UP 2010 Civil Law Credit Transactions .P
UP 2010 Civil Law Credit Transactions .P
UP 2010 Civil Law Credit Transactions .P
CREDIT TRANSACTIONS
Table of Contents
Chapter I. General Principles ...................... 307 Chapter VIII. Concurrence and Preference of
I. Types of Credit Transactions ............ 307 Credits ........................................................... 338
II. Security ............................................. 307 I. General Provisions............................ 338
III. Bailment ............................................ 307 II. Classification of Credits .................... 338
Chapter II. Loan (Arts. 1933-1961, CC) 309 III. Preference of Credits ........................ 338
CREDIT TRANSACTIONS
III. Characteristics of Deposit ................. 314
IV. Deposit Distinguished From Mutuum
and Commodatum ..................................... 314
V. Obligations of the Depositary............ 314
VI. Obligations of the Depositor.............. 317
VII. Extinguishment of Deposit (Art. 1995)
317
VIII. Necessary Deposit........................ 317
IX. Judicial Deposit ................................. 318
Chapter IV. Guaranty ................................... 319
I. Definition ...........................................
319
II. Characteristics .................................. 319
III. Classification ..................................... 319
IV. Rules Governing Guaranty ............... 319
V. Guaranty Distinguished from Others.322
VI. The Guarantor (Arts. 2056-2057)......322
VII. Effects of Guaranty..........................322
VIII. Extinguishment of Guaranty...........325
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Viktor Fontanilla
Rusell Aragones
Romualdo Menzon Jr. SECURITY - something given, deposited or
Rania Joya
CREDIT TRANSACTIONS
PARTIES IN BAILMENT
1. Bailor – the giver, the party who delivers
possession/custody of the thing bailed
2. Bailee – the recipient, the party who
receives the possession/custody of the thing
delivered
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piece of work, Art.1713)
c. Hire for carriage of goods – for goods
delivered to be carried from place to
place by a common carrier (Art.1732) or
private person
d. Hire of custody – for storage of goods
delivered (Arts.1507-1520, Warehouse
Receipts Law)
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simply called a loan or mutuum. (Art.1933) (Art 418)
GENERAL RULE: If the subject of the contract
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Real contract EXCEPTION: Consumable goods may be the
1. delivery is essential for perfection of the
subject of commodatum if the purpose of the
contract of loan.
contract is not the consumption of the object, as
2. An accepted promise to loan, is
when it is merely for exhibition. (Art.1936)
nevertheless binding on the parties, it being
a consensual contract. [Producer’s v. CA, 397 SCRA 651]
Unilateral contract
1. creates obligations on only one party, i.e., IV. Commodatum
the borrower
2. In a contract of loan, the cause is, as to the 2 KINDS OF COMMODATUM
borrower, the acquisition of the thing, and 1. Ordinary commodatum - See Art.1933
as to the lender, the right to demand its 2. Precarium – one whereby the bailor may
return or its equivalent. (Monte de Piedad v. demand the thing loaned at will; exists in
Javier) cases where:
a. neither the duration of the contract nor
III. Kinds of Loan: In General the use to which the thing loaned
should be devoted has been stipulated
Commodatum Mutuum b. if the use of the thing is merely
Ordinarily involves Involves money or tolerated by the owner (Art 1947)
something not other consumable thing
consumable* GENERAL RULE: In a commodatum, the right
(Art.1936) to use is limited to the thing loaned, and not to
its fruits
Ownership of the thing Ownership is
loaned is retained by transferred to the EXCEPTION: When there is stipulation to the
lender (Art.1933) borrower
contrary (Art.1940). In cases where there is
Essentially gratuitous Maybe gratuitous or it
(Art.1933) maybe onerous, i.e. such a stipulation, enjoyment of the fruits must
with stipulated interest
CIVIL LAW REVIEWER Chapter II. LOAN
be incidental to the use of the thing itself. 6. Solidary obligation where there are 2 or
Otherwise, if the use of the fruits is the main more bailees to whom a thing was loaned in
cause, the contract may be one of usufruct. the same contract (Art.1945)
(Art.562) _______
What is the effect of an accepted promise to GENERAL RULE: Bailee is not liable for loss or
deliver by way of commodatum or mutuum? damage due to a fortuitous event (Art.1174),
It is binding upon the parties, but the since the bailor retains ownership of the thing
contract of loan shall not be perfected until
delivery of the contract. (Art.1934) EXCEPTION: Bailee is liable even for loss due
to a fortuitous event when: (Art 1942)
Who may be bailor in commodatum? 1. He devotes the thing to any purpose
1. Anyone. The bailor in commodatum need different from that for which it was loaned
not be the owner of the thing loaned. 2. He keeps it longer than the period
(Art.1938) stipulated, or after the accomplishment of
2. But the bailee himself may not lend nor the use for which the commodatum has
lease the thing loaned to him to a third been constituted
person (Art 1939(2)) 3. The thing loaned has been delivered with
_______ appraisal of its value, unless there is
stipulation exempting the bailee from
GENERAL RULE: Commodatum is purely responsibility in case of a fortuitous event
personal in character (Art.1939) such that: 4. He lends or leases the thing to a third
1. Death of either party extinguishes the person who is a not a member of his
contract household
2. Bailee can neither lend nor lease the thing 5. Being able to save either the thing borrowed 310
lent to him to a third person or his own thing, he chose to save the latter.
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_______
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EXCEPTION: Members of the bailee’s GENERAL RULE: Bailee is liable for
household may make use of the thing loaned
deterioration of thing loaned.
EXCEPTION: The deterioration of the thing is
EXCEPTION TO EXCEPTION: Bailee’s
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household may NOT use it when: due only to the use thereof and without his fault
1. There is stipulation to the contrary, or (Art.1943)
2. The nature of the thing forbids such use _______
GENERAL RULE: Bailee has no right of
V. Obligations of the Bailee in retention of the thing loaned, on the ground that
the bailor owes him something.
Commodatum
EXCEPTION: Bailee has a right of retention for
OBLIGATIONS OF THE BAILEE
damages for known hidden flaws mentioned in
1. Obligation to pay for the ordinary expenses Art 1951. (Art.1944)
for the use and preservation of the thing
loaned (Art.1941) REQUISITES FOR THE APPLICATION OF
2. Obligation to take good care of the thing with ART.1951
the diligence of a good father of a family 1. There is a flaw or defect in the thing loaned
(Art.1163)
2. The flaw or defect is hidden
3. Liability for loss, even if loss through
3. The bailor is aware thereof
fortuitous event, in certain circumstances 4. He does not advise the bailee of the same
(Art.1942)
5. The bailee suffers damages by reason of
4. Liability for deterioration of thing loaned,
said flaw or defect
except under certain circumstances
(Art.1943)
5. Obligation to return the thing upon expiration
of term or upon demand in case of urgent
need
CIVIL LAW REVIEWER Chapter II. LOAN
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Imputing to the bailor any criminal other fungible things; in barter, non-fungible
(non-consumable) things.
given in return for what has been receiv ed.
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under his authority 3. Mutuum may be gratuitous and
Undue refusal to give the bailor
support when the bailee is legally or commodatum is always gratuitous. Barter
morally bound to on the other hand is an onerous contract. It
is really a mutual sale.
[NOTE: Article 765 is applicable, because
like donation, commodatum is essentially [NOTE: BARTER – contract where by one of
gratuitous. (Art.1933, par.2)] the parties binds himself to give one thing in
consideration of the other’s promise to give
2. To refund extraordinary expenses for the another thing. (Art.1968)]
preservation of the thing loaned provided
bailor is notified before the expenses were CONSUMABLE AND FUNGIBLE
incurred. (Art.1949) DISTINGUISHED
EXCEPTION: Urgent need hence no Whether a thing is consumable or not
notice is necessary. depends on its nature and whether it is
fungible or not depends on the intention of
3. To refund 50% of the extraordinary the parties.
expenses arising from actual use of bailee of Example: Wine is consumable by nature, but
the thing loaned (Art.1949) it may be non-fungible if the intention is
EXCEPTION: Contrary stipulation merely for display or exhibition.
4. To pay damages to bailee for known hidden [NOTE: Fixed, savings, and current deposits of
flaws in the thing loaned. money in banks and similar institutions shall be
governed by the provisions concerning simple
[NOTE: Bailor has no right of abandonment; loan. (Art.1980)]
he cannot exempt himself from payment of
expenses to bailee by abandoning the thing to
the latter. (art. 1952)]
CIVIL LAW REVIEWER Chapter II. LOAN
TRANSACTION
to that effect (Art.1959) to have been reasonably ascertained). The
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2. Upon judicial demand. HOWEVER, debtor is actual base for the computation of legal
not liable to pay compound interest even interest shall, in any case, be on the amount
after judicial demand when there is no finally adjudged.
stipulation for payment of interest. (Art.2212)
3. When the judgment of the court awarding a
REQUISITES FOR INTEREST TO BE
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sum of money becomes final and executory,
CHARGEABLE
the rate of legal interest, whether the case
above, shall be 12% per annum from such
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borrowers or lead to a hemorrhaging of their
assets.”
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Judicial – takes place when an attachment or subject matter
seizure of property in litigation is ordered Depositor can demand Lender must wait until
(Arts.2005-2008) return of subject matter expiration of the period
at will granted to the debtor
Extrajudicial (Art. 1967) Both movable and Only money or any
immovable may be the other fungible thing
1. Voluntary- delivery is made by the will of
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object may be the object
the depositor or by two or more persons
each of whom believes himself entitled to DEPOSIT AND COMMODATUM
the thing deposited; DISTINGUISHED
2. Necessary- made in compliance with a legal
obligation, or on the occasion of any DEPOSIT COMMODATUM
calamity, or by travelers in hotels and inns Principal purpose is Principal purpose is
(Arts.1996-2004) or by travelers with safekeeping transfer of use
common carriers (Arts.1734-1735) May be gratuitous Always and essentially
gratuitous
III. Characteristics of Deposit In extrajudicial deposit, Both movable and
only movable immovable may be the
(corporeal) things may object.
Characteristics— be the object. But for
1. Real Contract because it is perfected by the judicial deposits, object
delivery of the subject matter. may be movable or
2. Principal purpose of the contract of deposit immovable.
is the safekeeping of the thing delivered.
3. If gratuitous, it is unilateral because only the V. Obligations of the Depositary
depository has an obligation. If onerous, it is
bilateral.
OBLIGATIONS
The principal purpose is safekeeping of the 1. Depositary is obliged to keep the thing
thing delivered, so that if it is only an accessory safely and to return it when required, even
or secondary obligation, deposit is not though a specified term may have been
constituted but some other contract. stipulated in the contract. (Art.1972)
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is not responsible for loss of thing without use the same (Art.1979)
negligence of the third person with whom he 9. Where thing deposited is delivered
was allowed to deposit the thing if such third
person is not “manifestly careless or unfit.” closed and sealed, depositary has
obligation to:
4. Depositary is obliged not to change way a. Return the thing deposited when
of deposit. He may change the way or
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delivered closed and sealed
manner of deposit only if there are b. Pay for damages should seal or lock be
circumstances indicating that the depositor broken through his fault, which is
would consent to the change and notice is presumed unless proven otherwise
given to depositor. HOWEVER, notice is not c. Keep secret of the deposit when the
required if delay will cause danger. seal or lock is broken, with or without his
(Art.1974) fault (Art.1982)
10. Depositary is obliged to return the
5. If thing deposited should earn interest, the
depositary is under obligation (1) to collect products, accessories and accessions of
the interest as it becomes due and (2) to
the thing deposited. (Art.1983)
take such steps as may be necessary to
preserve its value and the rights 11. Depositary is obliged to pay interest on
corresponding to it. The depositary is bound
sums converted to personal use.
to collect not only the interest but also the
capital itself when due. (Art.1975) (Art.1983)
12. Depositary who receives the thing in
6. Depositary has the obligation not to
commingle things deposited if so deposit cannot require that the depositor
stipulated, even if they are of the same kind prove his ownership over the thing (Art.
and quality. (Article 1976) 1984)
13. Where the thing appears to be stolen and
GENERAL RULE: The depositary is
permitted to commingle grain or other the depositary knows the true owner, he
articles of the same kind and quality. must advise the true owner about the
EXCEPTION: When there is a stipulation to deposit. If the owner, in spite of such
the contrary information, does not claim it within the
period of one month, the depositary is
CIVIL LAW REVIEWER Chapter III. DEPOSIT
relieved from liability. (Art.1984, pars.2 and there was no malice on the part of the
3) If the depositary has reasonable grounds depositary
to believe that the thing has not been
lawfully acquired by the depositor, he may TIME OF RETURN (Art.1988)
return the same. (Art.1984, par.4) 1. GENERAL RULE: The thing deposited must
be returned to the depositor upon demand,
RIGHT OF TWO OR MORE DEPOSITORS even though a specified period or time for
(Art.1985) such return may have been fixed.
1. Where the thing is divisible and depositors 2. EXCEPTIONS:
not solidary – each one of the depositors a. When the thing is judicially attached
can demand only his share proportionate while in the depositary’s possession
thereto. b. When notified of the opposition of a third
2. Where the thing is not divisible or the person to the return or the removal of
obligation is solidary – rules on active the thing deposited
solidarity must apply
a. Each one of the depositors may do RIGHT OF THE DEPOSITARY TO RETURN
whatever may be useful to the others THE THING (Art.1989)
but not anything which may be 1. GENERAL RULE: The depositary may
prejudicial to the latter. (Art.1212) return the thing deposited notwithstanding
b. The depositary may return the thing to that a period has been fixed for the deposit
any one of the solidary depositors if:
UNLESS a demand for its return has a. The deposit is gratuitous;
been made by one of them in which b. The reason is justifiable.
case delivery should be made to him.
[NOTE: If the depositor refuses to receive 316
(Art. 1214)
3. Where there is a stipulation of return to one the thing, the depositary may deposit the
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thing at the disposal of the judicial authority.]
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of the depositors, the depositary is bound to
return it only to the person designated 2. EXCEPTION: When the deposit is for a
although he has not made any demand for
its return. valuable consideration, the depositary has
no right to return the thing before the
PERSONS TO WHOM RETURN MUST BE expiration of the time designated even if he
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MADE should sufferinconvenience as a
1. The depositary is obliged to return the thing
Is the depositary liable for loss by force
consequence.
deposited, when required, to:
a. The depositor;
b. To his heirs or successors; or majeure or government order?
c. To the person who may have been The depositary is not liable in cases of loss
designated in the contract. (Art.1972) by force majeure or by government order.
2. If the depositor was incapacitated at the time HOWEVER, he has the duty to deliver to the
of making the deposit, the property must be depositor money or another thing he
returned to: receives in place of the thing. (Art.1990)
a. His guardian or administrator;
b. To the person who made the deposit; ALIENATION IN GOOD FAITH BY
c. To the depositor himself should he DEPOSITARY’S HEIR
acquire capacity. (Art.1970) When alienation is done in GOOD FAITH, the
3. Even if the depositor had capacity at the heir is obliged to:
time of making the deposit but he 1. Return the value of the thing deposited
subsequently loses his capacity during the 2. Assign the right to collect from the buyer.
deposit, the thing must be returned to his
legal representative. (Art.1986) NOTE: The heir does not need to pay the
actual price of the thing deposited.
PLACE OF RETURN (Art.1987)
1. At the place agreed upon by the parties When alienation is done in BAD FAITH, the heir
2. In the absence of stipulation, at the place must:
where the thing deposited might be even if it 1. Be liable for damages;
should not be the same place where the 2. Pay the actual price of the thing deposited.
original deposit was made, provided that
CIVIL LAW REVIEWER Chapter III. DEPOSIT
STRANSACTION
3. Depositor notified the depositary of such the term “baggage” or articles such as
dangerous character; clothing as are ordinarily used by travelers
4. Depositary was aware of the danger without 2. Include those lost or damages in hotel
advice from the depositor. annexes such as vehicles in the hotel’s
garage.
VII. Extinguishment of Deposit (Art. 1995) 2. In the following cases, the hotel- keeper is
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liable
A deposit is extinguished: WHEN HOTEL-KEEPER LIABLE
1. Upon the loss or deterioration of the thing
deposited; Regardless of the amount of care exercised -
2. Upon the death of the depositary, ONLY in 1. The loss or injury to personal property is
gratuitous deposits; caused by his servants or employees as well
3. By other modes provided in the Civil Code, as by strangers (Art. 2000).
e.g. novation, merger, etc. (See Art.1231) 2. The loss is caused by the act of a thief or
robber done without the use of arms and
EFFECT OF DEATH OF DEPOSITOR OR irresistible force. (Art. 2001)
DEPOSITARY (Art. 1995)
1. Where deposit gratuitous – death of either of WHEN HOTEL-KEEPER NOT LIABLE
the depositor or depositary extinguishes the 1. The loss or injury is cause by force majeure,
deposit (personal in nature). By the word like flood, fire, (Art.2000) theft or robbery by
“extinguished,” the law really means that the a stranger - not the hotel-keeper’s servant or
depositary is not obliged to continue with the employee with the use of firearms or
contract of deposit. irresistible force (Art.2001)
2. (2) Where deposit for compensation – not
extinguished by the death of either party. EXCEPTION: Hotel- keeper is guilty of fault
or negligence in failing to provide against the
VIII. Necessary Deposit loss or injury from his cause. (Arts.1170 and
1174)
KINDS OF NECESSARY DEPOSITS 2. The loss is due to the acts of the guests, his
1. It is made in compliance with a legal family, servants, visitors (Art.2002)
obligation, in which case it is governed by 3. The loss arises from the character of the
the law establishing it, and in case of
things brought into the hotel (Ibid.)
CIVIL LAW REVIEWER Chapter III. DEPOSIT
CREDIT TRANSACTIONS
IX. Judicial Deposit
EXTRAJUDICIAL JUDICIAL
(Voluntary) deposit made Constituted by virtue of a
by free will of the court order
depositor.
of law
Chapter IV. Guaranty
c. Judicial – required by a court to
guarantee the eventual right of one of
I. DEFINITION the parties in a case.
II. CHARACTERISTICS 3. As to consideration:
III. CLASSIFICATION a. Gratuitous – guarantor does not receive
IV. RULES GOVERNING GUARANTY any price or remuneration for acting as
V. GUARANTY DISTIGUISHED FROM such (2048)
OTHERS VI. THE GUARANTOR b. Onerous – one where the guarantor
VII. EFFECTS OF GUARANTY
VIII. EXTINGUISHMENT OF GUARANTY
receives valuable consideration for his
guaranty
4. As to person guaranteed:
I. Definition
a. Single – constituted solely to guarantee
or secure performance by the debtor of
GUARANTY is a contract whereby a person, called the principal obligation;
the guarantor, binds himself to the creditor to fulfill b. Double or sub-guaranty – constituted to
the obligation of the principal debtor in case the secure the fulfillment by the guarantor of
latter should fail to do so. (Art. 2047) a prior guaranty
5. As to its scope and extent:
While a surety undertakes to pay if the principal a. Definite – where the guaranty is limited
does not pay, the guarantor only binds himself to the principal obligation only, or to a
to pay if the principal cannot pay (See benefit of specific portion thereof;
excussion, 2058). b. Indefinite or simple – where the
guaranty included all the accessory
II. Characteristics obligations of the principal, e.g. costs, 319
including judicial costs.
1. Accessory – dependent for its existence
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upon the principal obligation guaranteed by b. Exception: When there is a stipulation to
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the contrary
a. It gives rise only to a duty on the part of
the guarantor in relation to the creditor 2. On the cause of a guaranty contract
and not vice versa
b. It may be entered into even without the SEVERINO v SEVERINO: “A guarantor or
intervention of the principal debtor. surety is bound by the same consideration that
4. Guarantor must be a person distinct from makes the contract effective between the
the debtor – a person cannot be the principal parties thereto.”
personal guarantor of himself
a. Presence of cause which supports
III. Classification principal obligation: Cause of the
contract is the same cause which
CLASSIFICATION OF GUARANTY supports the obligation as to the
1. Guaranty in the broad sense: principal debtor. The consideration
a. Personal – guaranty is the credit given which supports the obligation as to the
by the person who guarantees the principaldebtorisasufficient
fulfillment of the principal obligation; or consideration to support the obligation of
b. Real – guaranty is property, movable, or a guarantor or surety.
immovable b. Absence of direct consideration or
Real mortgage (2124) or antichresis benefit to guarantor: Guaranty or surety
(2132) – guaranty is immovable agreement is regarded valid despite the
Chattel mortgage (2140) or pledge absence of any direct consideration
(2093) – guaranty is movable received by the guarantor or surety,
2. As to its origin: such consideration need not pass
a. Conventional – constituted by directly to the guarantor or surety; a
agreement of the parties (2051[1]) consideration moving to the principal will
b. Legal – imposed by virtue of a provision suffice.a
CIVIL LAW REVIEWER Chapter IV. GUARANTY
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amount of the debt is ascertained or fixed
third person: a. To secure the payment of a loan at
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maturity – surety binds himself to
to the debtor
Guarantor cannot compel the
creditor to subrogate him in his guarantee the punctual payment of a
rights
loan at maturity and all other obligations
b. Payment with knowledge or consent of
of indebtedness which may become due
the debtor: Subrogated to all the rights
or owing to the principal by the
which the creditor had against the
borrower.
debtor
b. To secure payment of any debt to be
5. The guaranty must be founded on a valid subsequently incurred – a guaranty shall
principal obligation (2052[1]) be construed as continuing when by the
Guaranty is an accessory contract: It is terms thereof it is evident that the object
an indispensable condition for its is to give a standing credit to the
existence that there must be a principal principal debtor to be used from time to
obligation. Hence, if the principal time either indefinitely or until a certain
obligation is void, it is also void. period, especially if the right to recall the
guaranty is expressly reserved.
6. A guaranty may secure the performance c. To secure existing unliquidated debts –
of a voidable, unenforceable, and natural refers to debts existing at the time of the
obligation (2052[2]) constitution of the guaranty but the
A guaranty may secure the performance of amount thereof is unknown and not to
a: debts not yet incurred and existing at
a. Voidable contract – such contract is that time.
binding, unless it is annulled by a proper d. The surety agreement itself is valid and
court action binding even before the principal
b. Unenforceable contract – because such obligation intended to be secured
contract is not void thereby is born, any more than there
c. Natural obligation – the creditor may would be in saying that obligations
which are subject to a condition
CIVIL LAW REVIEWER Chapter IV. GUARANTY
precedent are valid and binding before more than the total amount stipulated in
the occurrence of the condition the bond.
precedent.
Interest runs from:
A continuing guaranty is one which is not limited to a Filing of the complaint (upon judicial
single transaction, but which contemplates a future demand); or
course of dealing, covering a series of transactions, The time demand was made upon
generally for an indefinite time or until revoked. It is the surety until the principal
prospective in its operation and is generally intended
obligation is fully paid (upon extra-
to provide security with respect to future transactions
within certain limits, and contemplates a succession
judicial demand)
of liabilities, for which, as they accrue, the guarantor
becomes liable. Rationale: Surety is made to pay, not by
reason of the contract, but by reason of
A continuing guaranty is one which covers all his failure to pay when demanded and for
transactions, including those arising in the future, having compelled the creditor to resort to
which are within the description or contemplation of the courts to obtain payment.
the contract, of guaranty, until the expiration or
termination thereof. A guaranty shall be construed as b. Penalty may be provided – a surety may
continuing when by the terms thereof it is evident that
be held liable for the penalty provided
the object is to give a standing credit to the principal
debtor to be used from time to time either indefinitely for in a bond for violation of the
or until a certain period, especially if the right to recall condition therein.
the guaranty is expressly reserved.
Principal’s liability may exceed
Where the contract of guaranty states that the same is to guarantor’s obligations
secure advances to be made "from time to time" the The amount specified in a surety bond 321
guaranty will be construed to be a continuing one.”
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as the surety’s obligation does not limit
8. A guaranty may secure the performance the extent of the damages that may be
of a conditional obligation (2053) recovered from the principal, the latter’s
a. Principal obligation subject to a liability being governed by theobligations
suspensive condition – the guarantor is he assumed under his contract
liable only after the fulfillment of the
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10. The existence of a guaranty is not
condition.
b. Principal obligation subject to a presumed (2055)
resolutory condition – the happening of Guaranty requires the expression of consent
the condition extinguishes both the
principal obligation and the guaranty on the part of the guarantor to be bound. It
cannot be presumed because of the
9. A guarantor’s liability cannot exceed the existence of a contract or principal
principal obligation (2054) obligation.
Rationale:
General Rule: Guaranty is a subsidiary and
accessory contract – guarantor cannot bind a. There be assurance that the guarantor
himself for more than the principal debtor had the true intention to bind himself;
and even if he does, his liability shall be b. To make certain that on making it, the
reduced to the limits of that of the debtor. guarantor proceeded with
But the guarantor may bind himself for less consciousness of what he was doing.
than that of the principal. 11. Contract of guaranty is covered by the
Exceptions: Statute of Frauds (See Art. 1403(2(a))
a. Interest, judicial costs, and attorney’s Guaranty must not only be expressed
fees as part of damages may be but must so be reduced into writing.
recovered – creditors suing on a Hence, it shall be unenforceable by
suretyship bond may recover from the action, unless the same or some note or
surety as part of their damages, interest memorandum thereof be in writing, and
at the legal rate, judicial costs, and subscribed by the party charged, or by
attorney’s fees when appropriate, even his agent; evidence, therefore, of the
without stipulation and even if the surety agreement cannot be received without
would thereby become liable to pay the writing, or a secondary evidence of
CIVIL LAW REVIEWER Chapter IV. GUARANTY
its contents. However, It need not The subsequent loss of integrity or property or
appear in a public document supervening incapacity of the guarantor would
not operate to exonerate the guarantor of the
V. Guaranty Distinguished from Others eventual liability he has contracted, and the
contract of guaranty continues. The creditor can
merely demand another guarantor with the
GUARANTY DISTINGUISHED FROM
proper qualifications except that the creditor may
WARRANTY waive such remedy if he chooses and hold the
Guaranty Warranty
guarantor to his bargain.
Guaranty is a contract Warranty is an Selection of Guarantor:
by which a person is undertaking that the title,
bound to another for the quality, or quantity of the 1. Specified person stipulated as guarantor:
fulfillment of a promise subject matter of a Substitution of guarantor may not be
or engagement of a third contract is what is has demanded
party been represented to be,
and relates to some Reason: The selection of the guarantor is:
agreement made a. Term of the agreement;
ordinarily by the party b. As a party, the creditor is, therefore,
who makes the warranty bound thereby.
GUARANTY DISTINGUISHED FROM 2. Guarantor selected by the principal debtor:
SURETYSHIP Debtor answers for the integrity, capacity,
and solvency of the guarantor.
Guaranty Suretyship
Guarantor’s liability Surety assumes liability 3. Guarantor personally designated by the
depends upon an as a regular party to the
322
creditor: Responsibility of the selection
independent agreement undertaking
CREDIT TRANSACTIONS
should fall upon the creditor because he
to pay the obligation
Guarantor’s engagement Surety is an original
considered the guarantor to have the
is a collateral promissor qualifications for the purpose.
undertaking
Guarantor is subsidiarily Surety is primarily liable
liable i.e. only obliged to i.e. bound to pay if the VII. Effects of Guaranty
pay if the principal principal does not pay
cannot pay EFFECTS OF GUARANTY BETWEEN
Guarantor not bound to Surety ordinarily held to
THE GUARANTOR AND THE CREDITOR
take notice of default of know every default of his
his principal principal 1. The guarantor has the right to benefit
from excussion/ exhaustion (2058)
Guarantor often Surety not discharged
discharged by the mere either by the mere
Exceptions to the benefit of excussion
indulgence of the indulgence of the
creditor and is usually creditor or by want of (2059)
not liable unless notified notice of default of the a. As provided in Art. 2059:
of the principal’s default principal If the guarantor has expressly
renounced it; waiver is valid but it
must be made in express terms.
VI. The Guarantor (Arts. 2056-2057) If he has bound himself solidarily
with the debtor, the liability assumed
is that of a surety. The guarantor
Qualifications: becomes primarily liable as a
1. He possesses integrity; solidary co- debtor. In effect, he
2. He has capacity to bind himself; renounces in the contract itself the
3. He has sufficient property to answer for the benefit of exhaustion.
obligation which he guarantees. In case of insolvency of the debtor –
guarantor guarantees the solvency
Exception: The creditor waives the of the debtor. If the debtor becomes
requirements insolvent, the liability of the
guarantor as the debtor cannot fulfill
The qualifications above need only be present at his obligation
the time of the perfection of the contract. When he (debtor) has absconded,
CIVIL LAW REVIEWER Chapter IV. GUARANTY
TRANSACTIONS
given as special security for the payment of the 3. The creditor has the duty to make prior
principal obligation.”
demand for payment from the guarantor
(2060)
LUZON STEEL CORP. v SIA: “The surety in the a. The demand is to be made only after
present case bound itself "jointly and severally" judgment on the debt
(in solidum) with the defendant; and excussion
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b. Joining the guarantor in the suit against
(previous exhaustion of the property of the the principal debtor is not the demand
be made.
debtor) shall not take place "if he (the guarantor) intended by law. Actual demand has to
has bound himself solidarily with the debtor".”
4. The guarantor has the duty to set up the
b. If he does not comply with Art. 2060: In
order that the guarantor may make use benefit of excussion (2060)
of the benefit of excussion, he must: As soon as he is required to pay,
Set it up against the creditor upon guarantor must also point out to the
the latter’s demand for payment creditor available property (not in
from him; litigation or encumbered) of the debtor
Point out to the creditor: within the Philippines.
o Available property of the debtor 5. The creditor has the duty to resort to all
– the guarantor should facilitate
the realization of the excussion legal remedies (2061)
since he is the most interested a. After the guarantor has fulfilled the
in its benefit. conditions required for making use of
o Within the Philippine territory – the benefit of exhaustion, it becomes the
excussion of property located duty of the creditor to:
abroad would be a lengthy and b. Exhaust all the property of the debtor
extremely difficult proceeding pointed out by the guarantor;
and would not conform with the c. If he fails to do so, he shall suffer the
purpose of the guaranty to loss but only to the extent of the value of
provide the creditor with the the said property, for the insolvency of
meansofobtainingthe the debtor
fulfillment of the obligation.
o Sufficient to cover the amount of
CIVIL LAW REVIEWER Chapter IV. GUARANTY
6. The creditor has the duty to notify the the subrogation clause of Article 2067. The
guarantor in the action against the debtor assumption, however, is that the guarantor
(2062) who is subrogated to the rights of the
creditor, has the right to be reimbursed for
Under this article, notice to the guarantor is his answering for the obligation of the
mandatory in the action against the principal debtor. Absent this right of reimbursement,
debtor. The guarantor, however, is not duty subrogation will not be proper.
bound to appear in the case, and his non-
appearance shall not constitute default, w/ 2. The guarantor has the duty to notify the
its consequential effect. debtor before paying the creditor (2068).
STRANSACTION
General rule: Since a contract of guaranty is
8. Co-guarantors are entitled to the benefit
of division (2065) only subsidiary, the guarantor cannot be
The benefit of division applies only when liable for the obligation before the period on
there are several guarantors and one which the debtor’s liability will accrue. Any
debtor for a single debt. Except when payment made by the guarantor before the
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solidarity has been stipulated among the obligation is due cannot be indemnified by
co-guarantors, a co- guarantor is liable the debtor.
only to the extent of his share in the Exception: Prior consent or subsequent
obligation as divided among all the co-
guarantors. ratification by the debtor
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a. Of the insolvency of the debtor, or
b. By judicial demand
3. The paying guarantor seeks to be
indemnified only to the extent of his
proportionate share in the total obligation.
For purposes of proportionate
reimbursement, the other guarantors may
interpose such defenses against the paying
guarantor as are available to the debtor
against the creditor, except those that are
personal to the debtor.
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EXCUSSION (2084)
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party to the proceedings; purpose of assuming classified risks in large
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b. The creditor may sue, separately or numbers, for profit and on an impersonal
together, the principal debtor and the basis.
surety; 2. They are secured from all possible loss by
c. A demand or notice of default is not adequate counter-bonds or indemnity
required to fix the surety’s liability agreements.
d. Exception: Where required by the
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3. Such corporations are in fact insurers and in
provisions of the contract of suretyship determining their rights and liabilities, the
e. A surety bond is void where there is not rules peculiar to suretyship do not apply.
principal debtor because such an
undertaking presupposes that the
obligation is to be enforceable against
someone else besides the surety, and
the latter can always claim that it was
never his intention to be the sole person
obligated thereby.
collect.
Chapter VII. Pledge, Mortgage,
Antichresis MANILA SURETY V VELAYO: The accessory
character is of the essence of pledge and
I. ESSENTIAL REQUISITES COMMON TO mortgage. As stated in Art 2085 CC, an essential
PLEDGE AND MORTGAGE
requisite of these contracts is that they be
II. PLEDGE
constituted to secure the fulfillment of a principal
III. MORTGAGE
obligation
IV. FORECLOSURE OF MORTGAGE
V. ANTICHRESIS
2. Creditor cannot appropriate to himself the
VI. CHATTEL MORTGAGE
thing nor can he dispose of the same as
I. Essential Requisites Common to owner.
Pledge and Mortgage (Art. 2085) PROHIBITION AGAINST PACTUM
COMMISSORIUM (Art. 2088)
ESSENTIAL REQUISITES COMMON TO 1. Stipulation is null and void: Stipulation where
PLEDGE AND MORTGAGE (Art. 2085) thing or mortgaged shall automatically
1. Constituted to secure the fulfillment of a become the property of the creditor in the
principal obligation. event of nonpayment of the debt within the
2. Pledgor or mortgagor must be the absolute term fixed.
owner of the thing pledged or mortgaged. 2. Requisites of pactum commissorium:
3. The persons constituting the pledge or a. Pledge or mortgage.
mortgage have the free disposal of their b. Astipulationforanautomatic
property, and in the absence thereof, that appropriation by the creditor of the 328
they be legally authorized for the purpose. property in the event of nonpayment.
4. Cannot exist without a valid obligation.
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3. Effect on security contract: Nullity of the
5. Debtor retains the ownership of the thing stipulation does not affect validity and
property.
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2. Pledge or mortgage is indivisible (2089,
IMPORTANT POINTS
1. Future property cannot be pledged or 2090).
mortgaged. Exceptions:
2. Pledge or mortgage executed by one who is a. Where each of several things
not the owner of the property pledged or guarantees a determinate portion of the
mortgaged is without legal existence and credit.
registration cannot validate it. b. Where only a portion of loan was
3. Mortgage of a conjugal property by one of released.
the spouses is valid only as to ½ of the c. Where there was failure of
entire property. consideration.
4. In case of property covered by Torrens title,
a mortgagee has the right to rely upon what 3. Rule that real property, consisting of several
appears in the certificate of title and does lots should be sold separately, applies to
not have to inquire further. sales in execution, and not to foreclosure of
5. Pledgor or mortgagor has free disposal of mortgages.
property. 4. The mere embodiment of a real estate
6. Thing pledged or mortgaged may be mortgage and a chattel mortgage in one
alienated. document does not have the effect of fusing
7. Creditor not required to sue to enforce his both securities into an indivisible whole.
credit.
8. Pledgor or mortgagor may be a third person. UY TONG v CA: The 2 elements for pactum
RIGHT OF CREDITOR WHERE DEBTOR commissorium to exist:
FAILS TO COMPLY WITH HIS OBLIGATION (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by
1. Creditor is merely entitled to move for the
way of security for the payment of the principal
sale of the thing pledged or mortgaged with
obligation; (2) that there should be a stipulation
the formalities required by law in order to
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
for an automatic appropriation by the creditor of mortgage becomes unenforceable to the extent
the thing pledged or mortgaged in the event of of such failure. Where the indebtedness actually
non-payment of the principal obligation within owing to the holder of the mortgage is less than
the stipulated period. the sum named in the mortgage, the mortgage
cannot be enforced for more than the actual sum
5. Pledge or mortgage may secure all kinds of due.
obligation, be they pure or subject to The rule of indivisibility of the mortgage as
suspensive or resolutory conditions (2091).
6. A promise to constitute pledge or mortgage outlined by Article 2089 above-quoted
creates no real right, only a personal right presupposes several heirs of the debtor or
binding upon the parties, only right of action creditor which does not obtain in this case.
to compel the fulfillment of the promise but Hence, the rule of indivisibility of a mortgage
there is no pledge or mortgage yet (2092). cannot apply.
7. Under the RPC, estafa is committed by a
person who, pretending to be the owner of BELO vs. PNB: From Art. 2089 is excepted the
any real property, shall convey, sell, case in w/c, there being several things given in
encumber or mortgage the same knowing mortgage or pledge, each one of them
that the real property is encumbered and guarantees only a determinate portion of the
shall dispose of the same as credit. The debtor, in this case, shall have a right
unencumbered. It is essential that fraud or to the extinguishment of the pledge or mortgage
deceit be practiced upon the vendee at the as the portion of the debt for w/c each thing is
time of the sale. specially answerable is satisfied. From the
wordings of the law, indivisibility arises only
II. Pledge when there is a debt, that is, there is a debtor- 329
creditor relationship.
PLEDGE is a contract by virtue of which the debtor
STRANSACTION
part of the creditor to return the thing subject
delivers to the creditor or to a third person a CHARACTERISTICS
movable or document evidencing incorporeal rights 1. Real – Perfected by delivery.
for the purpose of securing the fulfillment of a 2. Accessory – Has no independent existence
principal obligation with the understanding that of its own.
when the obligation is fulfilled, the thing delivered 3. Unilateral – Creates obligation solely on the
shall be returned with all its fruits and accessions.
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upon the fulfillment of the principal
(Art.2085 in rel to 2093)
obligation.
KINDS 4. Subsidiary – Obligation incurred does not
1. Voluntary or conventional – Created by arise until the fulfillment of the principal
agreement of parties. obligation.
2. Legal – Created by operation of law.
CAUSE OR CONSIDERATION
CENTRAL BANK vs. CA: The consideration of 1. Principal obligation – In so far as the pledgor
the accessory contract of real estate mortgage is is concerned.
the same as that of the principal contract. For 2. Compensation stipulated for the pledge or
the debtor, the consideration of his obligation to mere liberality of the pledgor – If pledgor is
pay is the existence of a debt. Thus, in the not the debtor.
accessory contract of real estate mortgage, the
consideration of the debtor in furnishing the PROVISIONS APPLICABLE ONLY TO
mortgage is the existence of a valid, voidable, or PLEDGE
unenforceable debt (Art. 2086, in relation to Art. 1. Transfer of possession to the creditor or to
2052, of the Civil Code). third person by common agreement is
essential in pledge (2093).
It is not necessary that any consideration should a. Actual delivery is important.
pass at the time of the execution of the contract b. Constructive or symbolic delivery of the
of real mortgage. It may either be a prior or key to the warehouse is sufficient to
subsequent matter. But when the consideration show that the depositary appointed by
is subsequent to the mortgage, the mortgage common consent of the parties was
can take effect only when the debt secured by it legally placed in possession.
is created as a binding contract to pay. And, 2. All movables within the commerce of man
when there is partial failure of consideration, the may be pledged as long as they are
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
TRANSACTIONS
type of delivery will depend upon the nature and
appropriate to himself, the thing given in pledge.
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2. Has right to reimbursement of the expenses If by the contract of pledge the pledgor continues
made for preserving the thing. Shall be
liable for loss or deterioration of the thing by to be the owner of the thing pledged during the
reason of fraud, negligence, delay or pendency of the obligation, it stands to reason
violation of the terms of the contract, but not that in case of loss of the property, the loss
for fortuitous events (2099). should be borne by the pledgor.
3. May bring actions pertaining to the owner of
the thing in order to recover it from, or 3. Subject to the right of the pledge under
defend it against, a 3rd person (2103). article 2108, pledgor is allowed to substitute
4. Cannot use the thing without the authority the thing which is in danger of destruction or
of the owner. If he uses the thing without impairment without any fault on the part of
authority, or if he misuses the thing when the pledgee with another thing of the same
he was authorized to use it, the owner may kind and quality (2107).
ask that it be judicially or extrajudicially 4. May require that the thing be deposited with
deposited (2104). a 3rd person, if through the negligence or
5. May use the thing if necessary for its willful act of the pledgee the thing is in
preservation (2104). danger of being lost or impaired (2106).
6. May either claim another thing in pledge or
demand immediate payment of the principal EXTINGUISHMENT OF A PLEDGE
obligation if he is deceived on the 1. Ways to extinguish a pledge:
substance or quality of the thing (2109). a. Payment of the debt.
b. Sale of the thing pledged at public
THE PLEDGEE auction.
1. Cannot deposit the thing pledged with a 3rd c. Thing pledged is returned by the
person, unless there is a contrary pledgee to the pledgor or owner (2110).
stipulation (2100). d. Written statement by the pledgee that he
2. Is responsible for the acts of his agents or renounces or abandons the pledge.For
employees with respect to the thing
pledged
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
this purpose, neither the acceptance by Useful expenses shall be refunded only to
the pledgor or owner nor the return of the possessor in good faith with the
the thing pledged is necessary, and the same right of retention, the person who
pledgee becomes a depositary (2111). has defeated him in the possession
2. Presumptions: having the option of refunding the
a. If, subsequent to the perfection of the amount of the expenses or of paying the
pledge, the thing is found in the increase in value which the thing may
possession of the pledgor or owner, have acquired and by reason thereof
there is prima facie presumption that the (Art. 546)
thing has been returned by the pledge 2. He who has executed work upon a movable
(2110). has a right to retain it by way of pledge until
b. If the thing is in the possession of a 3rd he is paid. This is called the mechanic’s lien.
person who received it from the pledgor (Art. 1731)
or owner after the constitution of the 3. 3) The agent may retain the things which are
pledge, there is prima facie presumption the objects of agency until the principal
that the thing has been returned by the effects the reimbursement and pays the
pledge (2110). indemnity. This is called the agent’s lien.
(Art. 1914)
REQUIREMENTS IN SALE OF THE THING 4. 4) The laborer’s wages shall be a lien on the
PLEDGED BY A CREDITOR, IF CREDIT IS goods manufactured or the work done.
NOT PAID ON TIME (Art 2112) 5. (Art. 1707)
1. Debt is due and unpaid.
2. Sale must be at a public auction. NOTE:
3. Notice to the pledgor and owner, stating the 1. In legal pledges, the remainder of the price
amount due. of the sale shall be delivered to the obligor. 331
4. Sale must be made with the intervention of a 2. Public auction of legal pledges may only be
TRANSACTION
executed after demand of the amount for
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notary public.
5. If at the first auction the thing is not sold, a which the thing is retained. It shall take
second one with the same formalities shall place within one month after the demand,
be held. otherwise the pledgor may demand the
6. If at the second auction, there is no sale return of the thing pledged, provided s/he is
either, the creditor may appropriate the thing able to show that the creditor did not cause
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pledged but he shall give an acquittance the public sale without justifiable grounds.
(release) for his entire claim.
PAWNSHOP REGULATION ACT PD 114
(Article 2122)
EFFECT OF THE SALE OF THE
THING PLEDGED (Art 2115) SEC 9: Loans granted by pawnshops shall not
1. Extinguishes the principal obligation, be less than 30% of the value of the security
whether the price of the sale is more or less offered, UNLESS the pawner manifests in
than the amount due. writing the desire to borrow a lesser amount.
2. if the price is more than amount due, the
debtor is not entitled to the excess unless SEC 10:
the contrary is provided. a. Interests not to exceed usury law
3. If the price of the sale is less, neither is the b. Pawn broker prohibited from dividing the
creditor entitled to recover the deficiency. A pawn offered to collect greater interest
contrary stipulation is void. c. Pawn broker prohibited from
requiring additional charge for
MANILA BANKING v TEODORO: safekeeping / insurance
In case of doubt as to whether a transaction is a d. Maximum service charge: Php5 to not
pledge or a dation in payment, the presumption more than 1% of the principal loan
is in favor of pledge, the latter being the lesser
transmission of rights and interests (as earlier SEC 13: Pawner who fails to pay his obligation
established in Lopez v. Court of Appeals) on the date it falls due may WITHIN 90 DAYS
from the date of the maturity of the obligation,
LEGAL PLEDGES (Article 2121) REDEEM the pawn by payment of the principal
1. Necessary expenses shall be refunded to debt and interest
every possessor, but only a possessor in
good faith may retain the thing until he has
been reimbursed.
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
OBJECTS OF REAL MORTGAGE (Art. 2124) Central Bank v CA: Where only a portion of the
1. Immovables loan is released, the mortgage becomes
2. Alienable real rights over immovables. enforceable only as to the proportionate value of 332
the loan
Future property cannot be object of mortgage;
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Indivisibility applies only as to
however, a stipulation subjecting to the
mortgage improvements which the mortgagor pledgors/mortgagors who are themselves
may subsequently acquire, install or use in debtors in the principal obligation, and not to
connection with real property already mortgaged accommodation pledgors / mortgagors
belonging to the mortgagor is valid.
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"When several things are pledged or mortgaged,
KINDS
each thing for a determinate portion of the debt,
separate from each other. But when the several
1. Voluntary – constituted by the will of the the pledges or mortgage, are considered
owner of the property on which it is created
things are given to secure the same debt in its
2. Legal – required by law to be executed in
favor of certain persons: entirety, all of them are liable for the debt, and
a. Persons in whose favor the law the creditor does not have to divide his action by
establishes a mortgage have no other distributing the debt among the various things
right than to demand the execution and pledged or mortgaged. Even when only a part of
recording of the document in which the the debt remains unpaid, all the things are still
mortgage is formalized (Article 2125) liable for such balance." (Tolentino)
b. The bondsman who is to be offered in
virtue of a provision of law or of a judicial
ESSENTIAL REQUISITES
order shall have the qualifications
prescribed in Art 2056 (integrity, capacity 1. Constituted to secure the fulfillment of a
to bind himself, and sufficient property to principal obligation.
answer the obligation), an in other laws 2. Mortgagor must be the absolute owner of
(Article 2082) the thing mortgaged.
3. The persons constituting the mortgage have
c. If the person bound to give a bond
free disposal of the property; in the absence
should not be able to do so, a pledge or
thereof, they should be legally authorized for
mortgage considered sufficient to
the purpose. (Article 2085)
recover his obligation shall be admitted
in lieu thereof (Article 2083) 4. Cannot exist without a valid obligation. (Art.
2086 cf 2052)
3. Equitable – One which, although lacking the 5. When the principal obligation becomes due,
proper formalities of a mortgage, shows the the thing in which the mortgage consists
may be alienated for payment to the creditor.
intention of the parties to make the property
(Art. 2087)
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
6. Must appear in a public document duly when the obligation becomes DUE,
recorded in the Registry of Property, to be including indemnity from insurance, and / or
validly constituted. (Art. 2125) amount received from expropriation for
In a legal mortgage, the persons in whose public use (Art. 2127)
favor the law establishes a mortgage a. Applies only when the accessions
have the right to demand the execution and accessories subsequently
and recording of a document formalizing introduced belongs to the mortgagor.
the mortgage. (Art. 2125, par. 2) b. To exclude them, there must be an
express stipulation, or the fruits must
EFFECTS be collected before the obligation
1. Creates real rights, a lien inseparable from becomes due.
the property mortgaged, enforceable against c. Third persons who introduce
the whole world. improvements upon the mortgaged
2. Creates merely an encumbrance. property may remove them at any time
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1. It creates a real right, a lien inseparable from
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2125, CC).
the property mortgaged Registration only operates as a notice of the
2. If a person is the first mortgagee over a
property sold in an auction sale by the mortgage to others, but neither adds to its
second mortgagee, the only right left to him validity nor convert an invalid mortgage into a
is to collect his mortgage credit from the valid one between the parties. In Gurbax Singh
proceeds of the sale (by virtue of merger of
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Pabla vs. Reyes, SC ruled that "if the purpose of
rights, Art 1275). registration is merely to give notice, the
3. The first mortgagee has superior rights over questions regarding the effect or invalidity of
junior mortgagees / attaching creditors instruments are expected to be decided after,
not before, registration. It must follow as a
IMPORTANT POINTS necessary consequence that registration must
1. As a general rule, the mortgagor retains first be allowed and validity or effect litigated
possession of the property. He may deliver afterwards".
said property to the mortgagee without INCIDENTS OF REGISTRATION OF
altering the nature of the contract of
mortgage. MORTGAGE
2. It is not an essential requisite that the 1. Mortgagee is entitled to registration of
principal of the credit bears interest, or that mortgage as a matter of right.
the interest as compensation for the use of 2. Proceedings for registration do not
the principal and the enjoyment of its fruits determine validity of the mortgage or its
be in the form of a certain percentage effect
thereof. 3. Registration is without prejudice to better
3. Mortgage creates an encumbrance over the rights of third parties.
property, but ownership of the property is not 4. Mortgage deed, once duly registered, forms
parted with. It merely restricts the part of the records for the registration of the
mortgagor’s jus disponendi over the mortgaged property.
property. The mortgagor may still sell the 5. Mortgage by a surviving spouse of his/her
property, and any stipulation to the contrary undivided share in the conjugal property can
is void (Art. 2130) be registered.
4. Mortgage extends to the natural accessions,
to the improvements of growing fruits and
the rents or income NOT YET RECEIVED
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
TRANSACTIONS
satisfaction of the obligation secured by the the payment of the:
mortgage. a. Costs of the sale;
b. Amount due the mortgagee;
In General: An action for foreclosure of a c. Claims of junior encumbrancers or
mortgage is limited to the amount mentioned persons holding subsequent mortgages
in the mortgage, EXCEPT when the in the order of their priority; and
mortgage contract intends to secure future
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d. Balance, if any shall be paid to the
loans or advancements mortgagor.
BLANKET mortgage / DRAGNET– NATURE OF JUDICIAL FORECLOSURE
mortgage that subsumes all debts of past or
future origin PROCEEDINGS:
Mortgage may be used as a “continuing 1. Quasi in rem action. Hence, jurisdiction may
security” which secures future be acquired through publication.
advancements and is not discharged by the 2. Foreclosure is only the result or incident of
repayment of the amount in the mortgage the failure to pay debt.
Alienation or assignment of mortgage credit 3. Survives death of mortgagor.
is valid even if it is not registered
EXTRAJUDICIAL FORECLOSURE(Act No.
ACCELERATION CLAUSE, or the stipulation 3135)
stating that on the occasion of the mortgagor’s 1. Applies to mortgages where the authority to
default, the whole sum remaining unpaid foreclose is granted to the mortgagee.
automatically becomes due and demandable, is 2. Authority is not extinguished by death of
ALLOWED mortgagor or mortgagee. This is an agency
coupled with interest.
KINDS OF FORECLOSURE 3. Public sale should be made after proper
1. Judicial Foreclosure notice to the public, otherwise it is a
2. Extrajudicial Foreclosure jurisdictional defect which could render the
sale voidable.
JUDICIAL FORECLOSURE 4. There is no need to notify the mortgagor.
Rule 68, ROC: Proper notice consists of:
May be availed of by bringing an action in a. posting notice in three public places
the proper court which has jurisdiction over and / or
the area wherein the real or personal (in b. publication in newspaper of general
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
TRANSACTION
WAIVER OF SECURITY BY CREDITOR
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the mortgagee’s claim.
8. Republication is of the notice of sale 1. Mortgagee may waive right to foreclose his
necessary for validity of postponed mortgage and maintain a personal action for
extrajudicial sale recovery of the indebtedness.
9. In foreclosure of real estate mortgage under 2. Mortgagee cannot have both remedies.
Act 3135, the buyer at auction may petition
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REDEMPTION
the land registration court for a writ of
possession pending the one-year period of 1. It is a transaction by which the mortgagor
passed under the mortgage or div ests the
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to apply then to the payment of the interest, if b. A stipulation authorizing the antichretic
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owing, and thereafter to the principal of the creditor to appropriate the property upon
credit (Art 2132) the non-payment of the debt within the
agreed period is void (Art. 2088)
CHARACTERISTICS
1. Accessory contract – it secures the
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VI. Chattel Mortgage
performance of a principal obligation CHATTEL MORTGAGE is a contract by virtue
2. formal contract – it must be in a specified
form to be valid (Art. 2134)
of which a personal property is recorded in the
SPECIAL REQUISITES: Chattel Mortgage Register as security for the
performance of an obligation.
1. it can cover only the fruits of an immovable
property If the movable, instead of being recorded, is
2. delivery of the immovable is necessary for
delivered to the creditor, it is pledge and not
the creditor to receive the fruits and not that
chattel mortgage.
the contract shall be binding
3. amount of principal and interest must be
LAWS GOVERNING CHATTEL MORTGAGE
specified in writing
4. express agreement that debtor will give 1. Chattel Mortgage Law (Act.1508, as
possession of the property to creditor and amended).
that the latter will apply the fruits to the 2. New Civil Code.
interest, if any, then to the principal of his 3. Revised Administrative Code.
credit 4. Revised Penal Code.
5. NOTE: The obligation to pay interest is not 5. Ship Mortgage Decree of 1978 (PD 1521)
of the essence of the contract of antichresis; governs mortgage of vessels of domestic
there being nothing in the Code to show that ownership.
antichresis is only applicable to securing the
AFFIDAVIT OF GOOD FAITH
payment of interest-bearing loans. On the
contrary, antichresis is susceptible of An oath in a contract of chattel mortgage
guaranteeing all kinds of obligations, pure or wherein the parties "severally swear that the
conditional mortgage is made for the purpose of
securing the obligation specified in the
conditions thereof and for no other purposes
CIVIL LAW REVIEWER Chapter VII. PLEDGE, MORTGAGE, ANTICHRESIS
and that the same is a just and valid RIGHT OF MORTGAGEE TO RECOVER
obligation and one not entered into for the DEFICIENCY
purpose of fraud. 1. Where mortgage foreclosed: Creditor may
maintain action for deficiency although the
EFFECT OF REGISTRATION Chattel Mortgage Law is silent on this point,
1. Creates real rights. because a chattel mortgage is given only as
2. Adds nothing to mortgage. a security and not as payment of the debt.
2. Where mortgage constituted as security for
Note: Registration of assignment of mortgage is purchase of personal property payable in
not required. installments: No deficiency judgment can be
asked and any contrary agreement shall be
RIGHT OF REDEMPTION OF MORTGAGE void.
1. When the condition of a chattel mortgage is 3. Where mortgaged property subsequently
broken, the following may exercise attached and sold: Mortgagee is entitled to
redemption: deficiency judgment in an action for specific
a. Mortgagor. performance.
b. Person holding a subsequent mortgage.
c. Subsequent attaching creditor. APPLICATION OF PROCEEDS OF SALE
2. An attaching creditor who so redeems shall 1. Costs and expenses of keeping and sale.
be subrogated to the rights of the mortgagee 2. Payment of the obligation.
and entitled to foreclose the mortgage in the 3. Claims of persons holding subsequent
same manner as a mortgagee. mortgages in their order.
3. Redemption is made by paying or delivering 4. Balance, if any, shall be paid to the
to the mortgagee the amount due on such mortgagor, or person holding rights under
mortgage and the costs and expenses him. 337
incurred by such breach of condition before
CREDIT TRANSACTIONS
the sale.
PERIOD TO FORECLOSE
1. After 30 days from the time of the condition
is broken.
2. The 30-day period is the minimum period
after violation of the mortgage condition for
the creditor to cause the sale at public
auction with at least 10 days notice to the
mortgagor and posting of public notice of
time, place, and purpose of such sale, and is
a period of grace for the mortgagor, to
discharge the obligation.
3. After the sale at public auction, the right of
redemption is no longer available to the
mortgagor.
TRANSACTIONS
Family home. (Arts. 152, 153 and property to which the preference refers.
155, CC) 2. If there are 2 or more credits with respect to
Right to receive support, as well as the same specific movable property, they
money or property obtained by such shall be satisfied pro rata, after the payment
support, shall not be levied upon on of duties, taxes and fees due the State or
attachment or execution. (Art. 205, any subdivision thereof
CC) 3. Those credits which enjoy preference in
CREDIT
Sec. 13, Rule 39, ROC. relation to specific real property or real rights
Sec 118, Public Land Act. (CA 141, exclude all others to the extent of the value
as amended) of the immovable or real right to which the
b. Future property: A debtor who obtains a preference refers.
discharge from his debts on account of 4. If there are 2 or more credits with respect to
insolvency, is not liable for the the same specific real property or real rights,
unsatisfied claims of his creditors with they shall be satisfied pro rata, after the
said property. (Sec. 68 and 69, payment of the taxes and assessment of the
Insolvency Law, Act 1956) taxes and assessments upon the immovable
c. Property in custodia legis and of public property or real right.
dominion. 5. The excess, if any, after the payment of the
2. Insolvency shall be governed by the credits which enjoy preference with respect
Insolvency Law. (Act 1956, as amended) to specific property, real or personal, shall
3. Exemption of conjugal property or absolute be added to the free property which the
community or property, provided that: debtor may have, for the payment of other
a. Partnership or community subsists. credits.
b. Obligations of the insolvent spouse have 6. Those credits which do not enjoy any
not redounded to the benefit of the preference with respect to specific property,
family. and those which enjoy preference, as to the
4. If there is co-ownership, and one of the co- amount not paid, shall be satisfied according
owners is the insolvent debtor, his undivided to the following rules:
share or interest in the property shall be a. Order established by Art 2244
possessed by the assignee in insolvency b. Common credits referred to in Art 2245
proceedings because it is part of his assets. shall be paid pro rata regardless of
dates
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