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.

EXCEPTION: The guarantor can still claim

reimbursement from the debtor in spite of lack of
notice if the following conditions are present: (PIG)
a. guarantor was prevented by fortuitous event
to advise the debtor of the payment; and
b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
Right of Guarantor to proceed against debtor
before payment
GENERAL RULE: Guarantor has no cause of action
against debtor until after the former has paid the
obligation
EXCEPTION: Article 2071
NOTES:
Article 2071 is applicable and available to the
surety. (Manila Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494)
Remedy 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. 2066

Art. 2071

Provides for the

enforcement of the
rights of the
guarantor/surety
against the debtor
after he has paid the
debt
Gives a right of
action after payment
Substantive right

Provides for his

protection before he
has paid but after he
has become liable

Protective remedy
before payment.
Preliminary remedy

Extinguishment of guaranty: (RA2CE2)

1. Release in favor of one of the guarantors, without
the consent of the others, benefits all to the
extent of the share of the guarantor to whom it
has been granted (Art 2078);
2. If 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 2077);
3. Whenever 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 2080);

4. For the same causes as all other obligations (Art

1231);
5. When the principal obligation is extinguished;
6. Extension granted to the debtor by the creditor
without the consent of the guarantor (Art 2079)
BOND
An undertaking that is sufficiently secured, and not
cash or currency
Bondsman (Art 2082)
A surety offered in virtue of a provision of law or a
judicial order. He must have the qualifications
required of a guarantor and in special laws like the
Rules of Court.
NOTES:
Judicial bonds constitute merely a special class of
contracts of guaranty by the fact that they are given
in virtue of a judicial order.
If the person required to give a legal or judicial bond
should not be able to do so, a pledge or mortgage
sufficient to cover the obligation shall admitted in
lieu thereof (Art 2083)
A judicial bondsman and the sub-surety are NOT
entitled to the benefit of excussion because they are
not mere guarantors, but sureties whose liability is
primary and solidary. (Art 2084)
PLEDGE, MORTGAGE AND ANTICHRESIS
I. Common Elements of Pledge, Mortgage,
Antichresis (Articles 2085 2092)

and

A. Essential Requisites (SOD) (Art 2085)

1. Secures the fulfillment of a principal obligation;
2. Pledgor, 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 (Cavite Development
Bank vs. Lim, 324 SCRA 346)
3. Pledgor, mortgagor, antichretic debtor must have free
disposal of their property, or be legally authorized for
such purpose.
NOTES:
Third persons can pledge or mortgage their own
property to secure the principal obligation.
It 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 (GSIS vs CA, 170 SCRA 533)
The accommodation pledgor or mortgagor,
without expressly 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 (Bank of America vs. American
Realty Corporation, 321 SCRA 659).
The accommodation pledgor or mortgagor is not
solidarily bound with the principal obligor but his
liability extents 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 prejudiced by any waiver of defense by
the principal debtor.

B. Prohibition against Pactum Commissorium (Art

2088; 2137)
Pactum Commissorium
Stipulation whereby the thing pledged or
mortgaged,
or
under
antichresis
shall
automatically become the property of the
creditor in the event of non-payment of the debt
within the term fixed.
Requisites:
1. There should be a pledge, mortgage, or
antichresis of property by way of 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: Pactum Commissorium is forbidden

by law and is declared null and void.
EXCEPTION: 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. Capability to secure all kinds of obligations,
i.e. pure or conditional (Art 2091)
D. Indivisibility (Art 2089)
GENERAL RULE: A pledge, mortgage, or antichresis
is indivisible, 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 jointly or not solidarily liable.

Consequences of indivisibility:
1. Single thing Every portion of the property pledged
or mortgaged is answerable for the whole obligation
2. Several things All of the several things pledged or
mortgaged are liable for the totality of the debt
3. Debtors heir/creditors heir - Neither the debtors
heir who has paid part of the debt cannot ask for
proportionate extinguishment, nor creditors heir
who received his share of the debt return the pledge
or cancel the mortgage as long as the debt is not
completely satisfied.
EXCEPTIONS:
1. Where each one of several things guarantees a
determinate portion of the credit
2. Where only a portion of the loan was released
3. Where there was failure of consideration.
4. Where there is no debtor-creditor
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 extrajudicially and waive the
chattel mortgage foreclosure, and maintain instead a
personal action for the recovery of the unpaid
balance of the credit (Phil. Bank of Commerce vs.
Macadaeg, 109 Phil 981)
E. When the principal obligation becomes due, the
things in which the pledge, mortgage, or
antichresis consists may be alienated for the
payment to the creditor. (Art. 2087)
NOTES:
If 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.
If he wishes to secure a title to the mortgaged
property, he can buy it in the foreclosure sale
(Montevirgin vs. CA, 112 SCRA 641)
F. Pledgor, mortgagor, antichretic debtor retains
ownership of the thing given as a security
PLEDGE (Arts 2093 2123)

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 Requisites (in addition to the common

essential requisites):
1. Possession of the thing pledged must be
transferred to the creditor or a third person by
agreement (Art 2093);
2. It 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 2094); and
3. 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 2096).

Kinds:
1. Conventional /Voluntary created by contract
2. Legal created by operation of law (examples:
Art. 546, 1731 and 1914 NCC)
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)
Unlike, however, in conventional pledge where
the debtor is not entitled to the excess unless it
is otherwise agreed, in legal pledge, the
remainder of the price of the sale after payment
of the debt and expenses, shall be delivered to
the debtor.
In legal pledge, there is no definite period for the
payment of the principal obligation. The pledgee
must make a demand for the payment of the
amount due him; otherwise he cannot exercise
the right of sale at public auction (Art 2122)
Characteristics:
1.
Real contract it is
perfected by the delivery of the thing pledged
by the debtor who is called the pledgor to the
creditor who is called the pledgee, or to a third
person by common agreement;
2.
Accessory contract
it has no independent existence of its own;
3.
Unilateral contract
it creates an obligation solely on the part of the

4.

creditor to return the thing subject thereof upon

the fulfilment of the principal obligation; and
Subsidiary contract the
obligation incurred does not arise until the
fulfilment of the principal obligation which is
secured.

Consideration in pledge:
Insofar as the pledgor is concerned, the cause is the
principal obligation.
If the pledgor is not the debtor, the cause is the
compensation stipulated for the pledge or the mere
liberality of the pledgor.
Extent of pledge: Unless stipulated otherwise, pledge
extends to the fruits, interests or earnings of the thing.
Rights and Obligations of a Pledgor
Rights
Obligations
1. To demand return in
case of reasonable
grounds to fear
destruction or
impairment of the thing
without the pledgees
fault, subject to the
duty of replacement
(Art 2107)
2. To bid and be
preferred at the public
auction (Art 2113)
3. To alienate the thing
pledged provided the
pledgee consents to the
sale (Art 2097)
4. To ask that the thing
pledged be deposited
(Arts 2104 & 2106)

1. To advise the
pledgee of the
flaws of the thing
(Art 2101)
2. Not to demand
the return of the
thing until after
full payment of
the debt,
including interest
due thereon and
expenses incurred
for its
preservation (Art
2105)

Rights of the Pledgee

KEY: D SBC BA2R2OPS2
1. Option to demand replacement or immediate
payment of the debt in case of deception as to substance
or quality (Art 2109)
2. To sell at public auction in case of reasonable
grounds to fear destruction or impairment of the thing
without his fault (Art 2108)
3. To bring actions pertaining to the owner (Art 2103)
4. To choose which of several things pledged shall be
sold
5. To bid at the public auction (Art 2113)
6. To appropriate the thing in case of failure of the 2 nd
public auction (Art 2112)
7. To apply said fruits, interests or earnings to the
interest, if any, then to the principal of the credit (Art
2102)

8. To retain excess value received in the public sale

(Art 2115)
9. To retain the thing until after full payment of the
debt (Art 2098)
10. To be reimbursed for the expenses made for the
preservation of the thing pledged (Art 2099)
11. To object to the alienation of the thing
12. To possess the thing (Art 2098)
13. 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 2119)
14. Option to demand replacement or immediate
payment of the debt in case of deception as to
substance or quality (Art 2109)
15. To sell at public auction in case of reasonable
grounds to fear destruction or impairment of the
thing without his fault (Art 2108)
16. To bring actions pertaining to the owner (Art
2103)
17. To choose which of several things pledged shall
be sold
18. To bid at the public auction (Art 2113)
19. To appropriate the thing in case of failure of the
2nd public auction (Art 2112)
20. To apply said fruits, interests or earnings to the
interest, if any, then to the principal of the credit
(Art 2102)
21. To retain excess value received
in the public sale (Art 2115)
22. To retain the thing until after full payment of the
debt (Art 2098)
23. To be reimbursed for the expenses made for the
preservation of the thing pledged (Art 2099)
24. To object to the alienation of the thing
25. To possess the thing (Art 2098)
26. To sell at public auction in case of non-payment
of debt at maturity (Art 2112)
27. To choose which of the several things pledged
shall be sold (Art 2119)
Obligations of the Pledgee
KEY: CUDA3
1. Take care of the thing with the diligence of a good
father of a family (Art 2099)
2. Not to use thing unless authorized or by the owner
or its preservation requires its use (Art 2104)
3. Not to deposit the thing with a 3 rd person unless so
stipulated (Art 2100)
4. Responsibility for acts of agents and employees as
regards the thing (Art 2100)
5. To advise pledgor of danger to the thing (Art 2107)
6. To advise pledgor of the result of the public
auction (Art 2116)

RIGHT OF PLEDGOR TO SUBSTITUTE THING PLEDGED

(ART.2107)
Requisites:
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
3. The pledgor is offering in place of the thing,
another thing in pledge which is of the same kind
and quality as the former
4. The pledge does not choose to exercise his right
to cause the thing pledged to be sold at public
auction
NOTE: The pledgees right to have the thing pledged sold
at public sale granted under the Article 2108 is superior
to that given to the pledgor to substitute the thing
pledged under Article 2107.
Prohibition against double pledge
Property which has been lawfully pledged to one
creditor cannot be pledged to another as long as the
first one subsists.
NOTE: Possession of a creditor of the thing pledged is an
essential requisite of pledge.
Extinguishment of Pledge (CRAPS)
1. For the same causes as all other obligations (Art
1231)
2. Return of the thing pledged by the pledgee to the
pledgor (Art 2110)
3. Statement in writing by the pledgee that he
renounces or abandons the pledge (Art 2111)
4. Payment of the debt (Art 2105)
5. Sale of thing pledged at public auction (Art 2115)
NOTE: The possession by the debtor or owner of the
thing pledged subsequent 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
extinguished but not the principal obligation itself. (Art
2110)
Requirements for sale of thing pledged at public
auction: (Art 2112)
1. The debt is due and unpaid
2. Sale must be at a public auction
3. there must be notice to the pledgor and owner,
stating the amount due
4. Sale must be with the intervention of a notary public
Effect of sale of the thing pledged: (Art 2115)
1. The sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of
the sale are equal to the amount of the principal
obligation, interest and expenses in a proper case
2. If the price of the sale is more than the amount due
the creditor, the debtor is not entitled to the excess
unless the contrary is provided

3. If 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
REAL ESTATE MORTGAGE (Articles 2124-2131)

A contract whereby the debtor secures to the

creditor the fulfilment of a principal obligation,
specially subjecting to such security immovable
property or real rights over immovable property
in case the principal obligation is not complied
with at the time stipulated.

Characteristics of the contract:

1. Real
2. Accessory
3. Subsidiary
4. 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. Until 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 eject 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. If the possession is
transferred to the mortgagee, it must not
expressly be for purpose of applying the fruits to
the interest then to the principal of the credit,
for then it would be an antichresis.
It is not an essential requisite that the principal
of the mortgage credit bears interest, or that the
interest as compensation for the use of the
principal and enjoyment of its fruits be in the
form of a certain percent thereof.

Special Requisites (in addition to the common

essential requisites):

1. It can cover only immovable property and alienable

real rights imposed upon immovables (Art 2124);
2. It must appear in a public instrument (Art. 2125); and
3. Registration in the registry of property is necessary to
bind third persons, but not for the validity of the
contract (Art 2125).
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: Where a mortgage is not valid or false, the
principal obligation which it guarantees is not rendered
null and void. What 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.
Kinds:
1. Voluntary agreed to by the parties or constituted by
the will of the owner of the property on which it is
created
2. Legal one required by law to be executed in favour
of certain persons
The persons in whose favour the law establishes a
mortgage have no other right than to demand the
execution and the recording of the document in
which the mortgage is formalized (Art 2125 par 2)
3. Equitable one which, although lacking the
formalities of a mortgage, shows the intention of the
parties to make the property a security for a debt
PLEDGE
1. Constituted on
movables
2. Property is
delivered to pledgee
or by common
consent to a third
person
3. Not valid against
third persons unless a
description of the
thing pledged and
date of pledge
appear in a public
instrument

REAL MORTGAGE
1. Constituted on
immovables
2. Delivery is not
necessary

3. Not valid against

third persons unless
registered

Extent of Mortgage:
Absent express 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 expropriation for

public use (Art 2127)
Object of Mortgage:
Future property cannot be an object of a contract
of mortgage (Art 2085[2]) However, a stipulation
subjecting to the mortgage lien, properties
(improvements) which the mortgagor may
subsequently acquire install, or use in connection
with real property already mortgaged belonging
to the mortgagor is valid (Peoples Bank and Trust
Co. vs. Dahican Lumber Co., 20 SCRA 84)
Special Rights:
1. Mortgagor - 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
2130) being contrary to public policy inasmuch as the
transmission of property should not be unduly
impeded.
2. Mortgagee - To claim from a 3rd person in
possession of the mortgaged property the
payment of the part of the credit secured by the
which said third person possesses (Art 2129)
NOTE: It is necessary that prior demand for payment
must have been made on the debtor and the latter
failed to pay (BPI vs Concepcion & Hijos, Inc., 53 Phil
906)
Foreclosure
The remedy available to the mortgagee by which
he subjects the mortgaged property to the
satisfaction of the obligation to secure that for
which the mortgage was given
NOTES:
It denotes the procedure adopted by the
mortgagee to terminate the rights of the
mortgagor on the property and includes the sale
itself (DBP vs Zaragoza, 84 SCRA 668)
Foreclosure is valid where the debtor is in default
in the payment of his obligation (Gobonseng, Jr.
vs CA, 246 SCRA 472)
Kinds:
1. Judicial ordinary action for foreclosure under
Rule 68 of the Rules of Court
2. Extrajudicial when mortgagee is given a special
power of attorney to sell the mortgaged property
by public auction, under Act No. 3135

Judicial
foreclosure
1. There is court
intervention
2. Decisions are
appealable
3. Order of court
cuts off all rights of
the parties
impleaded
4. There is equity
of redemption
except on banks
which provides for
a right of
redemption
5. Period of
redemption starts
from the finality of
the judgment until
order of
confirmation
6. No need for a
special power of
attorney in the
contract of
mortgage

Extrajudicial
foreclosure
1. No court
intervention
2. Not appealable
because it is
immediately
executory
3. Foreclosure does
not cut off right of
all parties involved
4. There is right of
redemption

5. Period 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
takes a mortgage in good faith and for valuable
consideration, the record showing clear title to the
mortgagor, will be protected against equitable claims
on the title in favor of third persons, of which he had
no actual or constructive notice (St. Dominic
Corporation vs. IAC 151 SCRA 577).
Where there is a right to redeem, inadequacy of
price is not material because the judgment debtor
may reacquire 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 consequently not sufficient to set
aside the sale.
Mere inadequacy of the price
obtained at the sheriffs sale will not be sufficient to
set aside the sale unless the price is so inadequate
as to shock the conscience of the court taking into
consideration the peculiar circumstances attendant
thereto. (Sulit vs. CA, 268 SCRA 441)
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 judicial and extra-judicial
foreclosure real mortgage.

 The action to recover a deficiency after

foreclosure prescribes after 10 years from the
time the right of action accrues (Arts 1142 &
1144).
Stipulation of upset price or tipo
It 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. It is null and
void for the property must be sold to the highest
bidder. Parties cannot, by agreement, contravene
the law and interfere with the lawful procedure
of the courts (BPI vs Yulo, 31 Phil 476)
Extrajudicial foreclosure real property (Act No.
3135)
The law covers only real estate mortgages. It is
intended merely to regulate the extrajudicial sale
of the property mortgaged if and when the
mortgagee is given a special power of express
authority to do so in the deed itself or in a
document annexed thereto.
The authority to sell is not extinguished by the
death of the mortgagor (or mortgagee) as it is an
essential and inseparable part of a bilateral
agreement (Perez vs PNB, 17 SCRA 833).
No 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 subject 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.
Procedure for extrajudicial foreclosure of both real
estate mortgage under Act No. 3135 and chattel
mortgage under Act No. 1508 (A.M. No. 99-10-05-0,
January 15, 2000)
1. Filing of application before the Executive Judge
through the Clerk of Court
2. Clerk of Court will examine whether the
requirement of the law have been complied with,
that is, whether the notice of sale has been
posted for not less than 20 days in at least three
(3) public places of the municipality or city where
the property is situated, and if the same is worth
more than P400.00, that such notice has been
published once a week for at least three (3)
consecutive weeks in a newspaper of general
circulation in the city of municipality
3. The certificate of sale must be approved by the
Executive Judge
4. Where the application concerns extrajudicial
foreclosure of real mortgages in different

5.

6.
7.
8.
9.

locations covering one indebtedness, only one filing

fee corresponding to such debt shall be collected
The Clerk of Court 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, PD No.
1079
The application of shall be raffled among all sheriffs
After the redemption period has expired, the Clerk of
Court shall archive the records.
No auction sale shall be held unless there are at least
two (2) participating bidders, otherwise the sale shall
be postponed to another date. If 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
Notary Public, who conducted the sale to the Clerk of
Court before the issuance of the certificate of sale.

NOTES:
The Mortgagor and Mortgagee have no right to waive
the posting and publication requirements under Act.
No. 3135. Notices are given to secure bidders and
prevent a sacrifice of the property. Clearly, the
statutory requirements of posting and publication are
mandated, not for the mortgagors benefit, but for
the public or third persons. Failure to comply with
the statutory requirements as to publication of notice
of auction sale constitutes a jurisdictional defect
which invalidates the sale.Lack of republication of
notice of foreclosure sale made subsequently after
the original date renders such sale void (PNB vs.
Nepomuceno Productions Inc., G.R. No. 139479.
December 27, 2002).
Sec 3 of Act 3135 does not require personal or any
particular notice on the mortgagor much less on his
successors-in-interest where there is no contractual
stipulation therefor. Hence, unless required in the
mortgage contract, the lack of such notice is not a
ground to set aside a foreclosure sale.
Neither does Sec 3 require posting of notice of sale
on the mortgage property and the certificate of
posting is not required, much less considered
indispensable, for the validity of a foreclosure sale.
Redemption
It is the transaction by which the mortgagor
reacquires or buys back 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
enjoy the same during said period.
Where 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 (Bonnevie vs. CA, 125 SCRA 122).
Kinds:
1. Equity of Redemption right of mortgagor to
redeem the mortgaged property after his default
in the performance of the conditions of the
mortgage within the 90-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 judicial foreclosure of real
mortgage and chattel mortgage foreclosure.

There is nothing in the law which prevents a waiver of

the statutory period for redemption (Ramirez vs CA, 219
SCRA 598).
Amount of the redemption price:
1. Mortgagee is not a bank (Act No. 3135, in relation to
Sec. 28, Rule 39 of Rules of Court)
a. purchase price of the property
b. 1% interest per month on the purchase price
c. taxes paid and amount of purchasers 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. Mortgagee is a bank (GBL 2000)
a. amount due under the mortgage deed
b. interest
c. cost and expenses
NOTE: Redemption price in this case is reduced by
the income received from the property

NOTE: Redemption of the banking institutions is

allowed within one year from confirmation of sale.
2. Right 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 extrajudicial foreclosure of
real mortgage.
NOTE: The right of redemption, as long as within the
period prescribed, may be exercised irrespective of
whether or not the mortgagee has subsequently
conveyed the property to some other party (Sta.
Ignacia Rural Bank, Inc. vs. CA, 230 SCRA 513)
Period of Redemption
1. Extra-judicial (Act #3135)
a. natural person one year from registration of
the certificate of sale with Registry of Deeds
b. juridical person same rule as natural person
c. juridical person (mortgagee is bank) - three
months
after
foreclosure
or
before
registration of certificate of foreclosure
which ever is earlier (sec. 47, of General
Banking Law)
2. Judicial 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 object but even consents to the
redemption, will uphold the policy of the law which is
to aid rather than defeat the right of redemption.

ANTICHRESIS (Articles 2132 -2139)

A contract whereby the creditor acquires the right to

receive the fruits of an immovable of the debtor,
with the obligation to apply them to the payment of
the interest, if owing, and thereafter to the principal
of his credit (Art 2132)

Characteristics
1. Accessory contract it secures the performance of a
principal obligation
2. Formal contract it must be in a specified form to be
valid, i.e., in writing. (Art 2134)

1.
2.
3.
4.

Special Requisites (in addition to the common

essential requisites):
It can cover only the fruits of an immovable property;
(Art 2132)
Delivery of the immovable is necessary for the
creditor to receive the fruits and not that the
contract shall be binding;
Amount of principal and interest must be specified in
writing (Art. 2134); and
Express 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 2132)

NOTE: The obligation to pay interest is not of the

essence of the contract of antichresis, there being

nothing in the Code to show that antichresis is only

applicable to securing the payment of interestbearing loans. On the contrary, antichresis is
susceptible of guaranteeing all kinds of obligations,
pure or conditional
Antichresis

Pledge

1. Refers to real
property
2. Perfected by mere
consent

1. Refers to personal
property
2.
Perfected
by
delivery of the thing
pledged
3. Consensual contract 3. Real Contract

Antichresis

Real Mortgage

1. Property is
delivered to creditor

1. Debtor usually
retains possession of
the property
2. Creditor does not
have any right to
receive the fruits;
but the mortgage
creates a real right
over the property
3. The creditor has no
such obligation

2. Creditor acquires
only the right to
receive the fruits of
the property, hence,
it does not produce a
real right
3. The creditor,
unless there is
stipulation to the
contrary, is obliged to
pay the taxes and
charges upon the
estate
4. It is expressly
4. There is no such
stipulated that the
obligation on part of
creditor given
mortgagee
possession of the
property shall apply
all the fruits thereof
to the payment of
interest, if owing,
and thereafter to the
principal
Subject matter of both is real property

Obligations of antichretic creditor:

1 To pay taxes and charges on the estate, including
necessary expenses
NOTE: Creditor may avoid said obligation by:
a. compelling
debtor
to
reacquire
enjoyment 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
3 To render an account of the fruits to the debtor
4 To bear the expenses necessary for its
preservation and repair

Remedies of creditor in case of non-payment of debt

1. Bring an action for specific performance; or
2. Petition for the sale of the real property as in a
foreclosure of mortgages under Rule 68 of the Rules
of Court.(Art 2137)
NOTES:
The parties, however, may agree on an extrajudicial
foreclosure in the same manner as they are allowed
in contracts of mortgage and pledge (Tavera vs. El
Hogar Filipino, Inc., 68 Phil 712).
A stipulation authorizing the antichretic creditor to
appropriate the property upon the non-payment of
the debt within the agreed period is void (Art 2088).
CHATTEL MORTGAGE (Articles 2140-2141)

A contract by virtue of which personal property is

recorded in the Chattel Mortgage Register as a
security for the performance of an obligation (Art
2140).

Characteristics
1. Accessory contract it is for the purpose of securing
the performance of a principal obligation
2. Formal contract registration in the Chattel
Mortgage Register is indispensable for its validity
3. 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.

2.

3.
4.
5.

Special Requisites (in addition to the common

essential requisites):
It 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;
Registration of the mortgage with the Chattel
Mortgage Register where the mortgagor resides; if
property is located in a different province,
registration in both provinces required;
Description of the property as would enable the
parties or other persons to identify the same after
reasonable investigation and inquiry; and
Accompanied by an affidavit of good faith to bind
third persons, but not for the validity of the contract.
It can cover only obligations existing at the time the
mortgage is constituted.
NOTE: A mortgage containing a stipulation in regard
to future advances in the credit will take effect only
from the date the same are made and not from the
date of the mortgage (Jaca vs Davao Lumber Co., 113
SCRA 107)

Effect of registration: Creates a real right

The registration of the chattel mortgage is an
effective and binding notice to other creditors of
its existence and creates a real right or a lien
which, being recorded, follows the chattel
wherever it goes. The registration gives the
mortgagee symbolical possession (Northern
Motors, Inc. vs. Coquia, 68 SCRA 374).
Effect of failure to register chattel mortgage in the
chattel mortgage registry
Article 2140 makes the recording in the Chattel
Mortgage Register an essential requisite but if the
instrument is not recorded, the mortgage is
nevertheless binding between the parties. But
the person in whose favour the law establishes a
mortgage has no other right than to demand the
execution and the recording of the document.
Chattel Mortgage
1. Delivery of the
personal property
to the mortgage is
not necessary
2. registration in
the Chattel
Mortgage Registry
is necessary for its
validity
3. If property is
foreclosed, the
excess over the
amount due goes to
the debtor

Pledge
1. Delivery of the
thing pledged is
necessary
2. registration not
necessary to be
valid
3. Debtor is not
entitled to excess
unless otherwise
agreed or except in
case of legal
pledge
4. If there is
deficiency, creditor
is not entitled to
recover
notwithstanding
any stipulation to
the contrary

4. If there is
deficiency after
foreclosure,
creditor is entitled
to recover the
deficiency from the
debtor, except
under Art. 1484
Subject matter of both is movable
property

Affidavit of Good Faith

Oath in a contract of chattel mortgage wherein
the parties "severally 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 just and

valid obligation and one not entered into for the

purpose of fraud. (Sec. 5, Chattel Mortgage Law)
Effect of absence
The special affidavit is required 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. In other words, its
absence vitiates the mortgage only as against third
persons without notice like creditors and subsequent
encumbrancers.
Foreclosure of Chattel Mortgage
NOTES:
Foreclosure sale in chattel mortgage is by public
auction under Act No. 1508, but the parties may
stipulate that it be by private sale.
The mortgagee may, after thirty (30) days from the
time of the condition broken, cause the mortgaged
property to be sold at public auction by a public
officer. The 30-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 (Cabral vs. Evangelista, 28 SCRA 1000).
Application of proceed of sale:
1. Costs and expenses of keeping and sale
2. Payment of the obligation secured by the
mortgage
3. Claims of persons holding subsequent mortgages
in their order
4. 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, except if the chattel mortgage is
constituted as security for the purchase of personal
property payable in instalments (Art. 1484).
The action for deficiency may be brought within ten
(10) years from the time the cause of action accrues
(Arts 1141 and 1142).
Only equity of redemption is available to the
mortgagor; the latter can no longer redeem after the
confirmation of the foreclosure sale.
Right of redemption
When the condition of a chattel mortgage is broken
the following may redeem:
a) mortgagor;
b) person holding a subsequent mortgage; or
c) subsequent 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 expenses incurred by
such breach of condition before the sale thereof
(Sec 13, Act No. 1508).

Right to possession of foreclosed property

1. Real mortgage After the redemption period has
expired, the purchaser of the property has the
right to a conveyance and to be placed in
possession thereof.
NOTES:
Purchaser is not obliged to bring a separate
suit for possession. He must invoke the aid of
the courts and ask for a WRIT OF POSSESSION.
Section 7 of Act No. 3135 allows the
purchaser to take possession of the
foreclosed property during the period of
redemption upon filing of an ex parte
application and approval of a bond.
2. Chattel mortgage When default occurs and the
creditor desires to foreclose, the creditor has the
right to take the property as a preliminary step
for its sale.
NOTE: Where the debtor refuses to yield the
property, the creditors remedy is to institute an
action either to effect judicial foreclosure
directly or to secure possession (REPLEVIN) as a
preliminary to the sale contemplated in Section
14 or Act. No. 1508
CONCURRENCE AND PREFERENCE
(Articles 2236 2251)

OF

CREDITS

Concurrence of Credits
Possession by two or more creditors of equal
rights or privileges over the same property or all
of the property of the debtor
Preference of Credits
Right held by a creditor to be preferred in the
payment of his claim above others out of the
debtors 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.
Preference 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. (Molina
vs. Somes, 31 Phil. 76)
The preferential right of credit attains significance
only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his
various creditors have been established. (DBP vs.
NLRC, 183 SCRA 328)
Preference of
Credit

Lien

Applies only to
claims which do
not attach to
specific
properties

Creates a charge
on a particular
property

Liability of debtors property for his obligations

GENERAL RULE: Debtor is liable with all his property,
present and future, for the fulfilment of his obligations.
(Art 2236)

EXEMPT PROPERTY:
1. Present property those provided under Arts. 155
and 205 of the Family Code, Sec. 13, Rule 39 of
the Rules of Court, and Sec. 118 of the Public
Land Act
2. Future 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 subject to
certain exceptions expressly provided by law.
(Secs. 68, 69, The Insolvency Law [Act No. 1956])
3. Property under legal custody and those owned by
municipal
corporations
necessary
for
governmental purposes
General Categories of Credit:
1. Special Preferred Credits - those listed in Arts.
2241 and 2242 shall be considered as mortgages and
pledges of real or personal property or liens (Art. 2243).
Hence, they are not included in the insolvent debtor's
assets.
NOTES:
Arts. 2241 and 2242 do not give the order of
preference or priority of payment. They merely
enumerate the credits which enjoy preference with
respect to specific movables or immovables. With
respect to the same specific movables or

2.

immovables, creditors, with the exception of the

State (No. 1), merely concur.
They only find application when there is a
concurrence of credits, i.e., when the same
specific property of the debtor is subjected to
the claims of several creditors and the value of
such property is insufficient to pay in full all the
creditors. In such a situation, the question of
preference will arise.
Article 2242 makes no distinction between
registered and unregistered vendors lien (No. 2).
Hence, any lien of that kind enjoys the preferred
credit status. Unlike the unpaid price of real
property sold, mortgage credits (No. 5), in order
to be given preference, should be recorded in the
Registry of Property. But a recorded mortgage
credit is superior to an unrecorded unpaid
vendors lien (De Barretto vs. Villanueva, 1 SCRA
288)
The priority rule applies to credits annotated in
the Registry of Property. As to credits mentioned
in No. 7 of Article 2242, there is preference
among the attachments or executions according
to the order of the time they were levied upon
the property. The pro rata rule in Article 2249
does not apply; otherwise, the result would be
absurd. The preference of a credit annotated by
an attachment or execution could be defeated by
simply obtaining a writ of attachment or
execution, no matter how much later (Manabat
vs Laguna Federation of Facomas, Inc., 19 SCRA
621).
The last paragraph of Article 2241 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 (Pea vs. Mitchell, 9 Phil 587)

Ordinary Preferred Credits - those listed in Art.

2244 as amended by Art. 110 of the Labor Code.
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.
In contrast with Articles 2241 and 2242, Article
2244 creates no liens on determinate property
which follow such property. What Article 2244
creates are simply rights in favour of certain
creditors to have the cash and other assets of the
insolvent applied in a certain sequence or order
of priority.

Article 2244, particularly par (14) item (1) thereof, is

not applicable to obligations of the State as it is a
recognized doctrine that the State is always solvent.
It is inconceivable for the State to voluntarily initiate
insolvency or general liquidation proceedings or to be
subjected to such proceedings under its own laws.
3.

Common Credits those listed under Art. 2245,

which shall be paid pro rata regardless of dates.
NOTE: Ordinary Preferred and Common Credits cover
only free property of the debtor, or those not
subjected to Special Preferred Credit.
Effects of Article 110 of Labor Code to Art 2244:
1. Removed the one-year limitation found in No. 2 of
Art. 2244
2. Moving up the claims for unpaid wages (and other
monetary claims) of laborers or workers of insolvent
from second priority to first priority in the order of
preference established by Art. 2244

NOTES:
In case of bankruptcy or liquidation of the employers
business, the unpaid wages and other monetary
claims of the employees shall be given first
preference and shall be paid in full before the claims
of the government and other creditors may be paid.
The terms, declaration of bankruptcy, or judicial
liquidation have been eliminated, nevertheless,
according to the SC, bankruptcy or liquidation
proceedings are still necessary for the operation of
the preference accorded to workers under Art. 110 of
the Labor Code. (DBP vs. NLRC 183 SCRA 328; RA No.
6715 Sec 10)
In case of rehabilitation, the preference of credit
granted to employees under Art 110 of the Labor
Code is not applicable (Rubberworld [Phils.] vs CA,
305 SCRA 722).
Refectionary Credit
Indebtedness incurred in the repair or reconstruction
of something previously made, such repair or
reconstruction being made necessary by the
deterioration or destruction of the thing as it
formerly existed.
ORDER OF PREFERENCE OF CREDITS
Arts. 2241 and 2242, jointly with Arts. 2246 to 2249
establish a two-tier order of preference:
1. First tier includes taxes, duties and fees due on
specific movable or immovable property;

2. Second tier all other special preferred (nontax) 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 Registry of Property by virtue of
a judicial

order, by attachments and executions, which are

preferred as to later credits. In satisfying
several credits annotated by attachments or
executions, the rule is still preference according
to the priority of the credits in the order of time.
In order to make the pro rating provided in Art
2249 fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Art 2242 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 adjudicated, e.g.
insolvency, settlement of decedents estate, or
other liquidation proceedings except where there
are not more than one creditor.

Credits which do not enjoy any preference with

respect to specific property because they are not

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