CREDIT TRANSACTIONS

Notes and Annotation taken from the book of De Leon and lectures of Atty. CJ Tan

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COMMODATUM
Definition
Bailee acquires the use of the thing loaned but not its fruits.
If any compensation is to be paid by him who acquires the use, the
contact ceases to be a commodatum. (becomes a lease)
a. Expiration of the stipulated period OR accomplishment of the
use
b. Return by the bailee of the thing after demand in the event
that the bailor has urgent need of the thing
c. Precarium or in the event that the bailee commits any acts of
ingratitude
d. Loss of the thing
e. Death of either bailor or bailee

Characteristics Subject Matter

a. Real Contract General Rule: The subject matter of a commodatum is generally non-
b. Unilateral Contract consumable.
c. Nominate Contract
Except: Consumable goods may be the subject of commodatum if the
d. Principal Contract
purpose is not the consumption BUT when it is for exhibition only.
e. Informal Contract
f. Gratuitous Contact Movable and Immovable property may be object in commodatum.
Essential Requisites Bailor does not transfer the ownership of the thing loaned hence he
may not be the owner of the thing.
a. All the essential requisites of a contract
i. Consent Bailee is estopped from asserting title to the thing received as against
ii. Object the bailor.
iii. Cause
b. Delivery of the thing is essential Right of the bailee is limited to the use of the thing loaned but not its
fruits unless there is a stipulation to the contrary.
Parties
Commodatum is Purely Personal
Bailor and Bailee
a. Death of either party extinguishes the contract
Purpose of the Contract b. Bailee can neither lend nor lease the object to a third person.
However, members of the bailee’s household may make use
Temporary use of the thing loaned
of the thing UNLESS
Extinguishment of the Contract i. Stipulation to the contrary
ii. Nature of the thing forbids such use

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OBLIGATIONS OF THE BAILEE Retention of the Thing

Principal Obligations General Rule: Bailee cannot retain the thing loaned on the ground that
the bailor owes him something.
a. Take care of the thing with the diligence of a good father of
the family. Exception: When the bailor, knowing of the flaws of the thing loaned,
b. Use the thing only for the purpose does not advise the bailee he shall be liable for damages which he may
c. Pay ordinary expenses and a portion of extraordinary suffer by reason thereof
expenses arising from the use of the thing. Two or more Bailees
d. Return and not retain
a. Same Contract
*Bailee can be held liable for damages b. Solidarily liable
Manner of Return

a. Same thing borrowed OBLIGATIONS OF THE BAILOR

b. Upon expiration of the period or after the accomplishment of
General Rule: Cannot demand the return of the thing until after the
the purpose
expiration of the period or after the accomplishment.
c. Place stipulated OR at the place where the thing might be at
the moment the obligation was constituted Exception: If he should have urgent need of the thing, he may demand
the temporary use of the thing. (Contract of commodatum is
Liability for the Loss (Art 1942)
suspended)
a. Devotes the thing to any purpose different from that for
Obligation to refund extraordinary expenses for the preservation of
which the thing has been loaned
the thing loaned.
b. Keeps it longer
c. Delivered with appraisal of its value Pay damages for known hidden flaws.
d. Lends or leases the thing to a third person
e. If, being able to save either the thing borrowed or his own Duration of the Loan
thing, he chose to save the latter. Term equivalent to the period stipulated or the period necessary.
General Rule: Bailor bears the risk of loss, or damage to the thing If the contractual relation is a precarium (no duration nor use of the
borrowed as a result of a fortuitous event. Reason: bailor retains thing is provided or is merely tolerated by the bailor), he may demand
ownership. the thing at any time.
Except: Art. 1942

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Right of the Bailor to Demand the Return for Acts of Ingratitude c. Bailor is aware
d. He does not advise
a. Bailee should commit some offenses against the person,
e. Bailee suffers damages
honor, or property of the bailor, his wife or children under his
parental authority The bailor is made liable for his bad faith. Bailee is given the right of
b. Bailee imputes to the bailor any criminal offense or any act retention until he is paid damages.
involving moral turpitude, even if he should prove it UNLESS
Bailor cannot exempt himself from payment of expenses or damages
the act is committed against the bailee, his wife or children
by abandoning the thing to the bailee.
under his parental authority.
c. Bailee unduly refuses the bailor support when the bailee is
legally or morally bound to give support.

Summary on the Rules on Expenses MUTUUM

Ordinary expenses for BAILEE
Definition
the USE of the thing
Ordinary expenses for BAILEE Contact whereby one of the parties delivers money or other
the PRESERVATION of consumable thing to another who acquires ownership thereof with
the thing the understanding or on the condition that the same amount of the
Extraordinary BAILOR same kind and quality shall be paid.
expenses for the
PRESERVATION It involves the return of the equivalent only and not the identical thing.
Extraordinary DIVIDED EQUALLY
expenses arising from Characteristics
the ACTUAL USE a. Real Contract
Other expenses for BAILEE b. Unilateral Contract
the USE c. Nominate Contract
d. Principal Contract
Liability to Pay Damages for Known Hidden Flaws e. Informal Contract
f. Gratuitous Contract if no stipulation to pay interest, Onerous
Following must concur Contract of there is an interest.
a. There is a flaw or defect in the thing
b. Flaw or defect is hidden

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Essential Requisites certain period and
return it. Owner
a. Essential Requisites of a Contract simply loses control
i. Consent but not ownership
ii. Object over the property.
iii. Cause Obligor – Obligee Landlord – Tenant
b. Delivery relationship relationship
Creditor receives Owner of the
Parties
“payment” for his property rented
Creditor and Debtor loan. receives
“compensation” or
Obligation of the Debtor “price”
a. Pay the creditor the equal amount of the same kind and
quality Fungible Things
b. Pay interest if expressly stipulated in writing
Usually dealt with by number, weight, or measure such as rice, oil,
Obligation to Pay sugar, etc. so that any given unit or portion is treated as the equivalent
of any other unit or portion.
a. What: Currency stipulated or currency in which the money
was delivered or currency which is legal tender in the PH Extinguishment of the Contract
b. Must be returned upon the end of the period. However, the
General principles of extinctions of obligations is applicable.
borrow can lose the right to use the period (art 1198)
a. Confusion
No criminal liability for failure to pay.
b. Condonation
Simple Loan v. Lease c. Compensation
d. Novation
SIMPLE LOAN LEASE
Delivery of money or Contract by which Transfer of Ownership
consumable to one of the parties
another with a delivers to another The borrower acquires ownership of the thing loaned. Mutuum
promise to repay an some non- involves the transmission of ownership of the thing loaned.
equivalent amount. consumable thing in
Risk of Loss and Deterioration
order that the latter
may use it during a

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Risk problems do not arise as both ownership and possession pass on Extraordinary Inflation or Deflation
to the borrower and the contractual obligations do not come into
General Rule: BSP declaration will apply
existence without the delivery taking place.
Exception: When the parties stipulate in the contrary
Barter or Exchange v Mutuum v Commodatum
Interest
MUTUUM COMMODATUM BARTER
Money or Non-fungible No interest shall be due unless it has been expressly stipulated in
any fungible writing.
thing
Bailee bound to Equivalent Interest may be paid either as compensation for the use of money
return the thing is given (monetary) or imposed by law or by courts as penalty or indemnity for
identical thing in return for damages (compensatory)
borrowed what has
been If not in writing, the interest is unenforceable.
received Kinds of Interests
May be Always Onerous
gratuitous gratuitous Simple Interest – paid for the principal at a certain rate fixed or
stipulated

Form of Payment Compound Interest – Imposed upon interest due and unpaid.

May either be in money or consumable/fungible things. Legal Interest – Charged in the absence of any agreement as to the
rate between the parties. 6% per annum (JULY 1, 2013 BSP Circular
Loan of Money – payment should be in currency stipulated or currency
No. 799)
in which the money was delivered or currency which is legal tender in
PH Lawful Interest – law allows or does not prohibit the rate of interest
within the maximum prescribed by law.
Loan of fungible things – borrower is in the obligation to pay the
lender another thing of the same kind, quality, and quantity. In case it Unlawful/Usurious Interest – Beyond the maximum fixed by law
is impossible to do, borrower shall pay the value at the time of the
Requisites for Recovery of Interest
perfection of the loan.
a. Must be expressly stipulated
b. Must be in writing
c. Must be lawful

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Absence of Stipulation of Interest b. Express stipulation

No interest shall be due unless it has been expressly stipulated in Usury now legally non-existent
writing.

Collection of interest without any stipulation reduced in writing is

prohibited by law.

Payment of interest must be expressly stipulated in writing applies to

monetary interest not to compensatory interest.
THE USURY LAW
Existence of Stipulation to Pay Interest Usury Defined

If rate is stipulated, that interest and not legal interest shall be applied. Contracting for or receiving something in excess of the amounts
allowed by law for the loan or forbearance
If rate is not mentioned, the legal rate of 6% shall be payable.
General Rule: Prospective only unless there is a clear legislative intent
No increase in interest shall be due unless such increase has also been to the contrary.
expressly stipulated.
Elements
Sales invoices or slips issued by a store to its customers do not
constitute the express stipulation required. a. Loan or forbearance
b. Understanding between the parties that the loan shall or may
Liability for Interest in the Absence of Stipulation be returned
Indemnity for Damages – 6% c. Unlawful intent to take more that the legal rate
d. Taking or agreeing to take for the use of the loan of something
a. Payment of penalty interest at the rate agreed upon or in the in excess of what is allowed by law.
absence thereof
b. Rate equal to the regular monetary interest or When it applies
c. Legal interest Loans, but not in commodatum
When Unpaid Interest Earns Interest Forbearance: contractual obligation of the creditor to forbear during
General Rule: accrued interest shall not earn interest except in two a given period to require the debtor, payment of an existing debt then
instances due and payable.

a. Judicially demanded No loan or forbearance, no usury.

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Rate of Interest No Longer Subject to any Ceiling Prescribed under the Penalty – Stipulated penalty, BUT DATE (if demand is
Usury Law Mandatory no rate BUT with waived or not needed)
monetary interest =
CB Circular No. 905 removed the ceiling on interest rate on loans or monetary interest to
forbearance of money, goods, or credit.
FINALITY OF JUDGMENT
Usury Law is suspended.

Rules on Interest

Loan or Forebearance of Money Stipulated penalty, no

rate = 6% p.a.
Monetary Stipulated Interest in From the CONSTITUTION
Interest writing of the loan

to Interest on Stipulated rate From JUDICAL DEMAND

Not imposed if not
Interest
stipulated in writing
FINALITY OF JUDGMENT Computed on to
Legal rate
accrued
monetary FINALITY OF JUDGMENT
interest. NOT
Interest is stipulated BUT on principal
not rate = 6% p.a. and NOT
including
penalty.

Compensatory Stipulated penalty rate From JUDICIAL or Not Loan or Forebearance of Money
Interest / EXTRAJUDICIAL
Liquidated/ Interest on amount of From EXTRAJUDICIAL
DEMAND or from DUE
Can be damages may be DEMAND or JUDICAL
established imposed at the DEMAND
with
reasonable No interest shall be
certainty adjudged on
unliquidated claims or DATE OF JUDGMENT

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 Unliquidated/ damages except when or b. Unilateral Contract. When the depositor has agreed to pay
cannot be until demand can be remuneration to the depositary that the contract becomes
established established with Bilateral.
with reasonable certainty. c. Nominate
reasonable d. Principal
certainty. Actual base computation e. Informal
is amount finally
f. Generally, gratuitous but can be an onerous contract.
adjudged.
Essential Requisites
For both a. Essential Requisites of a Contract
i. Consent
Legal rate of 6% p.a. as per BSP Circular No. 799 effective July 1, 2013.
ii. Object
Final judgements prior to July 1, 2013 shall not be disturbed, rate of iii. Cause
12% p.a. shall be imposed. b. Delivery (actual or constructive)

Parties

Depositor and Depositary

DEPOSIT Extinguishment
Definition a. General Modes of Extinguishment
b. Loss or destruction
A person receives a thing belonging to another, with the obligation of
c. In case of gratuitous deposit, the death of either party
safely keeping it and of returning the same.
d. Return of the thing deposited
If safekeeping is not the principal purpose of the contract, there is no
Deposit v. Mutuum
deposit.

Depositor need not be the owner. Deposit does not transfer DEPOSIT MUTUUM
Safekeeping Consumption
ownership.
Depositor can Lender must wait
Characteristics demand the return at until the expiration of
will the period
a. Real Contract Movable or Money or other
immovable consumable thing

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Deposit v. Commodatum Voluntary v. Necessary

DEPOSIT COMMODATUM Voluntary – the depositor has complete freedom in choosing the
Safekeeping Use depositary.
May be gratuitous Essentially gratuitous
(extrajudicial) only Both immovable and Necessary – no such freedom
movable movable Where there are Several Depositors

Two or more are claiming to be entitled to a thing deposited, the

Binding Effect depositary assumes the obligation to deliver to the one to whom it
Perfected only upon the delivery of the thing. Where there has been belongs.
no delivery, there is merely an agreement to deposit which is binding Compel the depositors to settle their conflicting claims among
and enforceable upon the parties. themselves in the nature of an interpleader.
A contract of future deposit is consensual. Where the Depositary is Capacitated and Depositor Incapacitated.
Agreement is binding. Delivery is perfection. Depositary is capacitated, he is subject to all the obligations of a
Kinds of Deposit depositary. He must return the property to the legal representative of
the incapacitated or to the depositor himself if he should acquire
Judicial – takes place when an attachment or seizure of property in capacity.
litigation is ordered.
A contract where one of the Voidable
Extrajudicial – parties is incapable of giving
consent
a. Voluntary – Delivery is made by the will of the depositor
Where both parties are Unenforceable
b. Necessary – Made in compliance with a legal obligation
incapacitated
If the guardian/parent of one Voidable
party ratifies
VOLUNTARY DEPOSIT
If both ratify Contract shall be validated from
Definition its inception.

Delivery is made by the will of the depositor.

Either orally or in writing.

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Where the Depositary is Incapacitated and Depositor is Capacitated Agreement upon the parties

The incapacitated depositary does not incur the obligation of a
depositary.
He is liable to
a. Return the thing deposited while still in his possession.
b. If the thing deposited is no longer in his possession, to pay the
depositor the amount which he may have benefited himself
with the thing or its price subject to the right of any third
person who acquired the thing in good faith.
In the absence of any stipulation,
a. The degree of diligence required is lower if the deposit is
gratuitous and
b. Higher if the deposit is with compensation.
He is liable if the loss or destruction of the thing occurs through his
fault or negligence.
Presumption of Fault – loss of the thing while in his possession.
Good father of a family.

Obligation to Return
OBLIGATIONS OF THE DEPOSITARY
What –
Principal Obligations
General Rule: the thing received together will all its products,
a. To keep the thing accessions, and accessories.
i. Safely
ii. Not deposit it with a third person Exceptions:
iii. Not change the way of the deposit a. Depositary was not prohibited from commingling grains and
iv. Collect the interest on certificates when they become other articles of the same kind and quality.
due and preserve the value of securities.
b. By force majeure loses the thing and receives money or
v. Not commingle grain and other articles of the same
another thing in its place. He must deliver the sum or other
kind and quality IF there is a stipulation to the
thing received.
contrary.
c. Depositary’s heir sells the thing in good faith. He is bound only
b. Not use the thing
to return THE PRICE he may have received.
c. Return the thing
i. Return with all its products, accessions and To whom –
accessories
a. Depositor
ii. Closed and sealed if delivered in such condition.
b. His heirs and successors
Degree of Care c. To the person who may have been designated in the contract.

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Who has a better right to receive, the heir or assignee? Depends.
a. If the assignee did not intervene but was just appointed
to receive, must be delivered to the heir.
b. If deposit was made for the benefit of the assignee, the
latter acquires the right to require delivery
Depositor is incapacitated at the time of making the deposit, the
property must be returned to the guardian or administrator or to the
depositor himself should he acquire capacity.
When there are two or more depositors, if they (1) are not solidary and
(2) the thing admits of division, each one cannot demand more than
his share.
When there (1) is solidarity and (2) the thing does not admit of division,
the provisions of Art 1212 and 1214 will apply.
In sum, only when there is solidarity, or the thing is indivisible, that the
depositor can request the return of the thing. In other cases, the
depositary is only obligated to deliver to each depositor the part that
pertains to such depositor.
Depositary must return the thing to the true owner.
When – Upon demand
Where – Place designated for its return. In the absence thereof, at the
place where the thing deposited might be even if it should not be the
same place where the original deposit was made.
Breach of Obligation to Return
Liability will be under the general provisions on obligations. Depositary
can be held criminally liable for estafa.
Mistake – relates not to the depositary but to his heir (sold it in good
faith)
Force Majeure –
a. Gratuitous: not bound to return the thing
b. Onerous: must deliver the sum or money or other thing
Obligation not to Transfer Deposit
GR: cannot deposit the thing with a third person
E: if deposit to a third person is allowed, the depositary is liable for the
loss if he deposited the thing with a person who is manifestly careless
or unfit. Also responsible for the negligence of his employees.
Urgent cases: the depositary may deposit the thing with a third person
if such is necessary for the preservation of the thing. He should inform
the depositor of the transfer.
Obligation not to Change Way of Deposit
May change if there are circumstances indicating that the depositor
would consent.
Depositary must first notify the depositor and wait for the decision
unless delay would cause danger.
Obligation to Collect Interest
If the thing should earn interest, depositary is under the obligation to
a. Collect
b. Take steps to preserve its value and rights corresponding to
it.
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Contract for Rent of Safety Deposit Boxes seek restitution until
the time of payment
A contract for the rent of safety deposit boxes is not an ordinary The only benefit is Essential cause of the
contract of lease but a SPECIAL KIND OF DEPOSIT, hence it is not to be that which accrues to transaction is the
strictly governed by the provisions on deposit. the depositor. necessity of the
borrower. Loan with
Obligation not to Commingle
interest is for the
GR: Depositary may commingle benefit of both.
Depositor has
E: Stipulation preference over other
creditors with respect
Various depositors of the mingled goods shall own the entire mass in
to the thing
common and each shall be entitled to such portion.
deposited.
Obligation not to make use of the thing

GR: cannot make use, since deposit is for safekeeping. *in reality, there is no substantive distinction

E: (a) There is express permission or (b) use is or preservation of the Liability for the Loss of the Thing through a Fortuitous Event
thing.
a. Stipulated
Permission shall not be presumed. b. Uses the thing without
c. Delays the return
Unless safekeeping is still the principal purpose, use of the thing loses d. Allows others to use it
the concept of a deposit and becomes a loan or commodatum.
Relation between Bank and Depositor
Irregular Deposit v. Mutuum
Banks deposits are in the nature of irregular deposit. They are really
Irregular deposit – the parties agree that fungible things will be loans. Governed by the provisions of mutuum.
deposited, with ownership thereof to be transferred to the depositary
and with the obligation to return another thing of the same kind, The bank’s failure to honor a deposit is failure to pay its obligations as
quality, and quantity. debtor and not a breach of trust arising from a depositary’s failure to
return the thing. It will not constitute estafa.
IRREGULAR DEPOSIT MUTUUM
May be demanded at Lender is bound by General Rule: Banks can compensate or set off the deposit in its hands
will the provisions of the for the payment of indebtedness to it on the part of the depositor. In
contract and cannot a true deposit, compensation is not allowed.

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Where the thing is delivered Closed and Sealed
Return the thing in the same condition
Pay damages should the seal or lock be broken through his fault
(Presumption of Fault)
Keep secret of the deposit when the seal or lock is broken with or
without his fault.
As regard to the value, the courts may pass upon the credibility of the
depositor.
When depositary justified to open – (a) presumed authority or (b)
necessity
Depositor need not prove his ownership
Depositary cannot demand that the depositor prove his ownership
If he discovers that the thing is stolen and finds out who the real owner
is, he must advice the latter of the deposit.
If the real owner does not claim it within one month, the depositary
shall be relieved of all responsibility by returning the thing to the
depositor.
c. May also retain the thing in pledge until full payment of what
may be due him by reason of deposit.
Right of the Depositary to return thing
Gratuitous: the depositary that has justifiable reasons for not keeping
the thing (e.g. going abroad) may return it to the depositor, if the
latter refuses, may consign in court.
Onerous: no right to return. He is bound by the period.
Depositary may return the thing in pledge until full payment of what
may be due to him by reason of the deposit.
OBLIGATIONS OF THE DEPOSTOR
Obligation to pay expenses of preservation
Applies only if the deposit is gratuitous
Obligation to pay losses incurred due to the character of thing
deposited
General Rule: depositary must be reimbursed
Exceptions:

If the depositary has reasonable grounds to believe that the thing has a. Depositor was not aware
not been lawfully acquired by the depositor, the former may return b. Was not expected to know
the same. c. He notified the depositary
d. Depositary was aware
When the Depositary not obliged to return thing deposited

a. If he returns, he would be disobeying the judicial order of Deposit is Extinguished

attachment
b. If there is an opposition of another regarding ownership, a. Upon the loss or destruction of the thing deposited
depositary must consign the thing in court. b. In case of a gratuitous deposit, death of either party.

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 c. General modes of extinguishment precautions which said hotel-keepers advised relative to the care and
d. Return vigilance of their effects.
e. Conversion to another contract
They are liable for vehicles, animals and articles which have been
NECESSARY DEPOSIT introduced or placed in the annexes of the hotel.

When deposit is necessary When hotel-keepers liable

a. Legal Obligation a. The loss or injury to the personal property of the guests is
b. Calamity/Miserable Deposit caused by his employees as well as by strangers.
c. Travelers in inns b. Loss is caused by the act of a thief or robber done without the
d. Common Carrier use of arms and irresistible force.

Legal Obligation When hotel-keeper not liable

a. Judicial deposit of a thing the possession of which is being a. Caused by force majeure
disputed in a litigation b. Theft or robbery with use of arms and irresistible force
b. Deposit with a bank c. Acts of guests, his family, servants, and visitors
c. Thing is pledge and the creditor uses the same without the d. Character of the thing
authority Exemption or diminution of liability
d. Rules of Court
e. Those constituted to guarantee contracts VOID. Hotel keeper cannot free himself from responsibility

Miserable Deposit Hotel-keeper’s right to retain

The possession of the movable thing passes from one person to Right to retain the things brought into the hotel by the guest as
another by accident or through force of circumstances and which the security for credits on account of lodging and supplies furnished to
law imposes in the recipient the obligations of a bailee guests.

Travelers Judicial v. Extrajudicial Deposits

Effects of travelers in hotels or inns. JUDICIAL EXTRAJUDICIAL

Will of the Court Will of the parties
Keepers shall be responsible for them as depositaries PROVIDED (a) Secure the right of the Safekeeping
notice was given to them or to their employees (b) guests take the party to recover

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 Movable and Movable As a rule, a person who deposits goods with a warehouseman for
Immovable storage is entitled to a receipt.
Onerous May or may not be
onerous Form and Contents of the Receipt
Behalf of the person Depositor a. Location of the Warehouse – to determine where the goods
who has a right are located
Controversy ends Depositor claims back
b. Date of issue of receipt – indicates a prima facie the date
ROC
when the contract of deposit is perfected and when the
storage charges shall run
c. Consecutive number of the receipt- to identify each receipt
with the goods for which it was issued.
THE WAREHOUSE RECEIPTS d. Person to whom the goods are deliverable – to determine the
person who shall prima facie be entitled lawfully to the

LAW possession of the goods.

Documents of Title
A document issued by a carrier or warehouseman reciting the receipt
of goods for carriage or keeping and the terms and conditions thereof.
e. Rate of Storage charge – states the consideration
f. Description of goods – to be sufficiently described.
g. Signature of the warehouseman
h. Warehouseman’s ownership of or interest in goods
i. Statement of advances made and liabilities incurred.

Warehouseman (WM) Effect of Omission of any Essential Terms

Person lawfully engaged in the business of storing goods for profit. Validity not affected

Warehouse It will only render the WM liable for damages caused

Building or place where goods are deposited and stored for profit. Negotiability not affected

Warehouse Receipt (WR) Contract is converted to ordinary deposit.

Written acknowledgement by a warehouseman that he has received
and holds certain goods therein described in store for the person to
whom it is issued.
Issuance of the Receipt
Terms that cannot be included in the WR
Exemption for liability for misdelivery
Exemption from liability for negligence

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Duplicates d. Honor altered receipts
e. Not issue receipt if goods are inexistent
The word “Duplicate” shall be plainly placed upon the face of the WR.
f. Properly describe the goods
WM shall be liable for failure to mark to anyone who purchased the g. Keep the goods separate and not comingle goods
subsequent receipt for value supposing it to be an original. h. Obligations with respect to goods in case of attachment or
levy
Meaning of “Negotiable” under the Act
Section 8
Indicates that in the passage of WR through the channels of
commerce, the law regards the property which they describe as In the absence of some lawful excuse, the WM is bound to deliver the
following them and gives to their regular transfer by indorsement the goods upon a demand made if such demand is accompanied with
effect of manual delivery of the things specified in them.
a. Offer to satisfy the WM’s lien
Effect of Failure to Mark “Negotiable” or “Non-Negotiable” b. Offer to surrender the receipt
c. Readiness and willingness to sign
Failure to mark the word “Negotiable” does not render it non-
negotiable if it contains words of negotiability. Burden of proof shall be upon the WM to establish the existence of a
lawful excuse.
In case of non-negotiable receipts, the law imposes upon the WM to
duty mark then as such otherwise they shall be considered negotiable Necessity of Demand
provided the holder of such unmarked receipt purchased it for value
GR: demand is necessary
supposing it to be negotiable.
E: demand is evidently useless
OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN
Property to be delivered
Principal Obligations
In general, the WM is obligated to deliver the identical property.
a. To take care of the goods
b. To deliver them to the holder provided the conditions of If authorized, the WM may comingle goods. In such case, the various
Section 8 are fulfilled depositors shall own the entire mass and each shall be entitled to such
portion.
Other Obligations
Time of delivery
a. Stamp “duplicate”
b. Place “non-negotiable” Time specified in the contract
c. Cancel negotiable receipts upon delivery When no particular time, WM must deliver on seasonable demand

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To whom Alteration is Original tenor.
immaterial
Person lawfully entitled to possession of goods or his agent. Alteration is material Altered receipt
Person who is either himself entitled to delivery by the terms of a non- but authorized
negotiable receipt or who has written authority from the person Alteration is material Original tenor
entitled. and innocently made
but unauthorized
Person in possession of a negotiable receipt. Alteration is Original tenor
fraudulently made
WM Liability for Misdelivery

Liable for conversion to all having right of property or possession in
the goods if he delivered the goods to people who are not entitled.
He is also liable if prior to delivery
a. He has been requested not to make the delivery
b. Had information that the delivery was to one not lawfully
entitled
Negotiable receipts must be cancelled when goods are delivered
The WM who delivered the goods to the rightful owner but does not
cancel the receipt shall be liable to subsequent purchasers for value
in good faith.
Negotiable Receipts must be cancelled or marked when PART of the
goods are delivered
Altered Receipts
WM is still liable of alteration is
a. Immaterial
b. Authorized
c. Made without fraudulent intent
Liability of WM in case of Lost or Destroyed WR
It is essential that the court shall pass upon the question and make
sure that the receipt is really lost or destroyed.
Court may order the delivery of the goods only
a. Upon proof of loss or destruction
b. Upon giving a bond with sufficient sureties
WM cannot set up title in himself
WM cannot refuse to deliver the goods on the ground that he has
acquired title or right to the possession of the same. UNLESS such title
or right is derived
a. From a transfer made by the depositor at the time of the
deposit
b. From WM’s lien
Duty of the WM when there are several claimants
The WM must determine within a reasonable time the validity of the
claims and to deliver to the person whom he finds is entitled to the
goods.

CABRERA B2020 | 18
He is not excused from liability if he makes a mistake.
The WM must bring a complaint in interpleader and require the
claimants to litigate amongst themselves. In such case, the WM shall
be relieved from liability.
Commingling of Deposited Goods
GR: a WM may NOT mingle goods belonging to depositors.
E: if he is authorized
e. Goods were stolen or destroyed without negligence on his
party
WM is not precluded from other remedies
WM is entitled to all remedies allowed by law.
Satisfaction of Lien by Sale
WM shall give a written notice to the depositor and to any other
person. Notice shall contain:

Extent of WM’s lien a. Itemized statement of the WM’s claim

b. Brief description
WM’s lien over the goods deposited is his security for the payment of
c. A demand that the amount of the claim as stated in the notice
the charges, money advanced, and other expenses enumerated in Sec
d. Statement that unless the claim is paid within the time
27.
specified, the goods will be advertised for sale and sold by
Goods Subject to Lien auction

a. Goods belonging to the depositor or his principal Advertisement of sale shall include the
b. Goods stored in fraud of true owner’s rights
a. Description of goods
Loss and Waiver of Lien upon Goods b. Name of the owner
c. Time
a. By surrendering possession of goods d. Place
b. Wrongfully refusing to deliver goods
Published once a week for 2 consecutive weeks in a newspaper
Valid Reasons for Refusing to deliver goods published in the place where such sale is to be held.
a. Does not satisfy requirements of sec 8 Sale shall not be held less than 15 days from the time of first
b. WM has legal title in himself on the goods publication.
c. WM has legally set up the title or right of third persons as
lawful defense (requested not to make delivery or Advertisement shall be posted at least 10 days before the sale and in
information that the delivery is to one not legally entitled) not less than 6 conspicuous places.
d. Unsatisfied lien

CABRERA B2020 | 19
Proceeds of the Sale a. Title to the goods
b. Right to notify the WM
a. Satisfaction of WM’s lien
c. Right to acquire the obligation of the WM to hold the goods
b. Reasonable charges of notice, advertisement, and sale.
for him
c. Excess shall be held by the WM and delivered on demand to
the person entitled to the goods. Right of transferee is not absolute. He merely steps into the shoes of
the transferor.
Any time before the goods are sold, any person claiming a right of
property or possession may pay the WM’s lien and to pay the Rights of Transferee of a Negotiable Receipt
reasonable expenses and liabilities incurred in serving notices etc. WM
a. Right to the goods
shall deliver the goods to the person making payment if he is entitled.
b. Right to compel the transferor to indorse the receipt
Otherwise the WM shall retain possession.
Warranties on Sales Receipt
Perishable and Hazardous Goods
a. It is genuine
If goods are perishable in nature or by keeping will deteriorate greatly
b. Legal right to negotiate
in value, or by their odor, leakage, inflammability, or explosive nature,
c. Knowledge of no fact which would impair the validity or worth
the WM may give such notice to the depositor to satisfy is lien and
d. Right to transfer the title to the foods and the foods are
remove them from the warehouse.
merchantable or fit for a particular purpose.
Failure to do so will entitle the WM to sell the goods without
Lawful excuse not to deliver the goods
advertising.
a. Failure to satisfy conditions required upon demand
If, with reasonable effort, he is unable to sell, he may dispose of them
(surrender, satisfy, and sign)
in any lawful manner and shall incur no liability.
b. Sale of goods to third persons to satisfy WM’s lien
Proceeds of the sale shall be disposed in the same manner as the c. Sale of goods due to perishable and hazardous character
satisfaction of the WM’s lien. d. Loss of goods without the fault of the WM or through
fortuitous event
NEGOTIATION AND TRANSFER OF RECEIPTS e. Requested not to deliver by persons who have legal title
f. Claim by third persons – in which case he could file an
Negotiation of Negotiable Receipt
interpleader
Same as in the negotiation of promissory notes and bills of exchange g. When a negotiable receipt is judicially attached if the
under the Negotiable Instruments Law. document is surrendered, negotiation is enjoined and the
document is impounded by the court.
Rights of Persons to whom receipt had been transferred

CABRERA B2020 | 20
 Place - Absence of any stipulation, the domicile of the debtor.
GUARANTY AND SURETYSHIP Time – as soon as creditor was unsuccessful in exhausting the
properties of the debtor
NATURE AND EXTENT OF GUARANTY
Definition of Suretyship
Definition of Guaranty
One person (debtor) has undertaken an obligation and another person
Guarantor binds himself to the creditor to fulfill the obligation of the (surety) is also under a direct and primary obligation or other duty to
principal debtor in case the latter should fail to do so. a third person (creditor).
Characteristics of the Contract A Contractual relation resulting from an agreement whereby one
a. Consensual person, the surety, engages to be answerable to a third person for the
b. Unilateral debt, default, or miscarriage of another.
c. Nominate Laws Applicable to Suretyship
d. Accessory
e. Formal Whenever applicable, the provisions on guaranty also applies to
f. Generally gratuitous suretyship.

Parties Applies the following provisions:

Creditor and the guarantor. The principal debtor may also be a party. Art. 2066 – right to indemnification

Essential Requisites of the Contract of Guaranty Art. 2067 – right to subrogation

a. All essential requisites of a contract Art. 2079 – Extension of time granted by the creditor to the debtor
without consent of the surety will release the surety.
Scope of Guarantee
Do NOT apply:
a. Principal obligation
b. Accessory obligations pertaining to the principal obligation Art. 2058 – Benefit of Excussion
c. Obligations that arise as a matter of law from the guaranteed
Art. 2063 – Compromise between the creditor and debtor benefits the
obligations
guarantor but does not prejudice him.
d. Obligation to pay judicial costs
Art. 2071 – The guarantor, before payment, may go against the debtor
Payment by the Guarantor

CABRERA B2020 | 21
Art. 2080 – The guarantors are released if creditor’s acts prevent default of the matter how much he
subrogation principal. may be injured
thereby
Art. 2081 – The guarantor may set up ahainst the creditor all the Can claim Cannot claim release
defenses. from his obligation
under Art 2080 (no
Guarantor v. Surety
subrogation)
GUARANTOR SURETY
Insurer of the Undertaking that the
Guarantor is not the insurer of debt guaranteed
solvency of the debt shall be paid.
debtor and thus binds Surety - undertakes to pay if the principal does not pay without regard
himself to pay of the to his ability to do so. Pay the creditor without qualification if the
principal is unable to principal debtor does not pay.
pay.
Depends upon an Assumes liability as a Guarantor – only binds himself to pay if the principal cannot pay or
independent regular party to the unable to pay. Does not contract that the principal will pay but simply
agreement to pay the undertaking that he is able to do so.
obligation of the
primary debtor fails to Responsibility of the surety is greater and more onerous that the
do so. guarantor.
Second or subsidiarily Liability to the
Guaranty v. Indorsement
liable creditor is direct,
primary, and absolute GUARANTY INDORSEMENT
Not bound to take Held to know every Contract is that of Contract is primarily
notice of the non- default of his principal security one of transfer
performance of his Liability is more
principal extensive
Often discharged by Will not be discharged Warrants the Does not
the mere indulgence either by mere solvency
of the creditor of the indulgence of the Cannot be sued May be sued
principal, and is creditor of the
usually not liable principal or by want of
unless notified of the notice of the default
of the principal, no

CABRERA B2020 | 22
The language employed and other circumstances of the particular Rights of the Third Person who pays
transaction are the determining factors in ascertaining whether a
A person who pays Can recover insofar as
particular contract is one of indorsement or guaranty.
WITHOUT knowledge payment has been
Guaranty v. Warranty or AGAINST the will of
beneficial to the
the principal debtor
debtor. He cannot
GUARANTY WARRANTY compel the creditor
Contract by which a Undertaking that the to subrogate him with
person is bound to title, quality, or the rights
another for the quantity of the WITH the knowledge He is subrogated by
fulfillment of a subject matter of a and consent virtue thereof to all
promise or contract is what it has the rights which the
engagement of a third been represented to creditor had
party. be

Guaranty may be constituted to guarantee the performance of

Cause of the Contract of Guaranty
The same which supports the obligation as to the principal debtor.
Principal obligation is a sufficient consideration to support a contract
of guaranty.
It is not necessary that the guarantor receive any part or benefit
accruing to the principal.
Guaranty Undertaken without knowledge of the debtor
Guaranty is generally unilateral. It exists for the benefit of the creditor
and not the principal debtor.
Creditor has every right to take all possible measures to secure the
payment even without the knowledge and even against the will of the
debtor.
a. Voidable
b. Unenforceable
c. Natural obligations
Continuing Guaranty or Suretyship
It 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 revoked.
It covers ALL transactions, including those arising in the future, which
are within the description or contemplation of the contract of
guaranty, until expiration or termination thereof.
Prospective in operation.
Guarantor’s Liability cannot exceed Principal Obligation

The guarantor may bind himself for less but not for more

CABRERA B2020 | 23
Should he bind himself for more, his obligations shall be reduced to
the limits of that of the debtor.
Creditors suing on a SURETYSHIP bond may recover from the surety as
part of their damages, interest at the legal rate, judicial costs, and
attorney’s fees even without stipulation and even if the surety would
thereby become liable for more that the total amount stipulated.
Surety is made to pay not by reason of the contract but by failure to
pay when demanded.
Guaranty is NOT Presumed.
In the interest of the guarantor who in many cases finds himself under
the harsh necessity of paying another’s debt.
Guaranty covered by STATUTE OF FRAUDS (not surety)
Must not only be expressed but must also be reduced to writing.
A contract of guaranty need not appear in a public document to be
valid or enforceable.
Guaranty is strictly construed
In favor of the guarantor
If there are any doubts on the terms and conditions of the guaranty or
surety, it should be resolved in favor of the guarantor.
Liability for obligation stipulated – guarantor is liable only for the
obligation of the debtor stipulated and not to obligations assumed
previous to the execution of the guaranty unless an intent to be so
liable is clearly indicated.
Strictissimi Juris - Refers to an accommodation surety
An accommodation surety acts without motive of pecuniary gain and
hence should be protected against unjust pecuniary impoverishment
by imposing on the principal, duties akin to those of a fiduciary.
Extent of Guarantor’s Liability
Definite – obligation of the guarantor under the terms of the contract
is limited on whole or in part of the principal debt.
Indefinite or Simple – terms are general and indefinite and do not
specify in clear and express manner that the liability of the guarantor
is limited to the principal debt, it extend up to the accessories
Liability if Guarantor for Judicial Costs
Shall answer for the judicial costs only as have been incurred after he
has been judicially required to pay.
Qualifications of a Guarantor
a. He possesses integrity
b. He has capacity to bind himself
c. He has sufficient property to answer for the obligation
The creditor can waive the requirements.
Qualifications only need to present at the time of the perfection of the
contract. Subsequent loss would not operate to exonerate the
guarantor of the eventual liability. However, the creditor may demand
another guarantor with the proper qualifications.
Selection of Guarantor
Specified person The substitution of
stipulated as guarantor may not be
guarantor demanded
CABRERA B2020 | 24
 Guarantor selected by Debtor answers for
the principal debtor the qualifications
until the Condition for Guarantor to set up Benefit of Excussion
extinguishment of the As soon as he is required to pay, he must point out to the creditor
debt. AVAILABLE property of the debtor within the Philippines
Guarantor personally Responsibility falls
designated by upon the creditor not Failure to point out forecloses his right to set up the defense of
creditor the debtor excussion.
Creditor can demand when guarantor is (a) insolvent or (2) convicted
of a crime involving dishonesty Duty of the Creditor to Resort to ALL legal remedies

After guarantor has pointed out the properties, it becomes the duty
EFFECTS OF GUARANTY of the creditor to exhaust all the property and to resort to all legal
Right of the Guarantor to Benefit of Excussion or Exhaustion remedies.

Guarantor cannot be compelled to pay until all properties of the
debtor are exhausted and creditor has resorted to all legal remedies
against the debtor.
Guarantor is only secondarily liable
All legal remedies against debtor should first be exhausted.
Excussion Shall NOT take place
He shall suffer the loss for failure to do so.
Compromise
A contract whereby the parties, by making reciprocal concessions,
avoid litigation or to put an end to one already commenced.
A compromise between the creditor and principal debtor BENEFITS
the guarantor by does not prejudice him.

a. If the guarantor has expressly renounced
b. He bound himself solidarily
c. In case of insolvency of the debtor
d. When he has absconded or cannot be sued within the
Philippines unless he has left a manager or representative
e. If it may be presumed that excussion would not result in the
satisfaction of the obligation.
Between creditor and guarantor does not prejudice the debtor.
Sub-guarantor enjoys the Benefit of Excussion.
With respect to the principal debtor and to the guarantor.
Benefit of Division
a. There are several guarantors of only one debtor and for the
same debt
b. Claimed in a timely manner
c. Solidarity has not been expressly stipulated

CABRERA B2020 | 25
Lost the same manner as excussion.
Guarantor who pays for a Debtor must be indemnified
a. Total amount of the debt
b. Legal interests
c. Expenses incurred after having notified the debtor that
payment had been demanded from him
d. Damages
Exceptions to Right of Indemnity or Reimbursement
a. Guaranty is constituted without the knowledge or against the
will of the debtor, the guarantor can only recover only insofar
as the payment had been beneficial to the debtor.
b. Payment by a third person who does not intend to be
reimbursed is deemed to be a donation.
Right to Subrogation
Transfers the credit with all the rights pertaining thereto
Arises by operation of law.
He cannot demand more than what he paid
Debt was for a Period
Guarantor paid it BEFORE it became due, he cannot demand
reimbursement until the expiration of the period unless the payment
has been ratified by the debtor.
Effects of Repeated Payment
General Rule: Before the guarantor pays, he must first notify the
debtor.
If he fails to do so and debtor repeats the payment, the guarantor’s
remedy is against the creditor.
Exception:
a. Creditor becomes insolvent
b. Guarantor was prevented by fortuitous event to advise the
debtor of the payment
c. Guaranty is gratuitous
Even before having paid, the guarantor may proceed against the
principal debtor
a. When he is sued for the payment
b. Insolvency of the principal debtor
c. Debtor has bound himself to relieve him from the guaranty
with a period and the period has expired
d. When the debt becomes demandable
e. After the lapse of 10 years when the principal obligation has
no fixed period for its maturity unless it be of such nature that
it cannot be extinguished except within a period longer than
10 years.
f. Reasonable grounds to fear that the debtor intends to
abscond
g. Imminent danger of being insolvent
Action is to (1) obtain release or (2) demand a security.
Right of Contribution of Guarantor who pays
Two or more guarantors, same debtor, same debt.
One guarantor has paid the debt and is seeking reimbursement from
each of his co-guarantors the share which is proportionately owing to
him.
CABRERA B2020 | 26
Insolvency of one of the guarantors, his share shall be borne by the Release of one benefits all to the extent of the share of the guarantor
other guarantors including the paying guarantor in the same joint to whom it has been granted.
obligation.

It is required that payment has been made

a. By virtue of a judicial demand OR PLEDGE

b. Principal debtor becomes insolvent.
COMMON TO PLEDGE AND MORTGAGE
EXTINGUISHMENT OF GUARANTY
Essential Requisites
Obligations of the guarantor are extinguished by
a. Constituted to secure the fulfillment of a principal obligation
a. Causes of the extinguishment of the obligations under the b. Pledgor or mortgagor be the absolute owner of the thing
general contract law c. Free disposal or they be legally authorized for the purpose.
b. Extinguishment of the principal obligation
Third persons may secure their own property.
c. Certain causes peculiar to the extinguishment of guaranty
The ownership of the thing is retained by the debtor.
A guaranty may be extinguished by
Intention of the Parties
a. Payment or performance
b. Dacion en pago The character of the transaction is to be determined by their
c. Loss of the thing intention, regardless of what language was used or what form of the
d. Service becomes impossible transfer was.
e. Consignation
f. Condonation Constituted by the Absolute Owner
g. Merger or Confusion Only be the absolute owner or by the pledgor or mortgagor with the
h. Compensation authority or consent of the owner.
i. Novation
j. Extension Property Pledged or Mortgaged
k. Failure of subrogation Future property – CANNOT be pledged or mortgaged. However,
l. Release parties can agree that future properties will form part of the existing
Release of Guarantors without Consent of others pledge or mortgage.

CABRERA B2020 | 27
Subsequently Acquired – a mortgage executed before the mortgagor Pledgor can sell the Can sell the property
became the owner is void and ineffective. thing pledged with even without the
the consent of the consent of the
Co-ownership – only up to the share of the co-owner pledgee mortgagee
Property covered by the Torrens Title – doctrine of mortgagee in good
faith Creditor cannot appropriate the thing given
Doctrine of Mortgagee in Good Faith It would equate to a pactum commisorum.
A mortgagee has the right to rely upon what appears in the certificate Any stipulation to the contrary is null and void.
of title and does not have to inquire further.
The property stands as security. The remedy of the mortgagee in
Does not apply to banks. They should exercise more case and case the mortgagor fails to pay is to foreclose (jus distrahendi)
prudence in dealing with registered lands.
The only exception to pactum commisorum is provided in Art 2112 (if
Can apply to GSIS, a government corp. created for the purpose of the thing has not been sold during the second auction)
providing social security and insured benefits.
Requisites for a Pactum
Third Party Mortgagor

A third party may offer his property as a pledge or mortgage. He is not a. There should be a pledge, mortgage, or antichresis given
the recipient of the loan. by way of security
b. Automatic appropriation.
Not liable for payment of any deficiency.
Risk of Loss of Property
Pledge v. Real Estate Mortgage
Debtor-owner bears the loss of the property
PLEDGE REM
Constituted on Immovables Pledge or Mortgage Indivisible
movables One and indivisible as to the contracting parties.
Delivered to the Delivery is not
pledgee or to a third necessary Single thing – every portion of the property pledge is answerable for
person the whole obligation.
Not valid against third Not valid against third
persons, it appears in persons if not Several things – all of them are liable for the totality of the debt and
a public instrument. registered the creditor does not have to divide his action by distributing the debt.

CABRERA B2020 | 28
Even when part of the debt remains unpaid, all the things are liable Characteristics
for such balance.
a. Real Contract
b. Unilateral
c. Nominate
Exceptions to the Rule of Indivisibility
d. Accessory
a. Each one of the several things guarantees determinate e. Formal
portion of credit. f. May be onerous or gratuitous
b. Only portion of loan was released
Parties
c. Where there was failure of consideration
d. No debtor-creditor relationship Pledgor and Pledgee

Where REM and Chattel Mortgage in one instrument Rights of the Creditor/Pledgee

Does not have the effect of fusing both securities into an indivisible
whole.
Both remain distinct agreements, differing only in the subject matter.
PROVISIONS APPLICABLE TO PLEDGE ONLY
Definition
A contract by virtue of which the debtor delivers to the creditor a
movable property susceptible of appropriation or a document
evidencing incorporeal rights for the purpose of securing the
fulfillment of a principal obligation, with the understanding that when
the obligation is fulfilled, the thing delivered shall be returned.
Kinds of Pledge
a. Voluntary or Conventional
b. Legal
a. Jus retentionis – right to retain
b. To bring actions which pertain to the owner of the thing
pledged.
c. To compensate fruits and interest incurred for the
preservation of the thing
d. To cause the public sale of the thing if there is danger of
destruction, impairment, or diminution of value
e. To demand substitution
f. Jus distrahendi – to proceed before a notary public for the sale
Obligations of the Pledgee
a. To take care with the diligence of a good father of a family
b. Not to deposit the thing with a third person unless there is
stipulation
c. Not use the thing
d. Return the thing upon payment
e. Advise the pledgor of any danger to the thing

CABRERA B2020 | 29
Rights of the Pledgor Pledge is still valid despite non-compliance

a. To require the deposit of the thing with a third person if the Must contain the description and date of pledge.
thing is in danger of being lost or impaired.
Alienation by the Pledgor of the Thing
b. Demand substitution if there are reasonable grounds to fear
the destruction or impairment of the thing Pledgor retains ownership. He may therefore sell the thing provided
there is consent.
Obligation of the Pledgor
The ownership of the thing pledge is transferred to the vendee subject
a. To indemnify the pledgee for damages in case of known
to the rights of the pledgee, the thing may be alienated to satisfy the
hidden flaws in the thing.
obligation.
Transfer of Possession is Essential in Pledge
Right of the Pledgee to Retain
It is a real contract.
Debtor cannot demand for the return of the thing until debt is paid.
An agreement to constitute a pledge only gives rise to a personal
Right of retention is limited only to the fulfillment of the principal
action between the contracting parties.
obligation which the pledge was created.
To affect third persons, it must be a public instrument.
Right of the pledgor to ask that the thing pledged be deposited
Delivery
a. If the creditor uses the thing without authority
a. Actual b. Misuses the thing
b. Constructive c. Thing is in danger of being lost or impaired because of the
negligence or willful act of the pledgee
Subject Matter
Right of the pledgor to Demand Return of the thing
Limited to personal property.
General Rule: he cannot demand the return since the thing stands as
All movables which are within the commerce of men provided they
security for the fulfillment of the obligation. *applies even if the
are susceptible of possession.
pledgor is not the debtor.
Incorporeal rights must be indorsed.
Exception: the pledgor is allowed to substitute the thing pledged
Public Instrument which is in danger of destruction or impairment with another thing of
the same kind and quality.
To take effect against third persons

CABRERA B2020 | 30
Right to Substitute i. Compensation
j. Novation
a. Pledgor has reasonable grounds to fear the destruction or
impairment Presumption of Extinguishment
b. No fault on the part of the pledgee
Possession by the owner/debtor of the thing subsequent to the
c. Pledgor is offering in place of the thing another thing of the
perfection gives rise to a prima facie presumption that the thing has
same kind and quality
been returned and therefore pledge is extinguished.
d. Pledgee does not choose to exercise his right to cause the
thing to be sold. Right of the Pledgee to Cause Sale of the Thing
Right of the Pledgee to Cause Sale a. Debt is due and unpaid
b. Public auction
a. Without his fault
c. Notice to the pledgor and owner
b. Danger of destruction, impairment, or diminution of value.
d. Sale must be with the intervention of the Notary public
c. Proceeds shall be a security on the same manner as the thing
originally pledged Right of the Pledgor and Pledgee to Bid
Right of Pledgee to Demand Substitute or Immediate payment Both may bid but pledgor shall be preferred if he offers the same
terms as the highest bidder.
In case he is deceived as to the substance or quality
Pledgee is not allowed to acquire the thing pledged if he is the only
a. Claim another thing in pledge
bidder.
b. To demand immediate payment
Effects of the Sale
Choose only one and not both.
Extinguishes the obligation
Extinguishment of Pledge
Excess of the Proceeds
a. Return
b. Payment If the price of the sale is MORE than what was due, the debtor is NOT
c. Renunciation ENTITLED to the excess UNLESS there is a stipulation to the contrary
d. Abandonment and in Legal Pledge.
e. Sale
f. Prescription Deficiency of the Proceeds
g. Loss If the price of the sale is LESS, the creditor is NOT entitled to recover
h. Merger deficiency. Any stipulation to the contrary is VOID. ‘

CABRERA B2020 | 31
Right of Redemption KINDS

None. a. Voluntary – parties agree

b. Legal – by operation of law
Right of a Third Person to Satisfy the Obligation
c. Equitable – lacks proper formalities nevertheless reveals the
A third person who has any right in or to the thing pledged may pay intention of the parties.
the debt and the creditor cannot refuse the payment.
CHARACTERISTICS
Pledges by Operation of Law
a. Accessory and subsidiary
May only be sold only after demand of the amount for which the thing b. Unilateral
is retained. c. Nominate

Public auction shall take place within a month after such demand. If PARTIES
the creditor does not cause the public sale, the debtor may require
a. Mortgagor (debtor)
the return of the thing.
b. Mortgagee (creditor)

ESSENTIAL REQUISITES

REAL ESTATE MORTGAGE a. Elements of a Contract

 Consent – meeting of offer and acceptance.
Capacitated only.
DEFINITION
 Object - 2124
Debtor secures to the creditor the fulfillment of a principal obligation,  Cause – same as principal contract
specially subjecting to such security immovable property or real rights b. Constituted to fulfill principal obligation
over immovable property which shall be satisfied with the proceeds c. Absolute owner
of the sale of said property or rights in case the said obligation is not d. Free disposal / legal authority to do so
complied with at the time stipulated. e. Recorded in the REGISTRY OF PROPERTY – NOT REQUIRED
OBJECT – ART 2124 *NOT A REAL CONTRACT, delivery is not required for the perfection.
a. Immovables FUTURE PROPERTY
b. Alienable Real Rights
- CANNOT be object of mortgage

CABRERA B2020 | 32
 - Mortgagor cannot legally mortgage any property he did not EXECUTED BY AN AGENT
own yet
- A mortgage executed by an agent who signed in his own name
- BUT, parties may agree that the mortgage will extend to
w/o indicating that he acted for and on behalf of the principal
future properties of the mortgagor but such will only
shall bind only the agent.
constitute an agreement to mortgage future properties.
PUBLIC DOCUMENT
IMPROVEMENTS ON THE PROPERTIES
- Mortgage must appear/be recorded in the Registry of
- Stipulation subjecting to the mortgage improvements which
Property
the mortgagor may subsequently acquire, install, etc. is
- If not recorded, still binding between parties.
VALID.
- Not essential to the validity or enforceabilility but merely for
CO-OWNED PROPERTY convenience.

- Limited to the portion of the co-owner Mortgage in a private instrument

- Co-owner has full ownership of his portion.
- No valid mortgage is constituted where the alleged deed is a
- Partition will not prejudice third persons
mere private instrument and not registered.
POSSESSION
Mortgage not registered
- Mortgagor is entitled to possession
- Nevertheless binding between the parties. Registration only
- Mortgagor retains possession because mortgage merely
operates as a notice but does not add to its validity nor
subjects the property to a lien but ownership thereof is not
converts an invalid mortgage into a valid one.
parted with.
- One’s status as a mortgagee cannot be basis of possession (ex. DOCTRINE OF MORTGAGEE IN GOOD FAITH
cannot sell) Any stipulation to the contrary is null and void.
- Reliance in good faith on certificate of mortgagor
RIGHTS AND OBLIGATIONS OF THE MORTGAGEE - Mortgagee has the right to rely on what appears on the
certificate and in the absence of anything to excite suspicion;
a. Similar to the antichresis creditor – entitled to retain the thing
under no obligation to look beyond the certificate
until the indebtedness is satisfied
- Doctrine DOES NOT APPLY to a situation where the title is still
b. No right to reimbursement for useful expenses
in the name of the rightful owner and the mortgagor is a
o Mortgagee who introduces improvements is not
different person.
entitled to reimbursement or the value upon
- Mortgagee who deliberately ignores significant facts that
redemption of the mortgage.
would create suspicion is not a MGF.

CABRERA B2020 | 33
 - Mortgagee in Good Faith may not be a purchaser in good faith
- Greater care and diligence required for mortgagee-banks –
extends to persons regularly engaged in the business of
lending money
REGISTRATION OF MORTGAGE
- Mortgagee is entitled to registration of mortgage as a matter
of right
- Proceedings for reg do not determine validity of mortgage
- A registered mortgage right over property previously sold is
inferior to buyer’s unregistered right.
- Registered mortgage – superior to a contract to sell
EFFECT OF INVALIDITY OF MORTGAGE
- Principal obligation remains valid.
- Mortgage deed remains as evidence of a personal obligation
EFFECTS OF MORTGAGE
- Creates real rights – creates rights in rem which is enforceable
against the whole world.
If the mortgagor sells the mortgages prop, the prop remains subject
to the fulfillment of the obli secured by it.
If prop is sold in an auction by a second mortgage, the first mortgagee
may only collect his mortgage credit from the purchaser thereof
Suits involving the Torrens Title/TCT, mortgagee is an indispensable
party.
- Creates merely an encumbrance – Does not affect much less
extinguish the title or ownership of the mortgagor who does
not lose his principal attribute as owner.
Upon payment of debt, mortgage is no more.
Sale with assumption of mortgage, need approval of the mortgagee.
OWNERSHIP RIGHTS OF MORTGAGOR
a. Right to Sell
b. Right to Possession
c. Right to Mortgage
 Basic and fundamental that the first mortgagee has
superior rights over junior mortgagees
EXTENT OF MORTGAGE ART 2127
- Not limited to property itself but also extends to all its
accessions, improvements, growing fruits and rents or
income, as well as proceeds from insurance or the
expropriation. To exclude them, necessary that there be
express stipulation.
Generally deemed included in the mortgage:
a. New plantings
b. Fruits, except those collected before the obligation falls due,
and those removed and stores when it falls due.
c. Accrued and unpaid rents
d. Buildings, machinery, accessories
e. Improvements constructed by mortgagor
f. All objects permanently attached
g. A more costly building erected in the place of the mortgaged
building that was torn down.
Stipulation that includes after-acquired properties is valid.
DRAGNET CLAUSE
CABRERA B2020 | 34
Specifically phrased to subsume all debts of past or future origin.
Prospective BUT parties may stipulate it to be retroactive.
- Necessary to secure future advances
- Enables parties to provide continuous dealings
- Mortgage is a continuing security
RIGHT OF CREDITOR AGAINST TRANSFEREE OF MORTGAGED PROPERTY
ART. 2129
- The fact that the mortgagor has transferred the mortgaged
property to a third person DOES NOT relieve him from his
obligation to pay the debt to the creditor in the absence of
novation.
- Creditor may demand from any possessor the payment only
of the part of the credit secured by said property.
- Necessary that prior demand for payment must have been
made on the debtor and the latter failed to pay.
STIPULATION FORBIDDING ALIENTATION OF MORTGAGED PROPERTY
- VOID
- Mortgagor’s sale of the prop does not affect the right of the
registered mortgagee to foreclose on the same even if its
ownership had been transferred to another person who is
bound by the registered mortgage.
- Stipulation that alienation needs mortgagee’s consent is
VOID.
STIPLATION GRANTING RIGHT OF FIRST REFUSAL
- Valid
FORECLOSURE
Remedy available to the mortgagee by which he subjects the
mortgaged property to the satisfaction of the obligation to secure
which the mortgage was given where the mortgagor is in default in
the payment of said obligation.
VALIDITY AND EFFECT OF FORECLOSURE
Foreclosure is a necessary consequence of non-payment of a
mortgaged indebtedness
Rule: Mortgage can be foreclosed only when the debt remains unpaid
at the time it is due. Valid only when the debtor is in default in the
payment of the obligation.
Right of Foreclosure cannot be exercised by any person other than the
creditor-mortgagee or his assigns
Foreclosure must be limited to the amount mentioned in the
mortgage contract.
General Rule: Demand before foreclosure is essential.
May contain an acceleration clause.
Once the proceeds have been applied to the payment of the
obligation, the debtor cannot anymore be required to pay unless
there is deficiency
Statutory provisions governing public notice of foreclosure sales must
be strictly complied with.
Presumption of Regularity
BP22 Cases: already an action for collection which bars foreclosure.
KINDS OF FORECLOSURE
CABRERA B2020 | 35
 a. Judicial POSTING 3 public 3 public places
b. Extrajudicial places, 20 for 20 calendar
calendar days days
JUDICIAL FORECLOSURE (Rule 68, ROC) PUBLICATION If the Newspaper of
1. Judicial action for the purpose of foreclosing in the court with assessed General
value of land Circulation, 3
jurisdiction.
is more than consecutive
2. Order to mortgagor to pay debt – period of not less than 90
or equal to weeks (once a
days and not more than 120 days. 50K, once a week)
3. Sale to highest bidder at public auction. week for 2
4. Confirmation of Sale consecutive
5. Execution of Judgment – proper remedy to seek reversal of a weeks.
judgment in foreclosure is not a petition for annulment but an NOTICE 3 days before Not required
appeal the sale unless
6. Application of Proceeds of Sale stipulated.
a. Costs of sale
b. Amount due to the Mortgagee
 Mandatory
c. Claims of junior encumbrancers
 Newspaper of general circulation – sufficient
d. Balance, if any, is paid to the mortgagor.
compliance
7. Execution of Sheriff’s certificate – foreclosure is not complete
 Time, Place, and Terms
until sheriff certificate is executed.
 Personal notice to mortgagor is not generally required
EXTRAJUDICIAL FORECLOSURE (ACT 3135)  Notice to mortgagee not provided by law
There must be an EXPRESS STIPULATION  Posting of notice is not required on the mortgaged
property
1. Express authority to sell given to mortgagee  Certificate of Posting not required
 EJF is commenced not by filing a complaint but by  Burden of proof of non-compliance is w/ mortgagor
submitting an application before an executive judge  Failure to comply constitutes a jurisdictional defect
2. Authority not extinguished by the death of either party which invalidates the sale or at least renders it
3. Publication of notice of auction sale voidable.
 Substantial error or omission in a notice of sale will
JUDICIAL EXTRAJUDICIAL
render the notice insufficient and vitiates the sale.

CABRERA B2020 | 36
  Jurisprudence: no notice but there is publication:
VALID
4. Public Sale after proper notice
5. Public sale at different places/dates - Valid
6. Number of bidders – rule that at least two bidders is no longer
a requirement
7. Payment of cash by highest bidder
8. Determination of mortgaged property’s appraised value is not
required
9. Surplus proceeds from foreclosure sale (p. 525)
10. Redemption of Property sold – debtor as the right to redeem
the property sold within the term of one year from and after
the date of sale.
11. Republication – required in case the auction sale is
rescheduled.
REMEDY IN CASE MORTGAGOR REFUSES TO SURRENDER MORTGAGED
PROPERTY
Ordinary action for the recovery of possession in order to give the
debtor a chance to be heard.
RIGHT OF MORTGAGEE TO RECOVERY DEFICIENCY
1. Mortgage is merely a security, not a satisfaction of an
obligation
 Mortgagee is entitled to recover
 EJF must be valid.
2. Deficiency judgement – independent civil action for the
deficiency
3. Prescriptive period – 10 years
NATURE OF JUDICIAL FORECLOSURE PROCEEDINGS
1. Action quasi in rem
2. Result or incident of failure to pay indebtedness
3. Survives the death of mortgagor
NATURE OF POWER OF FORECLOSURE BY EXTRAJUDICIAL SALE
1. Mortgagee’s protection
2. Initiated by filing a petition within the office of the sheriff
3. An ancillary stipulation – supported by the same cause or
consideration for the mortgage and forms an essential and
inseparable part of the bilateral agreement.
4. Prerogative of the mortgagee
STIPULATION OF UPSET PRICE IN MORTGAGE CONTRACT
- VOID
- Ex. minimum price at which the prop shall be sold
- Because the prop must be sold to highest bidder
EFFECT OF INADEQUACY OF PRICE
1. GENERAL RULE – where there is a right to redeem, inadequacy
of price is immaterial; mere inadequacy of the price will not
be sufficient to annul sale unless it is shocking to the
conscience of the court.
2. At nominal cost – reason for the right to redeem
3. Less than its fair market value – easier for mortgagor to
redeem
4. Bid price at auction – value of the prop has no bearing in the
bid price
WAIVER OF SECURITY BY MORTGAGEE
Mortgagee may institute either a personal action for debt or a real
action to foreclose.
CABRERA B2020 | 37
 Remedy is alternative, not cumulative or successive.
If the mortgagee opts to foreclose, he waives his right to collect
and vice versa.
In EJF, mortgagee is deemed to have elected such remedy upon
filing with proper office of the sheriff.
REDEMPTION
Transaction by which the mortgagor reacquires or buys back the
property which may have passed under the mortgage.
Allowed the owner to repurchase within a certain period for a
certain amount.
KINDS OF REDEMPTION
a. Equity of Redemption
b. Right of Redemption
EQUITY OF REDEMPTION
Exercised before confirmation of sale
Right of the mortgagor to extinguish the mortgage and retain
ownership.
Right of the debtor to pay the obligation within a prescribed period
after the judgement becomes final
Within the 90-day to 120-day period from entry of judgment
An order for the sale within the 90-day period would be a denial of a
substantial right and is VOID.
RIGHT OF REDEMPTION
Generally available only in case of an EJF.
In Judicial, only when the law provides.
Anytime within one year from and after the date of sale.
Title remains with the mortgagor or his grantee until the expiration of
the redemption period.
Right of the purchaser is merely inchoate until after the period of
redemption.
NATURE OF MORTGAGOR’S RIGHT OF REDEMPTION
a. Absolute privilege – entirely dependent upon the will of the
redemptioner
b. Mere statutory privilege – intention must be accompanied by
an actual and simultaneous tender of payment of the full
amount; liberally construed in favor of the original owner
c. Involves title to foreclose prop
REQUISITES FOR VALID REDEMPTION
a. Must be made within one year from the date of the
registration of certificate of sale.
b. Payment of the purchase price plus 1% per month together
with taxes
c. Written notice of the redemption must be made to the officer
who made the sale and a duplicate to Register of Deeds
d. Judicial Foreclosure, the mortgagor can no longer exercise his
right of redemption after the sale is confirmed by the court
e. Required to make tender payment within the prescribed
period
PERSONS ENTITLED TO EXERCISE THE RIGHT OF REDEMPTION
a. Mortgagor or one in privity of title with mortgagor
b. Successor-in-interest
CABRERA B2020 | 38
 c. Under the Rules of Court In cases of EJF, the purchaser is allowed to take possession of the prop
during the redemption upon filing of the ex parte application and
RIGHTS OF MORTGAGOR DURING PERIOD OF REDEMPTION
approval of a bond.
a. Right to redeem the prop and the possession, use, and
RIGHT AFTER THE LAPSE OF REDEMPTION PERIOD
enjoyment
b. Right to possession Purchaser only has to file a petition for issuance of writ pursuant to
Sec 23, Rule 39 of ROC
VENDEE’S RIGHT TO POSSESSION
NATURE OF PETITION/MOTION FOR ISSUANCE OF WRIT
a. Redemption period – mortgagor remains the owner
b. Final – after the period, the right to redeem is barred, Ex parte and summary
vendee’s rights over the prop becomes final. Purchaser shall
NATURE OF ORDER FOR THE ISSUANCE OF THE WRIT
file with the Registry of Deeds
The trial court is mandated and it is its ministerial duty to issue the
RIGHT OF PURCHASER TO WRIT OF POSSESSION
writ upon finding of the laps of the statutory period
Writ of Possession – order of the court where the sheriff is
RIGHT OF PURCHASER TO CONVEYANCE AND TO POSSESSION
commanded to place in possession real or personal prop the person
entitled thereto such as when a prop is EJF a. After the laps of the redemption period, purchaser has the
right to a conveyance and to be placed in possession thereof.
Issuance is ministerial
 May ask the for a writ or bring an appropriate
Exceptions to the rule that issuance of writ is ministerial independent action
b. Right to possession is based on the purchaser’s ownership of
- Gross inadequacy of price
the prop.
- Third party claiming right adverse to debtor
 Mere filing of the ex parte motion for the issuance of
- Failure to pay the surplus proceeds of the sale to the
writ would suffice
mortgagor
SUSPENSION OF IMPLEMENTATION OF WRIT
Proceedings is ex parte
a. Once issued by the court, sheriff cannot grant a grace period
Right to writ does not prescribe
and it would be gross error for the court to suspend the
RIGHT BEFORE THE LAPSE OF REDEMPTION PERIOD implementation of the writ.

CABRERA B2020 | 39
 b. When the reason of the judge is stated in general terms Issuance is ministerial
(“humanitarian reasons”), court did not act within the bounds
Bond filed by purchaser – requirement is a consequence of the
of law.
inchoate character of the right of the purchaser during the
WHEN WRIT OF POSSESSION IS NOT AVAILABLE redemption period inasmuch during said period full ownership has not
yet vested.
a. Mortgaged prop under lease
b. Mortgagor refuses to surrender prop sold CONFIRMATION BY COURT OF AUCTION SALE IN JUDICAL
c. Third party in actual possession claims adverse right or title FORECLOSURE
d. Purchase price grossly inadequate
Effect and Nature
e. Mortgage fails to pay surplus to mortgagor
- GENERAL RULE: Mortgagor cannot exercise his right of
NATURE OF PETITION OF ANNULMENT OF FORECLOSURE
redemption after the sale is confirmed
PROCEEDINGS
- Retroacts to the date of the sale.
Petition for issuance of a Writ of Possession – - It is a final order, not interlocutory

Non-litigious, ordinary suit filed in court by which one party sues Court has control over proceedings by exercising sound discretion
another for the enforcement of a wrong or protection of a right, or before confirmation.
the prevention or redress of a wrong
Requirement of notice and hearing – necessary
Petition for Nullification or Annulment of Foreclosure Proceedings –
Remedy of Terceria (when there is a third party claimant)
Contests the presumed right of ownership of the buyer in a
Remedy against the sheriff or officer effecting the writ by serving on
foreclosure sale and puts in issue such presumed right of ownership.
him an affidavit of his title and a copy thereof upon the judgement
The presumed right if ownership and the right of possession should be
creditor.
respected until and unless another party successfully rebuts that
presumption in an action for nullification of the foreclosure The officer shall not be bound to keep the property and could be
proceedings. answerable for damages.
It is clear that the proceedings for the issuance of writ should not be
consolidated with the case for the declaration of nullity.

ISSUANCE OF WRIT BEFORE LAPSE OF REDEMPTION PERIOD

No discretion is left to the court.

CABRERA B2020 | 40
 Creditor acquires only Creditor does not
ANTICHRESIS the right to receive have any right to
fruits receive fruits
Definition Creditor is obliged to No such obligation
pay taxes and charges
A creditor acquires the right to receive the fruits of an immovable of upon the estate
his debtor with the obligation to apply them to the payment of the Apply the fruits to the No such obligation
interest, if owing, and thereafter to the principal of his credit. debt

Measure of Application of Fruits

Characteristics
Must be appraised at their actual market value AT THE TIME OF
a. Accessory
APPLICATION.
b. Formal – it must be in writing
c. Nominate Form
d. Consensual
Amounts of the principal and of the interest shall be specified in
It is not a real contract. Delivery is not required. writing otherwise the contract is VOID.
Antichresis v. Pledge Obligations of the Antichretic Creditor
ANTICHRSIS PLEDGE a. Pay taxes and charges upon the estate
Fruits of real property Personal property b. Bear the expenses necessary for the preservation and repair
Perfected by mere Perfected by the
consent delivery Sum spent for these purposes shall be deducted from the fruits
Consensual Real Right of the Antichretic Debtor to Reacquire Enjoyment of property

Debtor cannot reacquire or demand the return without first totally

Antichresis v. Real Mortgage
paying the creditor.
ANTICHRESIS REM When the creditor does not want to pay taxes and charges, he may
Property is delivered Debtor usually retains
compel the debtor to reacquire the enjoyment.
to the creditor possession of the
property Remedy of the Creditor in case of Non-Payment

Creditor does not acquire ownership.

CABRERA B2020 | 41
 a. Bring an action for specific performance Register is required by
b. Petition for the sale of the real property as in a foreclosure of law
mortgage under Rule 68 of the ROC, they may agree on an Procedure is found in Article 2112 of NCC
extrajudicial foreclosure Sec 14 of RA 1508
Property is Debtor is not entitled
foreclosed, the excess to the excess
goes to the debtor
CHATTEL MORTGAGE Creditor is entitled to
recover deficiency
Creditor is not
entitled to recover
deficiency
Definition

Personal property is recorded in the Chattel Mortgage Register as a

Similarities between CM and Pledge
security for the performance of an obligation.
a. Executed to secure performance of a principal obligation
If the movable, instead of being recorded, is delivered to the creditor
b. Only personal property
or a third person, the contract is a pledge and not a chattel mortgage.
c. Indivisible
Characteristics d. Creditor cannot appropriate the property
e. Property must be sold for the payment
a. Accessory f. Extinguished by the fulfillment of the principal obligation.
b. Consensual
c. Unilateral Laws Governing Chattel Mortgage
d. Nominate
a. Chattel Mortgage Law
Delivery of the property mortgaged to the mortgagee is not required b. Civil Code
for the perfection of the contract. c. Administrative Code
d. Revised Penal Code
Chattel Mortgage v. Pledge
Subject Matter of Chattel Mortgage
CM PLEDGE
Delivery is not Delivery is necessary a. Shares of Stock
necessary b. An interest in business
Registration of the Registration in the c. Machinery (treated by the parties as personal property
same in the CM Registry of Property is subsequently installed on leased land)
not necessary d. Vessels

CABRERA B2020 | 42
 e. Motor Vehicles b. Adds nothing to mortgage
f. House of Mixed Materials
Affidavit of Good Faith Required
g. House Intended to be Demolished
h. House built on It is an oath in a contract of CM wherein the parties severally swear
i. Rented Land that the mortgage is made for the purpose of securing the obligation
j. House of Strong Materials specified on the conditions and for no other purposes and that the
same is a just and valid obligation and one not entered into for the
Subject Matter must be Described and Identified
purpose of fraud.
CM Law only requires that the description of the mortgaged property
Required only for the purpose of transforming an already valid
be such as to enable the parties to the mortgage or any other person
mortgage into “preferred mortgage”
to identify the same after a reasonable investigation and inquiry.
Rights of Mortgagee to Possession
Otherwise, the mortgage is INVALID
After default – the right of the creditor to take the mortgaged
Extent of Chattel Mortgage
property is clearly implied from the provision which gives him the right
a. Only to the property described therein *does not apply to to sell.
stores open to the public for retail business where the goods
Before default – mortgagee is not entitled to the possession of the
are constantly sold and substituted with new stock
property otherwise it becomes a pledge.
b. Stipulation to after acquired property
Mortgagor refuses to surrender possession – the creditor’s remedy is
CM limited to Existing Obligations
to institute an action either to effect a judicial foreclosure directly or
CM can only cover obligations existing at the time the mortgage is to secure possession as a preliminary to the sale contemplated in Act
constituted. 1508.

A promise express in a CM to include debts that are yet to be Foreclosure of CM

contracted can be a binding commitment that can be compelled upon,
Public or Private sale
the security itself, however, does not come into existence or arise until
after a CM agreement covering the newly contracted debt is executed Period to Foreclose
either by concluding a fresh CM or by amending the old contract.
After 30 days from the time of the condition broken, cause the
Effects of Registration mortgaged property to be sold at public auction by a public officer.
a. Creates real rights

CABRERA B2020 | 43
The 30-day period to foreclose a CM is the minimum period after c. Claims of persons holding subsequent mortgages in their
violation of the mortgage condition for the mortgage creditor to cause order
the sale at public auction with at least 10-day notice to the mortgagor d. Balance shall be paid to the mortgagor
and posting of public notice of time, place, and purpose of such sale
AND is a period of grace for the mortgagor to discharge the mortgage
obligation.

After the sale, the right of redemption is no longer available to the CONCURRENCE AND
mortgagor.

Publication, Posting, and Notice

PREFERENCE OF CREDITS
Posting – 10 days in 2 or more public places where mortgagor resides Concurrence of Credits
OR where property is located.
Implies the possession by two or more creditors of equal rights or
Publication – NONE privileges over the same specific property or all of the property of a
debtor
Notice – to mortgagor and junior mortgagees, in writing, at least 10
days previous to sale. Preference of Credits

Civil Action to Recover Credit
Independent action for enforcement of credit is not required.
Mortgage lien deemed abandoned by obtaining a personal
judgement.
Right held by a creditor to be preferred in the payment of his claim
above others out of the debtor’s assets.
Nature and Effects of Preference
The law as to preference is strictly construed

Remedies of the Purchaser Preference does not create an interest in property. It creates simply a
right of one creditor to be paid first the proceeds of the sale.
Bring an ordinary action for recovery of possession
Does not give the right to take the property or sell it.
Action for replevin
Can be made effective only by being asserted and maintained.
Application of Proceeds of Sale
Liability of the Debtor’s Property
a. Costs and expenses of keeping and sale
b. Payment of the obligation Creditors have the right to pursue property in possession of the debtor
to satisfy their claims.

CABRERA B2020 | 44
Rule: debtor is liable with ALL his property, present and future for the b. Obligations of the insolvent spouse have not redounded to
fulfillment of his obligations. the benefit of the family

Exceptions CLASSIFICATION OF CREDIT

Present properties
a. The family home
b. Right to receive support
c. Ordinary tools and implements personally used by the debtor
in his trade, employment, or livelihood.
d. 3 Beasts of burden used by him in his ordinary occupation
e. Articles for ordinary personal use
f. Household furniture and utensils necessary for housekeeping
not exceeding 100K
g. Provisions for individual or family use sufficient for four
months
h. Professional libraries not exceeding 300K
i. One fishing boat and accessories not exceeding 100K
j. Salaries, wages or earnings within the four months preceding
the levy
k. Lettered gravestones
l. Benefits out of any life insurance
m. Any pension or gratuity from the government
n. Properties exempted by law
Future properties
Property in custodia legis and of public dominion
Exemption of Conjugal Partnership or ACP
Assets of the CPG and ACP do not pass to the assignee. Provided that
a. Partnership or community subsists
General Categories
a. Special Preferred Credits
b. Ordinary Preferred Credits
c. Common Credits
Specific Movable Property
a. Duties, Taxes and fees due to the State
b. Claims arising from misappropriation, breach of trust, or
malfeasance of public officials
c. Unpaid price of movables sold
d. Credits guaranteed with a pledge or CM
e. Credits for making repairs, safekeeping, or preservation of
personal property
f. Claim for laborers’ wages on the goods manufactured or work
done
g. Expenses for salvage
h. Credits between the landlord and tenant
i. Credits for transportation
j. Lodging and supplies furnished to travelers by hotel keepers
k. Seeds and expenses for cultivation
l. Rent for one year
m. Depositary wrongfully sold the thing
If the movables to which lien or preference attaches have been
wrongfully taken, the creditor may demand them from any possessor
within 30 days from the unlawful seizure.
It does not give the order of preference or priority of payment

CABRERA B2020 | 45
Merely enumerates the credits which enjoy preference with respect g. Legal expenses and expenses incurred in the administration
to specific movable or immovable of the estate
h. Taxes due to the National government
Specific Immovable Property and Real Rights
i. Taxes due to the provincial government
a. Taxes due upon the land or building j. Taxes due to the city or municipal gov’t
b. Unpaid price for real property sold k. Damages cause by a quasi-delict
c. Claims of laborers, masons, mechanics, and other workmen l. Charity
d. Claims of furnishers of materials m. Credits without special privilege which appears in (1) a public
e. Mortgage credits recorded in the ROP instrument or (2) final judgement
f. Expenses for the preservation or improvement of real
property
g. Credits annotated in the ROP
h. Claims of co-heirs for warranty in the partition of an
immovable thing
i. Claims of donors of real property for pecuniary charges
j. Credits of insurers upon the property insured

Other Property of the debtor (order is important)

a. Proper funeral expenses for the debtor, his children under

parental authority who have no property of their own
b. Credits for services rendered the insolvent by employees,
laborers, or household help for one year preceding the
commencement of the proceedings in insolvency
c. Expenses during the last illness
d. Compensation due the laborers or their dependents under
laws providing for indemnity for damages in cases of labor
accident etc
e. Credits and advances made to the debtor for support of
himself and family during the last year preceding the
insolvency
f. Fines and civil indemnification arising from a criminal offense

CABRERA B2020 | 46
CABRERA B2020 | 47