San Beda College of Law

182
1821
MEMORY AID IN CIVIL LAW

CREDIT TRANSACTIONS
CREDIT TRANSACTIONS LOAN (Articles 1933 1961)
All transactions involving the
purchase or loan of goods, services, A contract wherein one of the
or money in the present with a parties delivers to another, either
promise to pay or deliver in the something not consumable so 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 of the same kind and quality shall be
real security - supported by a paid. (Art 1933)
collateral or an encumbrance of
property Characteristics:
2. Unsecured transactions or contracts 1. Real Contract delivery of the thing
of personal security - supported only loaned is necessary for the
by a promise or personal perfection of the contract
commitment of another such as a NOTE: An accepted promise to make
guarantor or surety a future loan is a consensual
contract, and therefore binding upon
Security the parties but it is only after
Something given, deposited, or delivery, will the real contract of
serving as a means to ensure loan arise. (Art 1934)
fulfilment or enforcement of an
obligation or of protecting some 2. Unilateral Contract - once the
interest in property subject matter has been delivered,
Types of Security it creates obligations on the part of
a. personal when an individual only one of the parties (i.e.
becomes surety or guarantor borrower).
b. real or property when a
mortgage, pledge, antichresis, Kinds:
charge or lien or other device 1. Commodatum when the bailor
used to have property held, out (lender) delivers to the bailee
of which the person to be made (borrower) a non-consumable thing
secure can be compensated for so that the latter may use it for a
loss certain time and return the identical
thing.
Bailment Kinds of
The delivery of property of one commodatum:
person to another in trust for a a. Ordinary Commodatum use by
specific purpose, with a contract, the borrower of the thing is for a
express or implied, that the trust certain period of time
shall be faithfully executed and the b. Precarium - one whereby the
property returned or duly accounted bailor may demand the thing
for when the special purpose is loaned at will and it exists in the
accomplished or kept until the bailor following cases:
claims it. i. neither the duration nor
purpose of the contract is
Parties: stipulated
1. bailor - the giver; one who delivers ii. the use of the thing is
property merely tolerated by the
2. bailee- the recipient; one who owner
receives the custody or possession of
the thing thus delivered

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
2. Simple loan or mutuum where the COMMODATUM (Articles 1935 1952)
lender delivers to the borrower Nature:
money or other consumable thing
upon the condition that the latter 1. PURPOSE: Bailee in commodatum
shall pay the same amount of the acquires the temporary use of the
same kind and quality. thing but not its fruits (unless
stipulated as an incidental part of
Commodatum Mutuum the contract).(Art 1935)
Key: COPS-LOTR Use must be temporary,
1. Object otherwise the contract may be a
Non-consumable Consumable deposit.
2. Cause
Gratuitous May or may not be 2. CAUSE: Essentially gratuitous; it
gratuitous ceases to be a commodatum if any
3. Purpose compensation is to be paid by the
Use or temporary Consumption borrower who acquires the use, in
possession
such case there arises a lease
4. Subject Matter
contract.
Real or personal Only personal
property property Similar to a donation in that it
5. Ownership of the thing confers a benefit to the
Retained by the Passes to the debtor recipient. The presumption is
bailor that the bailor has loaned the
6. Thing to be returned thing for having no need
Exact thing loaned Equal amount of the therefor.
same kind and
quality 3. SUBJECT MATTER: Generally non-
7. Who bears risk of loss consumable whether real or personal
Bailor Debtor but if the consumable goods are not
8. When to return for consumption as when they are
In case of urgent Only after the merely for exhibition, consumable
need, even before expiration of the goods may be the subject of the
the expiration of the term commodatum. (Art 1936)
term
4. Bailor need not be the owner of the
thing owned (Art. 1938) since by the
Loan Credit loan, ownership does not pass to the
Delivery by one party Ability of a person to
and the receipt of borrow money or borrower.
other party of a things by virtue of A mere lessee or usufructuary
given sum of money the trust or may lend but the borrower or
or other consumable confidence reposed bailee himself may not lend nor
thing upon an by the lender that he lease the thing loaned to him to
agreement, express will pay what he a third person (Art 1932[2])
or implied, to repay promised.
the same. 5. Purely Personal (Art 1939):
Death of either party terminates
the contract unless by
Loan Credit stipulation, the commodatum is
1. Interest taken at Interest is taken in transmitted to the heirs of either
the expiration of the advance
credit
or both parties.
2. Always on a Always on a single
Bailee can neither lend nor lease
double name paper name paper (i.e. the object of the contract to a
(two signatures promissory note with third person.
appear with both no indorse-ment
parties held liable other than the
for payment) maker)
 NOTE:Use of the thing loaned
may extend to members of the
bailees household except:
a. contrary stipulation;
b. nature of the thing
forbids such use
Obligations of the Bailee: (Arts 1941
1945)
1. To pay for the ordinary expenses for
the use and preservation of the thing
loaned. (Art 1941)
2. To be liable for the loss of the thing
even if it should be through a obligation shall be solidary.
fortuitous event in the following
cases: (KLAS D)
a. when he keeps it longer than
the period stipulated, or after
the accomplishment of its use
b. when he lends or leases it to
third persons who are not
members of his household
c. when the thing loaned has been
delivered with appraisal of
its value
d. when, being able to save
either of the thing borrowed or
his own things, he chose to save
the latter; or
e. when the bailee devoted the
thing for any purpose different
from that for which it has been
loaned (Art 1942)
3. To be liable for the deterioration of
thing loaned (a) if expressly
stipulated; (b) if guilty of fault or
negligence; or (c) if he devotes the
thing to any purpose different from
that for which it has been loaned
4. To pay for extraordinary expenses
arising from the actual use of the
thing by the bailee, which shall be
borne equally by both the bailor and
the bailee, even though the bailee
acted without fault, unless there is a
stipulation to the contrary (Art 1949
par 2)
5. To return the thing loaned
The bailee has no right to retain
the thing loaned as security for
claims he has against the bailor
even for extraordinary expenses
except for a claim for damages
suffered because of the flaws of
the thing loaned.
NOTES:
However, the bailees right
extends no further than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
He cannot lawfully sell the
thing to satisfy such damages
without courts approval.
In case there are two or
more bailees, their
Obligations of the bailor (Art 1946 Art
1952):
1. To respect the duration of the loan
GENERAL RULE: Allow the bailee
the use of the thing loaned for the
duration of the period stipulated or
until the accomplishment of the
purpose for which the commodatum
was instituted.
EXCEPTIONS:
a. In case of urgent need in
which case bailee may demand
its return or temporary use;
b. The bailor may demand
immediate return of the thing if
the bailee commits any act of
ingratitude specified in Art. 765.
2. To refund to the bailee
extraordinary expenses for the
preservation of the thing loaned,
provided the bailee brings the same
to the knowledge of the bailor
before incurring them, except when
they are so urgent that the reply to
the notification cannot be awaited
without danger.
3. To be liable to the bailee for
damages for known hidden flaws.
Requisites:
a. There is flaw or defect in the
thing loaned;
b. The flaw or defect is hidden;
c. The bailor is aware thereof;
d. He does not advise the bailee of
the same; and
e. The bailee suffers damages by
reason of said flaw or defect
 NOTES: 3. Relationship Relationship is that
between the parties of a landlord and
If the above requisites concur, is that of obligor- tenant
the bailee has the right of obligee
retention for damages.
The bailor cannot exempt 4. Creditor receives Owner of the
himself from the payment of payment for his loan property rented
expenses or damages by receives
compensation or
abandoning the thing to the
price either in
bailee. money, provisions,
chattels, or labor
SIMPLE LOAN OR MUTUUM (Art 1953
1961) from the occupant
A contract whereby one party thereof in return for
delivers to another, money or other its use (Tolentino vs
consumable thing with the Gonzales, 50 Phil 558
understanding that the same amount 1927)
of the same kind and quality shall be
paid. (Art. 1953)
Loan Sale
NOTES:
1. Real contract Consensual contract
The mere issuance of the checks
does not result in the perfection of 2. Generally Bilateral and
the contract of loan. The Civil Code unilateral because reciprocal
provides that the delivery of bills of only borrower has
exchange and mercantile obligations
documents, such as checks, shall
produce the effect of payment only NOTE: If the property is sold, but the
when they have been encashed real intent is only to give the object as
(Gerales vs. CA 218 SCRA 638). It is security for a debt as when the price
only after the checks have produced is comparatively small there really is a
the effect of payment that the contract of loan with an equitable
contract of loan may be deemed mortgage.
perfected.
Commodatum/
The obligation is to pay and not to Mutuum Barter
return because the consumption of
the thing loaned is the distinguishing 1. Subject matter is Subject matter is
character of the contract of mutuum money or fungible non-fungible, (non
from that of commodatum. things consumable) things
No estafa is committed by a person
who refuses to pay his debt or denies 2. In commodatum, The thing with
the bailee is bound equivalent value is
its existence.
to return the given in return for
identical thing what has been
Simple Loan/Mutuum Rent borrowed when the received
time has expired or
1. Delivery of money Delivery of some non- purpose served
or some consumable consumable thing in
Onerous, actually a
thing with a promise order that the other
3. Mutuum may be mutual sale
to pay an equivalent may use it during a
gratuitous and
of the same kind and certain period and
quality commodatum is
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

Form of Payment (Art 1955):
1. If the thing loaned is money -
payment must be made in the
currency stipulated, if it is possible;
otherwise it is payable in the
currency which is legal tender in the
Philippines and in case of
extraordinary inflation or deflation,
the basisi of payment shall be the
value of the currency at the time of
the creation of the obligation
2. If what was loaned is a fungible
thing other than money - the
borrower is under obligation to pay
the lender another thing of the same
kind, quality and quantity. In case it
is impossible to do so, the borrower
shall pay its value at the time of the
perfection of the loan.
Interest
The compensation allowed by law or
fixed by the parties for the loan or
forbearance of money, goods or
credits
Requisites for Demandability: (ELI)
1. must be expressly stipulated
Exceptions:
a. indemnity for damages
b. interest accruing from
unpaid interest
2. must be lawful
3. must be in writing
Compound Interest
GENERAL RULE: Unpaid interest shall
not earn interest.
EXCEPTIONS:
1. when judicially demanded
2. when there is an express
stipulation (must be in writing in
view of Art. 1956)
Guidelines for the application of
proper interest rates
1. If there is stipulation: that rate shall
be applied
2. The following are the rules of thumb
for the application/imposition of
interest rates:
a) When an obligation, regardless
of its source, i.e., law,
contracts, quasi-contracts,
delicts or quasi-delicts is
breached, the contravenor can
be held liable for damages.
b) With regard particularly to an
award of interest in the concept
of actual and compensatory
damages, the rate of interest, as
well as the accrual thereof, is
imposed, as follows:
i. When the obligation
breached consists of
payment of a sum of money
(loan or forbearance of
money), the interest shall be
that which is stipulated or
agreed upon by the parties.
In absence of an agreement,
the rate shall be the legal
rate (i.e. 12% per annum)
computed from default.
NOTE: The interest due shall
itself earn legal interest
from the time it is judicially
demanded
ii. In other cases, the rate of
interest shall be six percent
(6%) per annum.
NOTE: No interest, however,
shall be adjudged on
unliquidated claims or
damages except when or
until the demand can be
established with reasonable
certainty. When the demand
cannot be established, the
interest shall begin to run
only from the date of the
judgment of the court is
made.
iii. When the judgment of the
court awarding a sum of
money becomes final and
executory, the rate of legal
interest, whether the case
falls under paragraph i or ii
above, shall be 12% per
annum from such finality
until its satisfaction, this
interim period being deemed
to be by then an equivalent
to a forbearance of credit.
(Eastern Shipping Lines vs.
CA, July 12, 1994)
NOTES:
Central Bank Circular No. 416 fixing
the rate of interest at 12% per
 annum deals with loans, forbearance 1. Real Contract - contract is
of any money, goods or credits and perfected by the delivery of the
judgments involving such loans, or subject matter.
forbearance in the absence of 2. Unilateral (gratutitous deposit) -
express agreement to such rate only the depositary has an
Interest as indemnity for damages is obligation.
payable only in case of default or 3. Bilateral (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.
Insurance Co., Inc. vs CA, 182 SCRA
517) Deposit Mutuum
1. Purpose
Central Bank Circular No. 905 (Dec.
10, 1982) removed the Usury Law Principal purpose is Principal purpose is
ceiling on interest rates for secured safekeeping or consumption
custody
and unsecured loans, regardless of 2. When to Return
maturity. Depositor can The lender must wait
demand the return of until the expiration
Validity of unconscionable interest rate the subject matter at of the period granted
in a loan will to the debtor
Supreme Court in Sps. Solangon 3. Subject Matter
vs. Jose Salazar, G.R. No. 125944, June Subject matter may Subject matter is
29, 2001, said that since the usury law be movable or only money or other
immovable property fungible thing
had been repealed by CB Cir. No. 905 4. Relationship
there is no more maximum rate of Relationship is that Relationship is that
interest and the rate will just depend on of lender (creditor) of depositor and
the mutual agreement of the parties and borrower depositary.
(citing Lim Law vs. Olympic Sawmill Co., (debtor).
129 SCRA 439). But the Supreme Court
said that nothing in said circular grants There can be 5. Compensation
lenders carta blanche authority to raise NO compensation of

interest rates to level which will either compensation of things deposited with
enslave their borrowers or lead to a credits. each other (except
hemorrhaging of their assets (citing by mutual
Almeda vs. CA, 256 SCRS 292). In Medel agreement).
vs. CA, 299 SCRA 481, it was ruled that
Deposit Commodatum
while stipulated interest of 5.5% per
month on a loan is usurious pursuant to 1. Purpose is 1. Purpose is the
CB Circular No. 905, the same must be Safekeeping transfer of the use
equitably reduced for being iniquitous,
unconscionable and exorbitant. It is 2. May be gratuitous 2. Essentially and
contrary to morals, (contra bonos always gratuitous
mores). It was reduced to 12% per
annum in consonant with justice and fair 3. Movable/corporeal 3. Both movable and
play. things only in case of immovable may be
extrajudicial deposit the object
DEPOSIT (Articles 1962 2009)
Kinds of Deposit:
A contract constituted from the 1. Judicial (Sequestration) takes place
moment a person receives a thing when an attachment or seizure of
belonging to another, with the property in litigation is ordered.
obligation of safely keeping it and of
returning the same. 2. Extra-judicial
a. Voluntary one wherein the
Characteristics: delivery is made by the will of
the depositor or by two or more
 persons each of whom believes
himself entitled to the thing
deposited. (Arts 1968 1995)
b. Necessary one made in
compliance with a legal
obligation, or on the occasion of
any calamity, or by travellers in
hotels and inns (Arts 1996 -
2004), or by travellers with
common carriers (Art 1734
1735).
NOTE: The chief difference
between a voluntary deposit and a
necessary deposit is that in the
former, the depositor has a
complete freedom in choosing the
depositary, whereas in the latter,
there is lack of free choice in the
depositor.
3. property saved from destruction
without knowledge of the owner
NOTES:
Article 1966 does not embrace
incorporeal property, such as rights
and actions, for it follows the person
of the owner, wherever he goes.
A contract for the rent of safety
deposit boxes is not an ordinary
contract of lease of things but a
special kind of deposit; hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a bank and its customer is
that of a bailor and bailee. (CA Agro
vs CA, 219 SCRA 426)

Obligations of the Depositary (Art 1972

Judicial Extra-judicial
1991):
1. Creation
1. To keep the thing safely (Art 1972)
Will of the court Will of the parties
or contract Exercise over the thing
deposited the same diligence as
2. Purpose
he would exercise over his
Security or to insure property
Custody and
the right of a party
safekeeping
2. To return the thing (Art 1972)
to property or to Person to whom the thing must
recover in case of be returned:
favorable judgment a. Depositor, to his heirs and
3. Subject Matter successors, or the person who
Movables or
Movables only may have been designated in the
immovables, contract
but generally b. If the depositary is capacitated -
immovables he is subject to all the
4. Cause obligations of a depositary
Always onerous May be compen- whether or not the depositor is
sated or not, but capacitated. If the depositor is
generally gratuitous incapacitated, the depositary
must return the property to the
5. When must the thing be returned legal representative of the
Upon order of the Upon demand of incapacitated or to the depositor
court or when depositor himself if he should acquire
litigation is ended capacity (Art 1970).
6. In whose behalf it is held c. If the depositor is capacitated
Person who has a Depositor 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: Contract of deposit is
i..to return the thing
gratuitous (Art 1965) deposited while still in his
EXCEPTIONS: 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 subject to
 the right of any third person
who acquired the thing in
good faith (Art 1971)
Time of return:
a. Upon demand even though a
specified period or time for such
return may have been fixed
except when the thing is
judicially attached while in the
depositarys possession or should
he have been notified of the
opposition of a third person to
the return or the removal of the
thing deposited. (Art 1998)
b. If deposit gratuitous, the
depositary may return the thing
deposited notwithstanding that a
period has been fixed for the
deposit if justifiable reasons
exists for its return.
c. If the deposit is for a
valuable consideration, the
depositary has no right to return
the thing deposited before the
expiration of the time
designated even if he should
suffer inconvenience as
consequence.(Art 1989)
What to return: product,
accessories, and accessions of
the thing deposited (Art 1983)
3. Not to deposit the thing with a third
person unless authorized by express
stipulation (Art 1973)
The depositor is liable for the
loss of the thing deposited under
Article 1973 if:
a. he
transfers the deposit with a third
person without authority
although there is no negligence
on his part and the third person;
b. he
deposits the thing with a third
person who is manifestly careless
or unfit although authorized
even in the absence of
negligence; or
c. the thing
is lost through the negligence of
his employees whether the latter
are manifestly careless or not.
CIVIL LAW COMMITTEE
CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
4. If the thing deposited should earn
interest (Art 1975):
a. to collect interest and the
capital itself as it fall due
b. to take steps to preserve its
value and rights corresponding to
it
5. Not to commingle things deposited if
so stipulated (Art 1976)
6. Not to make use of the thing
deposited unless authorized (Art
1977)
GENERAL RULE: Deposit is for
safekeeping of the subject matter
and not for use. The unauthorized
use by the depositary would make
him liable for damages.
EXCEPTIONS:
1. When the preservation of the
thing deposited requires its use
2. When authorized by the
depositor
NOTE: The permission to use is NOT
presumed except when such use is
necessary for the preservation of the
thing deposited.
a
Effect if permission to use is given
(Art 1978):
1. If thing deposited is
non-consumable, the contract
loses the character of a deposit
and acquires that of a
commodatum despite the fact
that the parties may have
denominated it as a deposit,
unless safekeeping is still the
principal purpose.
2. If thing deposited consists of
money/consumable things, the
contract is converted into a
simple loan or mutuum unless
safekeeping is still the principal
purpose in which case it is called
an irregular deposit. Example:
bank deposits are irregular
deposits in nature but governed
by law on loans.
7. When the thing deposited is
delivered sealed and closed :
a. to return the thing deposited in
the same condition
b. to pay for damages should the
seal or lock be broken through
 San Beda College of Law
190
1901
his fault, which is presumed
unless proved otherwise
c. to keep the secret of the deposit
when the seal or lock is broken
with or without his fault (Art
1981)
NOTE: The depositary is
authorized to open the thing
deposited which is closed and
sealed when (Art 1982):
i. there is presumed authority
(i.e. when the key has been
delivered to him or the
instructions of the depositor
cannot be done without
opening it)
ii. necessity
8. To change the way of the deposit if
under the circumstances, the
depositary may reasonably presume
that the depositor would consent to
the change if he knew of the facts of
the situation, provided, that the
former notifies the depositor thereof
and wait for his decision, unless
delay would cause danger
9. To pay interest on sums converted to
personal use if the deposit consists
of money (Art 1983)
10. To be liable for loss through
fortuitous event (SUDA): (Art 1979):
a. if stipulated
b. if he uses the thing without the
depositor's permission
c. if he delays its
return
d. if he allows others to use
it, even though he himself
may have been authorized to use
the same
NOTES:
Fixed, savings, and current deposits
of money in banks and similar
institutions shall be governed by the
provisions concerning simple loan.
(Art 1980)
The general rule is that a bank can
compensate or set off the deposit in
its hands for the payment of any
indebtedness to it on the part of the
depositor. In true deposit,
compensation is not allowed.
Irregular deposit Mutuum
MEMORY AID IN CIVIL LAW
1. The consumable 1. Lender is bound
thing deposited may by the provisions of
be demanded at will the contract and
by the depositor cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
2. The only benefit is 2. Essential cause for
that which accrues the transaction is the
to the depositor necessity of the
borrower
3. The irregular 3. Common creditors
depositor has a enjoy no preference
preference over in the distribution of
other creditors with the debtors
respect to the thing property
deposited
Rule when there are two or more
depositors (Art 1985):
1. If thing deposited is divisible and
depositors are not solidary: Each
depositor can demand only his
proportionate share thereto.
2. If obligation is solidary or if thing is
not divisible: Rules on active
solidarity shall apply, i.e. each one
of the solidary depositors may do
whatever may be useful to the
others but not anything which may
be prejudicial to the latter, (Art.
1212) and the depositary may return
the thing to anyone of the solidary
depositors unless a demand, judicial
or extrajudicial, for its return has
been made by one of them in which
case, delivery should be made to him
(Art. 1214).
3. Return to one of depositors
stipulated. The depositary is bound
to return it only to the person
designated although he has not made
any demand for its return.
NOTES:
The depositary may retain the thing
in pledge until full payment of what
may be due him by reason of the
deposit (Art 1994).
The depositors heir who in good
faith may have sold the thing which
he did not know was deposited, shall
only be bound to return the price he
 may have received or to assign his pillage, shipwreck or other similar
right of action against the buyer in events (deposito miserable)
case the price has not been paid him 3. Made by travellers in hotels and inns
(Art 1991). or by travellers with common carrier

Obligations of the Depositor (Art 1992

1995):
1. To pay expenses for preservation
a. If the deposit is gratuitous, the Deposit by Travellers in hotels and
depositor is obliged to inns:
reimburse the depositary for The keepers of hotels or inns shall be
expenses incurred for the responsible as depositaries for the
preservation of the thing deposit of effects made by travellers
deposited (Art 1992) provided:
b. If the deposit is for valuable a. Notice was given to them or to
consideration, expenses for their employees of the effects
preservation are borne by the brought by the guest; and
depositary unless there is a b. The guests take the precautions
contrary stipulation which said hotel-keepers 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:
GENERAL RULE: The depositor shall
reimburse the depositary for any loss Liability extends to vehicles, animals
arising from the character of the thing and articles which have been
deposited. introduced or placed in the annexes
EXCEPTIONS: of the hotel.
1. at the time of the deposit, the Liability shall EXCLUDE losses which
depositor was not aware of the proceed from force majeure. The
dangerous character of the thing act of a thief or robber is not
2. when depositor was not expected deemed force majeure unless done
to know the dangerous character with the use of arms or irresistible
of the thing force.
3. when the depositor notified the
depository of the same The hotel-keeper cannot free
4. the depositary was aware of it himself from the responsibility by
without advice from the depositor posting notices to the effect that he
is not liable for the articles brought
Extinguishment of Voluntary Deposit by the guest. Any stipulation to such
(Art 1995) effect shall be void.
1. Loss or destruction of the thing Notice is necessary only for suing
deposited civil liability but not in criminal
2. In case of gratuitous deposit, upon liability.
the death of either the depositor or
the depositary GUARANTY (Articles 2047 2084)
3. Other causes, such as return of the
thing, novation, merger, expiration
A contract whereby a person
of the term fulfilment of the
(guarantor) binds himself to the
resolutory condition, etc (Art 1231)
creditor to fulfil the obligation of
the principal debtor in case the
Necessary Deposits latter fail to do so.
1. Made in compliance with a legal
obligation
2. Made on the occasion of any Classification of Guaranty:
calamity such as fire, storm, flood, 1. In the Broad sense:
a. Personal - the guaranty is the
credit given by the person who

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 guarantees the fulfilment of the
principal obligation.
b. Real - the guaranty is the
property, movable or
immovable.
2. As to its Origin
a. Conventional - agreed upon by
the parties.
b. Legal - one imposed by virtue of
a provision of a law.
c. Judicial - one which is required
by a court to guarantee the
eventual right of one of the
parties in a case.
3. As to Consideration
a. Gratuitous - the guarantor does
not receive any price or
remuneration for acting as such.
b. Onerous - the guarantor receives
valuable consideration.
4. As to the Person guaranteed
a. Single - one constituted solely to
guarantee or secure
performance by the debtor of
the principal obligation.
b. Double or sub-guaranty - one
constituted to secure the
fulfilment by the guarantor of a
prior guaranty.
5. As to Scope and Extent
a. Definite - the guaranty is limited
to the principal obligation only,
or to a specific portion thereof.
b. Indefinite or simple - one which
not only includes the principal
obligation but also all its
accessories including judicial
costs
SURETYSHIP
A contract whereby a person (surety)
binds himself solidarily with the
principal debtor
A relation which exists where one
person (principal) has undertaken an
obligation and another person
(surety) is also under a direct and
primary obligation or other duty to
the obligee, who is entitled to but
one performance, and as between
the two who are bound, the second
rather than the first should perform
(Agro Conglomerates, Inc. vs. CA,
348 SCRA 450)
NOTES:
The reference in Article 2047 to
solidary obligations does not mean
that suretyship is withdrawn from
the applicable provisions governing
guaranty. A surety is almost the
same as a solidary debtor, except
that he himself is a principal debtor.
In suretyship, there is but one
contract, and the surety is bound by
the same agreement which binds the
principal. A surety is usually bound
with the principal by the same
instrument, executed at the same
time and upon the same
consideration (Palmares vs CA, 288
SCRA 422)
It is not for the obligee to see to it
that the principal debtor pays the
debt or fulfill the contract, but for
the surety to see to it that the
principal debtor pays or performs
(Paramount Insurance Corp vs CA,
310 SCRA 377)
Nature of Suretys undertaking:
1. Liability is contractual and
accessory but direct
NOTE: He directly, primarily and
equally binds himself with the
principal as original promisor,
although he possesses no direct or
personal interest over the latters
obligation, nor does he receive any
benefits therefrom. (PNB vs CA, 198
SCRA 767)
2. Liability limited by the terms of the
contract.
NOTE: It cannot be extended by
implication beyond the terms of the
contract (PNB vs CA, 198 SCRA 767)
3. Liability arises only if principal
debtor is held liable.
NOTES:
The creditor may sue separately
or together the principal debtor
and the surety. Where there are
several sureties, the obligee may
proceed against any one of
them.
In the absence of collusion, the
surety is bound by a judgment
 against the principal even
though he was not a party to the
proceedings. The nature of its
undertaking makes it privy to all
proceedings against its principal
(Finman General Assurance
Corp. vs. Salik, 188 SCRA 740)
4. Surety is not entitled to the benefit
of exhaustion
NOTE: He assumes a solidary liability
for the fulfilment of the principal
obligation (Towers Assurance Corp
vs. Ororama Supermart, 80 SCRA
262) as an original promissory and
debtor from the beginning.
5. Undertaking is to creditor and not
to debtor.
NOTE: The surety makes no
covenant or agreement with the
principal that it will fulfil the
obligation guaranteed for the benefit
of the principal. Such a promise is
not implied by law either; and this is
true even where under the contract
the creditor is given the right to sue
the principal, or the latter and the
surety at the same time. (Arranz vs.
Manila Fidelity & Surety Co., Inc.,
101 Phil. 272)
6. Surety is not entitled to notice of
principals default
NOTE: The creditor owes no duty of
active diligence to take care of the
interest of the surety and the surety
is bound to take notice of the
principals default and to perform
the obligation. He cannot complain
that the creditor has not notified
him in the absence of a special
agreement to that effect. (Palmares
vs CA, 288 SCRA 422)
7. Prior demand by the creditor upon
principal is not required
NOTE: As soon as the principal is in
default, the surety likewise is in
default.
8. Surety is not exonerated by neglect
of creditor to sue principal
Characteristics of Guaranty and
Suretyship:
1. Accessory - It is indispensable
condition for its existence that there
must be a principal obligation.
NOTES:
Guaranty may be constituted to
guarantee the performance of a
voidable or unenforceable
contract. It may also guarantee
a natural obligation. (Art 2052)
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor.
2. Subsidiary and Conditional - takes
effect only in case the principal
debtor fails in his obligation.
NOTES:
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor. But a guarantor may
bind himself for less than that of
the principal (Art 2054)
A guaranty may be given as
security for future debts, the
amount of which is not yet
known; there can be no claim
against the guarantor until the
debt is liquidated. A conditional
obligation may also be secured.
(Art 2053)
3. Unilateral - may be entered even
w/o the intervention of the principal
debtor, in which case Art. 1236 and
1237 shall apply and it gives rise only
to a duty on the part of the
guarantor in relation to the creditor
and not vice versa.
4. Nominate
5. Consensual
6. It is a contract between the
guarantor/surety and creditor.
NOTES:
Acceptance of guaranty by
creditor and notice thereof to
guarantor:
In declaring that guaranty
must be express, the law
refers solely and exclusively
to the obligation of the
guarantor because it is he
alone who binds himself by
 his acceptance. With respect motive of pecuniary gain and hence,
to the creditor, no such should be protected against unjust
requirement is needed pecuniary impoverishment by
because he binds himself to imposing on the principal, duties
nothing. akin to those of a fiduciary.
However, when there is
merely an offer of a NOTES:
guaranty, or merely a The rule will apply only after it
conditional guaranty, in the has been definitely ascertained
sense that it requires action that the contract is one of
by the creditor before the suretyship or guaranty. It cannot
obligation becomes fixed, it be used as an aid in determining
does not become binding whether a partys undertaking is
until it is accepted and until that of a surety or guarantor.
notice of such acceptance by (Palmares vs CA, 288 SCRA 292)
the creditor is given to, or It does not apply in case of
acquired by, the guarantor, compensated sureties.
or until he has notice or 10. It is a contract which requires that
knowledge 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.
But in any case, the creditor NOTE: However, in a real guaranty,
is not precluded from like pledge and mortgage, a person
waiving the requirement of may guarantee his own obligation
with his personal or real properties.
notice.
The consideration of the Guaranty Suretyship
guaranty is the same as the
consideration of the principal
obligation. 1. Liability 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 undertaking
he has no right of action against debtor fails to do so
the principal debtor.
7. Not presumed. It must be expressed 2. Collateral under- 2. Surety is an
and reduced in writing. taking original promisor
NOTE: A power of attorney to loan
money does not authorize the agent 3. Guarantor is 3. Surety is
secondarily liable primarily liable
to make the principal liable as a
surety for the payment of the debt
4. Guarantor 4. Surety undertakes
of a third person. (BPI vs. Coster, 47
binds himself to to pay if the principal
Phil. 594) pay if the principal DOES NOT PAY
8. Falls under the Statute of Frauds CANNOT PAY
since it is a special promise to
answer for the debt, default or 5. Insurer of 5. Insurer of the
miscarriage of another. solvency of debtor debt
9. Strictly interpreted against the
creditor and in favor of the 6. Guarantor can 6. Surety cannot
guarantor/surety and is not to be avail of the benefit avail of the benefit of
extended beyond its terms or of excussion and excussion and division
specified limits. (Magdalena Estates, division in case
Inc. vs Rodriguez, 18 SCRA 967) The creditor proceeds
rule of strictissimi juris commonly against him
pertains to an accommodation surety Indorsement Guaranty
because the latter acts without
1. Primarily of 1. Contract of
transfer It is never necessary that the
security
guarantor or surety should receive
2. Unless the note is 2. Failure in either or any part or benefit, if such there be,
promptly presented both of these accruing to the principal. (Willex
for payment at particulars does not Plastic Industries Corp. vs. CA, 256
maturity and due generally work as an SCRA 478)
notice of dishonor absolute discharge of
given to the indorser a guarantors
within a reasonable liability, but his is
time he will be discharged only to
discharged abso- the extent of the loss
lutely from all Double or sub-guaranty (Art 2051 2nd
which he may have
liability thereon, par)
suffered in
whether he has consequence thereof One constituted to guarantee the
suffered any actual obligation of a guarantor
damage or not
Continuing guaranty (Art 2053)
3. Indorser does not 3. Guarantor One which is not limited to a single
warrant the solvency. warrants the solvency transaction but which contemplates
He 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 an indefinite time or until revoked.
holder, whether the
promisor is solvent or
not NOTES:
Prospective in operation (Dio vs CA,
4. Indorser can be 4. Guarantor cannot be 216 SCRA 9)
sued as promisor sued as promisor
Construed as continuing when by the
Guaranty Warranty terms thereof it is evident that the
A contract by which a An undertaking that object is to give a standing credit to
person is bound to the title, quality, or the principal debtor to be used from
another for the quantity of the time to time either indefinitely or
fulfilment of a subject 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 expressly reserved (Dio vs CA, 216
third party to be, and relates to SCRA 9)
some agreement Future debts may also refer to
made ordinarily by
the party who makes
debts existing at the time of the
the warranty constitution of the guaranty but the
amount thereof is unknown and not
NOTES: to debts not yet incurred and
A guaranty is gratuitous, unless there existing at that time.
is a stipulation to the contrary. The Exception to the concept of
cause of the contract is the same continuing guaranty is chattel
cause which supports the obligation mortgage. A chattel mortgage can
as to the principal debtor. only cover obligations existing at the
The peculiar nature of a guaranty or time the mortgage is constituted and
surety agreement is that is is not those contracted subsequent to
regarded as valid despite the the execution thereof (The Belgian
absence of any direct consideration Catholic Missionaries, Inc. vs.
received by the guarantor or surety Magallanes Press, Inc., 49 Phil 647).
either from the principal debtor or An exception to this is in case of
from the creditor; a consideration stocks in department stores, drug
moving to the principal alone will stores, etc. (Torres vs. Limjap, 56
suffice. Phil 141).
Extent of Guarantors liability: (Art Cannot even begin to take place
2055)
before judgment has been obtained
1. Where the guaranty definite: It is
limited in whole or in part to the against the debtor (Baylon vs CA,
principal debt, to the exclusion of 312 SCRA 502)
accessories.
2. Where guaranty indefinite or simple: When Guarantor is not entitled to the
It shall comprise not only the benefit of excussion: (PAIRS)
principal obligation, but also all its 1. If it may be presumed that an
accessories, including the judicial execution on the property of the
costs, provided with respect to the principal debtor would not result in
latter, that the guarantor shall only the satisfaction of the obligation
be liable for those costs incurred Not necessary that the debtor be
after he has been judicially required judicially declared insolvent or
to pay. bankrupt
2. When he has absconded, or cannot
Qualifications of a guarantor: (Arts be sued within the Philippines unless
2056-2057) he has left a manager or
1. possesses integrity representative
2. capacity to bind himself 3. In case of insolvency of the debtor
3. has sufficient property to answer Must be actual
for the obligation which he 4. If the guarantor has expressly
guarantees renounced it
5. If he has bound himself
NOTES: solidarily with the debtor
The qualifications need only be
present at the time of the perfection Other grounds: (BIPS)
of the contract. 6. If he is a judicial bondsman or sub-
The subsequent loss of the integrity surety
7. If he fails to interpose it as a
or property or supervening
defense before judgment is rendered
incapacity of the guarantor would
against him
not operate to exonerate the 8. If 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 latters demand for payment from
guaranty continues. him, and point out to the creditor
However, the creditor may demand available property to the debtor
another guarantor with the proper within Philippine territory, sufficient
qualifications. But he may waive it if to cover the amount of the debt (Art
he chooses and hold the guarantor to 2060)
his bargain. Demand can be made only after
judgment on the debt
Benefit of Excussion (Art 2058) Demand must be actual; joining
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
exhausted all the properties of the 9. Where the pledge or mortgage has
principal debtor, and has resorted to been given by him as special
all of the legal remedies against such security
debtor.
Benefit of Division (Art 2065)
NOTE: Should there be several guarantors
Not applicable to a contract of of only one debtor and for the same
suretyship (Arts 2047, par. 2; debt, the obligation to answer for
2059[2]) the same is divided among all.
Liability: Joint

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 exhaustion even if judgment
NOTES: should be rendered against him
The creditor can claim from the and principal debtor. His
voluntary appearance does not
guarantors only the shares they are
constitute a renunciation of his
respectively bound to pay except right to excussion (see Art.
when solidarity is stipulated or if 2059(1)).
any of the circumstances
enumerated in Article 2059 should Guarantor cannot set up the
take place. defenses if he does not appear
and it may no longer be possible
The right of contribution of for him to question the validity
guarantors who pays requires that of the judgment rendered
the payment must have been made against the debtor.
(a) in virtue of a judicial demand, or 2. A guarantor is entitled to be heard
(b) because the principal debtor is before and execution can be issued
insolvent (Art 2073). against him where he is not a party
If 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 joint Guarantors Right of Indemnity or
proportion following the rule in Reimbursement (Art 2066)
solidary obligations. GENERAL RULE: Guaranty is a contract
of indemnity. The guarantor who makes
The above rule shall not be payment is entitled to be reimbursed by
applicable unless the payment has the principal debtor.
been made in virtue of a judicial
demand or unless the principal NOTE: The indemnity consists of: (DIED)
debtor is insolvent. 1. Total amount of the debt no
The right to contribution or right to demand reimbursement
reimbursement from his co- until he has actually paid the
guarantors is acquired ipso jure by debt, unless by the terms of the
virtue of said payment without the contract, he is given the right
need of obtaining from the creditor before making payment. He
any prior cession of rights to such cannot collect more than what
guarantor. he has paid.
2. Legal interest thereon from the
The co-guarantors may set up time the payment was made
against the one who paid, the same known (notice of payment in
defenses which have pertained to effect a demand so that if the
the principal debtor against the debtor does not pay
creditor and which are not purely immediately, he incurs in delay)
personal to the debtor. (Art 2074) to the debtor, even though it did
not earn interest for the
Procedure when creditor sues: (Art. creditor. Guarantors right to
2062) legal interest is granted by law
The creditor must sue the principal by virtue of the payment he has
alone; the guarantor cannot be sued made.
with his principal, much less alone 3. Expenses incurred by
except in Art. 2059. the guarantor after having
notified the debtor that
1. Notice to guarantor of the action payment has been demanded
of him by the creditor; only
The guarantor must be NOTIFIED those expenses that the
so that he may appear, if he so guarantor has to satisfy in
desires, and set up defenses he accordance with law as a
may want to offer. consequence of the guaranty
If the guarantor appears, he is (Art. 2055) not those which
still given the benefit of

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 depend upon his will or own acts
or his fault for these are his
exclusive personal responsibility
and it is not just that they be
shouldered by the debtor.
4. Damages if they are due
in accordance
with law. General rules on
damages apply.
EXCEPTIONS:
1. Where the guaranty is
constituted without the
knowledge or against the will of
the principal debtor, the
guarantor can recover only
insofar as the payment had been
beneficial to the debtor (Art.
2050).
2. Payment by a third person who
does not intend to be reimbursed
by the debtor is deemed to be a
donation, which, however,
requires the debtors consent.
But the payment is in any case
valid as to the creditor who has
accepted it (Art. 1238).
3. Waiver of the right to demand
reimbursement.
Guarantors right to Subrogation
(ART.2067)
Subrogation transfers to the person
subrogated, the credit with all the
rights thereto appertaining either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, subject to
stipulation in conventional
subrogation.
NOTE: This right of subrogation is
necessary to enable the guarantor to
enforce the indemnity given in Art.
2066.
It arises by operation of law upon
payment by the guarantor. It is not
necessary that the creditor cede to
the guarantor the formers rights
against the debtor.
It is not a contractual right. The
right of guarantor who has paid a
debt to subrogation does not stand
upon contract but upon the
principles of natural justice.
The guarantor is subrogated by
virtue of the payment to the rights
of the creditor, not those of the
debtor.
Guarantor cannot exercise the
right of redemption of his
principal (Urrutia & Co vs
Morena and Reyes, 28 Phil 261)
Effect of Payment by Guarantor
1. Without notice to debtor: (Art
2068)
The debtor may interpose
against the guarantor those
defenses which he could have
set up against the creditor at the
time the payment was made,
e.g. the debtor can set up
against the guarantor the
defense of previous
extinguishment of the obligation
by payment.
2. Before Maturity (Art 2069)
Not entitled to reimbursement
unless the payment was made
with the consent or has been
ratified by the debtor
Effect of Repeat Payment by debtor:
(Art 2070)
GENERAL RULE: Before guarantor pays
the creditor, he must first notify the
debtor (Art. 2068). If he fails to give
such notice and the debtor repeats
payment, the guarantor can only collect
from the creditor and guarantor has no
cause of action against the debtor for
the return of the amount paid by
guarantor even if the creditor should
become insolvent.
EXCEPTION: The guarantor can still
claim reimbursement from the debtor in
spite of lack of notice if the following
conditions are present: (PIG)
a. guarantor was prevented by
fortuitous event to advise the
debtor of the payment; and
b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
Right of Guarantor to proceed against
debtor before payment
GENERAL RULE: Guarantor has no 6. Extension granted to the debtor
cause of action against debtor until after by the creditor without the consent
the former has paid the obligation of the guarantor (Art 2079)
EXCEPTION: Article 2071
BOND
NOTES: An undertaking that is sufficiently
Article 2071 is applicable and secured, and not cash or currency
available to the surety. (Manila
Surety & Fidelity Co., Inc. vs Batu Bondsman (Art 2082)
Construction & Co., 101 Phil 494) A surety offered in virtue of a
provision of law or a judicial order.
Remedy of guarantor: He must have the qualifications
(a) obtain release from the required of a guarantor and in
guaranty; or special laws like the Rules of Court.
(b) demand a security that shall
protect him from any
NOTES:
proceedings by the creditor, and
against the danger of insolvency Judicial bonds constitute merely a
of the debtor special class of contracts of guaranty
by the fact that they are given in
Art. 2066 Art. 2071 virtue of a judicial order.
Provides for the Provides for his If the person required to give a legal
enforcement of the protection before he or judicial bond should not be able
rights of the has paid but after he to do so, a pledge or mortgage
guarantor/surety has become liable sufficient to cover the obligation
against the debtor shall admitted in lieu thereof (Art
after he has paid the 2083)
debt
Gives a right of Protective remedy
A judicial bondsman and the sub-
action after payment before payment.
surety are NOT entitled to the
Substantive right Preliminary remedy benefit of excussion because they
are not mere guarantors, but
Extinguishment of guaranty: (RA2CE2) sureties whose liability is primary
1. Release in favor of one of and solidary. (Art 2084)
the guarantors, without the
consent of the others, benefits all to
the extent of the share of the
guarantor to whom it has been
granted (Art
2078);
2. If the creditor voluntarily
accepts immovable or other
properties in payment of the debt,
even if he should afterwards lose the
same through eviction or conveyance
of property (Art 2077);
3. Whenever by some act of
the creditor, the guarantors even
though they are solidarily liable
cannot be subrogated to the rights,
mortgages and preferences of the
former (Art
2080);
4. For the same causes as all
other obligations (Art 1231);
5. When the principal obligation is
extinguished;

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
PLEDGE, MORTGAGE AND ANTICHRESIS of the thing pledged or mortgaged;
I. Common Elements of Pledge, and
Mortgage, and Antichresis (Articles The reason being that in
2085 2092) anticipation of a possible
foreclosure sale in case of
A. Essential Requisites (SOD) (Art default which is still a sale, the
2085) rule is that the seller must be
1. Secures the fulfillment of a the owner of the thing sold
principal obligation; (Cavite Development Bank vs.
2. Pledgor, mortgagor, antichretic Lim, 324 SCRA
debtor must be the absolute owner

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
200
2002
MEMORY AID IN CIVIL LAW
3. Pledgor, mortgagor, antichretic security for the payment of the
debtor must have free disposal of their principal obligation; and
property, or be legally authorized for such 2. There should be a stipulation for an
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: Pactum Commissorium
is forbidden by law and is declared null
It is not necessarily void simply and void.
because the accommodation pledgor EXCEPTION: The pledgee may
or mortgagor did not benefit from appropriate the thing pledged if after
the same. So long as valid consent the first and second auctions, the thing
was given, the fact that the loan was is not sold. (Art 2112)
given solely for the benefit of the
principal debtor would not invalidate NOTE: The security contract remains
the mortgage (GSIS vs CA, 170 SCRA valid; only the prohibited stipulation is
533) void.
The accommodation pledgor or C. Capability to secure all kinds of
mortgagor, without expressly obligations, i.e. pure or
assuming personal liability for such conditional (Art 2091)
debt, is not liable for the payment of
any deficiency, should the property D. Indivisibility (Art 2089)
not be sufficient to cover the debt GENERAL RULE: A pledge, mortgage,
(Bank of America vs. American or antichresis is indivisible, even though
the debt may be divided among the
Realty Corporation, 321 SCRA 659).
successors in interest of the debtor or of
The accommodation pledgor or the creditor.
mortgagor is not solidarily bound Their indivisibility is not affected by
with the principal obligor but his the fact that the debtors are jointly
liability extents only to the property or not solidarily liable.
pledged or mortgaged. Should there
be any deficiency, the creditor has Consequences of indivisibility:
recourse on the principal debtor who 1. Single thing Every portion of the
remains to be primarily bound. property pledged or mortgaged is
The law grants to the answerable for the whole obligation
2. Several things All of the several
accommodation pledgor or
things pledged or mortgaged are
mortgagor the same rights as a
liable for the totality of the debt
guarantor and he cannot be 3. Debtors heir/creditors heir -
prejudiced by any waiver of defense Neither the debtors heir who has
by the principal debtor. paid part of the debt cannot ask for
proportionate extinguishment, nor
B. Prohibition against Pactum creditors heir who received his
Commissorium (Art 2088; 2137) share of the debt return the pledge
or cancel the mortgage as long as
Pactum Commissorium the debt is not completely satisfied.
Stipulation whereby the thing
pledged or mortgaged, or under EXCEPTIONS:
antichresis shall automatically 1. Where each one of several things
become the property of the creditor guarantees a determinate
in the event of non-payment of the portion of the credit
debt within the term fixed. 2. Where only a portion of the loan
was released
Requisites:
1. There should be a pledge, mortgage,
or antichresis of property by way of

CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 3. Where there was failure of
consideration.
4. Where there is no debtor-
creditor relationship
NOTES:
The mere embodiment of a real
estate mortgage and a chattel
mortgage in one document does not
have the effect of fusing both
securities into an indivisible whole.
The mortgagee, therefore, may
legally foreclose the real estate
mortgage extrajudicially and waive
the chattel mortgage foreclosure,
and maintain instead a personal
action for the recovery of the unpaid
balance of the credit (Phil. Bank of
Commerce vs. Macadaeg, 109 Phil
981)
E. When the principal obligation
becomes due, the things in which
the pledge, mortgage, or
antichresis consists may be
alienated for the payment to the
creditor. (Art. 2087)
NOTES:
If the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
If he wishes to secure a title to the
mortgaged property, he can buy it in
the foreclosure sale (Montevirgin vs.
CA, 112 SCRA 641)
F. Pledgor, mortgagor, antichretic
debtor retains ownership of the
thing given as a security
PLEDGE (Arts 2093 2123)
A contract wherein the debtor
delivers to the creditor or to a third
person a movable or document
evidencing incorporeal rights for the
purpose of securing fulfilment of a
principal obligation with the
understanding that when the
obligation is fulfilled, the thing
delivered shall be returned with all
its fruits and accessions.
Special Requisites (in addition to
the common essential requisites):
1. Possession of the thing pledged must
be transferred to the creditor or a
third person by agreement (Art
2093);
2. It can only cover movable property
and incorporeal rights evidenced by
documents of title and the
instruments proving the right
pledged shall be delivered to the
creditor, and if negotiable must be
endorsed (Art 2094); and
3. The description of the thing pledged
and the date must appear in a public
instrument to bind third persons, but
not for the validity of the contract
(Art 2096).
Kinds:
1. Conventional /Voluntary created
by contract
2. Legal created by operation of law
(examples: Art. 546, 1731 and 1914
NCC)
NOTES:
The provisions of possession, care
and sale of the thing as well as on
the termination of the pledge
governing conventional pledges are
applicable to pledges created by
operation of law (Art 2121)
Unlike, however, in conventional
pledge where the debtor is not
entitled to the excess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
expenses, shall be delivered to the
debtor.
In legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must make a demand for the
payment of the amount due him;
otherwise he cannot exercise the
right of sale at public auction (Art
2122)
Characteristics:
1. Real KEY: D SBC BA2R2OPS2
contract it is perfected by the 1. Option to demand replacement
delivery of the thing pledged by the or
immediate payment of the debt in case
debtor who is called the pledgor to of deception as to substance or quality
the creditor who is called the (Art 2109)
pledgee, 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 2108)
existence of its own; 3. To bring actions pertaining to
3. Unilater the
owner (Art 2103)
al contract it creates an obligation 4. To choose which of several things
solely on the part of the creditor to pledged shall be sold
return the thing subject thereof 5. To bid at the public auction
upon the fulfilment of the principal (Art
2113)
obligation; and 6. To appropriate the thing in case of
4. Subsidiar failure of the 2nd public auction (Art
y contract the obligation incurred 2112)
does not arise until the fulfilment 7. 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 2102)
8. To retain excess value received in
Consideration in pledge: the public sale (Art 2115)
Insofar as the pledgor is concerned, 9. To retain the thing until after full
the cause is the principal obligation. payment of the debt (Art 2098)
10. To be reimbursed for the
If the pledgor is not the debtor, the expenses made for the preservation of
cause is the compensation stipulated the thing pledged (Art 2099)
for the pledge or the mere liberality 11. To object to the alienation of the
of the pledgor. thing
12. To possess the thing (Art 2098)
Extent of pledge: Unless stipulated 13. To sell at public auction in case of
otherwise, pledge extends to the fruits, non-payment of debt at maturity (Art
interests or earnings of the thing. 2112)
To choose which of the several things
Rights and Obligations of a Pledgor pledged shall be sold (Art 2119)
Rights Obligations 14. Option to demand 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 quality
destruction or (Art 2101) (Art 2109)
impairment of the thing 2. Not to demand 15. To sell at public auction in case
without the pledgees the return of the of reasonable grounds to fear
fault, subject to the thing until after destruction or impairment of the thing
duty of replacement full payment of without his fault (Art 2108)
(Art 2107) the debt, 16. To bring actions pertaining to
2. To bid and be including interest the owner (Art 2103)
preferred at the public due thereon and 17. To choose which of several things
auction (Art 2113) expenses incurred pledged shall be sold
3. To alienate the thing for its 18. To bid at the public auction
pledged provided the preservation (Art (Art
pledgee consents to the 2105) 2113)
sale (Art 2097)
19. To appropriate the thing in case of
4. To ask that the thing
failure of the 2nd public auction (Art
pledged be deposited
(Arts 2104 & 2106) 2112)
20. To apply said fruits, interests or
earnings to the interest, if any, then to
Rights of the Pledgee
the principal of the credit (Art 2102)
21. To retain excess value received
in the public sale (Art 2115)
22. To retain the thing until after full
payment of the debt (Art 2098)
23. To be reimbursed for the expenses
made for the preservation of the thing
pledged (Art 2099)
24. To object to the alienation of the
thing
25. To possess the thing (Art 2098)
26. To sell at public auction in case of
non-payment of debt at maturity (Art
2112)
27. To choose which of the several
things pledged shall be sold (Art 2119)
Obligations of the Pledgee
KEY: CUDA3
1. Take care of the thing with the
diligence of a good father of a family
(Art 2099)
2. Not to use thing unless authorized
or by the owner or its preservation
requires its use (Art 2104)
3. Not to deposit the thing with a 3 rd
person unless so stipulated (Art 2100)
4. Responsibility for acts of agents and
employees as regards the thing (Art
2100)
5. To advise pledgor of danger to the
thing (Art 2107)
6. To advise pledgor of the result of the
public auction (Art 2116)
RIGHT OF PLEDGOR TO SUBSTITUTE
THING PLEDGED (ART.2107)
Requisites:
1. The pledgor has reasonable
grounds to fear the destruction
or impairment of the thin
pledged
2. There is no fault on the part of
the pledgee
3. The pledgor is offering in place
of the thing, another thing in
pledge which is of the same kind
and quality as the former
4. The pledge does not choose to
exercise his right to cause the
thing pledged to be sold at
public auction
NOTE: The pledgees right to have the
thing pledged sold at public sale granted
under the Article 2108 is superior to that
given to the pledgor to substitute the
thing pledged under Article 2107.
Prohibition against double pledge
Property which has been lawfully
pledged to one creditor cannot be
pledged to another as long as the
first one subsists.
NOTE: Possession of a creditor of the
thing pledged is an essential requisite of
pledge.
Extinguishment of Pledge (CRAPS)
1. For the same causes as all other
obligations (Art 1231)
2. Return of the thing pledged by the
pledgee to the pledgor (Art 2110)
3. Statement in writing by the
pledgee that he renounces or
abandons the pledge (Art 2111)
4. Payment of the debt (Art 2105)
5. Sale of thing pledged at public
auction (Art 2115)
NOTE: The possession by the debtor or
owner of the thing pledged subsequent
to the perfection of the pledge gives rise
to a prima facie presumption that the
thing has been returned and, therefore,
that the pledge has been extinguished
but not the principal obligation itself.
(Art 2110)
Requirements for sale of thing pledged
at public auction: (Art 2112)
1. The debt is due and unpaid
2. Sale must be at a public auction
3. there must be notice to the pledgor
and owner, stating the amount due
4. Sale must be with the intervention
of a notary public
Effect of sale of the thing pledged: (Art
2115)
1. The sale of the thing pledged shall
extinguish the principal obligation,
whether or not the proceeds of the
sale are equal to the amount of the
principal obligation, interest and
expenses in a proper case
2. If the price of the sale is more than
the amount due the creditor, the
debtor is not entitled to the excess
unless the contrary is provided
3. If the price of the sale is less, the
creditor is not entitled to recover
the deficiency even if there is a
stipulation to that effect
 REAL ESTATE MORTGAGE
(Articles 2124-2131)
A contract whereby the debtor
secures to the creditor the
fulfilment of a principal obligation,
specially subjecting to such security
immovable property or real rights
over immovable property in case the
principal obligation is not complied
with at the time stipulated.
Characteristics of the contract:
1. Real
2. Accessory
3. Subsidiary
4. Unilateral it creates only an
obligation on the part of the
creditor who must free the
property from the encumbrance
once the obligation is fulfilled.
NOTES:
As an accessory contract, its
consideration is that of the principal
contract from which it receives life.
A mortgage does not involve a
transfer, cession or conveyance of
property but only constitutes a lien
thereon. Until discharged, it follows
the property wherever it goes and
subsists notwithstanding changes of
ownership.
A mortgage gives the mortgagee no
right or claim to the possession of
the property, and therefore, a mere
mortgagee has no right to eject an
occupant of the property mortgaged
unless the mortgage should contain
some provision to that effect. The
only right of a mortgagee in case of
non-payment of a debt secured by
mortgage would be to foreclose the
mortgage and have the encumbered
property sold to satisfy the
outstanding indebtedness. If the
possession is transferred to the
mortgagee, it must not expressly be
for purpose of applying the fruits to
the interest then to the principal of
the credit, for then it would be an
antichresis.
It is not an essential requisite that
the principal of the mortgage credit
bears interest, or that the interest
as compensation for the use of the
principal and enjoyment of its fruits
be in the form of a certain percent
thereof.
Special Requisites (in addition to
the common essential requisites):
1. It can cover only immovable
property and alienable real rights
imposed upon immovables (Art
2124);
2. It must appear in a public instrument
(Art. 2125); and
3. Registration in the registry of
property is necessary to bind third
persons, but not for the validity of
the contract (Art 2125).
An order for foreclosure cannot
be refused on the ground that
the mortgage had not been
registered provided no innocent
third parties are involved.
NOTE: Where a mortgage is not valid or
false, the principal obligation which it
guarantees is not rendered null and void.
What is lost only is the right to foreclose
the mortgage as a special remedy for
satisfying or settling the indebtedness
which is the principal obligation but the
mortgage deed remains as evidence or
proof of a personal obligation of the
debtor and the amount due to the
creditor may be enforced in an ordinary
personal action.
Kinds:
1. Voluntary agreed to by the parties
or constituted by the will of the
owner of the property on which it is
created
2. Legal one required by law to be
executed in favour of certain
persons
The persons in whose favour the
law establishes a mortgage have
no other right than to demand
the execution and the recording
of the document in which the
mortgage is formalized (Art 2125
par 2)
3. Equitable one which, although
lacking the formalities of a
 mortgage, shows the intention of the transmission of property should not be
parties to make the property a unduly impeded.
security for a debt
2. Mortgagee - To claim from a 3rd
PLEDGE REAL MORTGAGE person in possession of the
1. Constituted on 1. Constituted on mortgaged property the payment of
movables immovables the part of the credit secured by the
2. Property is 2. Delivery is not which said third person possesses
delivered to pledgee necessary (Art 2129)
or by common NOTE: It is necessary that prior demand
consent to a third for payment must have been made on
person the debtor and the latter failed to pay
3. Not valid against 3. Not valid against (BPI vs Concepcion & Hijos, Inc., 53 Phil
third persons unless a third persons unless
906)
description of the registered
thing pledged and
date of pledge Foreclosure
appear in a public The remedy available to the
instrument mortgagee by which he subjects the
mortgaged property to the
Extent of Mortgage: satisfaction of the obligation to
Absent express 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
becomes due and to the amount of It denotes the procedure adopted by
the indemnity granted or owing to the mortgagee to terminate the
the proprietor from the insurers of rights of the mortgagor on the
the property mortgaged, or in virtue property and includes the sale itself
of expropriation for public use (Art (DBP vs Zaragoza, 84 SCRA 668)
2127) Foreclosure is valid where the
debtor is in default in the payment
Object of Mortgage: of his obligation (Gobonseng, Jr. vs
Future property cannot be an object CA, 246 SCRA 472)
of a contract of mortgage (Art
2085[2]) However, a stipulation Kinds:
subjecting to the mortgage lien, 1. Judicial ordinary action for
properties (improvements) which the foreclosure under Rule 68 of the
mortgagor may subsequently acquire Rules of Court
install, or use in connection with 2. Extrajudicial 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
(Peoples Bank and Trust Co. vs. public auction, under Act No. 3135
Dahican Lumber Co., 20 SCRA 84)
Judicial Extrajudicial
Special Rights: foreclosure foreclosure
1. Mortgagor - To alienate the 1. There is 1. No
court court
mortgaged property but the
intervention intervention
mortgage shall remain attached to 2. 2. Not
the property. Decisions are appealable
appealable because it is
NOTE: A stipulation forbidding the immediately
owner from alienating the immovable executory
mortgage shall be void (Art 2130) being 3. Order of 3. Foreclosure
contrary to public policy inasmuch as the court cuts off all does not cut off
rights of the parties right of all parties
impleaded involved
4. There is equity 4. There is right of
 of redemption redemption
except on banks
which provides for
a right of
redemption
5. Period of
5. Period to
redemption starts redeem start from
from the finality of
date of registration
the judgment until
of certificate of
order of sale
confirmation
6. No need for a
special power of 6. Special
attorney in the power of attorney
contract of in favor of
mortgage mortgagee is
needed in the
NOTES: contract
A foreclosure sale retroacts to the
date of registration of the mortgage
and that a person who takes a
mortgage in good faith and for
valuable consideration, the record
showing clear title to the mortgagor,
will be protected against equitable
claims on the title in favor of third
persons, of which he had no actual
or constructive notice (St. Dominic
Corporation vs. IAC 151 SCRA 577).
Where there is a right to redeem,
inadequacy of price is not material
because the judgment debtor may
reacquire the property or else sell
his right to redeem and thus recover
any loss he claims to have suffered
by reason of the price obtained at
the auction sale and consequently
not sufficient to set aside the sale.
Mere inadequacy of the price
obtained at the sheriffs sale will not
be sufficient to set aside the sale
unless the price is so inadequate as
to shock the conscience of the
court taking into consideration the
peculiar circumstances attendant
thereto. (Sulit vs. CA, 268 SCRA 441)
Should there remain a balance due
to the mortgagee after applying the
proceeds of the sale, the mortgagee
is entitled to recover the deficiency.
This rule applies both to judicial and
extra-judicial foreclosure real
mortgage.
The action to recover a deficiency
after foreclosure prescribes after 10
years from the time the right of
action accrues (Arts 1142 & 1144).
Stipulation of upset price or tipo
It is a stipulation in a mortgage of
real property of minimum price at
which the property shall be sold, to
become operative in the event of a
foreclosure sale at public auction. It
is null and void for the property
must be sold to the highest bidder.
Parties cannot, by agreement,
contravene the law and interfere
with the lawful procedure of the
courts (BPI vs Yulo, 31 Phil 476)
Extrajudicial foreclosure real property
(Act No. 3135)
The law covers only real estate
mortgages. It is intended merely to
regulate the extrajudicial sale of the
property mortgaged if and when the
mortgagee is given a special power
of express authority to do so in the
deed itself or in a document
annexed thereto.
The authority to sell is not
extinguished by the death of the
mortgagor (or mortgagee) as it is an
essential and inseparable part of a
bilateral agreement (Perez vs PNB,
17 SCRA 833).
No sale can be legally made outside
the province in which the property
sold is situated; and in case the
place within said province in which
the sale is to be made is the subject
of stipulation, such sale shall be
made in the said place in the
municipal building of the
municipality in which the property or
part thereof is situated.
Procedure for extrajudicial foreclosure
of both real estate mortgage under Act
No. 3135 and chattel mortgage under
Act No. 1508 (A.M. No. 99-10-05-0,
January 15, 2000)
1. Filing of application before the
Executive Judge through the Clerk of
Court
2. Clerk of Court will examine whether
the requirement of the law have
been complied with, that is, whether
the notice of sale has been posted
for not less than 20 days in at least
 three (3) public places of the
municipality or city where the
property is situated, and if the same
is worth more than P400.00, that
such notice has been published once
a week for at least three (3)
consecutive weeks in a newspaper of
general circulation in the city of
municipality
3. The certificate of sale must be
approved by the Executive Judge
4. Where the application concerns
extrajudicial foreclosure of real
mortgages in different locations
covering one indebtedness, only one
filing fee corresponding to such debt
shall be collected
5. The Clerk of Court shall issue
certificate of payment indicating the
amount of indebtedness, the filing
fees collected, the mortgages sought
to be foreclosed, the description of
the real estates and their respective
locations
6. The notice of sale shall be published
in a newspaper of general circulation
pursuant to Section 1, PD No. 1079
7. The application of shall be raffled
among all sheriffs
8. After the redemption period has
expired, the Clerk of Court shall
archive the records.
9. No auction sale shall be held unless
there are at least two (2)
participating bidders, otherwise the
sale shall be postponed to another
date. If on the new date set forth
for the sale there shall not be at
least two bidders, the sale shall then
proceed. The names of the bidders
shall be reported to the Sheriff of
the Notary Public, who conducted
the sale to the Clerk of Court before
the issuance of the certificate of
sale.
NOTES:
The Mortgagor and Mortgagee have
no right to waive the posting and
publication requirements under Act.
No. 3135. Notices are given to secure
bidders and prevent a sacrifice of
the property. Clearly, the statutory
requirements of posting and
publication are mandated, not for
the mortgagors benefit, but for the
public or third persons. Failure to
comply with the statutory
requirements as to publication of
notice of auction sale constitutes a
jurisdictional defect which
invalidates the sale.Lack of
republication of notice of
foreclosure sale made subsequently
after the original date renders such
sale void (PNB vs. Nepomuceno
Productions Inc., G.R. No. 139479.
December 27, 2002).
Sec 3 of Act 3135 does not require
personal or any particular notice on
the mortgagor much less on his
successors-in-interest where there is
no contractual stipulation therefor.
Hence, unless required in the
mortgage contract, the lack of such
notice is not a ground to set aside a
foreclosure sale.
Neither does Sec 3 require posting of
notice of sale on the mortgage
property and the certificate of
posting is not required, much less
considered indispensable, for the
validity of a foreclosure sale.
Redemption
It is the transaction by which the
mortgagor reacquires or buys back
the property which may have passed
under the mortgage, or divests the
property of the lien which the
mortgage may have created.
NOTES:
A sale by the mortgagor to a third
party of the mortgaged property
during the period for redemption
transfers only the right to redeem
the property and the right to
possess, use and enjoy the same
during said period.
Where sale with assumption of
mortgage not registered and made
without the consent of the
mortgagee, the buyer, thereof, was
not validly substituted as debtor
and, hence, had no right to redeem
(Bonnevie vs. CA, 125 SCRA 122).
Kinds:
1. Equity of Redemption right of
mortgagor to redeem the mortgaged
property after his default in the
performance of the conditions of the
mortgage within the 90-day period
from the date of the service of the
order of foreclosure or even
thereafter but before the
confirmation of the sale. Applies to
judicial foreclosure of real mortgage
and chattel mortgage foreclosure.
NOTE: Redemption of the banking
institutions is allowed within one year
from confirmation of sale.
2. Right of Redemption right of
mortgagor to redeem the mortgaged
property within one year from the
date of registration of the certificate
of sale. Applies only to extrajudicial
foreclosure of real mortgage.
NOTE: The right of redemption, as long
as within the period prescribed, may be
exercised irrespective of whether or not
the mortgagee has subsequently
conveyed the property to some other
party (Sta. Ignacia Rural Bank, Inc. vs.
CA, 230 SCRA 513)
Period of Redemption
1. Extra-judicial (Act #3135)
a. natural person one year from
registration of the certificate of
sale with Registry of Deeds
b. juridical person same rule as
natural person
c. juridical person (mortgagee is
bank) - three months after
foreclosure or before
registration of certificate of
foreclosure which ever is earlier
(sec. 47, of General Banking
Law)
2. Judicial before confirmation of the
sale by the court
NOTE: Allowing a redemption after the
lapse of the statutory period, when the
buyer at the foreclosure sale does not
object but even consents to the
redemption, will uphold the policy of the
law which is to aid rather than defeat
the right of redemption. There is nothing
in the law which prevents a waiver of
the statutory period for redemption
(Ramirez vs CA, 219 SCRA 598).
Amount of the redemption price:
1. Mortgagee is not a bank (Act No.
3135, in relation to Sec. 28, Rule 39
of Rules of Court)
a. purchase price of the property
b. 1% interest per month on the
purchase price
c. taxes paid and amount of
purchasers prior lien, if any,
with the same rate of interest
computed from the date of
registration of sale, up to the
time of redemption
2. Mortgagee is a bank (GBL 2000)
a. amount due under the mortgage
deed
b. interest
c. cost and expenses
NOTE: Redemption price in this
case is reduced by the income
received from the property
ANTICHRESIS (Articles
2132 -2139)
A contract whereby the creditor
acquires the right to receive the
fruits of an immovable of the
debtor, with the obligation to apply
them to the payment of the interest,
if owing, and thereafter to the
principal of his credit (Art 2132)
Characteristics
1. Accessory contract it secures the
performance of a principal obligation
2. Formal contract it must be in a
specified form to be valid, i.e., in
writing. (Art 2134)
Special Requisites (in addition to
the common essential requisites):
1. It can cover only the fruits of an
immovable property; (Art 2132)
2. Delivery of the immovable is
necessary for the creditor to receive
 the fruits and not that the contract principal
shall be binding; Subject matter of both is real property
3. Amount of principal and interest
must be specified in writing (Art. Obligations of antichretic creditor:
2134); and 1 To pay taxes and charges on the
4. Express agreement that debtor will estate, including necessary expenses
give possession of the property to NOTE: Creditor 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 reacquire enjoyment of the
credit. (Art 2132) 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
Code to show that antichresis is only interest, if owing, and thereafter to
applicable to securing the payment of the principal
interest-bearing loans. On the contrary, 3 To render an account of the fruits to
antichresis is susceptible of guaranteeing the debtor
all kinds of obligations, pure or 4 To bear the expenses necessary for
conditional its preservation and repair

Antichresis Pledge Remedies of creditor in case of non-

1. Refers to real 1. Refers to personal payment of debt
property property
2. Perfected by mere 2. Perfected by 1. Bring an action for specific
consent delivery of the thing performance; or
pledged 2. Petition for the sale of the real
3. Consensual contract 3. Real Contract property as in a foreclosure of
mortgages under Rule 68 of the
Rules of Court.(Art 2137)

NOTES:
Antichresis Real Mortgage
1. Property is
1. Debtor usually The parties, however, may agree on
delivered to creditor retains possession of an extrajudicial foreclosure in the
the property same manner as they are allowed in
2. Creditor acquires 2. Creditor does not contracts of mortgage and pledge
only the right to have any right to (Tavera vs. El Hogar Filipino, Inc.,
receive the fruits of receive the fruits; 68 Phil 712).
but the mortgage
the property, hence,
creates a real right A stipulation authorizing the
it does not produce a antichretic creditor to appropriate
real right over the property
3. The creditor has the property upon the non-payment
3. The creditor,
unless there is no such obligation of the debt within the agreed period
stipulation to the is void (Art 2088).
contrary, is obliged
to pay the taxes and CHATTEL MORTGAGE
charges upon the (Articles 2140-2141)
estate
4. It is expressly 4. There is no such
A contract by virtue of which
stipulated that the obligation on part of
mortgagee personal property is recorded in the
creditor given Chattel Mortgage Register as a
possession of the security for the performance of an
property shall apply obligation (Art 2140).
all the fruits thereof
to the payment of
interest, if owing,
Characteristics
and thereafter to the
 San Beda College of Law
210
2102
1. Accessory contract it is for the
purpose of securing the performance
of a principal obligation
2. Formal contract registration in the
Chattel Mortgage Register is
indispensable for its validity
3. Unilateral contract it produces
only obligations on the part of the
creditor to free the thing from the
encumbrance on fulfilment of the
obligation.
Special Requisites (in addition to
the common essential requisites):
1. It can cover only personal or
movable property in general;
however, the parties may treat as
MEMORY AID IN CIVIL LAW
Effect of failure to register chattel
mortgage in the chattel mortgage
registry
Article 2140 makes the recording in
the Chattel Mortgage Register an
essential requisite but if the
instrument is not recorded, the
mortgage is nevertheless binding
between the parties. But the person
in whose favour the law establishes a
mortgage has no other right than to
demand the execution and the
recording of the document.
Chattel Mortgage Pledge

personal property that which by its 1. Delivery of the 1. Delivery of the

nature would be real property; personal property thing pledged is
2. Registration of the mortgage with to the mortgage is necessary
the Chattel Mortgage Register where not necessary
the mortgagor resides; if property is 2. registration in 2. registration not
located in a different province, the Chattel necessary to be
registration in both provinces Mortgage Registry valid
required; is necessary for its
3. Description of the property as would validity
enable the parties or other persons 3. If property is 3. Debtor is not
to identify the same after foreclosed, the entitled to excess
reasonable investigation and inquiry; excess over the unless otherwise
and amount due goes to agreed or except in
4. Accompanied by an affidavit of good the debtor case of legal
faith to bind third persons, but not pledge
for the validity of the contract. 4. If there is 4. If there is
5. It can cover only obligations existing 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 take debtor, except the contrary
effect only from the date the same under Art. 1484
are made and not from the date of Subject matter of both is movable
the mortgage (Jaca vs Davao Lumber property
Co., 113 SCRA 107)
Affidavit of Good Faith
Effect of registration: Creates a real Oath in a contract of chattel
right mortgage wherein the parties
The registration of the chattel "severally 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
existence and creates a real right or thereof and for no other purposes
a lien which, being recorded, follows and that the same is a just and valid
the chattel wherever it goes. The obligation and one not entered into
registration gives the mortgagee for the purpose of fraud. (Sec. 5,
symbolical possession (Northern Chattel Mortgage Law)
Motors, Inc. vs. Coquia, 68 SCRA
374).
 Effect of absence
The special affidavit is required only
for the purpose of transforming an
already valid mortgage into
preferred mortgage. Thus, it is
not necessary for the validity of the
chattel mortgage itself but only to
give it a preferred status. In other
words, its absence vitiates the
mortgage only as against third
persons without notice like creditors
and subsequent encumbrancers.
Foreclosure of Chattel Mortgage
NOTES:
Foreclosure sale in chattel mortgage
is by public auction under Act No.
1508, but the parties may stipulate
that it be by private sale.
The mortgagee may, after thirty (30)
days from the time of the condition
broken, cause the mortgaged
property to be sold at public auction
by a public officer. The 30-day
period is also a grace period for the
mortgagor to discharge the mortgage
obligation. After the sale of the
chattel at public auction, the right
of redemption is no longer available
to the mortgagor (Cabral vs.
Evangelista, 28 SCRA 1000).
Application of proceed of sale:
1. Costs and expenses of keeping
and sale
2. Payment of the obligation
secured by the mortgage
3. Claims of persons holding
subsequent mortgages in their
order
4. The balance, if any, shall be
paid to the mortgagor or person
holding under him
NOTES:
The creditor may maintain an action
for the deficiency, except if the
chattel mortgage is constituted as
security for the purchase of personal
property payable in instalments
(Art. 1484).
The action for deficiency may be
brought within ten (10) years from
the time the cause of action accrues
(Arts 1141 and 1142).
Only equity of redemption is
available to the mortgagor; the
latter can no longer redeem after
the confirmation of the foreclosure
sale.
Right of redemption
When the condition of a chattel
mortgage is broken the following
may redeem:
a) mortgagor;
b) person holding a subsequent
mortgage; or
c) subsequent attaching creditor.
An attaching creditor who so
redeems shall be subrogated to the
rights of the mortgagee and entitled
to foreclose the mortgage in the
same manner that the mortgagee
could foreclose it.
The redemption is made by paying or
delivering to the mortgagee the
amount due on such mortgage and
the costs, and expenses incurred by
such breach of condition before the
sale thereof (Sec 13, Act No. 1508).
Right to possession of foreclosed
property
1. Real mortgage After the
redemption period has expired, the
purchaser of the property has the
right to a conveyance and to be
placed in possession thereof.
NOTES:
Purchaser is not obliged to bring
a separate suit for possession.
He must invoke the aid of the
courts and ask for a WRIT OF
POSSESSION.
Section 7 of Act No. 3135 allows
the purchaser to take possession
of the foreclosed property during
the period of redemption upon
filing of an ex parte application
and approval of a bond.
2. Chattel mortgage When default
occurs and the creditor desires to
foreclose, the creditor has the right
to take the property as a preliminary
step for its sale.
 NOTE: Where the debtor refuses to
yield the property, the creditors
remedy is to institute an action
either to effect judicial foreclosure
directly or to secure possession
(REPLEVIN) as a preliminary to the
sale contemplated in Section 14 or
Act. No. 1508
CONCURRENCE AND PREFERENCE OF
CREDITS (Articles 2236 2251)
Concurrence of Credits
Possession by two or more creditors
of equal rights or privileges over the
same property or all of the property
of the debtor
Preference of Credits
Right held by a creditor to be
preferred in the payment of his
claim above others out of the
debtors assets.
NOTES:
The rules on preference of credits
apply only when two or more
creditors have separate and distinct
claims against the same debtor who
has insufficient property.
Preference creates no lien on
property, and, therefore, gives no
interest in property, specific or
general, to the preferred creditor
but a preference in application of
the proceeds after the sale. (Molina
vs. Somes, 31 Phil. 76)
The preferential right of credit
attains significance only after the
properties of the debtor have been
inventoried and liquidated, and the
claims held by his various creditors
have been established. (DBP vs.
NLRC, 183 SCRA 328)
Preference of Lien
Credit
Applies only to Creates a charge
claims which do on a particular
not attach to property
specific
properties
Liability of debtors property for his
obligations
GENERAL RULE: Debtor is liable with
all his property, present and future, for
the fulfilment of his obligations. (Art
2236)
EXEMPT PROPERTY:
1. Present property those
provided under Arts. 155 and 205
of the Family Code, Sec. 13,
Rule 39 of the Rules of Court,
and Sec. 118 of the Public Land
Act
2. Future property a debtor who
obtains a discharge from his
debts on account of his
insolvency, is not liable for the
unsatisfied claims of his
creditors with said property
subject to certain exceptions
expressly provided by law. (Secs.
68, 69, The Insolvency Law [Act
No. 1956])
3. Property under legal custody and
those owned by municipal
corporations necessary for
governmental purposes
General Categories of Credit:
1. Special Preferred Credits - those
listed in Arts. 2241 and 2242 shall be
considered as mortgages and pledges of
real or personal property or liens (Art.
2243). Hence, they are not included in
the insolvent debtor's assets.
NOTES:
Arts. 2241 and 2242 do not give the
order of preference or priority of
payment. They merely enumerate
the credits which enjoy preference
with respect to specific movables or
immovables. With respect to the
same specific movables or
immovables, creditors, with the
exception of the State (No. 1),
merely concur.
They only find application when
there is a concurrence of credits,
i.e., when the same specific
property of the debtor is subjected
to the claims of several creditors and
the value of such property is
insufficient to pay in full all the
creditors. In such a situation, the
question of preference will arise.
 Article 2242 makes no distinction
between registered and unregistered
vendors lien (No. 2). Hence, any
lien of that kind enjoys the
preferred credit status. Unlike the
unpaid price of real property sold,
mortgage credits (No. 5), in order to
be given preference, should be
recorded in the Registry of Property.
But a recorded mortgage credit is
superior to an unrecorded unpaid
vendors lien (De Barretto vs.
Villanueva, 1 SCRA 288)
The priority rule applies to credits
annotated in the Registry of
Property. As to credits mentioned in
No. 7 of Article 2242, there is
preference among the attachments
or executions according to the order
of the time they were levied upon
the property. The pro rata rule in
Article 2249 does not apply;
otherwise, the result would be
absurd. The preference of a credit
annotated by an attachment or
execution could be defeated by
simply obtaining a writ of
attachment or execution, no matter
how much later (Manabat vs Laguna
Federation of Facomas, Inc., 19
SCRA 621).
The last paragraph of Article
2241 applies only when the right of
ownership in such property continues
in the debtor, and, therefore, it is
not applicable to cases where the
debtor has parted with his ownership
therein, as where he has sold the
property (Pea vs. Mitchell, 9 Phil
587)
2. Ordinary Preferred Credits - those
listed in Art. 2244 as amended by
Art. 110 of the Labor Code.
NOTES:
The provision not only enumerates
the preferred credits with respect to
other property, real and personal, of
the debtor, but also gives their
order of preference in the order
named.
In contrast with Articles 2241 and
2242, Article 2244 creates no liens
on determinate property which
follow such property. What Article
2244 creates are simply rights in
favour of certain creditors to have
the cash and other assets of the
insolvent applied in a certain
sequence or order of priority.
Article 2244, particularly par (14)
item (1) thereof, is not applicable to
obligations of the State as it is a
recognized doctrine that the State is
always solvent. It is inconceivable
for the State to voluntarily initiate
insolvency or general liquidation
proceedings or to be subjected to
such proceedings under its own laws.
3. Common Credits those listed
under Art. 2245, which shall be paid
pro rata regardless of dates.
NOTE: Ordinary Preferred and Common
Credits cover only free property of the
debtor, or those not subjected to Special
Preferred Credit.
Effects of Article 110 of Labor Code to
Art 2244:
1. Removed the one-year limitation
found in No. 2 of Art. 2244
2. Moving up the claims for unpaid
wages (and other monetary claims)
of laborers or workers of insolvent
from second priority to first priority
in the order of preference
established by Art. 2244
NOTES:
In case of bankruptcy or liquidation
of the employers business, the
unpaid wages and other monetary
claims of the employees shall be
given first preference and shall be
paid in full before the claims of the
government and other creditors may
be paid. The terms, declaration
of bankruptcy, or judicial
liquidation have been eliminated,
nevertheless, according to the SC,
bankruptcy or liquidation
proceedings are still necessary for
the operation of the preference
accorded to workers under Art. 110
of the Labor Code. (DBP vs. NLRC
183 SCRA 328; RA No. 6715 Sec 10)
 In case of rehabilitation, the adjudicated, e.g. insolvency,
preference of credit granted to settlement of decedents estate, or
employees under Art 110 of the other liquidation proceedings except
Labor Code is not applicable where there are not more than one
(Rubberworld [Phils.] vs CA, 305 creditor.
SCRA 722).

Refectionary Credit
Indebtedness incurred in the repair
or reconstruction of something
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly existed.

ORDER OF PREFERENCE OF CREDITS

Arts. 2241 and 2242, jointly with

Arts. 2246 to 2249 establish a two-
tier order of preference:
1. First tier includes taxes, duties
and fees due on specific movable or
immovable property;
2. Second tier all other special
preferred (non-tax) credits shall be
satisfied pro-rata, out of any
residual value of the specific
property to which such credits
relate.

NOTES:
The pro-rata rule does not apply to
credits annotated in the Registry of
Property by virtue of a judicial

order, by attachments and Credits which do not enjoy any

executions, which are preferred as
to later credits. In satisfying
several credits annotated by
attachments or executions, the rule
is still preference according to the
priority of the credits in the order of
time.
In order to make the pro rating
provided in Art 2249 fully effective,
the preferred creditors enumerated
in Nos. 2 to 14 of Art 2242 must
necessarily be convened, and the
import of their claims ascertained.
There must be first some proceeding
where the claims of all the preferred
creditors may be bindingly
preference with respect to specific
property because they are not
among those mentioned in Arts. 2241
and 2242 and those while included in
said articles are unpaid because the
value of the property to which the
preference refers is less than the
preferred credit or credits, shall be
satisfied in the order established in
Art. 2244 with reference to other
real and/or personal property.
Common credits or those which do
not fall under Arts. 2241, 2242, and
2244 do not enjoy any preference
and shall be paid pro rata regardless
of dates.