Memory Aid for Credit Transactions in Civil Law

San Beda College of Law
182
MEMORY AID IN CIVIL LAW
CREDIT TRANSACTIONS
All transactions involving the
purchase or loan of goods, services,
or money in the present with a
promise to pay or deliver in the
future
Contracts of security
Types:
1. Secured transactions or contracts of
real security - supported by a
collateral or an encumbrance of
property
2. Unsecured transactions or contracts
of personal security - supported only
by a promise or personal
commitment of another such as a
guarantor or surety
Security
Something given, deposited, or
serving as a means to ensure
fulfilment or enforcement of an
obligation or of protecting some
interest in property
Types of Security
a. personal when an individual
becomes surety or guarantor
b. real or property when a
mortgage, pledge, antichresis,
charge or lien or other device
used to have property held, out
of which the person to be made
secure can be compensated for
loss
Bailment
The delivery of property of one
person to another in trust for a
specific purpose, with a contract,
epress or implied, that the trust
shall be faithfully eecuted and the
property returned or duly accounted
for when the special purpose is
accomplished or !ept until the bailor
claims it.
Parties:
1. bailor - the giver" one who delivers
property
2. bailee- the recipient" one who
receives the custody or possession of
the thing thus delivered
LOAN (Articles !"" # !$%

A contract wherein one of the
parties delivers to another, either
something not consumable so that
the latter may use the same for a
certain time and return it or money
or other consumable thing, upon the
condition that the same amount of
the same !ind and #uality shall be
paid. $Art 1%&&'
C&aracteristics:
1. Real Contract delivery of the thing
loaned is necessary for the
perfection of the contract
NOTE: An accepted promise to ma!e
a future loan is a consensual
contract, and therefore binding upon
the parties but it is only after
delivery, will the real contract of
loan arise. $Art 1%&('
2. Unilateral Contract - once the
sub)ect matter has been delivered,
it creates obligations on the part of
only one of the parties $i.e.
borrower'.
'in(s:
1. Commodatum when the bailor
$lender' delivers to the bailee
$borrower' a non-consumable thing
so that the latter may use it for a
certain time and return the identical
thing.
'in(s of commo(atum:
a. Ordinary Commodatum use by
the borrower of the thing is for a
certain period of time
b. Precarium - one whereby the
bailor may demand the thing
loaned at will and it eists in the
following cases*
i. neither the duration nor
purpose of the contract is
stipulated
ii. the use of the thing is
merely tolerated by the
owner
CIVIL LAW COMMITTEE
CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnaia Ha!!iman, Doro"#y $ayon
S%BJECT HEADS: C#ri!"o&#er Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Ale,andro Ca!a-ar)Pro&er"y+, 'a. R#odora
*errer).ill! and Succe!!ion+, Ian Dominic Pua)O-li(a"ion! and Con"rac"!+, S#a Eli,a# Dumama)Sale! and /ea!e+, Jo#n S"e&#en
0uiam-ao)PAT+, C#ri!"o&#er Ca-i(ao)Credi" Tran!ac"ion!+, /i(aya Ali&ao)Tor"! and Dama(e!+, An"#ony Pur(anan)/TD+,
'a. Rica!ion Tu(adi )Con1lic"! o1 /a2+
CREDIT TRANSACTIONS
183
2. Simple loan or mutuum where the
lender delivers to the borrower
money or other consumable thing
upon the condition that the latter
shall pay the same amount of the
same !ind and #uality.
Commo(atum )utuum
'ey: COPS*LOTR
1. Object
+on-consumable ,onsumable
2. Cause
-ratuitous .ay or may not be
gratuitous
3. Purpose
/se or temporary
possession
,onsumption
4. Subject Matter
0eal or personal
property
1nly personal
property
5. Ownership of the thing
0etained by the
bailor
2asses to the debtor
6. Thing to be returne
3act thing loaned 3#ual amount of the
same !ind and
#uality
!. "ho bears ris# of $oss
4ailor 5ebtor
%. "hen to return
6n case of urgent
need, even before
the epiration of the
term
1nly after the
epiration of the
term
Loan Cre(it
5elivery by one party
and the receipt of
other party of a
given sum of money
or other consumable
thing upon an
agreement, epress
or implied, to repay
the same.
Ability of a person to
borrow money or
things by virtue of
the trust or
confidence reposed
by the lender that he
will pay what he
promised.
Loan Cre(it
1. 6nterest ta!en at
the epiration of the
credit
6nterest is ta!en in
advance
2. Always on a
double name paper
$two signatures
appear with both
parties held liable
for payment'
Always on a single
name paper $i.e.
promissory note with
no indorse-ment
other than the
ma!er'
CO))ODAT+) (Articles !", # !,-%
Nature:
1. P+RPOSE: 4ailee in commodatum
ac#uires the temporary use of the
thing but not its fruits $unless
stipulated as an incidental part of
the contract'.$Art 1%&7'
/se must be temporary,
otherwise the contract may be a
deposit.
2. CA+SE: 3ssentially gratuitous" it
ceases to be a commodatum if any
compensation is to be paid by the
borrower who ac#uires the use, in
such case there arises a lease
contract.
Similar to a donation in that it
confers a benefit to the
recipient. The presumption is
that the bailor has loaned the
thing for having no need
therefor.
&. S+B.ECT )ATTER: -enerally non-
consumable whether real or personal
but if the consumable goods are not
for consumption as when they are
merely for ehibition, consumable
goods may be the sub)ect of the
commodatum. $Art 1%&8'
(. 4ailor need not be the owner of the
thing owned $Art. 1%&9' since by the
loan, ownership does not pass to the
borrower.
A mere lessee or usufructuary
may lend but the borrower or
bailee himself may not lend nor
lease the thing loaned to him to
a third person $Art 1%&2:2;'
,/ Purely Personal (Art !"!%:
5eath of either party terminates
the contract unless by
stipulation, the commodatum is
transmitted to the heirs of either
or both parties.
4ailee can neither lend nor lease
the ob)ect of the contract to a
third person.
CIVIL LAW COMMITTEE
184
NOTE:/se of the thing loaned
may etend to members of the
bailee<s household ecept*
a. contrary stipulation"
b. nature of the thing
forbids such use
O0li1ations of t&e Bailee: (Arts !2 #
!2,%
1. To pay for the ordinary epenses for
the use and preservation of the thing
loaned. $Art 1%(1'
2. To be liable for the loss of the thing
even if it should be through a
fortuitous event in the following
cases* $'LAS D%
a. when he 3eeps it longer than the
period stipulated, or after the
accomplishment of its use
b. when he lends or leases it to
third persons who are not
members of his household
c. when the thing loaned has been
delivered with appraisal of its
value
d. when, being able to save either
of the thing borrowed or his own
things, he chose to save the
latter" or
e. when the bailee (evoted the
thing for any purpose different
from that for which it has been
loaned $Art 1%(2'
&. To be liable for the deterioration of
thing loaned $a' if epressly
stipulated" $b' if guilty of fault or
negligence" or $c' if he devotes the
thing to any purpose different from
that for which it has been loaned
(. To pay for etraordinary epenses
arising from the actual use of the
thing by the bailee, which shall be
borne e#ually by both the bailor and
the bailee, even though the bailee
acted without fault, unless there is a
stipulation to the contrary $Art 1%(%
par 2'
7. To return the thing loaned
The bailee has no right to retain
the thing loaned as security for
claims he has against the bailor
even for etraordinary epenses
ecept for a claim for damages
suffered because of the flaws of
the thing loaned.
NOTES*
=owever, the bailee<s right
etends no further than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
=e cannot lawfully sell the
thing to satisfy such damages
without court<s approval.
6n case there are two or
more bailees, their
obligation shall be solidary.
O0li1ations of t&e 0ailor (Art !2$ # Art
!,-%:
1. To respect the duration of the loan
GENERAL RULE: Allow the bailee
the use of the thing loaned for the
duration of the period stipulated or
until the accomplishment of the
purpose for which the commodatum
was instituted.
EXCEPTONS:
a! n case of ur"ent need in
which case bailee may demand
its return or temporary use"
#! The bailor may demand
immediate return of the thing if
t$e #ailee commits any act of
in"ratitude specified in Art! %&'.
2. To refund to the bailee
etraordinary epenses for the
preservation of the thing loaned,
provided the bailee brings the same
to the !nowledge of the bailor
before incurring them, ecept when
they are so urgent that the reply to
the notification cannot be awaited
without danger.
&. To be liable to the bailee for
damages for !nown hidden flaws.
Re4uisites:
a. There is flaw or defect in the
thing loaned"
b. The flaw or defect is hidden"
c. The bailor is aware thereof"
d. =e does not advise the bailee of
the same" and
e. The bailee suffers damages by
reason of said flaw or defect
CIVIL LAW COMMITTEE
185
NOTES:
6f the above re#uisites concur,
the bailee has the right of
retention for damages.
The bailor cannot eempt
himself from the payment of
epenses or damages by
abandoning the thing to the
bailee.
SI)PLE LOAN OR )+T++) (Art !," #
!$%
A contract whereby one party
delivers to another, money or other
consumable thing with the
understanding that the same amount
of the same !ind and #uality shall be
paid. $Art. 1%7&'
NOTES:
The mere issuance of the chec!s
does not result in the perfection of
the contract of loan. The ,ivil ,ode
provides that the delivery of bills of
echange and mercantile
documents, such as chec!s, shall
produce the effect of payment only
when they have been encashed
$Gerales (s! CA )*+ SCRA &,+'. 6t is
only after the chec!s have produced
the effect of payment that the
contract of loan may be deemed
perfected.
The obligation is >to pay? and not to
return because the consumption of
the thing loaned is the distinguishing
character of the contract of mutuum
from that of commodatum.
+o estafa is committed by a person
who refuses to pay his debt or denies
its eistence.
Simple Loan5)utuum Rent
1. 5elivery of money
or some consumable
thing with a promise
to pay an e#uivalent
of the same !ind and
#uality
5elivery of some non-
consumable thing in
order that the other
may use it during a
certain period and
return it to the
former.
2. There is a transfer
of ownership of the
thing delivered
There is no transfer
of ownership of the
thing delivered
&. 0elationship
between the parties
is that of obligor-
obligee
0elationship is that
of a landlord and
tenant
(. ,reditor receives
payment for his loan
1wner of the
property rented
receives
compensation or
price either in
money, provisions,
chattels, or labor
from the occupant
thereof in return for
its use $Tolentino vs
-on@ales, 7A 2hil 779
1%2B'
Loan Sale
1. 0eal contract ,onsensual contract
2. -enerally
unilateral because
only borrower has
obligations
4ilateral and
reciprocal
NOTE: 6f the property is >sold?, but the
real intent is only to give the ob)ect as
security for a debt as when the >price?
is comparatively small there really is a
contract of loan with an >e#uitable
mortgage.?
Commo(atum5
)utuum
Barter
1. Sub)ect matter is
money or fungible
things
Sub)ect matter is
non-fungible, $non
consumable' things
2. 6n commodatum,
the bailee is bound
to return the
identical thing
borrowed when the
time has epired or
purpose served
The thing with
e#uivalent value is
given in return for
what has been
received
&. .utuum may be
gratuitous and
commodatum is
always gratuitous
1nerous, actually a
mutual sale
CIVIL LAW COMMITTEE
186
6orm of Payment (Art !,,%:
1. 6f the thing loaned is money -
payment must be made in the
currency stipulated, if it is possible"
otherwise it is payable in the
currency which is legal tender in the
2hilippines and in case of
etraordinary inflation or deflation,
the basisi of payment shall be the
value of the currency at the time of
the creation of the obligation
2. 6f what was loaned is a fun"i#le
t$in" ot$er t$an money - the
borrower is under obligation to pay
the lender another thing of the same
!ind, #uality and #uantity. 6n case it
is impossible to do so, the borrower
shall pay its value at the time of the
perfection of the loan.
Interest
The compensation allowed by law or
fied by the parties for the loan or
forbearance of money, goods or
credits
0e#uisites for 5emandability* (ELI%
1. must be epressly stipulated
3ceptions*
a. indemnity for damages
b. interest accruing from
unpaid interest
2. must be lawful
&. must be in writing
Compoun( Interest
GENERAL RULE: /npaid interest shall
not earn interest.
EXCEPTONS:
1. when )udicially demanded
2. when there is an epress
stipulation $must be in writing in
view of Art. 1%78'
7ui(elines for t&e application of
proper interest rates
1. 6f there is stipulation* that rate shall
be applied
2. The following are the rules of thumb
for the applicationCimposition of
interest rates*
a' Dhen an obligation, regardless
of its source, i.e., law,
contracts, #uasi-contracts,
delicts or #uasi-delicts is
breached, the contravenor can
be held liable for damages.
b' Dith regard particularly to an
award of interest in the concept
of actual and compensatory
damages, the rate of interest, as
well as the accrual thereof, is
imposed, as follows*
i. Dhen the obligation
breached consists of
payment of a sum of money
-loan or for#earance of
money., the interest shall be
that which is stipulated or
agreed upon by the parties.
6n absence of an agreement,
the rate shall be the legal
rate $i.e. 12E per annum'
computed from default.
NOTE: The interest due shall
itself earn legal interest
from the time it is )udicially
demanded
ii. 6n other cases, the rate of
interest shall be si percent
$8E' per annum.
NOTE: +o interest, however,
shall be ad)udged on
unli#uidated claims or
damages ecept when or
until the demand can be
established with reasonable
certainty. Dhen the demand
cannot be established, the
interest shall begin to run
only from the date of the
)udgment of the court is
made.
iii. Dhen the )udgment of the
court awarding a sum of
money becomes final and
e/ecutory, the rate of legal
interest, whether the case
falls under paragraph i or ii
above, shall be 12E per
annum from such finality
until its satisfaction, this
interim period being deemed
to be by then an e#uivalent
to a forbearance of credit.
$Eastern S$ippin" Lines (s!
CA0 1uly *)0 *223'
NOTES:
Central 4an5 Circular No! 3*& fiing
the rate of interest at 12E per
CIVIL LAW COMMITTEE
187
annum deals with loans, forbearance
of any money, goods or credits and
)udgments involving such loans, or
forbearance in the absence of
epress agreement to such rate
6nterest as indemnity for damages is
payable only in case of default or
non-performance of the contract. As
they are distinct claims, they may be
demanded separately. $Sentinel
6nsurance ,o., 6nc. vs ,A, 192 S,0A
71B'
Central Ban3 Circular No/ !8, $5ec.
1A, 1%92' removed the /sury Faw
ceiling on interest rates for secured
and unsecured loans, regardless of
maturity.
9ali(ity of unconsciona0le interest rate
in a loan
Supreme ,ourt in Sps! Solan"on
(s! 1ose Sala6ar0 G!R! No! *)'2330 1une
)20 )77*, said that since the usury law
had been repealed by ,4 ,ir. +o. %A7
there is no more maimum rate of
interest and the rate will )ust depend on
the mutual agreement of the parties
$citing Lim La8 (s! Olympic Sa8mill Co!0
*)2 SCRA 3,2'. 4ut the Supreme ,ourt
said that nothing in said circular grants
lenders carta #lanc$e authority to raise
interest rates to level which will either
enslave their borrowers or lead to a
hemorrhaging of their assets $citing
Almeda (s! CA0 )'& SCRS )2)'. 6n 9edel
(s! CA0 )22 SCRA 3+*, it was ruled that
while stipulated interest of 7.7E per
month on a loan is usurious pursuant to
,4 ,ircular +o. %A7, the same must be
e#uitably reduced for being ini#uitous,
unconscionable and eorbitant. 6t is
contrary to morals, $contra #onos
mores'. 6t was reduced to 12E per
annum in consonant with )ustice and fair
play.
DEPOSIT (Articles !$- # -88!%
A contract constituted from the
moment a person receives a thing
belonging to another, with the
obligation of safely !eeping it and of
returning the same.
C&aracteristics:
1. Real Contract - contract is
perfected by the delivery of the
sub)ect matter.
2. Unilateral -"ratutitous deposit. -
only the depositary has an
obligation.
&. 4ilateral -onerous deposit. -
gives rise to obligations on the
part of both the depositary and
depositor.
Deposit )utuum
1. Purpose
2rincipal purpose is
safe!eeping or
custody
2rincipal purpose is
consumption
2. "hen to &eturn
5epositor can
demand the return of
the sub)ect matter at
will
The lender must wait
until the epiration
of the period granted
to the debtor
3. Subject Matter
Sub)ect matter may
be movable or
immovable property
Sub)ect matter is
only money or other
fungible thing
4. &e$ationship
of lender $creditor'
and borrower
$debtor'.
of depositor and
depositary.
5. Co'pensation
There can be
compensation of
credits.
+1 compensation of
things deposited with
each other $ecept
by mutual
agreement'.
Deposit Commo(atum
1. 2urpose is
Safe!eeping
1. 2urpose is the
transfer of the use
2. .ay be gratuitous 2. 3ssentially and
always gratuitous
&. .ovableCcorporeal
things only in case of
etra)udicial deposit
&. 4oth movable and
immovable may be
the ob)ect
'in(s of Deposit:
1. Gudicial $Se#uestration' ta!es place
when an attachment or sei@ure of
property in litigation is ordered.
2. 3tra-)udicial
a. Holuntary one wherein the
delivery is made by the will of
the depositor or by two or more
CIVIL LAW COMMITTEE
188
persons each of whom believes
himself entitled to the thing
deposited. $Arts 1%89 1%%7'
b. +ecessary one made in
compliance with a legal
obligation, or on the occasion of
any calamity, or by travellers in
hotels and inns $Arts 1%%8 -
2AA(', or by travellers with
common carriers $Art 1B&(
1B&7'.
NOTE: The chief difference
between a voluntary deposit and a
necessary deposit is that in the
former, the depositor has a
complete freedom in choosing the
depositary, whereas in the latter,
there is lac! of free choice in the
depositor.
.u(icial E:tra*;u(icial
1. Creation
Dill of the court Dill of the parties
or contract
2. Purpose
Security or to insure
the right of a party
to property or to
recover in case of
favorable )udgment
,ustody and
safe!eeping
3. Subject Matter
.ovables or
immovables,
but generally
immovables
.ovables only
4. Cause
Always onerous .ay be compen-
sated or not, but
generally gratuitous
5. "hen 'ust the thing be returne
/pon order of the
court or when
litigation is ended
/pon demand of
depositor
6. (n whose beha$f it is he$
2erson who has a
right
5epositor or third
person designated
GENERAL RULE: ,ontract of deposit is
gratuitous $Art 1%87'
EXCEPTONS:
1. when there is contrary
stipulation
2. depositary is engaged in business
of storing goods
&. property saved from destruction
without !nowledge of the owner
NOTES:
Article 1%88 does not embrace
incorporeal property, such as rights
and actions, for it follows the person
of the owner, wherever he goes.
A contract for the rent of safet)
eposit bo*es is not an ordinary
contract of lease of things but a
special 5ind of deposit" hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a ban! and its customer is
that of a bailor and bailee. $,A Agro
vs ,A, 21% S,0A (28'
O0li1ations of t&e Depositary (Art !<-
#!!%:
1. To !eep the thing safely $Art 1%B2'
3ercise over the thing
deposited the same diligence as
he would eercise over his
property
2. To return the thing $Art 1%B2'
Person to =&om t&e t&in1 must
0e returne(:
a. 5epositor, to his heirs and
successors, or the person who
may have been designated in the
contract
b. 6f the depositary is capacitated -
he is sub)ect to all the
obligations of a depositary
whether or not the depositor is
capacitated. 6f the depositor is
incapacitated, the depositary
must return the property to the
legal representative of the
incapacitated or to the depositor
himself if he should ac#uire
capacity $Art 1%BA'.
c. 6f the depositor is capacitated
and the depositary is
incapacitated - the latter does
not incur the obligation of a
depositary but he is liable*
i..to return the thing
deposited while still in his
possession"
ii.to pay the depositor the
amount which he may have
benefited himself with the
thing or its price sub)ect to
CIVIL LAW COMMITTEE
189
the right of any third person
who ac#uired the thing in
good faith $Art 1%B1'
Time of return:
a/ Upon demand even though a
specified period or time for such
return may have been fied
ecept when the thing is
)udicially attached while in the
depositary<s possession or should
he have been notified of the
opposition of a third person to
the return or the removal of the
thing deposited. $Art 1%%9'
b. f deposit "ratuitous, the
depositary may return the thing
deposited notwithstanding that a
period has been fied for the
deposit if )ustifiable reasons
eists for its return.
c. f t$e deposit is for a
(alua#le consideration, the
depositary has no right to return
the thing deposited before the
epiration of the time
designated even if he should
suffer inconvenience as a
conse#uence.$Art 1%9%'
>&at to return: product,
accessories, and accessions of
the thing deposited $Art 1%9&'
&. +ot to deposit the thing with a third
person unless authori@ed by epress
stipulation $Art 1%B&'
The depositor is liable for the
loss of the thing deposited under
Article 1%B& if*
a. he
transfers the deposit with a third
person without authority
although there is no negligence
on his part and the third person"
b. he
deposits the thing with a third
person who is manifestly careless
or unfit although authori@ed
even in the absence of
negligence" or
c. the thing
is lost through the negligence of
his employees whether the latter
are manifestly careless or not.
(. 6f the thing deposited should earn
interest $Art 1%B7'*
a. to collect interest and the
capital itself as it fall due
b. to ta!e steps to preserve its
value and rights corresponding to
it
7. +ot to commingle things deposited if
so stipulated $Art 1%B8'
8. +ot to ma!e use of the thing
deposited unless authori@ed $Art
1%BB'
GENERAL RULE: 5eposit is for
safe!eeping of the sub)ect matter
and not for use. The unauthori@ed
use by the depositary would ma!e
him liable for damages.
EXCEPTONS:
1. Dhen the preservation of the
thing deposited re#uires its use
2. Dhen authori@ed by the
depositor
NOTE: The permission to use is +1T
presumed ecept when such use is
necessary for the preservation of the
thing deposited.
Effect if permission to use is 1i?en
(Art !<@%:
1. 6f thing deposited is
non-consumable, the contract
loses the character of a deposit
and ac#uires that of a
commodatum despite the fact
that the parties may have
denominated it as a deposit,
unless safe!eeping is still the
principal purpose.
2. 6f thing deposited consists of
moneyCconsumable things, the
contract is converted into a
simple loan or mutuum unless
safe!eeping is still the principal
purpose in which case it is called
an irregular deposit. 3ample*
ban! deposits are irre"ular
deposits in nature but governed
by law on loans.
B. Dhen the thing deposited is
delivered sealed and closed *
a. to return the thing deposited in
the same condition
b. to pay for damages should the
seal or loc! be bro!en through
CIVIL LAW COMMITTEE
190
his fault, which is presumed
unless proved otherwise
c. to !eep the secret of the deposit
when the seal or loc! is bro!en
with or without his fault $Art
1%91'
NOTE: The depositary is
authori@ed to open the thing
deposited which is closed and
sealed when $Art 1%92'*
i. there is presumed authority
$i.e. when the !ey has been
delivered to him or the
instructions of the depositor
cannot be done without
opening it'
ii. necessity
9. To change the way of the deposit if
under the circumstances, the
depositary may reasonably presume
that the depositor would consent to
the change if he !new of the facts of
the situation, provided, that the
former notifies the depositor thereof
and wait for his decision, unless
delay would cause danger
%. To pay interest on sums converted to
personal use if the deposit consists
of money $Art 1%9&'
1A. To be liable for loss through
fortuitous event (S+DA%* $Art 1%B%'*
a. if stipulated
b. if he uses the thing without the
depositorIs permission
c. if he (elays its return
d. if he allows others to use it,
even though he himself may
have been authori@ed to use the
same
NOTES:
Jied, savings, and current deposits
of money in ban!s and similar
institutions shall be governed by the
provisions concerning simple loan!
$Art 1%9A'
The general rule is that a ban! can
compensate or set off the deposit in
its hands for the payment of any
indebtedness to it on the part of the
depositor. 6n true deposit,
compensation is not allowed.
Irre1ular (eposit )utuum
1. The consumable
thing deposited may
be demanded at will
by the depositor
1. Fender is bound
by the provisions of
the contract and
cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
2. The only benefit is
that which accrues
to the depositor
2. 3ssential cause for
the transaction is the
necessity of the
borrower
&. The irregular
depositor has a
preference over
other creditors with
respect to the thing
deposited
&. ,ommon creditors
en)oy no preference
in the distribution of
the debtor<s
property
Rule =&en t&ere are t=o or more
(epositors (Art !@,%:
1. f t$in" deposited is di(isi#le and
depositors are not solidary* 3ach
depositor can demand only his
proportionate share thereto.
2. f o#li"ation is solidary or if t$in" is
not di(isi#le* 0ules on active
solidarity shall apply, i.e. each one
of the solidary depositors may do
whatever may be useful to the
others but not anything which may
be pre)udicial to the latter, $Art.
1212' and the depositary may return
the thing to anyone of the solidary
depositors unless a demand, )udicial
or etra)udicial, for its return has
been made by one of them in which
case, delivery should be made to him
$Art. 121('.
&. Return to one of depositors
stipulated. The depositary is bound
to return it only to the person
designated although he has not made
any demand for its return.
NOTES:
The depositary may retain the thing
in pledge until full payment of what
may be due him by reason of the
deposit $Art 1%%('.
The depositor<s heir who in good
faith may have sold the thing which
he did not !now was deposited, shall
only be bound to return the price he
CIVIL LAW COMMITTEE
191
may have received or to assign his
right of action against the buyer in
case the price has not been paid him
$Art 1%%1'.
O0li1ations of t&e Depositor (Art !!- #
!!,%:
1. To pay epenses for preservation
a. f t$e deposit is "ratuitous, the
depositor is obliged to
reimburse the depositary for
epenses incurred for the
preservation of the thing
deposited $Art 1%%2'
b. f t$e deposit is for (alua#le
consideration, epenses for
preservation are borne by the
depositary unless there is a
contrary stipulation
2. To pay loses incurred by the
depositary due to the character of
the thing deposited
GENERAL RULE: The depositor shall
reimburse the depositary for any loss
arising from the character of the thing
deposited.
EXCEPTONS:
1. at the time of the deposit, the
depositor was not a8are of the
dangerous character of the thing
2. when depositor was not e/pected
to 5no8 the dangerous character
of the thing
3. when the depositor notified the
depository of the same
4. the depositary 8as a8are of it
8it$out ad(ice from the depositor
E:tin1uis&ment of 9oluntary Deposit
(Art !!,%
1. Foss or destruction of the thing
deposited
2. 6n case of gratuitous deposit, upon
the death of either the depositor or
the depositary
3. 1ther causes, such as return of the
thing, novation, merger, epiration
of the term fulfilment of the
resolutory condition, etc $Art 12&1'
Necessary Deposits
1. .ade in compliance with a legal
obligation
2. .ade on the occasion of any
calamity such as fire, storm, flood,
pillage, shipwrec! or other similar
events $deposito misera#le'
3. .ade by travellers in hotels and inns
or by travellers with common carrier
Deposit 0y Tra?ellers in &otels an(
inns:
The !eepers of hotels or inns shall be
responsible as depositaries for the
deposit of effects made by travellers
pro(ided*
a. +otice was given to them or to
their employees of the effects
brought by the guest" and
b. The guests ta!e the precautions
which said hotel-!eepers or their
substitutes advised relative to
the care and vigilance of their
effects.
NOTES:
Fiability etends to vehicles, animals
and articles which have been
introduced or placed in the annees
of the hotel.
Fiability shall 3K,F/53 losses which
proceed from force ma)eure. The
act of a thief or robber is not
deemed force ma)eure unless done
with the use of arms or irresistible
force.
The hotel-!eeper cannot free
himself from the responsibility by
posting notices to the effect that he
is not liable for the articles brought
by the guest. Any stipulation to such
effect shall be void.
+otice is necessary only for suing
civil liability but not in criminal
liability.
7+ARANTA (Articles -82< # -8@2%
A contract whereby a person
$guarantor' binds himself to the
creditor to fulfil the obligation of
the principal debtor in case t$e
latter fail to do so.
Classification of 7uaranty:
1. 6n the 4road sense*
a. 2ersonal - the guaranty is the
credit given by the person who
CIVIL LAW COMMITTEE
192
guarantees the fulfilment of the
principal obligation.
b. 0eal - the guaranty is the
property, movable or
immovable.
2. As to its Ori"in
a. ,onventional - agreed upon by
the parties.
b. Fegal - one imposed by virtue of
a provision of a law.
c. Gudicial - one which is re#uired
by a court to guarantee the
eventual right of one of the
parties in a case.
&. As to Consideration
a. -ratuitous - the guarantor does
not receive any price or
remuneration for acting as such.
b. 1nerous - the guarantor receives
valuable consideration.
(. As to the Person "uaranteed
a. Single - one constituted solely to
guarantee or secure
performance by the debtor of
the principal obligation.
b. 5ouble or sub-guaranty - one
constituted to secure the
fulfilment by the guarantor of a
prior guaranty.
7. As to Scope and E/tent
a. 5efinite - the guaranty is limited
to the principal obligation only,
or to a specific portion thereof.
b. 6ndefinite or simple - one which
not only includes the principal
obligation but also all its
accessories including )udicial
costs
S+RETASBIP
A contract whereby a person $surety'
binds himself solidarily with the
principal debtor
A relation which eists where one
person $principal' has underta!en an
obligation and another person
$surety' is also under a direct and
primary obligation or other duty to
the obligee, who is entitled to but
one performance, and as between
the two who are bound, the second
rather than the first should perform
$A"ro Con"lomerates0 nc! (s! CA0
,3+ SCRA 3'7'
NOTES:
The reference in Article 2A(B to
solidary obligations does not mean
that suretyship is withdrawn from
the applicable provisions governing
guaranty. A surety is almost the
same as a solidary debtor, ecept
that he himself is a principal debtor.
6n suretyship, there is but one
contract, and the surety is bound by
the same agreement which binds the
principal. A surety is usually bound
with the principal by the same
instrument, eecuted at the same
time and upon the same
consideration $Palmares (s CA0 )++
SCRA 3))'
6t is not for the obligee to see to it
that the principal debtor pays the
debt or fulfill the contract, but for
the surety to see to it that the
principal debtor pays or performs
$Paramount nsurance Corp (s CA0
,*7 SCRA ,%%'
Nature of SuretyCs un(erta3in1:
1. Lia#ility is contractual and
accessory #ut direct
NOTE: =e directly, primarily and
e#ually binds himself with the
principal as original promisor,
although he possesses no direct or
personal interest over the latter<s
obligation, nor does he receive any
benefits therefrom. $2+4 vs ,A, 1%9
S,0A B8B'
2. Lia#ility limited #y t$e terms of t$e
contract!
NOTE: 6t cannot be etended by
implication beyond the terms of the
contract $2+4 vs ,A, 1%9 S,0A B8B'
3. Lia#ility arises only if principal
de#tor is $eld lia#le!
NOTES:
The creditor may sue separately
or together the principal debtor
and the surety. Dhere there are
several sureties, the obligee may
proceed against any one of
them.
6n the absence of collusion, the
surety is bound by a )udgment
CIVIL LAW COMMITTEE
193
against the principal even
though he was not a party to the
proceedings. The nature of its
underta!ing ma!es it privy to all
proceedings against its principal
$:inman General Assurance
Corp! (s! Sali50 *++ SCRA %37'
4. Surety is not entitled to t$e #enefit
of e/$austion
NOTE: =e assumes a solidary liability
for the fulfilment of the principal
obligation $To8ers Assurance Corp
(s! Ororama Supermart0 +7 SCRA
)&)' as an original promissory and
debtor from the beginning.
5. Underta5in" is to creditor and not
to de#tor!
NOTE: The surety ma!es no
covenant or agreement 8it$ t$e
principal that it will fulfil the
obligation guaranteed for the benefit
of the principal. Such a promise is
not implied by law either" and this is
true even where under the contract
the creditor is given the right to sue
the principal, or the latter and the
surety at the same time. $Arran6 (s!
9anila :idelity ; Surety Co!0 nc!0
*7* P$il! )%)'
6. Surety is not entitled to notice of
principal<s default
NOTE: The creditor owes no duty of
active diligence to ta!e care of the
interest of the surety and the surety
is bound to ta!e notice of the
principal<s default and to perform
the obligation. =e cannot complain
that the creditor has not notified
him in the absence of a special
agreement to that effect. $Palmares
(s CA0 )++ SCRA 3))'
7. Prior demand #y t$e creditor upon
principal is not re=uired
NOTE: As soon as the principal is in
default, the surety li!ewise is in
default.
8. Surety is not e/onerated #y ne"lect
of creditor to sue principal
C&aracteristics of 7uaranty an(
Suretys&ip:
1. Accessory - 6t is indispensable
condition for its eistence that there
must be a principal obligation.
NOTES:
-uaranty may be constituted to
guarantee the performance of a
voidable or unenforceable
contract. 6t may also guarantee
a natural obligation. $Art 2A72'
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor.
2. Su#sidiary and Conditional - ta!es
effect only in case the principal
debtor fails in his obligation.
NOTES:
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor. 4ut a guarantor may
bind himself for less than that of
the principal $Art 2A7('
A guaranty may be given as
security for future debts, the
amount of which is not yet
!nown" there can be no claim
against the guarantor until the
debt is li#uidated. A conditional
obligation may also be secured.
$Art 2A7&'
3. Unilateral - may be entered even
wCo the intervention of the principal
debtor, in which case Art. 12&8 and
12&B shall apply and it gives rise only
to a duty on the part of the
guarantor in relation to the creditor
and not vice versa.
4. +ominate
5. ,onsensual
6. 6t is a contract between the
guarantorCsurety and creditor.
NOTES:
Acceptance of 1uaranty 0y
cre(itor an( notice t&ereof to
1uarantor:
6n declaring that guaranty
must be epress, the law
refers solely and eclusively
to the obligation of the
guarantor because it is he
alone who binds himself by
CIVIL LAW COMMITTEE
194
his acceptance. Dith respect
to the creditor, no such
re#uirement is needed
because he binds himself to
nothing.
=owever, when there is
merely an offer of a
"uaranty, or merely a
conditional "uaranty, in the
sense that it re#uires action
by the creditor before the
obligation becomes fied, it
does not become binding
until it is accepted and until
notice of such acceptance by
the creditor is given to, or
ac#uired by, the guarantor,
or until he has notice or
!nowledge that the creditor
has performed the condition
and intends to act upon the
guaranty.
4ut in any case, the creditor
is not precluded from
waiving the re#uirement of
notice.
The consideration of the
guaranty is the same as the
consideration of the principal
obligation.
The creditor may proceed
against the guarantor although
he has no right of action against
the principal debtor.
B. +ot presumed. 6t must be epressed
and reduced in writing.
NOTE: A power of attorney to loan
money does not authori@e the agent
to ma!e the principal liable as a
surety for the payment of the debt
of a third person. $4P (s! Coster0 3%
P$il! '23'
9. Jalls under the Statute of Jrauds
since it is a >special promise to
answer for the debt, default or
miscarriage of another?.
%. Strictly interpreted against the
creditor and in favor of the
guarantorCsurety and is not to be
etended beyond its terms or
specified limits. $9a"dalena Estates0
nc! (s Rodri"ue60 *+ SCRA 2&%' The
rule of strictissimi >uris commonly
pertains to an accommodation surety
because the latter acts without
motive of pecuniary gain and hence,
should be protected against un)ust
pecuniary impoverishment by
imposing on the principal, duties
a!in to those of a fiduciary.
NOTES:
The rule will apply only after it
has been definitely ascertained
that the contract is one of
suretyship or guaranty. 6t cannot
be used as an aid in determining
whether a party<s underta!ing is
that of a surety or guarantor.
$Palmares (s CA0 )++ SCRA )2)'
6t does not apply in case of
compensated sureties.
1A. 6t is a contract which re#uires that
the guarantor must be a person
distinct form the debtor because a
person cannot be the personal
guarantor of himself.
NOTE: =owever, in a real guaranty,
li!e pledge and mortgage, a person
may guarantee his own obligation
with his personal or real properties.
7uaranty Suretys&ip
1. Fiability depends
upon an independent
agreement to pay the
obligation if primary
debtor fails to do so
1. Surety assumes
liability as regular
party to the
underta!ing
2. ,ollateral under-
ta!ing
2. Surety is an
original promisor
&. -uarantor is
secondarily liable
&. Surety is
primarily liable
4. -uarantor binds
himself to pay if
the principal
,A++1T 2AL
(. Surety underta!es
to pay if the principal
513S +1T 2AL
7. 6nsurer of
solvency of debtor
7. 6nsurer of the
debt
8. -uarantor can
avail of the benefit
of ecussion and
division in case
creditor proceeds
against him
8. Surety cannot
avail of the benefit of
ecussion and division
In(orsement 7uaranty
CIVIL LAW COMMITTEE
195
1. 2rimarily of
transfer
1. ,ontract of
security
2. /nless the note is
promptly presented
for payment at
maturity and due
notice of dishonor
given to the indorser
within a reasonable
time he will be
discharged abso-
lutely from all
liability thereon,
whether he has
suffered any actual
damage or not
2. Jailure in either or
both of these
particulars does not
generally wor! as an
absolute discharge of
a guarantor<s
liability, but his is
discharged only to
the etent of the loss
which he may have
suffered in
conse#uence thereof
&. 6ndorser does not
warrant the solvency.
=e is answerable on a
strict compliance
with the law by the
holder, whether the
promisor is solvent or
not
&. -uarantor
warrants the solvency
of the promisor
(. 6ndorser can be
sued as promisor
(. -uarantor cannot be
sued as promisor
7uaranty >arranty
A contract by which a
person is bound to
another for the
fulfilment of a
promise or
engagement of a
third party
An underta!ing that
the title, #uality, or
#uantity of the
sub)ect matter of the
contract is what it
has been represented
to be, and relates to
some agreement
made ordinarily by
the party who ma!es
the warranty
NOTES:
A guaranty is gratuitous, unless there
is a stipulation to the contrary. The
cause of the contract is the same
cause which supports the obligation
as to the principal debtor.
The peculiar nature of a guaranty or
surety agreement is that is is
regarded as valid despite the
absence of any direct consideration
received by the guarantor or surety
either from the principal debtor or
from the creditor" a consideration
moving to the principal alone will
suffice.
6t is never necessary that the
guarantor or surety should receive
any part or benefit, if such there be,
accruing to the principal. $Dille
2lastic 6ndustries ,orp. vs. ,A, 278
S,0A (B9'
Dou0le or su0*1uaranty (Art -8, -n(
par%
1ne constituted to guarantee the
obligation of a guarantor
Continuin1 1uaranty (Art -8,"%
1ne which is not limited to a single
transaction but which contemplates
a future course of dealings, covering
a series of transactions generally for
an indefinite time or until revo!ed.
NOTES:
2rospective in operation $?i@o (s CA0
)*& SCRA 2'
,onstrued as continuing when by the
terms thereof it is evident that the
ob)ect is to give a standing credit to
the principal debtor to be used from
time to time either indefinitely or
until a certain period, especially if
the right to recall the guaranty is
epressly reserved $?i@o (s CA0 )*&
SCRA 2'
>Juture debts? may also refer to
debts eisting at the time of the
constitution of the guaranty but the
amount thereof is un!nown and not
to debts not yet incurred and
eisting at that time.
3ception to the concept of
continuing guaranty is c$attel
mort"a"e. A chattel mortgage can
only cover obligations eisting at the
time the mortgage is constituted and
not those contracted subse#uent to
the eecution thereof -T$e 4el"ian
Cat$olic 9issionaries0 nc! (s!
9a"allanes Press0 nc!0 32 P$il &3%.!
An eception to this is in case of
stoc!s in department stores, drug
stores, etc. -Torres (s! Lim>ap0 '&
P$il *3*.!
CIVIL LAW COMMITTEE
196
E:tent of 7uarantorCs lia0ility: (Art
-8,,%
1. Dhere the guaranty definite* 6t is
limited in whole or in part to the
principal debt, to the eclusion of
accessories.
2. Dhere guaranty indefinite or simple*
6t shall comprise not only the
principal obligation, but also all its
accessories, including the )udicial
costs, provided with respect to the
latter, that the guarantor shall only
be liable for those costs incurred
after he has been )udicially re#uired
to pay.
Dualifications of a 1uarantor: (Arts
-8,$*-8,<%
1. possesses integrity
2. capacity to bind himself
3. has sufficient property to answer
for the obligation which he
guarantees
NOTES:
The #ualifications need only be
present at the time of the perfection
of the contract.
The subse#uent loss of the integrity
or property or supervening
incapacity of the guarantor would
not operate to eonerate the
guarantor or the eventual liability he
has contracted, and the contract of
guaranty continues.
=owever, the creditor may demand
another guarantor with the proper
#ualifications. 4ut he may waive it if
he chooses and hold the guarantor to
his bargain.
Benefit of E:cussion (Art -8,@%
The right by which the guarantor
cannot be compelled to pay the
creditor unless the latter has
ehausted all the properties of the
principal debtor, and has resorted to
all of the legal remedies against such
debtor.
NOTE:
+ot applicable to a contract of
suretyship $Arts 2A(B, par. 2"
2A7%:2;'
,annot even begin to ta!e place
before )udgment has been obtained
against the debtor $4aylon vs ,A,
&12 S,0A 7A2'
>&en 7uarantor is not entitle( to t&e
0enefit of e:cussion: $2A60S'
1. 6f it may be presumed that an
eecution on the property of the
principal debtor would not result in
the satisfaction of the obligation
+ot necessary that the debtor be
)udicially declared insolvent or
ban!rupt
2. Dhen he has absconded, or cannot
be sued within the 2hilippines unless
he has left a manager or
representative
&. 6n case of insolvency of the debtor
.ust be actual
(. 6f the guarantor has epressly
renounced it
7. 6f he has bound himself solidarily
with the debtor
Ot$er "rounds: (BIPS%
8. 6f he is a )udicial 0ondsman or sub-
surety
B. 6f he fails to interpose it as a
defense before )udgment is rendered
against him
9. 6f the guarantor does not set up the
benefit against the creditor upon the
latter<s demand for payment from
him, and point out to the creditor
available property to the debtor
within 2hilippine territory, sufficient
to cover the amount of the debt $Art
2A8A'
5emand can be made only after
)udgment on the debt
5emand must be actual" )oining
the guarantor in the suit against
the principal debtor is not the
demand intended by law
%. Dhere the pledge or mortgage has
been given by him as special security
Benefit of Di?ision (Art -8$,%
Should there be se(eral "uarantors
of only one de#tor and for the same
de#t, the obligation to answer for
the same is divided among all.
Fiability* Goint
CIVIL LAW COMMITTEE
197
NOTES:
The creditor can claim from the
guarantors only the shares they are
respectively bound to pay e/cept
8$en solidarity is stipulated or if
any of t$e circumstances
enumerated in Article )7'2 s$ould
ta5e place!
The right of contribution of
guarantors who pays re#uires that
the payment must have been made
$a' in virtue of a )udicial demand, or
$b' because the principal debtor is
insolvent $Art 2AB&'.
6f any of the guarantors should be
insolvent, his share shall be borne by
the others including the paying
guarantor in the same )oint
proportion following the rule in
solidary obligations.
The above rule shall not be
applicable unless the payment has
been made in virtue of a )udicial
demand or unless the principal
debtor is insolvent.
The right to contribution or
reimbursement from his co-
guarantors is ac#uired ipso >ure by
virtue of said payment without the
need of obtaining from the creditor
any prior cession of rights to such
guarantor.
The co-guarantors may set up
against the one who paid, the same
defenses which have pertained to
the principal debtor against the
creditor and which are not purely
personal to the debtor. $Art 2AB('
Proce(ure =&en cre(itor sues: $Art.
2A82'
The creditor must sue the principal
alone" the guarantor cannot be sued
with his principal, much less alone
ecept in Art. 2A7%.
*! Notice to "uarantor of t$e action
The guarantor must be +1T6J635
so that he may appear, if he so
desires, and set up defenses he
may want to offer.
6f the guarantor appears, he is
still given the benefit of
ehaustion even if )udgment
should be rendered against him
and principal debtor. =is
voluntary appearance does not
constitute a renunciation of his
right to ecussion $see Art.
2A7%$1''.
-uarantor cannot set up the
defenses if he does not appear
and it may no longer be possible
for him to #uestion the validity
of the )udgment rendered
against the debtor.
2. A guarantor is entitled to be heard
before and eecution can be issued
against him where he is not a party
in the case involving his principal
$procedural due process'.
7uarantorCs Ri1&t of In(emnity or
Reim0ursement (Art -8$$%
GENERAL RULE: -uaranty is a contract
of indemnity. The guarantor who ma!es
payment is entitled to be reimbursed by
the principal debtor.
NOTE: The indemnity consists of* (DIED%
1. Total amount of t$e e#t no
right to demand reimbursement
until he has actually paid the
debt, unless by the terms of the
contract, he is given the right
before ma!ing payment. =e
cannot collect more than what
he has paid.
2. Le"al interest thereon from the
time the payment was made
!nown $notice of payment in
effect a demand so that if the
debtor does not pay
immediately, he incurs in delay'
to the debtor, even though it did
not earn interest for the
creditor. -uarantor<s right to
legal interest is granted by law
by virtue of the payment he has
made.
3. + /penses incurred #y t$e
"uarantor after having notified
the debtor that payment has
been demanded of him by the
creditor" only those epenses
that the guarantor has to satisfy
in accordance with law as a
conse#uence of the guaranty
$Art. 2A77' not those which
CIVIL LAW COMMITTEE
198
depend upon his will or own acts
or his fault for these are his
eclusive personal responsibility
and it is not )ust that they be
shouldered by the debtor.
4. , ama"es if they are due in
accordance
with law. -eneral rules on
damages apply.
EXCEPTONS:
1. Dhere the guaranty is
constituted without the
!nowledge or against the will of
the principal debtor, the
guarantor can recover only
insofar as the payment had been
beneficial to the debtor $Art.
2A7A'.
2. 2ayment by a third person who
does not intend to be reimbursed
by the debtor is deemed to be a
donation, which, however,
re#uires the debtor<s consent.
4ut the payment is in any case
valid as to the creditor who has
accepted it $Art. 12&9'.
&. Daiver of the right to demand
reimbursement.
7uarantorCs ri1&t to Su0ro1ation
(ART/-8$<%
Subrogation transfers to the person
subrogated, the credit with all the
rights thereto appertaining either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, sub)ect to
stipulation in conventional
subrogation.
NOTE: This right of subrogation is
necessary to enable the guarantor to
enforce the indemnity given in Art.
2A88.
6t arises by operation of law upon
payment by the guarantor. 6t is not
necessary that the creditor cede to
the guarantor the former<s rights
against the debtor.
6t is not a contractual right. The
right of guarantor who has paid a
debt to subrogation does not stand
upon contract but upon the
principles of natural )ustice.
The guarantor is subrogated by
virtue of the payment to the rights
of the creditor, not those of the
debtor.
-uarantor cannot eercise the
right of redemption of his
principal $Urrutia ; Co (s
9orena and Reyes0 )+ P$il )&*'
Effect of Payment 0y 7uarantor
/ >it&out notice to (e0tor: (Art
-8$@%
The debtor may interpose
against the guarantor those
defenses which he could have
set up against the creditor at the
time the payment was made,
e.g. the debtor can set up
against the guarantor the
defense of previous
etinguishment of the obligation
by payment.
-/ Before )aturity (Art -8$!%
+ot entitled to reimbursement
unless the payment was made
with the consent or has been
ratified by the debtor
Effect of Repeat Payment 0y (e0tor:
(Art -8<8%
GENERAL RULE: 4efore guarantor pays
the creditor, he must first notify the
debtor $Art. 2A89'. 6f he fails to give
such notice and the debtor repeats
payment, the guarantor can only collect
from the creditor and guarantor has no
cause of action against the debtor for
the return of the amount paid by
guarantor even if the creditor should
become insolvent.
EXCEPTON: The guarantor can still
claim reimbursement from the debtor in
spite of lac! of notice if the following
conditions are present* (PI7%
a. guarantor was prevented by
fortuitous event to advise the
debtor of the payment" and
b. the creditor becomes insolvent"
c. the guaranty is 1ratuitous.
Ri1&t of 7uarantor to procee( a1ainst
(e0tor before payment
CIVIL LAW COMMITTEE
199
GENERAL RULE: -uarantor has no
cause of action against debtor until after
the former has paid the obligation
EXCEPTON: Article 2AB1
NOTES:
Article 2AB1 is applicable and
available to the surety. $9anila
Surety ; :idelity Co!0 nc! (s 4atu
Construction ; Co!0 *7* P$il 323'
0emedy of guarantor*
$a' obtain release from the
guaranty" or
$b' demand a security that shall
protect him from any
proceedings by the creditor, and
against the danger of insolvency
of the debtor
Art/ -8$$ Art/ -8<
2rovides for the
enforcement of the
rights of the
guarantorCsurety
against the debtor
after he has paid the
debt
2rovides for his
protection #efore he
has paid but after he
has become liable
-ives a right of
action after payment
2rotective remedy
#efore payment.
Substantive right 2reliminary remedy
E:tin1uis&ment of 1uaranty: $0A
2
,3
2
'
1. R elease in favor of one of the
guarantors, without the consent of
the others, benefits all to the etent
of the share of the guarantor to
whom it has been granted $Art
2AB9'"
2. 6f the creditor voluntarily accepts
immovable or other properties in
payment of the debt, even if he
should afterwards lose the same
through eviction or conveyance of
property $Art 2ABB'"
&. Dhenever by some act of the
creditor, the guarantors even though
they are solidarily liable cannot be
subrogated to the rights, mortgages
and preferences of the former $Art
2A9A'"
(. Jor the same causes as all other
obligations $Art 12&1'"
7. Dhen the principal obligation is
etinguished"
8. E tension granted to the debtor by
the creditor without the consent of
the guarantor $Art 2AB%'
BOND
An underta!ing that is sufficiently
secured, and not cash or currency
Bon(sman (Art -8@-%
A surety offered in virtue of a
provision of law or a )udicial order.
=e must have the #ualifications
re#uired of a guarantor and in
special laws li!e the 0ules of ,ourt.
NOTES:
Gudicial bonds constitute merely a
special class of contracts of guaranty
by the fact that they are given >in
virtueM of a )udicial order.?
6f the person re#uired to give a legal
or )udicial bond should not be able
to do so, a pledge or mortgage
sufficient to cover the obligation
shall admitted in lieu thereof $Art
2A9&'
A )udicial bondsman and the sub-
surety are +1T entitled to the
benefit of ecussion because they
are not mere guarantors, but
sureties whose liability is primary
and solidary. $Art 2A9('
PLED7EE )ORT7A7E AND ANTICBRESIS
I/ Common Elements of Ple(1eE
)ort1a1eE an( Antic&resis (Articles
-8@, # -8!-%
A/ +ssentia$ &e-uisites (SOD% (Art
-8@,%
1. S ecures the fulfillment of a principal
obligation"
2. 2ledgor, mortgagor, antichretic
debtor must be the absolute owner
of the thing pledged or mortgaged"
and
The reason being that in
anticipation of a possible
foreclosure sale in case of
default which is still a sale, the
rule is that the seller must be
the owner of the thing sold
$,avite 5evelopment 4an! vs.
Fim, &2( S,0A &(8'
CIVIL LAW COMMITTEE
200
&. 2ledgor, mortgagor, antichretic
debtor must have free (isposal of
their property, or be legally
authori@ed for such purpose.
NOTES:
Third persons can pledge or
mortgage their own property to
secure the principal obligation.
6t is not necessarily void simply
because the accommodation pledgor
or mortgagor did not benefit from
the same. So long as valid consent
was given, the fact that the loan was
given solely for the benefit of the
principal debtor would not invalidate
the mortgage $GSS (s CA0 *%7 SCRA
',,'
The accommodation pledgor or
mortgagor, without epressly
assuming personal liability for such
debt, is not liable for the payment of
any deficiency, should the property
not be sufficient to cover the debt
$4an5 of America (s! American
Realty Corporation0 ,)* SCRA &'2'.
The accommodation pledgor or
mortgagor is not solidarily bound
with the principal obligor but his
liability etents only to the property
pledged or mortgaged. Should there
be any deficiency, the creditor has
recourse on the principal debtor who
remains to be primarily bound.
The law grants to the
accommodation pledgor or
mortgagor the same rights as a
guarantor and he cannot be
pre)udiced by any waiver of defense
by the principal debtor.
B/ Prohibition against Pactu'
Co''issoriu' (Art -8@@F -"<%
Pactum Commissorium
Stipulation whereby the thing
pled"ed or mort"a"ed, or under
antic$resis shall automatically
become the property of the creditor
in the event of non-payment of the
debt within the term fied.
Re4uisites:
1. There should be a pledge, mortgage,
or antichresis of property by way of
security for the payment of the
principal obligation" and
2. There should be a stipulation for an
automatic appropriation by the
creditor of the property in event of
nonpayment of the obligation within
the stipulated period.
GENERAL RULE: 2actum ,ommissorium
is forbidden by law and is declared null
and void.
EXCEPTON: The pledgee may
appropriate the thing pledged if after
the first and second auctions, the thing
is not sold. $Art 2112'
NOTE: The security contract remains
valid" only the prohibited stipulation is
void.
C/ Capabi$it) to secure a$$ #ins of
ob$igations. i.e. pure or
conitiona$ (Art -8!%
D/ (ni/isibi$it) (Art -8@!%
GENERAL RULE: A pledge, mortgage,
or antichresis is ini/isib$e, even though
the debt may be divided among the
successors in interest of the debtor or of
the creditor.
Their indivisibility is not affected by
the fact that the debtors are )ointly
or not solidarily liable.
Conse4uences of in(i?isi0ility:
1. Sin"le t$in" 3very portion of the
property pledged or mortgaged is
answerable for the whole obligation
2. Se(eral t$in"s All of the several
things pledged or mortgaged are
liable for the totality of the debt
&. ?e#tor<s $eirAcreditor<s $eir -
+either the debtor<s heir who has
paid part of the debt cannot as! for
proportionate etinguishment, nor
creditor<s heir who received his
share of the debt return the pledge
or cancel the mortgage as long as
the debt is not completely satisfied.
BEXCEPTONS:
1. Dhere each one of several things
guarantees a determinate
portion of the credit
2. Dhere only a portion of the loan
was released
CIVIL LAW COMMITTEE
201
&. Dhere there was failure of
consideration.
(. Dhere 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 etra)udicially and waive
the chattel mortgage foreclosure,
and maintain instead a personal
action for the recovery of the unpaid
balance of the credit $2hil. 4an! of
,ommerce vs. .acadaeg, 1A% 2hil
%91'
E/ "hen the principa$ ob$igation
beco'es ue. the things in which
the p$ege. 'ortgage. or
antichresis consists 'a) be
a$ienate for the pa)'ent to the
creitor. (Art/ -8@<%
NOTES:
6f the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
6f he wishes to secure a title to the
mortgaged property, he can buy it in
the foreclosure sale $.ontevirgin vs.
,A, 112 S,0A 8(1'
0. P$egor. 'ortgagor. antichretic
ebtor retains ownership of the
thing gi/en as a securit)
PLED7E (Arts -8!" # --"%
A contract wherein the debtor
delivers to the creditor or to a third
person a movable or document
evidencing incorporeal rights for the
purpose of securing fulfilment of a
principal obligation with the
understanding that when the
obligation is fulfilled, the thing
delivered shall be returned with all
its fruits and accessions.
Special Re4uisites 1in aition to
the co''on essentia$ re-uisites2:
1. 2ossession of the thing pledged must
be transferred to the creditor or a
third person by agreement $Art
2A%&'"
2. 6t can only cover movable property
and incorporeal rights evidenced by
documents of title and the
instruments proving the right
pledged shall be delivered to the
creditor, and if negotiable must be
endorsed $Art 2A%('" and
&. The description of the thing pledged
and the date must appear in a public
instrument to bind third persons, but
not for the validity of the contract
$Art 2A%8'.
'in(s:
1. Con(entional AColuntary created
by contract
2. Le"al created by operation of law
$eamples* Art. 7(8, 1B&1 and 1%1(
+,,'
NOTES:
The provisions of possession, care
and sale of the thing as well as on
the termination of the pledge
governing conventional pledges are
applicable to pledges created by
operation of law $Art 2121'
/nli!e, however, in conventional
pledge where the debtor is not
entitled to the ecess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
epenses, shall be delivered to the
debtor.
6n legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must ma!e a demand for the
payment of the amount due him"
otherwise he cannot eercise the
right of sale at public auction $Art
2122'
C&aracteristics:
CIVIL LAW COMMITTEE
202
1. Real
contract it is perfected by the
delivery of the thing pledged by the
debtor who is called the pled"or to
the creditor who is called the
pled"ee, or to a third person by
common agreement"
2. Accessor
y contract it has no independent
eistence of its own"
&. Unilater
al contract it creates an obligation
solely on the part of the creditor to
return the thing sub)ect thereof
upon the fulfilment of the principal
obligation" and
(. Su#sidiar
y contract the obligation incurred
does not arise until the fulfilment
of the principal obligation which is
secured.
Consi(eration in ple(1e:
6nsofar as the pledgor is concerned,
the cause is the principal obligation.
6f the pledgor is not the debtor, the
cause is the compensation stipulated
for the pledge or the mere liberality
of the pledgor.
E:tent of ple(1e: /nless stipulated
otherwise, pledge etends to the fruits,
interests or earnings of the thing.
Ri1&ts an( O0li1ations of a Ple(1or
Ri1&ts O0li1ations
1. To demand return in
case of reasonable
grounds to fear
destruction or
impairment of the thing
without the pledgee<s
fault, sub)ect to the
duty of replacement
$Art 21AB'
2. To bid and be
preferred at the public
auction $Art 211&'
&. To alienate the thing
pledged provided the
pledgee consents to the
sale $Art 2A%B'
(. To as! that the thing
pledged be deposited
$Arts 21A( N 21A8'
1. To advise the
pledgee of the
flaws of the thing
$Art 21A1'
2. +ot to demand
the return of the
thing until after
full payment of
the debt,
including interest
due thereon and
epenses incurred
for its
preservation $Art
21A7'
Ri1&ts of t&e Ple(1ee
DEE: ? S4C 4A
)
R
)
OPS
)
1. 1ption to (emand replacement or
immediate payment of the debt in case
of deception as to substance or #uality
$Art 21A%'
2. To sell at public auction in case of
reasonable grounds to fear destruction
or impairment of the thing without his
fault $Art 21A9'
&. To 0ring actions pertaining to the
owner $Art 21A&'
(. To choose which of several things
pledged shall be sold
7. To 0id at the public auction $Art
211&'
8. To appropriate the thing in case of
failure of the 2
nd
public auction $Art
2112'
B. To apply said fruits, interests or
earnings to the interest, if any, then to
the principal of the credit $Art 21A2'
9. To retain ecess value received in
the public sale $Art 2117'
%. To retain the thing until after full
payment of the debt $Art 2A%9'
1A. To be reimbursed for the epenses
made for the preservation of the thing
pledged $Art 2A%%'
11. To ob)ect to the alienation of the
thing
12. To possess the thing $Art 2A%9'
1&. To sell at public auction in case of
non-payment of debt at maturity $Art
2112'
To choose which of the several things
pledged shall be sold $Art 211%'
1(. 1ption to (emand replacement or
immediate payment of the debt in case
of deception as to substance or #uality
$Art 21A%'
reasonable grounds to fear destruction
or impairment of the thing without his
fault $Art 21A9'
18. To 0ring actions pertaining to the
owner $Art 21A&'
1B. To choose which of several things
pledged shall be sold
19. To 0id at the public auction $Art
211&'
1%. To appropriate the thing in case of
failure of the 2
nd
public auction $Art
2112'
2A. To apply said fruits, interests or
earnings to the interest, if any, then to
the principal of the credit $Art 21A2'
CIVIL LAW COMMITTEE
203
21. To retain ecess value received
in the public sale $Art 2117'
22. To retain the thing until after full
payment of the debt $Art 2A%9'
2&. To be reimbursed for the epenses
made for the preservation of the thing
pledged $Art 2A%%'
2(. To ob)ect to the alienation of the
thing
27. To possess the thing $Art 2A%9'
non-payment of debt at maturity $Art
2112'
2B. To choose which of the several
things pledged shall be sold $Art 211%'
O0li1ations of t&e Ple(1ee
DEE: CU?A
,
1. Ta!e care of the thing with the
diligence of a good father of a family
$Art 2A%%'
2. Not to use thing unless authori@ed or
by the owner or its preservation re#uires
its use $Art 21A('
&. Not to deposit the thing with a &
rd
person unless so stipulated $Art 21AA'
(. 0esponsibility for acts of agents and
employees as regards the thing $Art
21AA'
7. To advise pledgor of danger to the
thing $Art 21AB'
8. To advise pledgor of the result of the
public auction $Art 2118'
RI7BT O6 PLED7OR TO S+BSTIT+TE
TBIN7 PLED7ED (ART/-8<%
Re4uisites:
1. The pledgor has reasonable
grounds to fear the destruction
or impairment of the thin
pledged
2. There is no fault on the part of
the pledgee
&. The pledgor is offering in place
of the thing, another thing in
pledge which is of the same !ind
and #uality as the former
(. The pledge does not choose to
eercise his right to cause the
thing pledged to be sold at
public auction
NOTE: The pledgee<s right to have the
thing pledged sold at public sale granted
under the Article 21A9 is superior to that
given to the pledgor to substitute the
thing pledged under Article 21AB.
Pro&i0ition a1ainst (ou0le ple(1e
2roperty which has been lawfully
pledged to one creditor cannot be
pledged to another as long as the
first one subsists.
NOTE: 2ossession of a creditor of the
thing pledged is an essential re#uisite of
pledge.

E:tin1uis&ment of Ple(1e (CRAPS%
1. Jor the same causes as all other
obligations $Art 12&1'
2. R eturn of the thing pledged by the
pledgee to the pledgor $Art 211A'
&. Statement in 8ritin" by the
pledgee that he renounces or
abandons the pledge $Art 2111'
(. P ayment of the debt $Art 21A7'
7. S ale of thing pledged at public
auction $Art 2117'
NOTE: The possession by the debtor or
owner of the thing pledged subse#uent
to the perfection of the pledge gives rise
to a prima facie presumption that the
thing has been returned and, therefore,
that the pledge has been etinguished
but not the principal obligation itself.
$Art 211A'
Re4uirements for sale of t&in1 ple(1e(
at pu0lic auction: (Art --%
1. The debt is due and unpaid
2. Sale must be at a public auction
&. there must be notice to the pledgor
and owner, stating the amount due
(. Sale must be with the intervention
of a notary public
Effect of sale of t&e t&in1 ple(1e(: (Art
-,%
1. The sale of the thing pledged shall
etinguish the principal obligation,
whether or not the proceeds of the
sale are e#ual to the amount of the
principal obligation, interest and
epenses in a proper case
2. 6f the price of the sale is more than
the amount due the creditor, the
debtor is not entitled to the ecess
unless the contrary is provided
&. 6f the price of the sale is less, the
creditor is not entitled to recover
the deficiency even if there is a
stipulation to that effect
CIVIL LAW COMMITTEE
204
REAL ESTATE )ORT7A7E
(Articles --2*-"%
A contract whereby the debtor
secures to the creditor the
fulfilment of a principal obligation,
specially sub)ecting to such security
immovable property or real rights
over immovable property in case the
principal obligation is not complied
with at the time stipulated.
C&aracteristics of t&e contract:
*! Real
)! Accessory
,! Su#sidiary
(. Unilateral it creates only an
obligation on the part of the
creditor who must free the
property from the encumbrance
once the obligation is fulfilled.
NOTES:
As an accessory contract, its
consideration is that of the principal
contract from which it receives life.
A mortgage does not involve a
transfer, cession or conveyance of
property but only constitutes a lien
thereon. /ntil discharged, it follows
the property wherever it goes and
subsists notwithstanding changes of
ownership.
A mortgage gives the mortgagee no
right or claim to the possession of
the property, and therefore, a mere
mortgagee has no right to e)ect an
occupant of the property mortgaged
unless the mortgage should contain
some provision to that effect. The
only right of a mortgagee in case of
non-payment of a debt secured by
mortgage would be to foreclose the
mortgage and have the encumbered
property sold to satisfy the
outstanding indebtedness. 6f the
possession is transferred to the
mortgagee, it must not epressly be
for purpose of applying the fruits to
the interest then to the principal of
the credit, for then it would be an
antichresis.
6t is not an essential re#uisite that
the principal of the mortgage credit
bears interest, or that the interest
as compensation for the use of the
principal and en)oyment of its fruits
be in the form of a certain percent
thereof.
1. 6t can cover only immovable
property and alienable real rights
imposed upon immovables $Art
212('"
2. 6t must appear in a public instrument
$Art. 2127'" and
&. 0egistration in the registry of
property is necessary to bind third
persons, but not for the validity of
the contract $Art 2127'.
An order for foreclosure cannot
be refused on the ground that
the mortgage had not been
registered provided no innocent
third parties are involved.
NOTE: Dhere a mortgage is not valid or
false, the principal obligation which it
guarantees is not rendered null and void.
Dhat is lost only is the right to foreclose
the mortgage as a special remedy for
satisfying or settling the indebtedness
which is the principal obligation but the
mortgage deed remains as evidence or
proof of a personal obligation of the
debtor and the amount due to the
creditor may be enforced in an ordinary
personal action.
'in(s:
1. Coluntary agreed to by the parties
or constituted by the will of the
owner of the property on which it is
created
2. Le"al one re#uired by law to be
eecuted in favour of certain
persons
The persons in whose favour the
law establishes a mortgage have
no other right than to demand
the eecution and the recording
of the document in which the
mortgage is formali@ed $Art 2127
par 2'
&. E=uita#le one which, although
lac!ing the formalities of a
CIVIL LAW COMMITTEE
205
mortgage, shows the intention of the
parties to ma!e the property a
security for a debt
PLED7E REAL )ORT7A7E
1. ,onstituted on
movables
1. ,onstituted on
immovables
2. 2roperty is
delivered to pledgee
or by common
consent to a third
person
2. 5elivery is not
necessary
&. +ot valid against
third persons unless a
description of the
thing pledged and
date of pledge
appear in a public
instrument
&. +ot valid against
third persons unless
registered
E:tent of )ort1a1e:
Absent epress stipulation to the
contrary, the mortgage includes the
accessions, improvements, growing
fruits and income of the property
not yet received when the obligation
becomes due and to the amount of
the indemnity granted or owing to
the proprietor from the insurers of
the property mortgaged, or in virtue
of epropriation for public use $Art
212B'
O0;ect of )ort1a1e:
Juture property cannot be an ob)ect
of a contract of mortgage $Art
2A97:2;' =owever, a stipulation
sub)ecting to the mortgage lien,
properties $improvements' which the
mortgagor may subse#uently ac#uire
install, or use in connection with
real property already mortgaged
belonging to the mortgagor is valid
$2eople<s 4an! and Trust ,o. vs.
5ahican Fumber ,o., 2A S,0A 9('
Special Ri1&ts:
1. )ort1a1or * To alienate the
mortgaged property but the
mortgage shall remain attached to
the property.
NOTE: A stipulation forbidding the
owner from alienating the immovable
mortgage shall be void $Art 21&A' being
contrary to public policy inasmuch as the
transmission of property should not be
unduly impeded.
2. )ort1a1ee * To claim from a &
rd
person in possession of the
mortgaged property the payment of
the part of the credit secured by the
which said third person possesses
$Art 212%'
NOTE: 6t is necessary that prior demand
for payment must have been made on
the debtor and the latter failed to pay
$4P (s Concepcion ; Fi>os0 nc!0 ', P$il
27&'
6oreclosure
The remedy available to the
mortgagee by which he sub)ects the
mortgaged property to the
satisfaction of the obligation to
secure that for which the mortgage
was given
NOTES:
6t denotes the procedure adopted by
the mortgagee to terminate the
rights of the mortgagor on the
property and includes the sale itself
$?4P (s Gara"o6a0 +3 SCRA &&+'
Joreclosure is valid where the
debtor is in default in the payment
of his obligation $Go#onsen"0 1r! (s
CA0 )3& SCRA 3%)'
'in(s:
1. Gudicial ordinary action for
foreclosure under 0ule 89 of the
0ules of ,ourt
2. 3tra)udicial when mortgagee is
given a special power of attorney to
sell the mortgaged property by
public auction, under Act +o. &1&7
.u(icial
foreclosure
E:tra;u(icial
foreclosure
1. There is court
intervention
1. +o court
intervention
2. 5ecisions are
appealable
2. +ot appealable
because it is
immediately
eecutory
3. 1rder of court
cuts off all rights of
the parties
impleaded
3. Joreclosure does
not cut off right of
all parties involved
4. There is e#uity 4. There is right of
CIVIL LAW COMMITTEE
206
of redemption
ecept on ban!s
which provides for
a right of
redemption
redemption
5. 2eriod of
redemption starts
from the finality of
the )udgment until
order of
confirmation
5. 2eriod to redeem
start from date of
registration of
certificate of sale
6. +o need for a
special power of
attorney in the
contract of
mortgage
6. Special power of
attorney in favor of
mortgagee is
needed in the
contract
NOTES:
A foreclosure sale retroacts to the
date of registration of the mortgage
and that a person who ta!es a
mortgage in good faith and for
valuable consideration, the record
showing clear title to the mortgagor,
will be protected against e#uitable
claims on the title in favor of third
persons, of which he had no actual
or constructive notice $St! ?ominic
Corporation (s! AC *'* SCRA '%%'.
Dhere there is a right to redeem,
inade#uacy of price is not material
because the )udgment debtor may
reac#uire the property or else sell
his right to redeem and thus recover
any loss he claims to have suffered
by reason of the price obtained at
the auction sale and conse#uently
not sufficient to set aside the sale.
.ere inade#uacy of the price
obtained at the sheriff<s sale will not
be sufficient to set aside the sale
unless >the price is so inade#uate as
to shoc! the conscience of the
court? ta!ing into consideration the
peculiar circumstances attendant
thereto. $Sulit (s! CA0 )&+ SCRA 33*.
Should there remain a balance due
to the mortgagee after applying the
proceeds of the sale, the mortgagee
is entitled to recover the deficiency.
This rule applies both to )udicial and
etra-)udicial foreclosure real
mortgage.
The action to recover a deficiency
after foreclosure prescribes after 1A
years from the time the right of
action accrues $Arts 11(2 N 11(('.

Stipulation of upset price or GtipoH
6t is a stipulation in a mortgage of
real property of minimum price at
which the property shall be sold, to
become operative in the event of a
foreclosure sale at public auction. 6t
is null and void for the property
must be sold to the highest bidder.
2arties cannot, by agreement,
contravene the law and interfere
with the lawful procedure of the
courts $426 vs Lulo, &1 2hil (B8'
E:tra;u(icial foreclosure real property
(Act No/ "",%
The law covers only real estate
mortgages. 6t is intended merely to
regulate the etra)udicial sale of the
property mortgaged if and when the
mortgagee is given a special power
of epress authority to do so in the
deed itself or in a document
anneed thereto.
The authority to sell is not
etinguished by the death of the
mortgagor $or mortgagee' as it is an
essential and inseparable part of a
bilateral agreement $Pere6 (s PN40
*% SCRA +,,'.
+o sale can be legally made outside
the province in which the property
sold is situated" and in case the
place within said province in which
the sale is to be made is the sub)ect
of stipulation, such sale shall be
made in the said place in the
municipal building of the
municipality in which the property or
part thereof is situated.
Proce(ure for e:tra;u(icial foreclosure
of 0ot& real estate mort1a1e un(er Act
No/ "", an( c&attel mort1a1e un(er
Act No/ ,8@ -A!9! No! 22H*7H7'H70
1anuary *'0 )777.
1. Jiling of application before the
3ecutive Gudge through the ,ler! of
,ourt
2. ,ler! of ,ourt will eamine whether
the re#uirement of the law have
been complied with, that is, whether
the notice of sale has been posted
for not less than 2A days in at least
CIVIL LAW COMMITTEE
207
three $&' public places of the
municipality or city where the
property is situated, and if the same
is worth more than 2(AA.AA, that
such notice has been published once
a wee! for at least three $&'
consecutive wee!s in a newspaper of
general circulation in the city of
municipality
&. The certificate of sale must be
approved by the 3ecutive Gudge
(. Dhere the application concerns
etra)udicial foreclosure of real
mortgages in different locations
covering one indebtedness, only one
filing fee corresponding to such debt
shall be collected
7. The ,ler! of ,ourt shall issue
certificate of payment indicating the
amount of indebtedness, the filing
fees collected, the mortgages sought
to be foreclosed, the description of
the real estates and their respective
locations
8. The notice of sale shall be published
in a newspaper of general circulation
pursuant to Section 1, 25 +o. 1AB%
B. The application of shall be raffled
among all sheriffs
9. After the redemption period has
epired, the ,ler! of ,ourt shall
archive the records.
%. +o auction sale shall be held unless
there are at least two $2'
participating bidders, otherwise the
sale shall be postponed to another
date. 6f on the new date set forth
for the sale there shall not be at
least two bidders, the sale shall then
proceed. The names of the bidders
shall be reported to the Sheriff of
the +otary 2ublic, who conducted
the sale to the ,ler! of ,ourt before
the issuance of the certificate of
sale.
NOTES:
The .ortgagor and .ortgagee have
no right to waive the posting and
publication re#uirements under Act.
+o. &1&7. +otices are given to secure
bidders and prevent a sacrifice of
the property.

,learly, the statutory
re#uirements of posting and
publication are mandated, not for
the mortgagor<s benefit, but for the
public or third persons. Jailure to
comply with the statutory
re#uirements as to publication of
notice of auction sale constitutes a
)urisdictional defect which
invalidates the sale.Fac! of
republication of notice of
foreclosure sale made subse#uently
after the original date renders such
sale void -PN4 (s! Nepomuceno
Productions nc!0 G!R! No! *,23%2!
?ecem#er )%0 )77)..
Sec & of Act &1&7 does not re#uire
personal or any particular notice on
the mortgagor much less on his
successors-in-interest where there is
no contractual stipulation therefor.
=ence, unless re#uired in the
mortgage contract, the lac! of such
notice is not a ground to set aside a
foreclosure sale.
+either does Sec & re#uire posting of
notice of sale on the mortgage
property and the certificate of
posting is not re#uired, much less
considered indispensable, for the
validity of a foreclosure sale.
Re(emption
6t is the transaction by which the
mortgagor reac#uires or buys bac!
the property which may have passed
under the mortgage, or divests the
property of the lien which the
mortgage may have created.
NOTES:
A sale by the mortgagor to a third
party of the mortgaged property
during the period for redemption
transfers only the right to redeem
the property and the right to
possess, use and en)oy the same
during said period.
Dhere sale with assumption of
mortgage not registered and made
without the consent of the
mortgagee, the buyer, thereof, was
not validly substituted as debtor
and, hence, had no right to redeem
$4onne(ie (s! CA0 *)' SCRA *))'.
'in(s:
CIVIL LAW COMMITTEE
208
1. E=uity of Redemption right of
mortgagor to redeem the mortgaged
property after his default in the
performance of the conditions of the
mortgage within the %A-day period
from the date of the service of the
order of foreclosure or even
thereafter but before the
confirmation of the sale. Applies to
)udicial foreclosure of real mortgage
and chattel mortgage foreclosure.
NOTE: 0edemption of the ban!ing
institutions is allowed within one year
from confirmation of sale.
2. Ri"$t of Redemption right of
mortgagor to redeem the mortgaged
property within one year from the
date of registration of the certificate
of sale. Applies only to etra)udicial
foreclosure of real mortgage.
NOTE: The right of redemption, as long
as within the period prescribed, may be
eercised irrespective of whether or not
the mortgagee has subse#uently
conveyed the property to some other
party $Sta! "nacia Rural 4an50 nc! (s!
CA0 ),7 SCRA '*,'
Perio( of Re(emption
1. 3tra-)udicial $Act O&1&7'
a. natural person one year from
registration of the certificate of
sale with 0egistry of 5eeds
b. )uridical person same rule as
natural person
c. )uridical person $mortgagee is
ban!' - three months after
foreclosure or before
registration of certificate of
foreclosure which ever is earlier
$sec. (B, of -eneral 4an!ing
Faw'
2. Gudicial before confirmation of the
sale by the court
NOTE: Allowing a redemption after the
lapse of the statutory period, when the
buyer at the foreclosure sale does not
ob)ect but even consents to the
redemption, will uphold the policy of the
law which is to aid rather than defeat
the right of redemption. There is nothing
in the law which prevents a waiver of
the statutory period for redemption
$0amire@ vs ,A, 21% S,0A 7%9'.
Amount of t&e re(emption price:
1. .ortgagee is not a ban! $Act +o.
&1&7, in relation to Sec. 29, 0ule &%
of 0ules of ,ourt'
a. purchase price of the property
b. 1E interest per month on the
purchase price
c. taes paid and amount of
purchaser<s prior lien, if any,
with the same rate of interest
computed from the date of
registration of sale, up to the
time of redemption
2. .ortgagee is a ban! $-4F 2AAA'
a. amount due under the mortgage
deed
b. interest
c. cost and epenses
NOTE: 0edemption price in this
case is reduced by the income
received from the property
ANTICBRESIS (Articles
-"- *-"!%
A contract whereby the creditor
ac#uires the right to receive the
fruits of an immovable of the
debtor, with the obligation to apply
them to the payment of the interest,
if owing, and thereafter to the
principal of his credit $Art 21&2'
C&aracteristics
1. Accessory contract it secures the
performance of a principal obligation
2. :ormal contract it must be in a
specified form to be valid, i.e., >in
writing.? $Art 21&('
1. 6t can cover only the fruits of an
immovable property" $Art 21&2'
2. 5elivery of the immovable is
necessary for the creditor to receive
CIVIL LAW COMMITTEE
209
the fruits and not that the contract
shall be binding"
&. Amount of principal and interest
must be specified in writing $Art.
21&('" and
(. 3press agreement that debtor will
give possession of the property to
creditor and that the latter will
apply the fruits to the interest, if
any, then to the principal of his
credit. $Art 21&2'
NOTE: The obligation to pay interest is
not of the essence of the contract of
antichresis, there being nothing in the
,ode to show that antichresis is only
applicable to securing the payment of
interest-bearing loans. 1n the contrary,
antichresis is susceptible of guaranteeing
all !inds of obligations, pure or
conditional
Antic&resis Ple(1e
1. 0efers to real
property
1. 0efers to personal
property
2. 2erfected by mere
consent
2. 2erfected by
delivery of the thing
pledged
&. ,onsensual contract &. 0eal ,ontract
Antic&resis Real )ort1a1e
1. 2roperty is
delivered to creditor
1. 5ebtor usually
retains possession of
the property
2. ,reditor ac#uires
only the right to
receive the fruits of
the property, hence,
it does not produce a
real right
2. ,reditor does not
have any right to
receive the fruits"
but the mortgage
creates a real right
over the property
&. The creditor,
unless there is
stipulation to the
contrary, is obliged
to pay the taes and
charges upon the
estate
&. The creditor has
no such obligation
(. 6t is epressly
stipulated that the
creditor given
possession of the
property shall apply
all the fruits thereof
to the payment of
interest, if owing,
and thereafter to the
(. There is no such
obligation on part of
mortgagee
principal
Sub)ect matter of both is real property
O0li1ations of antic&retic cre(itor:
1 To pay taes and charges on the
estate, including necessary epenses
NOTE: ,reditor may avoid said
obligation by*
a. compelling debtor to
reac#uire en)oyment of the
property or
b. by stipulation to the
contrary
2 To apply all the fruits, after
receiving them, to the payment of
interest, if owing, and thereafter to
the principal
& To render an account of the fruits to
the debtor
( To bear the epenses necessary for
its preservation and repair
Reme(ies of cre(itor in case of non*
payment of (e0t
1. 4ring an action for specific
performance" or
2. 2etition for the sale of the real
property as in a foreclosure of
mortgages under 0ule 89 of the
0ules of ,ourt.$Art 21&B'
NOTES:
The parties, however, may agree on
an etra)udicial foreclosure in the
same manner as they are allowed in
contracts of mortgage and pledge
$Ta(era (s! El Fo"ar :ilipino0 nc!0
&+ P$il %*)'.
A stipulation authori@ing the
antichretic creditor to appropriate
the property upon the non-payment
of the debt within the agreed period
is void $Art 2A99'.
CBATTEL )ORT7A7E
(Articles -28*-2%
A contract by virtue of which
personal property is recorded in the
,hattel .ortgage 0egister as a
security for the performance of an
obligation $Art 21(A'.
C&aracteristics
CIVIL LAW COMMITTEE
210
1. Accessory contract it is for the
purpose of securing the performance
of a principal obligation
2. :ormal contract registration in the
,hattel .ortgage 0egister is
indispensable for its validity
&. Unilateral contract it produces
only obligations on the part of the
creditor to free the thing from the
encumbrance on fulfilment of the
obligation.
1. 6t can cover only personal or
movable property in general"
however, the parties may treat as
personal property that which by its
nature would be real property"
2. 0egistration of the mortgage with
the ,hattel .ortgage 0egister where
the mortgagor resides" if property is
located in a different province,
registration in both provinces
re#uired"
&. 5escription of the property as would
enable the parties or other persons
to identify the same after
reasonable investigation and in#uiry"
and
(. Accompanied by an affida(it of "ood
fait$ to bind third persons, but not
for the validity of the contract.
7. 6t can cover only obligations eisting
at the time the mortgage is
constituted.
NOTE: A mortgage containing a
stipulation in regard to future
advances in the credit will ta!e
effect only from the date the same
are made and not from the date of
the mortgage $1aca (s ?a(ao Lum#er
Co!0 **, SCRA *7%'
Effect of re1istration: Creates a real
ri"$t
The registration of the chattel
mortgage is an effective and binding
notice to other creditors of its
eistence and creates a real right or
a lien which, being recorded, follows
the chattel wherever it goes. The
registration gives the mortgagee
symbolical possession $Nort$ern
9otors0 nc! (s! Co=uia0 &+ SCRA
,%3'.
Effect of failure to re1ister c&attel
mort1a1e in t&e c&attel mort1a1e
re1istry
Article 21(A ma!es the recording in
the ,hattel .ortgage 0egister an
essential re#uisite but if the
instrument is not recorded, the
mortgage is ne(ert$eless #indin"
#et8een t$e parties. 4ut the person
in whose favour the law establishes a
mortgage has no other right than to
demand the eecution and the
recording of the document.
C&attel )ort1a1e Ple(1e
1. 5elivery of the
personal property
to the mortgage is
not necessary
1. 5elivery of the
thing pledged is
necessary
2. registration in
the ,hattel
.ortgage 0egistry
is necessary for its
validity
2. registration not
necessary to be
valid
&. 6f property is
foreclosed, the
e/cess over the
amount due goes to
the debtor
&. 5ebtor is not
entitled to e/cess
unless otherwise
agreed or ecept in
case of legal
pledge
(. 6f there is
deficiency after
foreclosure,
creditor is entitled
to recover the
deficiency from the
debtor, ecept
under Art. 1(9(
(. 6f there is
deficiency, creditor
is not entitled to
recover
notwithstanding
any stipulation to
the contrary
Sub)ect matter of both is movable
property
Affi(a?it of 7oo( 6ait&
1ath in a contract of chattel
mortgage wherein the parties
Pseverally swear that the mortgage is
made for the purpose of securing the
obligation specified in the conditions
thereof and for no other purposes
and that the same is a )ust and valid
obligation and one not entered into
for the purpose of fraud.? $Sec. 7,
,hattel .ortgage Faw'
CIVIL LAW COMMITTEE
211
Effect of a0sence
The special affidavit is re#uired only
for the purpose of transforming an
already valid mortgage into
>preferred mortgage.? Thus, it is
not necessary for the validity of the
chattel mortgage itself but only to
give it a preferred status. 6n other
words, its absence vitiates the
mortgage only as against third
persons without notice li!e creditors
and subse#uent encumbrancers.
6oreclosure of C&attel )ort1a1e
NOTES:
Joreclosure sale in chattel mortgage
is by public auction under Act +o.
17A9, but the parties may stipulate
that it be by private sale.
The mortgagee may, after thirty $&A'
days from the time of the condition
bro!en, cause the mortgaged
property to be sold at public auction
by a public officer. The &A-day
period is also a grace period for the
mortgagor to discharge the mortgage
obligation. After the sale of the
chattel at public auction, the right
of redemption is no longer available
to the mortgagor $Ca#ral (s!
E(an"elista0 )+ SCRA *777'.
Application of procee( of sale:
1. ,osts and epenses of !eeping
and sale
2. 2ayment of the obligation
secured by the mortgage
&. ,laims of persons holding
subse#uent mortgages in their
order
(. The balance, if any, shall be
paid to the mortgagor or person
holding under him
NOTES:
The creditor may maintain an action
for the deficiency, ecept if the
chattel mortgage is constituted as
security for the purchase of personal
property paya#le in instalments
$Art. 1(9('.
The action for deficiency may be
brought within ten $1A' years from
the time the cause of action accrues
$Arts 11(1 and 11(2'.
1nly e#uity of redemption is
available to the mortgagor" the
latter can no longer redeem after
the confirmation of the foreclosure
sale.
Ri1&t of re(emption
Dhen the condition of a chattel
mortgage is bro!en the following
may redeem*
a' mortgagor"
b' person holding a subse#uent
mortgage" or
c' subse#uent attaching creditor.
An attaching creditor who so
redeems shall be subrogated to the
rights of the mortgagee and entitled
to foreclose the mortgage in the
same manner that the mortgagee
could foreclose it.
The redemption is made by paying or
delivering to the mortgagee the
amount due on such mortgage and
the costs, and epenses incurred by
such breach of condition before the
sale thereof $Sec 1&, Act +o. 17A9'.
Ri1&t to possession of foreclose(
property
1. 0eal mortgage After the
redemption period has epired, the
purchaser of the property has the
right to a conveyance and to be
placed in possession thereof.
NOTES:
2urchaser is not obliged to bring
a separate suit for possession.
=e must invo!e the aid of the
courts and as! for a D06T 1J
21SS3SS61+.
Section B of Act +o. &1&7 allows
the purchaser to ta!e possession
of the foreclosed property during
the period of redemption upon
filing of an e parte application
and approval of a bond.
2. ,hattel mortgage Dhen default
occurs and the creditor desires to
foreclose, the creditor has the right
to ta!e the property as a preliminary
step for its sale.
CIVIL LAW COMMITTEE
212
NOTE: Dhere the debtor refuses to
yield the property, the creditor<s
remedy is to institute an action
either to effect )udicial foreclosure
directly or to secure possession
$032F3H6+' as a preliminary to the
sale contemplated in Section 1( or
Act. +o. 17A9
CONC+RRENCE AND PRE6ERENCE O6
CREDITS (Articles --"$ # --,%
Concurrence of Cre(its
2ossession by two or more creditors
of e#ual rights or privileges over the
same property or all of the property
of the debtor
Preference of Cre(its
0ight held by a creditor to be
preferred in the payment of his
claim above others out of the
debtor<s assets.
NOTES:
The rules on preference of credits
apply only when two or more
creditors have separate and distinct
claims against the same debtor who
has insufficient property!
2reference creates no lien on
property, and, therefore, gives no
interest in property, specific or
general, to the preferred creditor
but a preference in application of
the proceeds after the sale. $9olina
(s! Somes0 ,* P$il! %&'
The preferential right of credit
attains significance only after the
properties of the debtor have been
inventoried and li#uidated, and the
claims held by his various creditors
have been established. $?4P (s!
NLRC0 *+, SCRA ,)+'
Preference of
Cre(it
Lien
Applies only to
claims which do
not attach to
specific
properties
,reates a charge
on a particular
property
Lia0ility of (e0torCs property for &is
o0li1ations
GENERAL RULE: 5ebtor is liable with
all his property, present and future, for
the fulfilment of his obligations. $Art
22&8'
EXE9PT PROPERTE:
1. 2resent property those
provided under Arts. 177 and 2A7
of the Jamily ,ode, Sec. 1&,
0ule &% of the 0ules of ,ourt,
and Sec. 119 of the 2ublic Fand
Act
2. Juture property a debtor who
obtains a discharge from his
debts on account of his
insolvency, is not liable for the
unsatisfied claims of his
creditors with said property
sub)ect to certain eceptions
epressly provided by law. $Secs.
89, 8%, The 6nsolvency Faw :Act
+o. 1%78;'
&. 2roperty under legal custody and
those owned by municipal
corporations necessary for
governmental purposes
7eneral Cate1ories of Cre(it:
1. Specia$ Preferre Creits - those
listed in Arts. 22(1 and 22(2 shall be
considered as mortgages and pledges of
real or personal property or liens $Art.
22(&'. =ence, they are not included in
the insolvent debtorIs assets.
NOTES:
Arts. 22(1 and 22(2 do not give the
order of preference or priority of
payment. They merely enumerate
the credits which en)oy preference
with respect to specific movables or
immovables. Dith respect to the
same specific movables or
immovables, creditors, with t$e
e/ception of t$e State -No! *.,
merely concur.
They only find application when
there is a concurrence of credits,
i.e., when the same specific
property of the debtor is sub)ected
to the claims of several creditors and
the value of such property is
insufficient to pay in full all the
creditors. 6n such a situation, the
#uestion of preference will arise.
CIVIL LAW COMMITTEE
213
Article 22(2 ma!es no distinction
between registered and unregistered
vendor<s lien $+o. 2'. =ence, any
lien of that !ind en)oys the
preferred credit status. /nli!e the
unpaid price of real property sold,
mortgage credits $+o. 7', in order to
be given preference, should be
recorded in the 0egistry of 2roperty.
4ut a recorded mortgage credit is
superior to an unrecorded unpaid
vendor<s lien $?e 4arretto (s!
Cillanue(a0 * SCRA )++'
The priority rule applies to credits
annotated in the 0egistry of
2roperty. As to credits mentioned in
+o. B of Article 22(2, there is
preference among the attachments
or eecutions according to the order
of the time they were levied upon
the property. The pro rata rule in
Article 22(% does not apply"
otherwise, the result would be
absurd. The preference of a credit
annotated by an attachment or
eecution could be defeated by
simply obtaining a writ of
attachment or eecution, no matter
how much later $9ana#at (s La"una
:ederation of :acomas0 nc!0 *2
SCRA &)*'.
The last paragraph of Article
22(1 applies only when the right of
ownership in such property continues
in the debtor, and, therefore, it is
not applicable to cases where the
debtor has parted with his ownership
therein, as where he has sold the
property $Pe@a (s! 9itc$ell0 2 P$il
'+%'
2. Orinar) Preferre Creits - those
listed in Art. 22(( as amended by
Art. 11A of the Fabor ,ode.
NOTES:
The provision not only enumerates
the preferred credits with respect to
other property, real and personal, of
the debtor, but also gives their
order of preference >in the order
named?.
6n contrast with Articles 22(1 and
22(2, Article 22(( creates no liens
on determinate property which
follow such property. Dhat Article
22(( creates are simply rights in
favour of certain creditors to have
the cash and other assets of the
insolvent applied in a certain
se#uence or order of priority.
Article 22((, particularly par $1('
item $1' thereof, is not applicable to
obligations of the State as it is a
recogni@ed doctrine that the State is
always solvent. 6t is inconceivable
for the State to voluntarily initiate
insolvency or general li#uidation
proceedings or to be sub)ected to
such proceedings under its own laws.
&. Co''on Creits those listed
under Art. 22(7, which shall be paid
pro rata regardless of dates.
NOTE: 1rdinary 2referred and ,ommon
,redits cover only >free property? of the
debtor, or those not sub)ected to Special
2referred ,redit.
Effects of Article 8 of La0or Co(e to
Art --22:
1. 0emoved the one-year limitation
found in +o. 2 of Art. 22((
2. .oving up the claims for unpaid
wages $and other monetary claims'
of laborers or wor!ers of insolvent
from second priority to first priority
in the order of preference
established by Art. 22((
NOTES:
6n case of ban!ruptcy or li#uidation
of the employer<s business, the
unpaid wages and other monetary
claims of the employees shall be
given first preference and shall be
paid in full before the claims of the
government and other creditors may
be paid. The terms, >declaration?
of ban!ruptcy, or >)udicial?
li#uidation have been eliminated,
nevertheless, according to the S,,
ban!ruptcy or li#uidation
proceedings are still necessary for
the operation of the preference
accorded to wor!ers under Art. 11A
of the Fabor ,ode. $?4P (s! NLRC
*+, SCRA ,)+I RA No! &%*' Sec *7'
CIVIL LAW COMMITTEE
214
6n case of rehabilitation, the
preference of credit granted to
employees under Art 11A of the
Fabor ,ode is not applicable
$Ru##er8orld JP$ils!K (s CA0 ,7'
SCRA %))'.
Refectionary Cre(it
6ndebtedness incurred in the repair
or reconstruction of something
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly eisted.
ORDER O6 PRE6ERENCE O6 CREDITS
Arts. 22(1 and 22(2, )ointly with
Arts. 22(8 to 22(% establish a t8oH
tier order of preference*
/ 0irst tier includes taes, duties
and fees due on specific movable or
immovable property"
-/ Secon tier all other special
preferred $non-ta' credits shall be
satisfied pro-rata, out of any
residual value of the specific
property to which such credits
relate.
NOTES:
The pro-rata rule does not apply to
credits annotated in the 0egistry of
2roperty by virtue of a )udicial
order, by attachments and
eecutions, which are preferred as
to >later credits?. 6n satisfying
several credits annotated by
attachments or eecutions, the rule
is still preference according to the
priority of the credits in the order of
time.
6n order to ma!e the pro rating
provided in Art 22(% fully effective,
the preferred creditors enumerated
in +os. 2 to 1( of Art 22(2 must
necessarily be convened, and the
import of their claims ascertained.
There must be first some proceeding
where the claims of all the preferred
creditors may be bindingly
ad)udicated, e.g. insolvency,
settlement of decedent<s estate, or
other li#uidation proceedings ecept
where there are not more than one
creditor.
,redits which do not en)oy any
preference with respect to specific
property because they are not
among those mentioned in Arts. 22(1
and 22(2 and those while included in
said articles are unpaid because the
value of the property to which the
preference refers is less than the
preferred credit or credits, shall be
satisfied in the order established in
Art. 22(( with reference to other
real andCor personal property.
,ommon credits or those which do
not fall under Arts. 22(1, 22(2, and
22(( do not en)oy any preference
and shall be paid pro rata regardless
CIVIL LAW COMMITTEE
215
of dates.
CIVIL LAW COMMITTEE

Memory Aid for Credit Transactions in Civil Law

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Memory Aid for Credit Transactions in Civil Law

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San Beda College of Law

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