(Reviewer) Credit Transactions (San Beda)

San Beda College of Law
182
MEMORY AID IN CIVIL LAW
CREDIT TRANSACTIONS
CREDIT TRANSACTIONS
TRANSACTIONS LOAN (Articles !"" # !$%
 All
All tran
transsacti
action
onss involv
volvin
ingg the
purchase or loan of goods,
goods, services,
services,  A cont
contrract
act wherei
erein
n one
one of the the
or mone
moneyy in thethe pres
presen
entt with
with a partie
partiess deliver
deliverss to anothe
another,
r, either
either
prom
promis
ise
e to pay
pay or deli
delive
verr in the
the someth
something
ing not consum
consumabl
able
e so that
that
future the latter may use the same for a
certain time and return it or money
Contracts of security or other consumable thing, upon the
Types: condition that the same amount of
1. Secured transactions or contracts
contracts of the same !ind and #uality shall be
real
real securi
security
ty - suppor
ported by a paid. $Art 1%&&'
colla
collate
tera
rall or an encu
encumb mbra
ranc
nce
e of
property C&aracteristics:
2. Unsecured
Unsecured transaction
transactionss or contracts
contracts 1. Real Contract – delivery of the thing
thing
of personal security -
- supported only loaned is necessary for the
by a promise or personal perfection of the contract
commit
commitmen
mentt of anothe
anotherr such
such as a NOTE: An accepted promise to ma!e
guarantor or surety a future loan is a consensual
contract, and therefore binding upon
Security the
the part
partiies but it is only nly afte
afterr
 Some
Someth thin
ing
g give
given,
n, depo
deposi
site
ted,
d, or deliver
delivery,
y, will
will the real
real contra
contract
ct of
serv
erving as a means ans to ensure loan arise. $Art 1%&('
fulfi
fulfilme
lment nt or enfo
enforc
rceme
ementnt of an
obli
obliga
gatition
on or of prot
protec
ecti
ting
ng some
some 2. Unil
Unilat
ate
eral
ral Con
Contrac
tractt - once the
interest in property sub)ect matter has been delivered,
 Types of Security it creates obligations on the part of
a. personal – whewhen n an indiv
individu
idual
al only one of the parties $i.e.
becomes surety or guarantor borrower'.
b. real or property – when a
mortgage,
mortgage, pledge, antichre
antichresis,
sis,  'ins:
charge or lien or other device 1. Commodatum – when the the bai
bailor
lor
used to have property held, out $len
$lende
der'
r' deli
delive
vers
rs to the bai bailee
lee
of which the person to be made $borrower
$borrower'' a non-cons
non-consumabl
umable e thing
thing
secure can be compensated for so that the latter may use it for a
loss certain time and return the identical
thing.
Bailment  'ins of commoatum:
 The
The deli
delive
very
ry of prop
proper erty
ty of one
one a. Ordinary Commodatum –
Commodatum – use by
pers
person
on to anot
anothe
herr in trus
trustt for
for a the borrower of the thing is for a
specif
specific
ic purpos
purpose,
e, with
with a contra
contract,
ct, certain period of time
epress
epress or implie
implied,
d, that
that the trust
trust b. Prec
Precar
ariu
ium
m - one
one whwher
ereb
ebyy the
the
shall be faithfully eecuted and the bail
bailor
or may
may deman
demand d the
the thin
thingg
property returned or duly accounted loaned at will and it eists in the
for
for wh
when
en the
the spec
specia
iall purp
purpos
ose
e is following cases*
accomplished or !ept until the bailor i. neither the duration nor
claims it. purp
purpos
ose
e of the
the cont
contraract
ct is
stipulated
 Parties: ii. the use of the thing is
1. bail
bailor
or - the
the giver
giver"" one who
who deliv
deliver
erss merel
erely
y toler
olerat
ated
ed by the
property owner
2. bailee- the recipient" one who
receives the custody or possession of
the thing thus delivered
CIVIL LAW COMMITTEE
CHAIRPERSON : Romuald Padilla ASST.CHAIRPERSON : Vida Bocar, Joyce Vidad EDP: Alnaia Ha!!iman, Doro"#y $ayon
S%BJECT HEADS : C#ri!"o&#er Rey 'ara!i(an
'ara!i(an )Per!on! and *amily Rela"ion!+, Aleandro Ca!a-ar)Pro&er"y+,
Ca!a-ar)Pro&er"y+, 'a. R#odora
*errer)ill! and Succe!!ion+, Ian Dominic Pua)O-li(a"ion! and Con"rac"!+, S#a Elia# Dumama)Sale! and /ea!e+, Jo#n S"e&#en
0uiam-ao)PAT+, C#ri!"o&#er Ca-i(ao)Credi" Tran!ac"ion!+, /i(aya Ali&ao)Tor"! and Dama(e!+, An"#ony Pur(anan)/TD+,
'a. Rica!ion Tu(adi )Con1lic"! o1 /a2+
183
2. Simple loan or mutuum –

mutuum – where the CO))ODAT+) (Articles !", # !,-%
lende
lenderr deliv
deliver
erss to the
the borr
borrow
ower
er  Nature:
money
money or other
other consum
consumable
able thing
thing
upon the condition that the latter 1. P+RPO
+RPOSE SE:: 4ailee
4ailee in commod
commodatuatum
m
shall pay the same amount of the ac#u
ac#uirires
es the
the temporary
temporary use
use of the
same !ind and #uality. thin
thingg but
but not itsits fru
fruits
its $unles
less
stip
stipul
ulate
atedd as an incidental part
part of
Commoatum )utuum the contract'.$Art 1%&7'
'ey: COPS*LOTR  /se must be temporary,
1. Object otherwise the contract may be a
+on-consumable onsumable deposit.
2. Cause
ratuitous ay or mamay not be 2. CA+SE: 3ssent
3ssential
ially
ly gratui
gratuitou
tous"
s" it
gratuitous ceases to be a commodatum if any
3. Purpose compensation is to be paid by the
/se
/se or temp tempororar
aryy onsumption borrow
borrower
er who ac#uires
ac#uires the use,
use, in
possession
such
uch case
ase ther
there
e aris
arises
es a leas
lease
e
4. Subject Matter
contract.
0ea
0eal or per
person
sonal nly personal
property property  Similar to a donation in that it
5. Ownership of the thing confers a benefit to the
0etained by the
the asses to the debtor recipient.
recipient. The presumption
presumption is
bailor that
that the bailor
bailor has loaned
loaned the
6. Thing to be returne thing for having no need
3a
3act thi
thing loan
loaned
ed 3#u
3#ual amo
amount of th
the therefor.
same !ind and
#uality &. S+B.
S+B.EC
ECTT )ATT
)ATTERER:: enerally
enerally non-
!. "ho bears ris# of $oss consumable whether real or personal
4ailor 5ebtor but if the consumable goods are not
%. "hen to return for consumpt
consumption
ion as whwhen
en they
they are
6n case
ase of urgent gent nly after the merely
merely for ehibi
ehibitio
tion,
n, consum
consumable
able
need
need,, even
even befo
before
re epi
epira
rati
tion
on of the the good
goodss may
may be the
the sub)
sub)ec
ectt of the
the
the epiration of the term
commodatum. $Art 1%&8'
term
(. 4ail
4ailor
or nee
needd not be
be the
the owner
owner of the
the
thing owned $Art. 1%&9' since by the
Loan Creit
loan, ownership does not pass to the
5elivery by one party Ability
Ability of a person to
borrower.
and
and the
the rece
receip
iptt of borr
borrow
ow monmoney or
other party of a thin
things
gs by virt
virtue
ue of  A mere
mere lessee
lessee or usufru
usufructu
ctuary
ary
given
given sum
sum of money
money the trust or may
may lend
lend but
but the
the borr
borrow
ower
er or
or other consumable confid
confidenc
encee repos
reposed
ed bailee himself may not lend nor
thing upon an by the lender that he lease the thing loaned to him to
agreem
agreement
ent,, epres
epresss will pay what he a third person $Art 1%&2:2;'
or implied, to repay promised.
the same. ,/ Purely
Purely Person
Personal
al (Ar
(Artt !"!%
!"!%::
 5eath of either party terminates
the contract unless by
Loan Creit stipulation, the commodatum is
1. 6ntere
6nterest
st ta!en
ta!en at 6ntere
6nterest
st is ta!en
ta!en in
transmitted to the heirs of either
the epiration of the advance
credit
or both parties.
2. Always on a Alwa
Always
ys on a sing
single
le  4ailee can neither lend nor lease
double
double name
name paper
paper name
ame pape
paperr $i.e
$i.e.. the ob)ect of the contract to a
$two signatures promissor
promissory
y note with third person.
appe
appea ar with
with bothboth no indorse-me
-ment
part
partie
iess held
held liab
liable
le other than the
for payment' ma!er'
CIVIL LAW COMMITTEE
183
2. Simple loan or mutuum –

mutuum – where the CO))ODAT+) (Articles !", # !,-%
lende
lenderr deliv
deliver
erss to the
the borr
borrow
ower
er  Nature:
money
money or other
other consum
consumable
able thing
thing
upon the condition that the latter 1. P+RPO
+RPOSE SE:: 4ailee
4ailee in commod
commodatuatum
m
shall pay the same amount of the ac#u
ac#uirires
es the
the temporary
temporary use
use of the
same !ind and #uality. thin
thingg but
but not itsits fru
fruits
its $unles
less
stip
stipul
ulate
atedd as an incidental part
part of
Commoatum )utuum the contract'.$Art 1%&7'
'ey: COPS*LOTR  /se must be temporary,
1. Object otherwise the contract may be a
+on-consumable onsumable deposit.
2. Cause
ratuitous ay or mamay not be 2. CA+SE: 3ssent
3ssential
ially
ly gratui
gratuitou
tous"
s" it
gratuitous ceases to be a commodatum if any
3. Purpose compensation is to be paid by the
/se
/se or temp tempororar
aryy onsumption borrow
borrower
er who ac#uires
ac#uires the use,
use, in
possession
such
uch case
ase ther
there
e aris
arises
es a leas
lease
e
4. Subject Matter
contract.
0ea
0eal or per
person
sonal nly personal
property property  Similar to a donation in that it
5. Ownership of the thing confers a benefit to the
0etained by the
the asses to the debtor recipient.
recipient. The presumption
presumption is
bailor that
that the bailor
bailor has loaned
loaned the
6. Thing to be returne thing for having no need
3a
3act thi
thing loan
loaned
ed 3#u
3#ual amo
amount of th
the therefor.
same !ind and
#uality &. S+B.
S+B.EC
ECTT )ATT
)ATTERER:: enerally
enerally non-
!. "ho bears ris# of $oss consumable whether real or personal
4ailor 5ebtor but if the consumable goods are not
%. "hen to return for consumpt
consumption
ion as whwhen
en they
they are
6n case
ase of urgent gent nly after the merely
merely for ehibi
ehibitio
tion,
n, consum
consumable
able
need
need,, even
even befo
before
re epi
epira
rati
tion
on of the the good
goodss may
may be the
the sub)
sub)ec
ectt of the
the
the epiration of the term
commodatum. $Art 1%&8'
term
(. 4ail
4ailor
or nee
needd not be
be the
the owner
owner of the
the
thing owned $Art. 1%&9' since by the
Loan Creit
loan, ownership does not pass to the
5elivery by one party Ability
Ability of a person to
borrower.
and
and the
the rece
receip
iptt of borr
borrow
ow monmoney or
other party of a thin
things
gs by virt
virtue
ue of  A mere
mere lessee
lessee or usufru
usufructu
ctuary
ary
given
given sum
sum of money
money the trust or may
may lend
lend but
but the
the borr
borrow
ower
er or
or other consumable confid
confidenc
encee repos
reposed
ed bailee himself may not lend nor
thing upon an by the lender that he lease the thing loaned to him to
agreem
agreement
ent,, epres
epresss will pay what he a third person $Art 1%&2:2;'
or implied, to repay promised.
the same. ,/ Purely
Purely Person
Personal
al (Ar
(Artt !"!%
!"!%::
 5eath of either party terminates
the contract unless by
Loan Creit stipulation, the commodatum is
1. 6ntere
6nterest
st ta!en
ta!en at 6ntere
6nterest
st is ta!en
ta!en in
transmitted to the heirs of either
the epiration of the advance
credit
or both parties.
2. Always on a Alwa
Always
ys on a sing
single
le  4ailee can neither lend nor lease
double
double name
name paper
paper name
ame pape
paperr $i.e
$i.e.. the ob)ect of the contract to a
$two signatures promissor
promissory
y note with third person.
appe
appea ar with
with bothboth no indorse-me
-ment
part
partie
iess held
held liab
liable
le other than the
for payment' ma!er'
CIVIL LAW COMMITTEE
184
NOTE:/se
/se of thethe thin
thing
g loan
loaned
ed NOTES*
may
may ete
eten
nd to membe embers
rs of the
the  =owever,
=owever, the bailee<s
bailee<s right
right
bailee<s household ecept* ete
etend
ndss no furthrther than
than
a. contrary stipulation" retention of the thing loaned
b. nature of the thing until he is reimbursed for the
forbids such use damages suffered by him.
 =e cannot
cannot lawfully
lawfully sell
sell the
O0li1ations of t&e Bailee: (Arts !2 #
thing to satisfy such damages
!2,%
without court<s approval.
1. To pay
pay for the the ordin
ordinar
aryy epen
epense sess for
the use and preservation of the thing  6n case
ase ther
there
e are
are two
two or
loaned. $Art 1%(1' more bailees, their
2. To be lialiable
ble for
for the
the loss
loss of
of the
the thing
thing obligation shall be solidary.
even
even if it it shoul
should d be thro
throug ughh a
fort
fortui
uito
tous
us even
eventt in the the follo
followiwing
ng O0li1ations of t&e 0ailor (Art !2$ # Art
cases* $'LAS D% !,-%:
a. when he 3eeps it longer than the 1. To resp
respect
ect the
the dura
duratio
tionn of the loan
loan
period
period stipul
stipulate
ated,
d, or after
after the  GENERAL
GENERAL RULE: Allow Allow the bailee
bailee
accomplishment of its use the use of the thing loaned for the
b. when he he lends
ends or leases
leases it to duration of the period stipulated or
third persons who are not unti
untill the
the acco
accomp
mpli
lish
shmen
mentt of thethe
members of his household purpose for which the commodatum
c. whwhenen the
the thithing
ng loa
loane
nedd has
has been
been was instituted.
deli
delive
verered with apprais
d with ppraisalal of its  EXCEPTONS:
EXCEPTONS:
value a! n case of ur"ent need in
d. when, en, beibeing abable toto save either
either which case bailee may demand
of the thing borrowed or his own its return or temporary use"
thin
thingsgs,, he choschose e to savesave thethe #! The bailor may demand
latter" or immediate
immediate return of the thing
thing if
e. when the bailee evoted evoted the t$e #ailee commits any act of
thing
thing for any purpos purpose e differ
different
ent in"ratitude specified in Art! %&'.
%&' .
from that for which it has been
loaned $Art 1%(2' 2. To refund to the bailee
&. To be liabliablele for
for the dete
deteri
rior
orat
atio
ionn of etr
etrao
aord
rdin
inar
ary
y epe
epens
nses
es for
for thethe
thing loaned $a' if epres presssly preser
preservat
vation
ion of the thing
thing loaned
loaned,,
stipulated" $b' if guilty of fault or provided the bailee brings the same
negligence" or $c' if he devotes the to the
the !now
!nowleledg
dgee of the
the bai
bailor
lor
thing to any purpose different from before
before incurrin
incurringg them, ecept when
that for which it has been loaned l oaned they are so urgent that the reply to
(. To paypay forfor etr
etrao
aord
rdin
inar
ary
y epe
epens nses
es the notification
notification cannot be awaited
awaited
arisin
arisingg from
from the actual
actual use of the without danger.
thing by the bailee, which shall be
borne e#ually
e#ually by both the bailor and &. To be liable to the bailee for
the bailee, even though the bailee damages for !nown hidden flaws.
acted without fault, unless there is a  Re4uisites:
stipulation to the contrary $Art 1%(% a. Ther
Theree is flaw
flaw or defe
defect
ct in the
the
par 2' thing loaned"
7. To ret
retur
urnn the
the thin
thingg loan
loaned
ed b. The flaw
flaw o
orr defe
defect
ct is hidden
hidden""
 The bailee has no right to retain c. The
The bail
bailor
or is
is awar
awaree ther
thereo
eof"
f"
the thing loaned as security for d. =e does
does not
not advis
advise
e the
the baile
baileee of
claims he has against the bailor the same" and
even for etraordinary epenses e. The
The bail
bailee
ee suff
suffer
erss dama
damagegess by
ecept for a claim for damages reason of said flaw or defect
suffered because of the flaws of
the thing loaned.
CIVIL LAW COMMITTEE
185
NOTES:
&. 0elationship 0elationship is that
 6f the above re#uisites concur,
between the parties of a landlord and
the bailee has the right of is that of obligor- tenant
retention for damages. obligee
 The bailor cannot eempt
himself from the payment of (. reditor receives wner of the
epenses or damages by payment for his loan property rented
receives
abandoning the thing to the
compensation or
bailee. price either in
money, provisions,
SI)PLE LOAN OR )+T++) (Art !," # chattels, or labor
!$%
 A contract whereby one party from the occupant
delivers to another, money or other thereof in return for
consumable thing with the its use $Tolentino vs
understanding that the same amount on@ales, 7 hil 779
1%2B'
of the same !ind and #uality shall be
paid. $Art. 1%7&'
Loan Sale
NOTES:
1. 0eal contract onsensual contract
 The mere issuance of the chec!s
does not result in the perfection of 2. enerally 4ilateral and
the contract of loan. The ivil ode unilateral because reciprocal
provides that the delivery of bills of only borrower has
echange and mercantile obligations
documents, such as chec!s, shall
produce the effect of payment only NOTE: 6f the property is >sold?, but the
when they have been encashed real intent is only to give the ob)ect as
$Gerales (s! CA )*+ SCRA &,+'. 6t is security for a debt – as when the >price?
only after the chec!s have produced is comparatively small – there really is a
the effect of payment that the contract of loan with an >e#uitable
contract of loan may be deemed mortgage.?
perfected.
Commoatum5
 The obligation is >to pay? and not to Barter
)utuum
return because the consumption of
the thing loaned is the distinguishing 1. Sub)ect matter is Sub)ect matter is
character of the contract of mutuum money or fungible non-fungible, $non
from that of commodatum. things consumable' things
 +o estafa is committed by a person
who refuses to pay his debt or denies 2. 6n commodatum, The thing with
its eistence. the bailee is bound e#uivalent value is
to return the given in return for
identical thing what has been
Simple Loan5)utuum Rent borrowed when the received
time has epired or
1. 5elivery of money 5elivery of some non- purpose served
or some consumable consumable thing in
thing with a promise order that the other &. utuum may be nerous, actually a
to pay an e#uivalent may use it during a gratuitous and mutual sale
of the same !ind and certain period and commodatum is
#uality return it to the always gratuitous
former.
2. There is a transfer There is no transfer

of ownership of the of ownership of the
thing delivered thing delivered
CIVIL LAW COMMITTEE
S%BJECT HEADS : C#ri!"o&#er Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Aleandro Ca!a-ar)Pro&er"y+, 'a. R#odora
186
breached, the contravenor can

 6orm of Payment (Art !,,%: be held liable for damages.
1. 6f the thing loaned is money - b' Dith regard particularly to an
payment must be made in the award of interest in the concept
currency stipulated, if it is possible" of actual and compensatory
otherwise it is payable in the damages, the rate of interest, as
currency which is legal tender in the well as the accrual thereof, is
hilippines and in case of imposed, as follows*
etraordinary inflation or deflation, i. Dhen the obligation
the basisi of payment shall be the breached consists of
value of the currency at the time of payment of a sum of money
the creation of the obligation -loan or for#earance of
2. 6f what was loaned is a fun"i#le money., the interest shall be
t$in" ot$er t$an money - the that which is stipulated or
borrower is under obligation to pay agreed upon by the parties.
the lender another thing of the same 6n absence of an agreement,
!ind, #uality and #uantity. 6n case it the rate shall be the legal
is impossible to do so, the borrower rate $i.e. 12E per annum'
shall pay its value at the time of the computed from default.
perfection of the loan. NOTE: The interest due shall
itself earn legal interest
Interest from the time it is )udicially
 The compensation allowed by law or demanded
fied by the parties for the loan or ii. 6n other cases, the rate of
forbearance of money, goods or interest shall be si percent
credits $8E' per annum.
 0e#uisites for 5emandability* (ELI% NOTE: +o interest, however,
1. must be epressly stipulated shall be ad)udged on
3ceptions* unli#uidated claims or
a. indemnity for damages damages ecept when or
b. interest accruing from until the demand can be
unpaid interest established with reasonable
2. must be lawful certainty. Dhen the demand
&. must be in writing cannot be established, the
interest shall begin to run
Compoun Interest only from the date of the
 GENERAL RULE: /npaid interest shall )udgment of the court is
not earn interest. made.
 EXCEPTONS:
iii. Dhen the )udgment of the
1. when )udicially demanded court awarding a sum of
2. when there is an epress money becomes final and
stipulation $must be in writing in e/ecutory , the rate of legal
view of Art. 1%78' interest, whether the case
falls under paragraph i or ii
7uielines for t&e application of above, shall be 12E per
proper interest rates annum from such finality
1. 6f there is stipulation* that rate shall until its satisfaction, this
be applied interim period being deemed
2. The following are the rules of thumb to be by then an e#uivalent
for the applicationCimposition of to a forbearance of credit.
interest rates* $Eastern S$ippin" Lines (s!
a' Dhen an obligation, regardless CA0 1uly *)0 *223'
of its source, i.e., law,
contracts, #uasi-contracts, NOTES:
delicts or #uasi-delicts is  Central 4an5 Circular No! 3*& fiing
the rate of interest at 12E per
CIVIL LAW COMMITTEE
187
annum deals with loans, forbearance 1. Real Contract - contract is

of any money, goods or credits and perfected by the delivery of the
)udgments involving such loans, or sub)ect matter.
forbearance in the absence of 2. Unilateral -"ratutitous deposit. -
epress agreement to such rate only the depositary has an
 6nterest as indemnity for damages is obligation.
payable only in case of default or &. 4ilateral -onerous deposit. -
non-performance of the contract. As gives rise to obligations on the
they are distinct claims, they may be part of both the depositary and
demanded separately. $Sentinel depositor.
6nsurance o., 6nc. vs A, 192 S0A
71B' Deposit )utuum
1. Purpose
 Central Ban3 Circular No/ !8, $5ec. rincipal purpose is rincipal purpose is
1, 1%92' removed the /sury Faw safe!eeping or consumption
ceiling on interest rates for secured custody
and unsecured loans, regardless of 2. "hen to &eturn
maturity. 5epositor can The lender must wait
demand the return of until the epiration
9aliity of unconsciona0le interest rate the sub)ect matter at of the period granted
in a loan will to the debtor
Supreme ourt in Sps! Solan"on 3. Subject Matter
(s! 1ose Sala6ar0 G!R! No! *)'2330 1une Sub)ect matter may Sub)ect matter is
be movable or only money or other
)20 )77*, said that since the usury law
immovable property fungible thing
had been repealed by 4 ir. +o. %7
4. &e$ationship
there is no more maimum rate of 0elationship is that 0elationship is that
interest and the rate will )ust depend on of lender $creditor' of depositor and
the mutual agreement of the parties and borrower depositary.
$citing Lim La8 (s! Olympic Sa8mill Co!0 $debtor'.
*)2 SCRA 3,2 '. 4ut the Supreme ourt
said that nothing in said circular grants 5. Co'pensation
lenders carta #lanc$e authority to raise There can be + compensation of
interest rates to level which will either compensation of things deposited with
enslave their borrowers or lead to a credits. each other $ecept
by mutual
hemorrhaging of their assets $citing
agreement'.
Almeda (s! CA0 )'& SCRS )2)'. 6n 9edel
(s! CA0 )22 SCRA 3+*, it was ruled that
Deposit Commoatum
while stipulated interest of 7.7E per
month on a loan is usurious pursuant to 1. urpose is 1. urpose is the
4 ircular +o. %7, the same must be Safe!eeping transfer of the use
e#uitably reduced for being ini#uitous,
unconscionable and eorbitant. 6t is 2. ay be gratuitous 2. 3ssentially and
contrary to morals, $contra #onos always gratuitous
mores'. 6t was reduced to 12E per
annum in consonant with )ustice and fair &. ovableCcorporeal &. 4oth movable and
play. things only in case of immovable may be
etra)udicial deposit the ob)ect
DEPOSIT (Articles !$- # -88!%
'ins of Deposit:
 A contract constituted from the 1. Gudicial $Se#uestration' –ta!es place
moment a person receives a thing when an attachment or sei@ure of
belonging to another, with the property in litigation is ordered.
obligation of safely !eeping it and of
returning the same. 2. 3tra-)udicial
a. Holuntary – one wherein the
C&aracteristics: delivery is made by the will of
the depositor or by two or more
CIVIL LAW COMMITTEE
188
persons each of whom believes &. property saved from destruction

himself entitled to the thing without !nowledge of the owner
deposited. $Arts 1%89 – 1%%7'
b. +ecessary – one made in NOTES:
compliance with a legal  Article 1%88 does not embrace
obligation, or on the occasion of incorporeal property, such as rights
any calamity, or by travellers in and actions, for it follows the person
hotels and inns $Arts 1%%8 - of the owner, wherever he goes.
2(', or by travellers with
 A contract for the rent of safet)
common carriers $Art 1B&( –
eposit bo*es is not an ordinary
1B&7'.
contract of lease of things but a
NOTE: The chief difference
special 5ind of deposit" hence, it is
between a voluntary deposit and a
not to be strictly governed by the
necessary deposit is that in the
provisions on deposit. The relation
former, the depositor has a
between a ban! and its customer is
complete freedom in choosing the
that of a bailor and bailee. $A Agro
depositary, whereas in the latter,
vs A, 21% S0A (28'
there is lac! of free choice in the
depositor.
O0li1ations of t&e Depositary (Art !<-
#!!%:
.uicial Etra*;uicial
1. To !eep the thing safely $Art 1%B2'
1. Creation
 3ercise over the thing
Dill of the court Dill of the parties
or contract deposited the same diligence as
he would eercise over his
2. Purpose
property
Security or to insure ustody and
the right of a party safe!eeping 2. To return the thing $Art 1%B2'
to property or to  Person to =&om t&e t&in1 must
recover in case of 0e returne:
favorable )udgment a. 5epositor, to his heirs and
3. Subject Matter successors, or the person who
ovables or ovables only may have been designated in the
immovables, contract
but generally b. 6f the depositary is capacitated -
immovables he is sub)ect to all the
obligations of a depositary
4. Cause
Always onerous ay be compen-
whether or not the depositor is
sated or not, but capacitated. 6f the depositor is
generally gratuitous incapacitated, the depositary
must return the property to the
5. "hen 'ust the thing be returne legal representative of the
/pon order of the /pon demand of incapacitated or to the depositor
court or when depositor himself if he should ac#uire
litigation is ended capacity $Art 1%B'.
6. (n whose beha$f it is he$
c. 6f the depositor is capacitated
erson who has a 5epositor or third and the depositary is
right person designated incapacitated - the latter does
not incur the obligation of a
depositary but he is liable*
 GENERAL RULE: ontract of deposit is i..to return the thing
gratuitous $Art 1%87'
deposited while still in his
 EXCEPTONS:
possession"
1. when there is contrary ii.to pay the depositor the
stipulation amount which he may have
2. depositary is engaged in business benefited himself with the
of storing goods thing or its price sub)ect to
CIVIL LAW COMMITTEE
189
the right of any third person (. 6f the thing deposited should earn
who ac#uired the thing in interest $Art 1%B7'*
good faith $Art 1%B1' a. to collect interest and the
capital itself as it fall due
 Time of return: b. to ta!e steps to preserve its
a/ Upon demand even though a value and rights corresponding to
specified period or time for such it
return may have been fied 7. +ot to commingle things deposited if
ecept when the thing is so stipulated $Art 1%B8'
)udicially attached while in the 8. +ot to ma!e use of the thing
depositary<s possession or should deposited unless authori@ed $Art
he have been notified of the 1%BB'
opposition of a third person to  G ENERAL RULE: 5eposit is for
the return or the removal of the safe!eeping of the sub)ect matter
thing deposited. $Art 1%%9' and not for use. The unauthori@ed
b. f deposit "ratuitous, the use by the depositary would ma!e
depositary may return the thing him liable for damages.
deposited notwithstanding that a  EXCEPTONS:
period has been fied for the 1. Dhen the preservation of the
deposit if )ustifiable reasons thing deposited re#uires its use
eists for its return. 2. Dhen authori@ed by the
c. f t$e deposit is for a depositor
(alua#le consideration, the
depositary has no right to return NOTE: The permission to use is +T
the thing deposited before the presumed ecept when such use is
epiration of the time necessary for the preservation of the
designated even if he should thing deposited.
suffer inconvenience as a
conse#uence.$Art 1%9%' Effect if permission to use is 1i?en
(Art !<@%:
>&at to return: product, 1. 6f thing deposited is
accessories, and accessions of non-consumable, the contract
the thing deposited $Art 1%9&' loses the character of a deposit
&. +ot to deposit the thing with a third and ac#uires that of a
person unless authori@ed by epress commodatum despite the fact
stipulation $Art 1%B&' that the parties may have
denominated it as a deposit,
 The depositor is liable for the
unless safe!eeping is still the
loss of the thing deposited under
principal purpose.
Article 1%B& if*
2. 6f thing deposited consists of
a. he
moneyCconsumable things, the
transfers the deposit with a third
contract is converted into a
person without authority
simple loan or mutuum unless
although there is no negligence
safe!eeping is still the principal
on his part and the third person"
purpose in which case it is called
b. he
an irregular deposit. 3ample*
deposits the thing with a third
ban! deposits are irre"ular
person who is manifestly careless
deposits in nature but governed
or unfit although authori@ed
by law on loans.
even in the absence of
B. Dhen the thing deposited is
negligence" or
delivered sealed and closed *
c. the thing
a. to return the thing deposited in
is lost through the negligence of
the same condition
his employees whether the latter
b. to pay for damages should the
are manifestly careless or not.
seal or loc! be bro!en through
CIVIL LAW COMMITTEE
190
his fault, which is presumed 1. The consumable 1. Fender is bound

unless proved otherwise thing deposited may by the provisions of
c. to !eep the secret of the deposit be demanded at will the contract and
when the seal or loc! is bro!en by the depositor cannot demand
restitution until the
with or without his fault $Art
time for payment, as
1%91' provided in the
NOTE: The depositary is contract, has arisen
authori@ed to open the thing
deposited which is closed and 2. The only benefit is 2. 3ssential cause for
sealed when $Art 1%92'* that which accrues the transaction is the
i. there is presumed authority to the depositor necessity of the
$i.e. when the !ey has been borrower
delivered to him or the
instructions of the depositor &. The irregular &. ommon creditors
depositor has a en)oy no preference
cannot be done without
preference over in the distribution of
opening it' other creditors with the debtor<s
ii. necessity respect to the thing property
9. To change the way of the deposit if deposited
under the circumstances, the
depositary may reasonably presume
that the depositor would consent to Rule =&en t&ere are t=o or more
the change if he !new of the facts of epositors (Art !@,%:
the situation, provided, that the 1. f t$in" deposited is di(isi#le and
former notifies the depositor thereof depositors are not solidary * 3ach
and wait for his decision, unless depositor can demand only his
delay would cause danger proportionate share thereto.
%. To pay interest on sums converted to 2. f o#li"ation is solidary or if t$in" is
personal use if the deposit consists not di(isi#le* 0ules on active
of money $Art 1%9&' solidarity shall apply, i.e. each one
1. To be liable for loss through of the solidary depositors may do
fortuitous event (S+DA% * $Art 1%B%'* whatever may be useful to the
a. if stipulated others but not anything which may
b. if he uses the thing without the be pre)udicial to the latter, $Art.
depositorIs permission 1212' and the depositary may return
c. if he elays its return the thing to anyone of the solidary
d. if he allows others to use it, depositors unless a demand, )udicial
even though he himself may or etra)udicial, for its return has
have been authori@ed to use the been made by one of them in which
same case, delivery should be made to him
$Art. 121('.
NOTES: &. Return to one of depositors
 Jied, savings, and current deposits stipulated . The depositary is bound
of money in ban!s and similar to return it only to the person
institutions shall be governed by the designated although he has not made
provisions concerning simple loan! any demand for its return.
$Art 1%9'
 The general rule is that a ban! can
NOTES:
compensate or set off the deposit in  The depositary may retain the thing
its hands for the payment of any in pledge until full payment of what
indebtedness to it on the part of the may be due him by reason of the
depositor. 6n true deposit, deposit $Art 1%%('.
compensation is not allowed.  The depositor<s heir who in good
faith may have sold the thing which
Irre1ular eposit )utuum he did not !now was deposited, shall
only be bound to return the price he
CIVIL LAW COMMITTEE
191
may have received or to assign his pillage, shipwrec! or other similar

right of action against the buyer in events $deposito misera#le'
case the price has not been paid him 3. ade by travellers in hotels and inns
$Art 1%%1'. or by travellers with common carrier
O0li1ations of t&e Depositor (Art !!- #

!!,%:
1. To pay epenses for preservation
a. f t$e deposit is "ratuitous, the Deposit 0y Tra?ellers in &otels an
depositor is obliged to inns:
reimburse the depositary for  The !eepers of hotels or inns shall be
epenses incurred for the responsible as depositaries for the
preservation of the thing deposit of effects made by travellers
deposited $Art 1%%2' pro(ided *
b. f t$e deposit is for (alua#le a. +otice was given to them or to
consideration, epenses for their employees of the effects
preservation are borne by the brought by the guest" and
depositary unless there is a b. The guests ta!e the precautions
contrary stipulation which said hotel-!eepers or their
2. To pay loses incurred by the substitutes advised relative to
depositary due to the character of the care and vigilance of their
the thing deposited effects.
NOTES:
 G ENERAL RULE: The depositor shall  Fiability etends to vehicles, animals
reimburse the depositary for any loss and articles which have been
arising from the character of the thing introduced or placed in the annees
deposited. of the hotel.
 EXCEPTONS:
 Fiability shall 3KF/53 losses which
1. at the time of the deposit, the
proceed from force ma)eure. The
depositor was not a8are of the
act of a thief or robber is not
dangerous character of the thing
deemed force ma)eure unless done
2. when depositor was not e/pected
with the use of arms or irresistible
to 5no8 the dangerous character
force.
of the thing
3. when the depositor notified the  The hotel-!eeper cannot free
depository of the same himself from the responsibility by
4. the depositary 8as a8are of it posting notices to the effect that he
8it$out ad(ice from the depositor is not liable for the articles brought
by the guest. Any stipulation to such
Etin1uis&ment of 9oluntary Deposit effect shall be void.
(Art !!,%  +otice is necessary only for suing
1. Foss or destruction of the thing civil liability but not in criminal
deposited liability.
2. 6n case of gratuitous deposit, upon
the death of either the depositor or 7+ARANT (Articles -82< # -8@2%
the depositary
3. ther causes, such as return of the  A contract whereby a person
thing, novation, merger, epiration $guarantor' binds himself to the
of the term fulfilment of the creditor to fulfil the obligation of
resolutory condition, etc $Art 12&1' the principal debtor in case t$e
latter fail to do so.
Necessary Deposits
1. ade in compliance with a legal  Classification of 7uaranty:
obligation 1. 6n the 4road sense*
2. ade on the occasion of any a. ersonal - the guaranty is the
calamity such as fire, storm, flood, credit given by the person who
CIVIL LAW COMMITTEE
192
guarantees the fulfilment of the rather than the first should perform
principal obligation. $ A"ro Con"lomerates0 nc! (s! CA0
b. 0eal - the guaranty is the ,3+ SCRA 3'7 '
property, movable or NOTES:
immovable.  The reference in Article 2(B to
solidary obligations does not mean
that suretyship is withdrawn from
the applicable provisions governing
guaranty. A surety is almost the
2. As to its Ori"in same as a solidary debtor, ecept
a. onventional - agreed upon by that he himself is a principal debtor.
the parties.
 6n suretyship, there is but one
b. Fegal - one imposed by virtue of
contract, and the surety is bound by
a provision of a law.
the same agreement which binds the
c. Gudicial - one which is re#uired
principal. A surety is usually bound
by a court to guarantee the
with the principal by the same
eventual right of one of the
instrument, eecuted at the same
parties in a case.
time and upon the same
&. As to Consideration
consideration $Palmares (s CA0 )++
a. ratuitous - the guarantor does
SCRA 3))'
not receive any price or
remuneration for acting as such.  6t is not for the obligee to see to it
b. nerous - the guarantor receives that the principal debtor pays the
valuable consideration. debt or fulfill the contract, but for
(. As to the Person "uaranteed the surety to see to it that the
a. Single - one constituted solely to principal debtor pays or performs
guarantee or secure $Paramount nsurance Corp (s CA0
performance by the debtor of ,*7 SCRA ,%% '
the principal obligation.
b. 5ouble or sub-guaranty - one Nature of Suretys unerta3in1:
constituted to secure the 1. Lia#ility is contractual and
fulfilment by the guarantor of a accessory #ut direct
prior guaranty. NOTE: =e directly, primarily and
7. As to Scope and E/tent e#ually binds himself with the
a. 5efinite - the guaranty is limited principal as original promisor,
to the principal obligation only, although he possesses no direct or
or to a specific portion thereof. personal interest over the latter<s
b. 6ndefinite or simple - one which obligation, nor does he receive any
not only includes the principal benefits therefrom. $+4 vs A, 1%9
obligation but also all its S0A B8B'
accessories including )udicial 2. Lia#ility limited #y t$e terms of t$e
costs contract!
NOTE: 6t cannot be etended by
S+RETSIP implication beyond the terms of the
contract $+4 vs A, 1%9 S0A B8B'
 A contract whereby a person $surety' 3. Lia#ility arises only if principal
binds himself solidarily with the de#tor is $eld lia#le!
principal debtor NOTES:
 A relation which eists where one  The creditor may sue separately
person $principal' has underta!en an or together the principal debtor
obligation and another person and the surety. Dhere there are
$surety' is also under a direct and several sureties, the obligee may
primary obligation or other duty to proceed against any one of
the obligee, who is entitled to but them.
one performance, and as between  6n the absence of collusion, the
the two who are bound, the second surety is bound by a )udgment
CIVIL LAW COMMITTEE
193
against the principal even  uaranty may be constituted to

though he was not a party to the guarantee the performance of a
proceedings. The nature of its voidable or unenforceable
underta!ing ma!es it privy to all contract. 6t may also guarantee
proceedings against its principal a natural obligation. $Art 272'
$inman General Assurance
 The guarantor cannot bind
Corp! (s! Sali50 *++ SCRA %37 '
himself for more than the
principal debtor and even if he
4. Surety is not entitled to t$e #enefit
does, his liability shall be
of e/$austion
reduced to the limits of that of
NOTE: =e assumes a solidary liability
the debtor.
for the fulfilment of the principal
2. Su#sidiary and Conditional - ta!es
obligation $To8ers Assurance Corp
effect only in case the principal
(s! Ororama Supermart0 +7 SCRA
debtor fails in his obligation.
)&)' as an original promissory and
debtor from the beginning.
NOTES:
5. Underta5in" is to creditor and not
to de#tor!  The guarantor cannot bind
NOTE: The surety ma!es no himself for more than the
covenant or agreement 8it$ t$e principal debtor and even if he
principal that it will fulfil the does, his liability shall be
obligation guaranteed for the benefit reduced to the limits of that of
of the principal. Such a promise is the debtor. 4ut a guarantor may
not implied by law either" and this is bind himself for less than that of
true even where under the contract the principal $Art 27('
the creditor is given the right to sue  A guaranty may be given as
the principal, or the latter and the security for future debts, the
surety at the same time. $ Arran6 (s! amount of which is not yet
9anila idelity ; Surety Co!0 nc!0 !nown" there can be no claim
*7* P$il! )%)' against the guarantor until the
6. Surety is not entitled to notice of debt is li#uidated. A conditional
principal<s default obligation may also be secured.
NOTE: The creditor owes no duty of $Art 27&'
active diligence to ta!e care of the 3. Unilateral - may be entered even
interest of the surety and the surety wCo the intervention of the principal
is bound to ta!e notice of the debtor, in which case Art. 12&8 and
principal<s default and to perform 12&B shall apply and it gives rise only
the obligation. =e cannot complain to a duty on the part of the
that the creditor has not notified guarantor in relation to the creditor
him in the absence of a special and not vice versa.
agreement to that effect. $Palmares 4. +ominate
(s CA0 )++ SCRA 3))' 5. onsensual
7. Prior demand #y t$e creditor upon 6. 6t is a contract between the
principal is not re=uired guarantorCsurety and creditor.
NOTE: As soon as the principal is in
default, the surety li!ewise is in NOTES:
default.  Acceptance of 1uaranty 0y
8. Surety is not e/onerated #y ne"lect creitor an notice t&ereof to
of creditor to sue principal 1uarantor:
 6n declaring that guaranty
C&aracteristics of 7uaranty an
Suretys&ip: must be epress, the law
1. Accessory - 6t is indispensable refers solely and eclusively
condition for its eistence that there to the obligation of the
must be a principal obligation. guarantor because it is he
NOTES: alone who binds himself by
CIVIL LAW COMMITTEE
194
his acceptance. Dith respect motive of pecuniary gain and hence,

to the creditor, no such should be protected against un)ust
re#uirement is needed pecuniary impoverishment by
because he binds himself to imposing on the principal, duties
nothing. a!in to those of a fiduciary.
 =owever, when there is
merely an offer of a NOTES:
"uaranty , or merely a  The rule will apply only after it
conditional "uaranty , in the has been definitely ascertained
sense that it re#uires action that the contract is one of
by the creditor before the suretyship or guaranty. 6t cannot
obligation becomes fied, it be used as an aid in determining
does not become binding whether a party<s underta!ing is
until it is accepted and until that of a surety or guarantor.
notice of such acceptance by $Palmares (s CA0 )++ SCRA )2)'
the creditor is given to, or  6t does not apply in case of
ac#uired by, the guarantor, compensated sureties.
or until he has notice or 1. 6t is a contract which re#uires that
!nowledge that the creditor the guarantor must be a person
has performed the condition distinct form the debtor because a
and intends to act upon the person cannot be the personal
guaranty. guarantor of himself.
 4ut in any case, the creditor NOTE: =owever, in a real guaranty,
is not precluded from li!e pledge and mortgage, a person
waiving the re#uirement of may guarantee his own obligation
notice. with his personal or real properties.
 The consideration of the
guaranty is the same as the 7uaranty Suretys&ip
consideration of the principal
obligation. 1. Fiability depends 1. Surety assumes
upon an independent liability as regular
 The creditor may proceed agreement to pay the party to the
against the guarantor although obligation if primary underta!ing
he has no right of action against debtor fails to do so
the principal debtor.
B. +ot presumed. 6t must be epressed 2. ollateral under- 2. Surety is an
and reduced in writing. ta!ing original promisor
NOTE: A power of attorney to loan
money does not authori@e the agent &. uarantor is &. Surety is
secondarily liable primarily liable
to ma!e the principal liable as a
surety for the payment of the debt 4. uarantor binds (. Surety underta!es
of a third person. $4P (s! Coster0 3% himself to pay if to pay if the principal
P$il! '23' the principal 53S +T AL
9. Jalls under the Statute of Jrauds A++T AL
since it is a >special promise to
answer for the debt, default or 7. 6nsurer of 7. 6nsurer of the
miscarriage of another?. solvency of debtor debt
%. Strictly interpreted against the
creditor and in favor of the 8. uarantor can 8. Surety cannot
guarantorCsurety and is not to be avail of the benefit avail of the benefit of
of ecussion and ecussion and division
etended beyond its terms or
division in case
specified limits. $9a"dalena Estates0 creditor proceeds
nc! (s Rodri"ue60 *+ SCRA 2&% ' The against him
rule of strictissimi >uris commonly
pertains to an accommodation surety Inorsement 7uaranty
because the latter acts without
CIVIL LAW COMMITTEE
195
1. rimarily of 1. ontract of  6t is never necessary that the

transfer security
guarantor or surety should receive
any part or benefit, if such there be,
2. /nless the note is 2. Jailure in either or
promptly presented both of these accruing to the principal. $Dille
for payment at particulars does not lastic 6ndustries orp. vs. A, 278
maturity and due generally wor! as an S0A (B9'
notice of dishonor absolute discharge of
given to the indorser a guarantor<s
within a reasonable liability, but his is
time he will be discharged only to
discharged abso- the etent of the loss Dou0le or su0*1uaranty (Art -8, -n
lutely from all which he may have
par%
liability thereon, suffered in
whether he has conse#uence thereof  ne constituted to guarantee the
suffered any actual obligation of a guarantor
damage or not
Continuin1 1uaranty (Art -8,"%
&. 6ndorser does not &. uarantor  ne which is not limited to a single
warrant the solvency. warrants the solvency transaction but which contemplates
=e is answerable on a of the promisor a future course of dealings, covering
strict compliance
a series of transactions generally for
with the law by the
holder, whether the an indefinite time or until revo!ed.
promisor is solvent or
not NOTES:
 rospective in operation $?i@o (s CA0
(. 6ndorser can be (. uarantor cannot be
)*& SCRA 2 '
sued as promisor sued as promisor
 onstrued as continuing when by the
7uaranty >arranty terms thereof it is evident that the

A contract by which a An underta!ing that ob)ect is to give a standing credit to
person is bound to the title, #uality, or the principal debtor to be used from
another for the #uantity of the time to time either indefinitely or
fulfilment of a sub)ect matter of the until a certain period, especially if
promise or contract is what it the right to recall the guaranty is
engagement of a has been represented epressly reserved $?i@o (s CA0 )*&
third party to be, and relates to SCRA 2 '
some agreement
made ordinarily by  >Juture debts? may also refer to
the party who ma!es debts eisting at the time of the
the warranty constitution of the guaranty but the
amount thereof is un!nown and not
NOTES: to debts not yet incurred and
 A guaranty is gratuitous, unless there eisting at that time.
is a stipulation to the contrary. The  3ception to the concept of
cause of the contract is the same continuing guaranty is c$attel
cause which supports the obligation mort"a"e. A chattel mortgage can
as to the principal debtor. only cover obligations eisting at the
 The peculiar nature of a guaranty or time the mortgage is constituted and
surety agreement is that is is not those contracted subse#uent to
regarded as valid despite the the eecution thereof -T$e 4el"ian
absence of any direct consideration Cat$olic 9issionaries0 nc! (s!
received by the guarantor or surety 9a"allanes Press0 nc!0 32 P$il &3%.!
either from the principal debtor or An eception to this is in case of
from the creditor" a consideration stoc!s in department stores, drug
moving to the principal alone will stores, etc. -Torres (s! Lim>ap0 '&
suffice. P$il *3*.!
CIVIL LAW COMMITTEE
196
Etent of 7uarantors lia0ility: (Art  annot even begin to ta!e place

-8,,% before )udgment has been obtained
1. Dhere the guaranty definite* 6t is against the debtor $4aylon vs A,
limited in whole or in part to the &12 S0A 72'
principal debt, to the eclusion of
accessories. >&en 7uarantor is not entitle to t&e
2. Dhere guaranty indefinite or simple* 0enefit of ecussion: $A60S'
6t shall comprise not only the 1. 6f it may be presumed that an
principal obligation, but also all its eecution on the property of the
accessories, including the )udicial principal debtor would not result in
costs, provided with respect to the the satisfaction of the obligation
latter, that the guarantor shall only
 +ot necessary that the debtor be
be liable for those costs incurred
)udicially declared insolvent or
after he has been )udicially re#uired
ban!rupt
to pay.
2. Dhen he has absconded, or cannot
be sued within the hilippines unless
ualifications of a 1uarantor: (Arts
he has left a manager or
-8,$*-8,<%
representative
1. possesses integrity
&. 6n case of insolvency of the debtor
2. capacity to bind himself
3. has sufficient property to answer  ust be actual
for the obligation which he (. 6f the guarantor has epressly
guarantees renounced it
7. 6f he has bound himself solidarily
NOTES: with the debtor
 The #ualifications need only be
Ot$er "rounds: (BIPS%
present at the time of the perfection
8. 6f he is a )udicial 0ondsman or sub-
of the contract.
surety
 The subse#uent loss of the integrity B. 6f he fails to interpose it as a
or property or supervening defense before )udgment is rendered
incapacity of the guarantor would against him
not operate to eonerate the 9. 6f the guarantor does not set up the
guarantor or the eventual liability he benefit against the creditor upon the
has contracted, and the contract of latter<s demand for payment from
guaranty continues. him, and point out to the creditor
 =owever, the creditor may demand available property to the debtor
another guarantor with the proper within hilippine territory, sufficient
#ualifications. 4ut he may waive it if to cover the amount of the debt $Art
he chooses and hold the guarantor to 28'
his bargain.  5emand can be made only after
)udgment on the debt
Benefit of Ecussion (Art -8,@%

5emand must be actual" )oining
 The right by which the guarantor
the guarantor in the suit against
cannot be compelled to pay the
the principal debtor is not the
creditor unless the latter has
demand intended by law
ehausted all the properties of the
%. Dhere the pledge or mortgage has
principal debtor, and has resorted to
been given by him as special security
all of the legal remedies against such
debtor.
Benefit of Di?ision (Art -8$,%
 Should there be se(eral "uarantors
NOTE:
of only one de#tor and for the same
 +ot applicable to a contract of de#t, the obligation to answer for
suretyship $Arts 2(B, par. 2" the same is divided among all.
27%:2;'  Fiability* Goint
CIVIL LAW COMMITTEE
197
ehaustion even if )udgment

NOTES: should be rendered against him
 The creditor can claim from the and principal debtor. =is
guarantors only the shares they are voluntary appearance does not
respectively bound to pay e/cept constitute a renunciation of his
8$en solidarity is stipulated or if right to ecussion $see Art.
any of t$e circumstances 27%$1''.
enumerated in Article )7'2 s$ould uarantor cannot set up the
ta5e place! defenses if he does not appear
 The right of contribution of and it may no longer be possible
guarantors who pays re#uires that for him to #uestion the validity
the payment must have been made of the )udgment rendered
$a' in virtue of a )udicial demand, or against the debtor.
$b' because the principal debtor is 2. A guarantor is entitled to be heard
insolvent $Art 2B&'. before and eecution can be issued
against him where he is not a party
 6f any of the guarantors should be
in the case involving his principal
insolvent, his share shall be borne by
$procedural due process'.
the others including the paying
guarantor in the same )oint
7uarantors Ri1&t of Inemnity or
proportion following the rule in
Reim0ursement (Art -8$$%
solidary obligations.
 GENERAL RULE: uaranty is a contract
 The above rule shall not be of indemnity . The guarantor who ma!es
applicable unless the payment has payment is entitled to be reimbursed by
been made in virtue of a )udicial the principal debtor.
demand or unless the principal
debtor is insolvent. NOTE: The indemnity consists of* (DIED%
 The right to contribution or 1. Total amount of t$e  e#t – no
reimbursement from his co- right to demand reimbursement
guarantors is ac#uired ipso >ure by until he has actually paid the
virtue of said payment without the debt, unless by the terms of the
need of obtaining from the creditor contract, he is given the right
any prior cession of rights to such before ma!ing payment. =e
guarantor. cannot collect more than what
 The co-guarantors may set up he has paid.
against the one who paid, the same 2. Le"al interest thereon from the
defenses which have pertained to time the payment was made

the principal debtor against the !nown $notice of payment in
creditor and which are not purely effect a demand so that if the
personal to the debtor. $Art 2B(' debtor does not pay
immediately, he incurs in delay'
Proceure =&en creitor sues: $Art. to the debtor, even though it did
282' not earn interest for the
 The creditor must sue the principal creditor. uarantor<s right to
alone" the guarantor cannot be sued legal interest is granted by law
with his principal, much less alone by virtue of the payment he has
ecept in Art. 27%. made.
3. + /penses incurred #y t$e
*! Notice to "uarantor of t$e action "uarantor after having notified
the debtor that payment has
 The guarantor must be +T6J635 been demanded of him by the
so that he may appear, if he so creditor" only those epenses
desires, and set up defenses he that the guarantor has to satisfy
may want to offer. in accordance with law as a
 6f the guarantor appears, he is conse#uence of the guaranty
still given the benefit of $Art. 277' not those which
CIVIL LAW COMMITTEE
198
depend upon his will or own acts  The guarantor is subrogated by

or his fault for these are his virtue of the payment to the rights
eclusive personal responsibility of the creditor, not those of the
and it is not )ust that they be debtor.
shouldered by the debtor.
 uarantor cannot eercise the
4. ,ama"es if they are due in
right of redemption of his
accordance
principal $Urrutia ; Co (s
with law. eneral rules on
9orena and Reyes0 )+ P$il )&*'
damages apply.
Effect of Payment 0y 7uarantor
 EXCEPTONS:
/ >it&out notice to e0tor: (Art
1. Dhere the guaranty is
-8$@%
constituted without the
!nowledge or against the will of  The debtor may interpose
the principal debtor, the against the guarantor those
guarantor can recover only defenses which he could have
insofar as the payment had been set up against the creditor at the
beneficial to the debtor $Art. time the payment was made,
27'. e.g. the debtor can set up
2. ayment by a third person who against the guarantor the
does not intend to be reimbursed defense of previous
by the debtor is deemed to be a etinguishment of the obligation
donation, which, however, by payment.
re#uires the debtor<s consent.
4ut the payment is in any case -/ Before )aturity (Art -8$!%
valid as to the creditor who has  +ot entitled to reimbursement
accepted it $Art. 12&9'. unless the payment was made
&. Daiver of the right to demand with the consent or has been
reimbursement. ratified by the debtor
7uarantors ri1&t to Su0ro1ation Effect of Repeat Payment 0y e0tor:

(ART/-8$<% (Art -8<8%
 Subrogation transfers to the person  GENERAL RULE: 4efore guarantor pays
subrogated, the credit with all the the creditor, he must first notify the
rights thereto appertaining either debtor $Art. 289'. 6f he fails to give
against the debtor or against third such notice and the debtor repeats
persons, be they guarantors or payment, the guarantor can only collect
possessors of mortgages, sub)ect to from the creditor and guarantor has no
stipulation in conventional cause of action against the debtor for
subrogation. the return of the amount paid by
guarantor even if the creditor should
NOTE: This right of subrogation is become insolvent.
necessary to enable the guarantor to
enforce the indemnity given in Art.  EXCEPTON: The guarantor can still
288. claim reimbursement from the debtor in
 6t arises by operation of law upon spite of lac! of notice if the following
payment by the guarantor. 6t is not conditions are present* (PI7%
necessary that the creditor cede to a. guarantor was prevented by
the guarantor the former<s rights fortuitous event to advise the
against the debtor. debtor of the payment" and
b. the creditor becomes insolvent"
 6t is not a contractual right. The
c. the guaranty is 1ratuitous.
right of guarantor who has paid a
debt to subrogation does not stand
Ri1&t of 7uarantor to procee a1ainst
upon contract but upon the
e0tor before payment
principles of natural )ustice.
CIVIL LAW COMMITTEE
199
 GENERAL RULE: uarantor has no 8. Etension granted to the debtor by

cause of action against debtor until after the creditor without the consent of
the former has paid the obligation the guarantor $Art 2B%'
 EXCEPTON: Article 2B1
BOND
NOTES:  An underta!ing that is sufficiently
 Article 2B1 is applicable and secured, and not cash or currency
available to the surety. $9anila
Surety ; idelity Co!0 nc! (s 4atu Bonsman (Art -8@-%
Construction ; Co!0 *7* P$il 323'  A surety offered in virtue of a
provision of law or a )udicial order.
 0emedy of guarantor*
=e must have the #ualifications
$a' obtain release from the
re#uired of a guarantor and in
guaranty" or
special laws li!e the 0ules of ourt.
$b' demand a security that shall
protect him from any
NOTES:
proceedings by the creditor, and
against the danger of insolvency  Gudicial bonds constitute merely a
of the debtor special class of contracts of guaranty
by the fact that they are given >in
Art/ -8$$ Art/ -8< virtueM of a )udicial order.?
rovides for the rovides for his  6f the person re#uired to give a legal
enforcement of the protection #efore he or )udicial bond should not be able
rights of the has paid but after he to do so, a pledge or mortgage
guarantorCsurety has become liable sufficient to cover the obligation
against the debtor
shall admitted in lieu thereof $Art
after he has paid the
debt
29&'
ives a right of rotective remedy  A )udicial bondsman and the sub-
action after payment #efore payment. surety are +T entitled to the
Substantive right reliminary remedy benefit of ecussion because they
are not mere guarantors, but
Etin1uis&ment of 1uaranty: $0A232' sureties whose liability is primary
1. Release in favor of one of the and solidary. $Art 29('
guarantors, without the consent of
the others, benefits all to the etent PLED7E )ORT7A7E AND ANTICRESIS
of the share of the guarantor to I/ Common Elements of Ple1e
whom it has been granted $Art )ort1a1e an Antic&resis (Articles
2B9'" -8@, # -8!-%
2. 6f the creditor voluntarily accepts
immovable or other properties in A/ +ssentia$ &e-uisites (SOD% (Art
payment of the debt, even if he -8@,%
should afterwards lose the same 1. Secures the fulfillment of a principal
through eviction or conveyance of obligation"
property $Art 2BB'" 2. ledgor, mortgagor, antichretic
&. Dhenever by some act of the debtor must be the absolute owner
creditor, the guarantors even though of the thing pledged or mortgaged"
they are solidarily liable cannot be and
subrogated to the rights, mortgages  The reason being that in
and preferences of the former $Art anticipation of a possible
29'" foreclosure sale in case of
(. Jor the same causes as all other default which is still a sale, the
obligations $Art 12&1'" rule is that the seller must be
7. Dhen the principal obligation is the owner of the thing sold
etinguished" $avite 5evelopment 4an! vs.
Fim, &2( S0A &(8'
CIVIL LAW COMMITTEE
200
&. ledgor, mortgagor, antichretic security for the payment of the

debtor must have free isposal of principal obligation" and
their property, or be legally 2. There should be a stipulation for an
authori@ed for such purpose. automatic appropriation by the
creditor of the property in event of
NOTES: nonpayment of the obligation within
 Third persons can pledge or the stipulated period.
mortgage their own property to
secure the principal obligation.  GENERAL RULE: actum ommissorium
is forbidden by law and is declared null
 6t is not necessarily void simply
and void.
because the accommodation pledgor
 EXCEPTON: The pledgee may
or mortgagor did not benefit from
the same. So long as valid consent appropriate the thing pledged if after
was given, the fact that the loan was the first and second auctions, the thing
given solely for the benefit of the is not sold. $Art 2112'
principal debtor would not invalidate
the mortgage $GSS (s CA0 *%7 SCRA NOTE: The security contract remains
',,' valid" only the prohibited stipulation is
void.
 The accommodation pledgor or C/ Capabi$it) to secure a$$ #ins of
mortgagor, without epressly ob$igations i.e. pure or
assuming personal liability for such conitiona$ (Art -8!%
debt, is not liable for the payment of
any deficiency, should the property D/ (ni/isibi$it) (Art -8@!%
not be sufficient to cover the debt  GENERAL RULE: A pledge, mortgage,
$4an5 of America (s! American
or antichresis is ini/isib$e, even though
Realty Corporation0 ,)* SCRA &'2 '.
the debt may be divided among the
 The accommodation pledgor or successors in interest of the debtor or of
mortgagor is not solidarily bound the creditor.
with the principal obligor but his  Their indivisibility is not affected by
liability etents only to the property the fact that the debtors are )ointly
pledged or mortgaged. Should there or not solidarily liable.
be any deficiency, the creditor has
recourse on the principal debtor who Conse4uences of ini?isi0ility:
remains to be primarily bound. 1. Sin"le t$in" – 3very portion of the
 The law grants to the property pledged or mortgaged is
accommodation pledgor or answerable for the whole obligation
mortgagor the same rights as a 2. Se(eral t$in"s – All of the several
guarantor and he cannot be things pledged or mortgaged are
pre)udiced by any waiver of defense liable for the totality of the debt
by the principal debtor. &. ?e#tor<s $eircreditor<s $eir -
+either the debtor<s heir who has
B/ Prohibition against Pactu' paid part of the debt cannot as! for
Co''issoriu' (Art -8@@F -"<% proportionate etinguishment, nor
creditor<s heir who received his
Pactum Commissorium share of the debt return the pledge
 Stipulation whereby the thing or cancel the mortgage as long as
pled"ed or mort"a"ed , or under the debt is not completely satisfied.
antic$resis shall automatically
become the property of the creditor BEXCEPTONS:
in the event of non-payment of the 1. Dhere each one of several things
debt within the term fied. guarantees a determinate
portion of the credit
Re4uisites: 2. Dhere only a portion of the loan
1. There should be a pledge, mortgage, was released
or antichresis of property by way of
CIVIL LAW COMMITTEE
201
&. Dhere there was failure of delivered shall be returned with all
consideration. its fruits and accessions.
(. Dhere there is no debtor-
creditor relationship  Special Re4uisites in aition to
the co''on essentia$ re-uisites :
NOTES: 1. ossession of the thing pledged must
 The mere embodiment of a real be transferred to the creditor or a
estate mortgage and a chattel third person by agreement $Art
mortgage in one document does not 2%&'"
have the effect of fusing both 2. 6t can only cover movable property
securities into an indivisible whole. and incorporeal rights evidenced by
documents of title and the
 The mortgagee, therefore, may
instruments proving the right
legally foreclose the real estate
pledged shall be delivered to the
mortgage etra)udicially and waive
creditor, and if negotiable must be
the chattel mortgage foreclosure,
endorsed $Art 2%('" and
and maintain instead a personal
&. The description of the thing pledged
action for the recovery of the unpaid
and the date must appear in a public
balance of the credit $hil. 4an! of
instrument to bind third persons, but
ommerce vs. acadaeg, 1% hil
not for the validity of the contract
%91'
$Art 2%8'.
E/ "hen the principa$ ob$igation
beco'es ue the things in which  'ins:
the p$ege 'ortgage or 1. Con(entional oluntary – created
antichresis consists 'a) be by contract
a$ienate for the pa)'ent to the 2. Le"al – created by operation of law
creitor. (Art/ -8@<% $eamples* Art. 7(8, 1B&1 and 1%1(
+'
NOTES:
NOTES:
 6f the debtor fails to comply with the
 The provisions of possession, care
obligation at the time it falls due,
the creditor is merely entitled to and sale of the thing as well as on
move for the sale of the thing the termination of the pledge
pledged or mortgaged in order to governing conventional pledges are
collect the amount of his claim from applicable to pledges created by
the proceeds. operation of law $Art 2121'
 /nli!e, however, in conventional
 6f he wishes to secure a title to the
mortgaged property, he can buy it in pledge where the debtor is not
the foreclosure sale $ontevirgin vs. entitled to the ecess unless it is
A, 112 S0A 8(1' otherwise agreed, in legal pledge,
the remainder of the price of the
0. P$egor 'ortgagor antichretic sale after payment of the debt and
ebtor retains ownership of the epenses, shall be delivered to the
thing gi/en as a securit) debtor.
 6n legal pledge, there is no definite
PLED7E (Arts -8!" # --"% period for the payment of the
principal obligation. The pledgee
 A contract wherein the debtor must ma!e a demand for the
delivers to the creditor or to a third payment of the amount due him"
person a movable or document otherwise he cannot eercise the
evidencing incorporeal rights for the right of sale at public auction $Art
purpose of securing fulfilment of a 2122'
principal obligation with the
understanding that when the C&aracteristics:
obligation is fulfilled, the thing
CIVIL LAW COMMITTEE
202
1. Real DE: ? S4C 4A)R)OPS)

contract – it is perfected by the 1. ption to emand replacement or
delivery of the thing pledged by the immediate payment of the debt in case
debtor who is called the pled"or to of deception as to substance or #uality
the creditor who is called the $Art 21%'
pled"ee, or to a third person by 2. To sell at public auction in case of
common agreement" reasonable grounds to fear destruction
2. Accessor or impairment of the thing without his
y contract – it has no independent fault $Art 219'
eistence of its own" &. To 0ring actions pertaining to the
&. Unilater owner $Art 21&'
al contract – it creates an obligation (. To choose which of several things
solely on the part of the creditor to pledged shall be sold
return the thing sub)ect thereof 7. To 0id at the public auction $Art
upon the fulfilment of the principal 211&'
obligation" and 8. To appropriate the thing in case of
(. Su#sidiar failure of the 2nd public auction $Art
y contract – the obligation incurred 2112'
does not arise until the fulfilment B. To apply said fruits, interests or
of the principal obligation which is earnings to the interest, if any, then to
secured. the principal of the credit $Art 212'
9. To retain ecess value received in
Consieration in ple1e: the public sale $Art 2117'
 6nsofar as the pledgor is concerned, %. To retain the thing until after full
the cause is the principal obligation. payment of the debt $Art 2%9'
1. To be reimbursed for the epenses
 6f the pledgor is not the debtor, the
made for the preservation of the thing
cause is the compensation stipulated
pledged $Art 2%%'
for the pledge or the mere liberality
11. To ob)ect to the alienation of the
of the pledgor.
thing
12. To possess the thing $Art 2%9'
Etent of ple1e: /nless stipulated
1&. To sell at public auction in case of
otherwise, pledge etends to the fruits,
non-payment of debt at maturity $Art
interests or earnings of the thing.
2112'
To choose which of the several things
Ri1&ts an O0li1ations of a Ple1or
pledged shall be sold $Art 211%'
Ri1&ts O0li1ations 1(. ption to emand replacement or
1. To demand return in 1. To advise the
immediate payment of the debt in case
case of reasonable pledgee of the
grounds to fear flaws of the thing of deception as to substance or #uality
destruction or $Art 211' $Art 21%'
impairment of the thing 2. +ot to demand 17. To sell at public auction in case of
without the pledgee<s the return of the reasonable grounds to fear destruction
fault, sub)ect to the thing until after or impairment of the thing without his
duty of replacement full payment of fault $Art 219'
$Art 21B' the debt, 18. To 0ring actions pertaining to the
2. To bid and be including interest owner $Art 21&'
preferred at the public due thereon and
1B. To choose which of several things
auction $Art 211&' epenses incurred
&. To alienate the thing for its pledged shall be sold
pledged provided the preservation $Art 19. To 0id at the public auction $Art
pledgee consents to the 217' 211&'
sale $Art 2%B' 1%. To appropriate the thing in case of
(. To as! that the thing failure of the 2nd public auction $Art
pledged be deposited 2112'
$Arts 21( N 218' 2. To apply said fruits, interests or
earnings to the interest, if any, then to
Ri1&ts of t&e Ple1ee the principal of the credit $Art 212'
CIVIL LAW COMMITTEE
203
21. To retain ecess value received

in the public sale $Art 2117' Pro&i0ition a1ainst ou0le ple1e
22. To retain the thing until after full  roperty which has been lawfully
payment of the debt $Art 2%9' pledged to one creditor cannot be
2&. To be reimbursed for the epenses pledged to another as long as the
made for the preservation of the thing first one subsists.
pledged $Art 2%%' NOTE: ossession of a creditor of the
2(. To ob)ect to the alienation of the thing pledged is an essential re#uisite of
thing pledge.
27. To possess the thing $Art 2%9'
28. To sell at public auction in case of Etin1uis&ment of Ple1e (CRAPS%
non-payment of debt at maturity $Art 1. Jor the same causes as all other
2112' obligations $Art 12&1'
2B. To choose which of the several 2. Return of the thing pledged by the
things pledged shall be sold $Art 211%' pledgee to the pledgor $Art 211'
&. Statement in 8ritin" by the
O0li1ations of t&e Ple1ee pledgee that he renounces or
DE: CU?A, abandons the pledge $Art 2111'
1. Ta!e care of the thing with the (. Payment of the debt $Art 217'
diligence of a good father of a family 7. Sale of thing pledged at public
$Art 2%%' auction $Art 2117'
2. Not to use thing unless authori@ed or NOTE: The possession by the debtor or
by the owner or its preservation re#uires owner of the thing pledged subse#uent
its use $Art 21(' to the perfection of the pledge gives rise
&. Not to deposit the thing with a & rd to a prima facie presumption that the
person unless so stipulated $Art 21' thing has been returned and, therefore,
(. 0esponsibility for acts of agents and that the pledge has been etinguished
employees as regards the thing $Art but not the principal obligation itself.
21' $Art 211'
7. To advise pledgor of danger to the
thing $Art 21B' Re4uirements for sale of t&in1 ple1e
8. To advise pledgor of the result of the at pu0lic auction: (Art --%
public auction $Art 2118' 1. The debt is due and unpaid
2. Sale must be at a public auction
RI7T O6 PLED7OR TO S+BSTIT+TE &. there must be notice to the pledgor
TIN7 PLED7ED (ART/-8<% and owner, stating the amount due
 Re4uisites: (. Sale must be with the intervention
1. The pledgor has reasonable of a notary public
grounds to fear the destruction
or impairment of the thin Effect of sale of t&e t&in1 ple1e: (Art
pledged -,%
2. There is no fault on the part of 1. The sale of the thing pledged shall
the pledgee etinguish the principal obligation,
&. The pledgor is offering in place whether or not the proceeds of the
of the thing, another thing in sale are e#ual to the amount of the
pledge which is of the same !ind principal obligation, interest and
and #uality as the former epenses in a proper case
(. The pledge does not choose to 2. 6f the price of the sale is more than
eercise his right to cause the the amount due the creditor, the
thing pledged to be sold at debtor is not entitled to the ecess
public auction unless the contrary is provided
NOTE: The pledgee<s right to have the &. 6f the price of the sale is less, the
thing pledged sold at public sale granted creditor is not entitled to recover
under the Article 219 is superior to that the deficiency even if there is a
given to the pledgor to substitute the stipulation to that effect
thing pledged under Article 21B.
CIVIL LAW COMMITTEE
204
REAL ESTATE )ORT7A7E  6t is not an essential re#uisite that

(Articles --2*-"% the principal of the mortgage credit
bears interest, or that the interest
 A contract whereby the debtor as compensation for the use of the
secures to the creditor the principal and en)oyment of its fruits
fulfilment of a principal obligation, be in the form of a certain percent
specially sub)ecting to such security thereof.
immovable property or real rights
over immovable property in case the  Special Re4uisites in aition to
principal obligation is not complied the co''on essentia$ re-uisites :
with at the time stipulated. 1. 6t can cover only immovable
property and alienable real rights
C&aracteristics of t&e contract: imposed upon immovables $Art
*! Real 212('"
)! Accessory 2. 6t must appear in a public instrument
,! Su#sidiary $Art. 2127'" and
(. Unilateral – it creates only an &. 0egistration in the registry of
obligation on the part of the property is necessary to bind third
creditor who must free the persons, but not for the validity of
property from the encumbrance the contract $Art 2127'.
once the obligation is fulfilled.  An order for foreclosure cannot
be refused on the ground that
the mortgage had not been
registered provided no innocent
NOTES: third parties are involved.
 As an accessory contract, its NOTE: Dhere a mortgage is not valid or
consideration is that of the principal false, the principal obligation which it
contract from which it receives life. guarantees is not rendered null and void.
 A mortgage does not involve a Dhat is lost only is the right to foreclose
transfer, cession or conveyance of the mortgage as a special remedy for
property but only constitutes a lien satisfying or settling the indebtedness
thereon. /ntil discharged, it follows which is the principal obligation but the
the property wherever it goes and mortgage deed remains as evidence or
subsists notwithstanding changes of proof of a personal obligation of the
ownership. debtor and the amount due to the
creditor may be enforced in an ordinary
 A mortgage gives the mortgagee no
personal action.
right or claim to the possession of
the property, and therefore, a mere
mortgagee has no right to e)ect an  'ins:
occupant of the property mortgaged 1. oluntary – agreed to by the parties
unless the mortgage should contain or constituted by the will of the
some provision to that effect. The owner of the property on which it is
only right of a mortgagee in case of created
non-payment of a debt secured by 2. Le"al – one re#uired by law to be
mortgage would be to foreclose the eecuted in favour of certain
mortgage and have the encumbered persons
property sold to satisfy the  The persons in whose favour the
outstanding indebtedness. 6f the law establishes a mortgage have
possession is transferred to the no other right than to demand
mortgagee, it must not epressly be the eecution and the recording
for purpose of applying the fruits to of the document in which the
the interest then to the principal of mortgage is formali@ed $Art 2127
the credit, for then it would be an par 2'
antichresis. &. E=uita#le – one which, although
lac!ing the formalities of a
CIVIL LAW COMMITTEE
205
mortgage, shows the intention of the transmission of property should not be

parties to ma!e the property a unduly impeded.
security for a debt
2. )ort1a1ee * To claim from a & rd
PLED7E REAL )ORT7A7E person in possession of the
1. onstituted on 1. onstituted on mortgaged property the payment of
movables immovables the part of the credit secured by the
2. roperty is 2. 5elivery is not which said third person possesses
delivered to pledgee necessary $Art 212%'
or by common NOTE: 6t is necessary that prior demand
consent to a third
for payment must have been made on
person
&. +ot valid against &. +ot valid against
the debtor and the latter failed to pay
third persons unless a third persons unless $4P (s Concepcion ; Fi>os0 nc!0 ', P$il
description of the registered 27&'
thing pledged and
date of pledge 6oreclosure
appear in a public  The remedy available to the
instrument mortgagee by which he sub)ects the
mortgaged property to the
Etent of )ort1a1e: satisfaction of the obligation to
 Absent epress stipulation to the secure that for which the mortgage
contrary, the mortgage includes the was given
accessions, improvements, growing
fruits and income of the property NOTES:
not yet received when the obligation
 6t denotes the procedure adopted by
becomes due and to the amount of
the mortgagee to terminate the
the indemnity granted or owing to
rights of the mortgagor on the
the proprietor from the insurers of
property and includes the sale itself
the property mortgaged, or in virtue
$?4P (s ara"o6a0 +3 SCRA &&+'
of epropriation for public use $Art
212B'  Joreclosure is valid where the
debtor is in default in the payment
O0;ect of )ort1a1e: of his obligation $Go#onsen"0 1r! (s
 Juture property cannot be an ob)ect CA0 )3& SCRA 3%)'
of a contract of mortgage $Art
297:2;' =owever, a stipulation  'ins:
sub)ecting to the mortgage lien, 1. Gudicial – ordinary action for
properties $improvements' which the foreclosure under 0ule 89 of the
mortgagor may subse#uently ac#uire 0ules of ourt
install, or use in connection with 2. 3tra)udicial – when mortgagee is
real property already mortgaged given a special power of attorney to
belonging to the mortgagor is valid sell the mortgaged property by
$eople<s 4an! and Trust o. vs. public auction, under Act +o. &1&7
5ahican Fumber o., 2 S0A 9('
.uicial Etra;uicial
Special Ri1&ts: foreclosure foreclosure
1. )ort1a1or * To alienate the 1. There is court 1. +o court
intervention intervention
mortgaged property but the
2. 5ecisions are 2. +ot appealable
mortgage shall remain attached to
appealable because it is
the property. immediately
eecutory
NOTE: A stipulation forbidding the 3. rder of court 3. Joreclosure does
owner from alienating the immovable cuts off all rights of not cut off right of
mortgage shall be void $Art 21&' being the parties all parties involved
contrary to public policy inasmuch as the impleaded
4. There is e#uity 4. There is right of
CIVIL LAW COMMITTEE
206
of redemption redemption years from the time the right of

ecept on ban!s action accrues $Arts 11(2 N 11(('.
which provides for
a right of Stipulation of upset price or GtipoH
redemption
 6t is a stipulation in a mortgage of
5. eriod of 5. eriod to redeem
redemption starts start from date of real property of minimum price at
from the finality of registration of which the property shall be sold, to
the )udgment until certificate of sale become operative in the event of a
order of foreclosure sale at public auction. 6t
confirmation is null and void for the property
6. +o need for a 6. Special power of must be sold to the highest bidder.
special power of attorney in favor of arties cannot, by agreement,
attorney in the mortgagee is contravene the law and interfere
contract of needed in the
with the lawful procedure of the
mortgage contract
courts $46 vs Lulo, &1 hil (B8'
NOTES:
Etra;uicial foreclosure real property
 A foreclosure sale retroacts to the (Act No/ "",%
date of registration of the mortgage  The law covers only real estate
and that a person who ta!es a mortgages. 6t is intended merely to
mortgage in good faith and for regulate the etra)udicial sale of the
valuable consideration, the record property mortgaged if and when the
showing clear title to the mortgagor, mortgagee is given a special power
will be protected against e#uitable of epress authority to do so in the
claims on the title in favor of third deed itself or in a document
persons, of which he had no actual anneed thereto.
or constructive notice $St! ?ominic  The authority to sell is not
Corporation (s! AC *'* SCRA '%% '. etinguished by the death of the
 Dhere there is a right to redeem, mortgagor $or mortgagee' as it is an
inade#uacy of price is not material essential and inseparable part of a
because the )udgment debtor may bilateral agreement $Pere6 (s PN40
reac#uire the property or else sell *% SCRA +,,'.
his right to redeem and thus recover  +o sale can be legally made outside
any loss he claims to have suffered the province in which the property
by reason of the price obtained at sold is situated" and in case the
the auction sale and conse#uently place within said province in which
not sufficient to set aside the sale. the sale is to be made is the sub)ect
ere inade#uacy of the price of stipulation, such sale shall be
obtained at the sheriff<s sale will not made in the said place in the
be sufficient to set aside the sale municipal building of the
unless >the price is so inade#uate as municipality in which the property or
to shoc! the conscience of the part thereof is situated.
court? ta!ing into consideration the
peculiar circumstances attendant Proceure for etra;uicial foreclosure
thereto. $Sulit (s! CA0 )&+ SCRA 33*. of 0ot& real estate mort1a1e uner Act
 Should there remain a balance due No/ "", an c&attel mort1a1e uner
to the mortgagee after applying the Act No/ ,8@ -A!9! No! 22H*7H7'H70
proceeds of the sale, the mortgagee 1anuary *'0 )777.
is entitled to recover the deficiency. 1. Jiling of application before the
This rule applies both to )udicial and 3ecutive Gudge through the ler! of
etra-)udicial foreclosure real ourt
mortgage. 2. ler! of ourt will eamine whether
 The action to recover a deficiency
the re#uirement of the law have
after foreclosure prescribes after 1 been complied with, that is, whether
the notice of sale has been posted
for not less than 2 days in at least
CIVIL LAW COMMITTEE
207
three $&' public places of the public or third persons. Jailure to

municipality or city where the comply with the statutory
property is situated, and if the same re#uirements as to publication of
is worth more than (., that notice of auction sale constitutes a
such notice has been published once )urisdictional defect which
a wee! for at least three $&' invalidates the sale.Fac! of
consecutive wee!s in a newspaper of republication of notice of
general circulation in the city of foreclosure sale made subse#uently
municipality after the original date renders such
&. The certificate of sale must be sale void -PN4 (s! Nepomuceno
approved by the 3ecutive Gudge Productions nc!0 G!R! No! *,23%2!
(. Dhere the application concerns ?ecem#er )%0 )77)..
etra)udicial foreclosure of real  Sec & of Act &1&7 does not re#uire
mortgages in different locations personal or any particular notice on
covering one indebtedness, only one the mortgagor much less on his
filing fee corresponding to such debt successors-in-interest where there is
shall be collected no contractual stipulation therefor.
7. The ler! of ourt shall issue =ence, unless re#uired in the
certificate of payment indicating the mortgage contract, the lac! of such
amount of indebtedness, the filing notice is not a ground to set aside a
fees collected, the mortgages sought foreclosure sale.
to be foreclosed, the description of
 +either does Sec & re#uire posting of
the real estates and their respective
notice of sale on the mortgage
locations
property and the certificate of
8. The notice of sale shall be published
posting is not re#uired, much less
in a newspaper of general circulation
considered indispensable, for the
pursuant to Section 1, 5 +o. 1B%
validity of a foreclosure sale.
B. The application of shall be raffled
among all sheriffs
9. After the redemption period has
Reemption
epired, the ler! of ourt shall
archive the records.  6t is the transaction by which the
%. +o auction sale shall be held unless mortgagor reac#uires or buys bac!
there are at least two $2' the property which may have passed
participating bidders, otherwise the under the mortgage, or divests the
sale shall be postponed to another property of the lien which the
date. 6f on the new date set forth mortgage may have created.
for the sale there shall not be at
least two bidders, the sale shall then NOTES:
proceed. The names of the bidders  A sale by the mortgagor to a third
shall be reported to the Sheriff of party of the mortgaged property
the +otary ublic, who conducted during the period for redemption
the sale to the ler! of ourt before transfers only the right to redeem
the issuance of the certificate of the property and the right to
sale. possess, use and en)oy the same
during said period.
NOTES:  Dhere sale with assumption of
 The ortgagor and ortgagee have mortgage not registered and made
no right to waive the posting and without the consent of the
publication re#uirements under Act. mortgagee, the buyer, thereof, was
+o. &1&7. +otices are given to secure not validly substituted as debtor
bidders and prevent a sacrifice of and, hence, had no right to redeem
the property. learly, the statutory $4onne(ie (s! CA0 *)' SCRA *))'.
re#uirements of posting and
publication are mandated, not for  'ins:
the mortgagor<s benefit, but for the
CIVIL LAW COMMITTEE
208
1. E=uity of Redemption – right of the statutory period for redemption

mortgagor to redeem the mortgaged $0amire@ vs A, 21% S0A 7%9'.
property after his default in the
performance of the conditions of the Amount of t&e reemption price:
mortgage within the %-day period 1. ortgagee is not a ban! $Act +o.
from the date of the service of the &1&7, in relation to Sec. 29, 0ule &%
order of foreclosure or even of 0ules of ourt'
thereafter but before the a. purchase price of the property
confirmation of the sale. Applies to b. 1E interest per month on the
)udicial foreclosure of real mortgage purchase price
and chattel mortgage foreclosure. c. taes paid and amount of
purchaser<s prior lien, if any,
NOTE: 0edemption of the ban!ing with the same rate of interest
institutions is allowed within one year computed from the date of
from confirmation of sale. registration of sale, up to the
time of redemption
2. Ri"$t of Redemption – right of 2. ortgagee is a ban! $4F 2'
mortgagor to redeem the mortgaged a. amount due under the mortgage
property within one year from the deed
date of registration of the certificate b. interest
of sale. Applies only to etra)udicial c. cost and epenses
foreclosure of real mortgage. NOTE: 0edemption price in this
case is reduced by the income
NOTE: The right of redemption, as long received from the property
as within the period prescribed, may be
eercised irrespective of whether or not
the mortgagee has subse#uently
conveyed the property to some other
party $Sta! "nacia Rural 4an50 nc! (s!
CA0 ),7 SCRA '*,'
Perio of Reemption ANTICRESIS (Articles

1. 3tra-)udicial $Act O&1&7' -"- *-"!%
a. natural person – one year from
registration of the certificate of  A contract whereby the creditor
sale with 0egistry of 5eeds ac#uires the right to receive the
b. )uridical person – same rule as fruits of an immovable of the
natural person debtor, with the obligation to apply
c. )uridical person $mortgagee is them to the payment of the interest,
ban!' - three months after if owing, and thereafter to the
foreclosure or before principal of his credit $Art 21&2'
registration of certificate of
foreclosure which ever is earlier C&aracteristics
$sec. (B, of eneral 4an!ing 1. Accessory contract – it secures the
Faw' performance of a principal obligation
2. Gudicial – before confirmation of the 2. ormal contract – it must be in a
sale by the court specified form to be valid, i.e., >in
writing.? $Art 21&('
NOTE: Allowing a redemption after the
lapse of the statutory period, when the  Special Re4uisites in aition to
buyer at the foreclosure sale does not the co''on essentia$ re-uisites :
ob)ect but even consents to the 1. 6t can cover only the fruits of an
redemption, will uphold the policy of the immovable property" $Art 21&2'
law which is to aid rather than defeat 2. 5elivery of the immovable is
the right of redemption. There is nothing necessary for the creditor to receive
in the law which prevents a waiver of
CIVIL LAW COMMITTEE
209
the fruits and not that the contract principal

shall be binding" Sub)ect matter of both is real property
&. Amount of principal and interest
must be specified in writing $Art. O0li1ations of antic&retic creitor:
21&('" and 1 To pay taes and charges on the
(. 3press agreement that debtor will estate, including necessary epenses
give possession of the property to NOTE: reditor may avoid said
creditor and that the latter will obligation by*
apply the fruits to the interest, if a. compelling debtor to
any, then to the principal of his reac#uire en)oyment of the
credit. $Art 21&2' property or
b. by stipulation to the
NOTE: The obligation to pay interest is contrary
not of the essence of the contract of 2 To apply all the fruits, after
antichresis, there being nothing in the receiving them, to the payment of
ode to show that antichresis is only interest, if owing, and thereafter to
applicable to securing the payment of the principal
interest-bearing loans. n the contrary, & To render an account of the fruits to
antichresis is susceptible of guaranteeing the debtor
all !inds of obligations, pure or ( To bear the epenses necessary for
conditional its preservation and repair
Antic&resis Ple1e Remeies of creitor in case of non*

1. 0efers to real 1. 0efers to personal payment of e0t
property property
2. erfected by mere 2. erfected by 1. 4ring an action for specific
consent delivery of the thing performance" or
pledged 2. etition for the sale of the real
&. onsensual contract &. 0eal ontract property as in a foreclosure of
mortgages under 0ule 89 of the
0ules of ourt.$Art 21&B'
NOTES:
Antic&resis Real )ort1a1e
 The parties, however, may agree on
1. roperty is 1. 5ebtor usually
delivered to creditor retains possession of an etra)udicial foreclosure in the
the property same manner as they are allowed in
2. reditor ac#uires 2. reditor does not contracts of mortgage and pledge
only the right to have any right to $Ta(era (s! El Fo"ar ilipino0 nc!0
receive the fruits of receive the fruits" &+ P$il %*)'.
the property, hence, but the mortgage
 A stipulation authori@ing the
it does not produce a creates a real right
real right over the property
antichretic creditor to appropriate
&. The creditor, &. The creditor has the property upon the non-payment
unless there is no such obligation of the debt within the agreed period
stipulation to the is void $Art 299'.
contrary, is obliged
to pay the taes and CATTEL )ORT7A7E
charges upon the (Articles -28*-2%
estate
(. 6t is epressly (. There is no such
 A contract by virtue of which
stipulated that the obligation on part of
personal property is recorded in the
creditor given mortgagee
possession of the hattel ortgage 0egister as a
property shall apply security for the performance of an
all the fruits thereof obligation $Art 21('.
to the payment of
interest, if owing, C&aracteristics
and thereafter to the
CIVIL LAW COMMITTEE
210
1. Accessory contract – it is for the

purpose of securing the performance Effect of failure to re1ister c&attel
of a principal obligation mort1a1e in t&e c&attel mort1a1e
2. ormal contract – registration in the re1istry
hattel ortgage 0egister is  Article 21( ma!es the recording in
indispensable for its validity the hattel ortgage 0egister an
&. Unilateral contract – it produces essential re#uisite but if the
only obligations on the part of the instrument is not recorded, the
creditor to free the thing from the mortgage is ne(ert$eless #indin"
encumbrance on fulfilment of the #et8een t$e parties. 4ut the person
obligation. in whose favour the law establishes a
mortgage has no other right than to
 Special Re4uisites in aition to demand the eecution and the
the co''on essentia$ re-uisites : recording of the document.
1. 6t can cover only personal or
movable property in general"
however, the parties may treat as C&attel )ort1a1e Ple1e
personal property that which by its 1. 5elivery of the 1. 5elivery of the
nature would be real property" personal property thing pledged is
2. 0egistration of the mortgage with to the mortgage is necessary
the hattel ortgage 0egister where not necessary
the mortgagor resides" if property is 2. registration in 2. registration not
located in a different province, the hattel necessary to be
registration in both provinces ortgage 0egistry valid
re#uired" is necessary for its
&. 5escription of the property as would validity
enable the parties or other persons &. 6f property is &. 5ebtor is not
to identify the same after foreclosed, the entitled to e/cess
reasonable investigation and in#uiry" e/cess over the unless otherwise
and amount due goes to agreed or ecept in
(. Accompanied by an affida(it of "ood the debtor case of legal
fait$ to bind third persons, but not pledge
for the validity of the contract. (. 6f there is (. 6f there is
7. 6t can cover only obligations eisting deficiency after deficiency , creditor
at the time the mortgage is foreclosure, is not entitled to
constituted. creditor is entitled recover
NOTE: A mortgage containing a to recover the notwithstanding
stipulation in regard to future deficiency from the any stipulation to
advances in the credit will ta!e debtor, ecept the contrary
effect only from the date the same under Art. 1(9(
are made and not from the date of Sub)ect matter of both is movable
the mortgage $ 1aca (s ?a(ao Lum#er property
Co!0 **, SCRA *7% '
Affia?it of 7oo 6ait&
Effect of re1istration: Creates a real  ath in a contract of chattel
ri"$t mortgage wherein the parties
 The registration of the chattel Pseverally swear that the mortgage is
mortgage is an effective and binding made for the purpose of securing the
notice to other creditors of its obligation specified in the conditions
eistence and creates a real right or thereof and for no other purposes
a lien which, being recorded, follows and that the same is a )ust and valid
the chattel wherever it goes. The obligation and one not entered into
registration gives the mortgagee for the purpose of fraud.? $Sec. 7,
symbolical possession $Nort$ern hattel ortgage Faw'
9otors0 nc! (s! Co=uia0 &+ SCRA
,%3'.
CIVIL LAW COMMITTEE
211
Effect of a0sence  nly e#uity of redemption is

The special affidavit is re#uired only available to the mortgagor" the
for the purpose of transforming an latter can no longer redeem after
already valid mortgage into the confirmation of the foreclosure
>preferred mortgage.? Thus, it is sale.
not necessary for the validity of the
chattel mortgage itself but only to Ri1&t of reemption
give it a preferred status. 6n other
 Dhen the condition of a chattel
words, its absence vitiates the
mortgage is bro!en the following
mortgage only as against third
may redeem*
persons without notice li!e creditors
a' mortgagor"
and subse#uent encumbrancers.
b' person holding a subse#uent
mortgage" or
6oreclosure of C&attel )ort1a1e
c' subse#uent attaching creditor.
NOTES:
 An attaching creditor who so
 Joreclosure sale in chattel mortgage
redeems shall be subrogated to the
is by public auction under Act +o.
rights of the mortgagee and entitled
179, but the parties may stipulate
to foreclose the mortgage in the
that it be by private sale.
same manner that the mortgagee
 The mortgagee may, after thirty $&' could foreclose it.
days from the time of the condition
 The redemption is made by paying or
bro!en, cause the mortgaged
delivering to the mortgagee the
property to be sold at public auction
amount due on such mortgage and
by a public officer. The &-day
the costs, and epenses incurred by
period is also a grace period for the
such breach of condition before the
mortgagor to discharge the mortgage
sale thereof $Sec 1&, Act +o. 179'.
obligation. After the sale of the
chattel at public auction, the right
Ri1&t to possession of foreclose
of redemption is no longer available
property
to the mortgagor $Ca#ral (s!
1. 0eal mortgage – After the
E(an"elista0 )+ SCRA *777 '.
redemption period has epired, the
purchaser of the property has the
Application of procee of sale:
right to a conveyance and to be
1. osts and epenses of !eeping
placed in possession thereof.
and sale
2. ayment of the obligation
NOTES:
secured by the mortgage
&. laims of persons holding  urchaser is not obliged to bring
subse#uent mortgages in their a separate suit for possession.
order =e must invo!e the aid of the
(. The balance, if any, shall be courts and as! for a D06T J
paid to the mortgagor or person SS3SS6+.
holding under him  Section B of Act +o. &1&7 allows
the purchaser to ta!e possession
NOTES: of the foreclosed property during
 The creditor may maintain an action the period of redemption upon
for the deficiency, ecept if the filing of an e parte application
chattel mortgage is constituted as and approval of a bond.
security for the purchase of personal
property paya#le in instalments 2. hattel mortgage – Dhen default
$Art. 1(9('. occurs and the creditor desires to
foreclose, the creditor has the right
 The action for deficiency may be
to ta!e the property as a preliminary
brought within ten $1' years from
step for its sale.
the time the cause of action accrues
$Arts 11(1 and 11(2'.
CIVIL LAW COMMITTEE
212
NOTE: Dhere the debtor refuses to  GENERAL RULE: 5ebtor is liable with
yield the property, the creditor<s all his property, present and future, for
remedy is to institute an action the fulfilment of his obligations. $Art
either to effect )udicial foreclosure 22&8'
directly or to secure possession
$03F3H6+' as a preliminary to the  EXE9PT PROPERT:
sale contemplated in Section 1( or 1. resent property – those
Act. +o. 179 provided under Arts. 177 and 27
of the Jamily ode, Sec. 1&,
CONC+RRENCE AND PRE6ERENCE O6 0ule &% of the 0ules of ourt,
CREDITS (Articles --"$ # --,% and Sec. 119 of the ublic Fand
Act
Concurrence of Creits 2. Juture property – a debtor who
 ossession by two or more creditors obtains a discharge from his
of e#ual rights or privileges over the debts on account of his
same property or all of the property insolvency, is not liable for the
of the debtor unsatisfied claims of his
creditors with said property
Preference of Creits sub)ect to certain eceptions
 0ight held by a creditor to be epressly provided by law. $Secs.
preferred in the payment of his 89, 8%, The 6nsolvency Faw :Act
claim above others out of the +o. 1%78;'
debtor<s assets. &. roperty under legal custody and
those owned by municipal
NOTES: corporations necessary for
 The rules on preference of credits governmental purposes
apply only when two or more
creditors have separate and distinct 7eneral Cate1ories of Creit:
claims against the same debtor who 1. Specia$ Preferre Creits - those
has insufficient property! listed in Arts. 22(1 and 22(2 shall be
considered as mortgages and pledges of
 reference creates no lien on
real or personal property or liens $Art.
property, and, therefore, gives no
22(&'. =ence, they are not included in
interest in property, specific or
the insolvent debtorIs assets.
general, to the preferred creditor
but a preference in application of
NOTES:
the proceeds after the sale. $9olina
(s! Somes0 ,* P$il! %&'  Arts. 22(1 and 22(2 do not give the
order of preference or priority of
 The preferential right of credit
payment. They merely enumerate
attains significance only after the
the credits which en)oy preference
properties of the debtor have been
with respect to specific movables or
inventoried and li#uidated, and the
immovables. Dith respect to the
claims held by his various creditors
same specific movables or
have been established. $?4P (s!
immovables, creditors, with t$e
NLRC0 *+, SCRA ,)+'
e/ception of t$e State -No! *.,
merely concur.
Preference of Lien
 They only find application when
Creit
Applies only to reates a charge there is a concurrence of credits,
claims which do on a particular i.e., when the same specific
not attach to property property of the debtor is sub)ected
specific to the claims of several creditors and
properties the value of such property is
insufficient to pay in full all the
Lia0ility of e0tors property for &is creditors. 6n such a situation, the
o0li1ations #uestion of preference will arise.
CIVIL LAW COMMITTEE
213
 Article 22(2 ma!es no distinction 22(( creates are simply rights in

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

unpaid wages and other monetary
2. Orinar) Preferre Creits - those claims of the employees shall be
listed in Art. 22(( as amended by given first preference and shall be
Art. 11 of the Fabor ode. paid in full before the claims of the
NOTES: government and other creditors may
be paid. The terms, >declaration?
 The provision not only enumerates
of ban!ruptcy, or >)udicial?
the preferred credits with respect to
li#uidation have been eliminated,
other property, real and personal, of
nevertheless, according to the S,
the debtor, but also gives their
ban!ruptcy or li#uidation
order of preference >in the order
proceedings are still necessary for
named?.
the operation of the preference
 6n contrast with Articles 22(1 and accorded to wor!ers under Art. 11
22(2, Article 22(( creates no liens of the Fabor ode. $?4P (s! NLRC
on determinate property which *+, SCRA ,)+I RA No! &%*' Sec *7 '
follow such property. Dhat Article
CIVIL LAW COMMITTEE
214
 6n case of rehabilitation, the ad)udicated, e.g. insolvency,

preference of credit granted to settlement of decedent<s estate, or
employees under Art 11 of the other li#uidation proceedings ecept
Fabor ode is not applicable where there are not more than one
$Ru##er8orld JP$ils!K (s CA0 ,7' creditor.
SCRA %))'.
Refectionary Creit
 6ndebtedness incurred in the repair
or reconstruction of something
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly eisted.
ORDER O6 PRE6ERENCE O6 CREDITS
 Arts. 22(1 and 22(2, )ointly with

Arts. 22(8 to 22(% establish a t8oH
tier order of preference*
/ 0irst tier – includes taes, duties
and fees due on specific movable or
immovable property"
-/ Secon tier – all other special
preferred $non-ta' credits shall be
satisfied pro-rata, out of any
residual value of the specific
property to which such credits
relate.
NOTES:
 The pro-rata rule does not apply to
credits annotated in the 0egistry of
roperty by virtue of a )udicial
order, by attachments and

 redits which do not en)oy any
eecutions, which are preferred as
preference with respect to specific
to >later credits?. 6n satisfying
property because they are not
several credits annotated by
among those mentioned in Arts. 22(1
attachments or eecutions, the rule
and 22(2 and those while included in
is still preference according to the
said articles are unpaid because the
priority of the credits in the order of
value of the property to which the
time.
preference refers is less than the
 6n order to ma!e the pro rating preferred credit or credits, shall be
provided in Art 22(% fully effective, satisfied in the order established in
the preferred creditors enumerated Art. 22(( with reference to other
in +os. 2 to 1( of Art 22(2 must real andCor personal property.
necessarily be convened, and the
 ommon credits or those which do
import of their claims ascertained.
not fall under Arts. 22(1, 22(2, and
There must be first some proceeding
22(( do not en)oy any preference
where the claims of all the preferred
and shall be paid pro rata regardless
creditors may be bindingly
CIVIL LAW COMMITTEE

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2. Simple loan or mutuum –

2. Simple loan or mutuum –

2. There is a transfer There is no transfer

breached, the contravenor can

annum deals with loans, forbearance 1. Real Contract - contract is

persons each of whom believes &. property saved from destruction

his fault, which is presumed 1. The consumable 1. Fender is bound

may have received or to assign his pillage, shipwrec! or other similar

O0li1ations of t&e Depositor (Art !!- #

against the principal even  uaranty may be constituted to

his acceptance. Dith respect motive of pecuniary gain and hence,

1. rimarily of 1. ontract of  6t is never necessary that the

7uaranty >arranty terms thereof it is evident that the

Etent of 7uarantors lia0ility: (Art  annot even begin to ta!e place

ehaustion even if )udgment

defenses which have pertained to time the payment was made

depend upon his will or own acts  The guarantor is subrogated by

7uarantors ri1&t to Su0ro1ation Effect of Repeat Payment 0y e0tor:

 GENERAL RULE: uarantor has no 8. Etension granted to the debtor by

&. ledgor, mortgagor, antichretic security for the payment of the

1. Real DE: ? S4C 4A)R)OPS)

21. To retain ecess value received

REAL ESTATE )ORT7A7E  6t is not an essential re#uisite that

mortgage, shows the intention of the transmission of property should not be

of redemption redemption years from the time the right of

three $&' public places of the public or third persons. Jailure to

1. E=uity of Redemption – right of the statutory period for redemption

Perio of Reemption ANTICRESIS (Articles

the fruits and not that the contract principal

Antic&resis Ple1e Remeies of creitor in case of non*

1. Accessory contract – it is for the

Effect of a0sence  nly e#uity of redemption is

 Article 22(2 ma!es no distinction 22(( creates are simply rights in

'+% ' of the employer<s business, the

 6n case of rehabilitation, the ad)udicated, e.g. insolvency,

ORDER O6 PRE6ERENCE O6 CREDITS

 Arts. 22(1 and 22(2, )ointly with

order, by attachments and

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