaid price of real property sold, mortgage credits $+o. 7', in order to be given preference, should be recorded in the 0egistry of 2roperty. 4ut a recorded mortgage credit is superior to an unrecorded unpaid vendor<s lien $?e 4arretto (s! Cillanue(a0 * SCRA )++' The priority rule applies to credits annotated in the 0egistry of 2roperty. As to credits mentioned in +o. B of Article 22(2, there is preference among the attachments or e ecutions according to the order of the time they were levied upon the property. The pro rata rule in Article 22(% does not apply" otherwise, the result would be absurd. The preference of a credit annotated by an attachment or e ecution could be defeated by simply obtaining a writ of attachment or e ecution, no matter how much later $9ana#at (s La"una :ederation of :acomas0 nc!0 *2 SCRA &)*'. The last paragraph of Article 22(1 applies only when the right of ownership in such property continues in the debtor, and, therefore, it is not applicable to cases where the debtor has parted with his ownership therein, as where he has sold the property $Pe@a (s! 9itc$ell0 2 P$il '+%' 22(( creates are simply rights in favour of certain creditors to have the cash and other assets of the insolvent applied in a certain se#uence or order of priority. Article 22((, particularly par $1(' item $1' thereof, is not applicable to obligations of the State as it is a recogni@ed doctrine that the State is always solvent. 6t is inconceivable for the State to voluntarily initiate insolvency or general li#uidation proceedings or to be sub)ected to such proceedings under its own laws.
&.
Co''on Cre its those listed under Art. 22(7, which shall be paid pro rata regardless of dates. NOTE: 1rdinary 2referred and ,ommon ,redits cover only >free property? of the debtor, or those not sub)ected to Special 2referred ,redit. Effects of Article 8 of La0or Co(e to Art --22: 1. 0emoved the one-year limitation found in +o. 2 of Art. 22(( 2. .oving up the claims for unpaid wages $and other monetary claims' of laborers or wor!ers of insolvent from second priority to first priority in the order of preference established by Art. 22((
2.
Or inar) Preferre Cre its - those listed in Art. 22(( as amended by Art. 11A of the Fabor ,ode. NOTES: The provision not only enumerates the preferred credits with respect to other property, real and personal, of the debtor, but also gives their order of preference >in the order named?. 6n contrast with Articles 22(1 and 22(2, Article 22(( creates no liens on determinate property which follow such property. Dhat Article CIVIL LAW COMMITTEE
NOTES: 6n case of ban!ruptcy or li#uidation of the employer<s business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of the government and other creditors may be paid. The terms, >declaration? of ban!ruptcy, or >)udicial? li#uidation have been eliminated, nevertheless, according to the S,, ban!ruptcy or li#uidation proceedings are still necessary for the operation of the preference accorded to wor!ers under Art. 11A of the Fabor ,ode. $?4P (s! NLRC *+, SCRA ,)+I RA No! &%*' Sec *7'

214
MEMORY AID IN CIVIL LAW 6n

case of rehabilitation, the preference of credit granted to employees under Art 11A of the Fabor ,ode is not applicable $Ru##er8orld JP$ils!K (s CA0 ,7' SCRA %))'. ad)udicated, e.g. insolvency, settlement of decedent<s estate, or other li#uidation proceedings e cept where there are not more than one creditor.
Refectionary Cre(it 6ndebtedness incurred in the repair or reconstruction of something previously made, such repair or reconstruction being made necessary by the deterioration or destruction of the thing as it formerly e isted. ORDER O6 PRE6ERENCE O6 CREDITS Arts. 22(1 and 22(2, )ointly with Arts. 22(8 to 22(% establish a t8oH tier order of preference* / 0irst tier includes ta es, duties and fees due on specific movable or immovable property" -/ Secon tier all other special preferred $non-ta ' credits shall be satisfied pro-rata, out of any residual value of the specific property to which such credits relate. NOTES: The pro-rata rule does not apply to credits annotated in the 0egistry of 2roperty by virtue of a )udicial
order, by attachments and e ecutions, which are preferred as to >later credits?. 6n satisfying several credits annotated by attachments or e ecutions, the rule is still preference according to the priority of the credits in the order of time. 6n order to ma!e the pro rating provided in Art 22(% fully effective, the preferred creditors enumerated in +os. 2 to 1( of Art 22(2 must necessarily be convened, and the import of their claims ascertained. There must be first some proceeding where the claims of all the preferred creditors may be bindingly
,redits which do not en)oy any

preference with respect to specific property because they are not among those mentioned in Arts. 22(1 and 22(2 and those while included in said articles are unpaid because the value of the property to which the preference refers is less than the preferred credit or credits, shall be satisfied in the order established in Art. 22(( with reference to other real andCor personal property. ,ommon credits or those which do not fall under Arts. 22(1, 22(2, and 22(( do not en)oy any preference and shall be paid pro rata regardless
CIVIL LAW COMMITTEE


215

of dates.
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MEMORY AID IN CIVIL LAW

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=owever, the bailee<s right

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2. -enerally unilateral because only borrower has obligations

1nerous, actually a mutual sale

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MEMORY AID IN CIVIL LAW

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MEMORY AID IN CIVIL LAW

C&aracteristics: CIVIL LAW COMMITTEE

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1. The consumable thing deposited may be demanded at will by the depositor

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CIVIL LAW COMMITTEE

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-uaranty may be constituted to

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MEMORY AID IN CIVIL LAW

&. -uarantor secondarily liable

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MEMORY AID IN CIVIL LAW

6t is never necessary that the

&. -uarantor warrants the solvency of the promisor

(. -uarantor cannot be sued as promisor

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MEMORY AID IN CIVIL LAW

,annot even begin to ta!e place

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MEMORY AID IN CIVIL LAW

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MEMORY AID IN CIVIL LAW

The guarantor is subrogated by

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2rotective remedy #efore payment. 2reliminary remedy

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MEMORY AID IN CIVIL LAW

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MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

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Ri1&ts of t&e Ple(1ee CIVIL LAW COMMITTEE

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MEMORY AID IN CIVIL LAW