CREDIT TRANSACTIONS

DANA-Notes

GENERAL PRINCIPLES loan

Always on a double name paper Always on a single name paper
A. Credit Transactions contracts of security that include all transactions Loan must be paid back Discount does not have to be
involving the purchase or loan of goods, services, or money with a repaid (Herrera v. Petrophil)
promise to pay or deliver in the future D. Kinds of Loan
B. Security ensures the enforcement of an obligation or protects some D.1. Commodatum bailor delivers to the bailee a non consumable
interest in property thing so that the latter may use it for a certain time and return the
B.1. Kinds of Contracts of security identical thing
B.1.1. secured transactions D.2. Simple Loan/ mutuum lenders delivers to the borrower money
B.1.2. unsecured transactions or other consumable thing upon the condition that the latter shall
C. Bailment delivery of property of one person to another in trust for a return the same amount of the same kind and quality
specific purpose, which a contract, express or implies, that the trust shall D.3. Commodatum v Mutuum
be faithfully executed and the property returned or duly accounted for Commodatum Mutuum
when the special purpose is accomplished or kept until the bailor claims it As to Object
C.1. Creation GR: Non consumable Consumable
C.1.1. by contract Exception: if the purpose of the
C.1.2. by operation of law contract is not the consumption
C.2. Kinds of the object (Art. 1936)
C.2.1. For sole benefit of bailee As to Cause
C.2.1.1. Commodatum
Essentially gratuitous Generally gratuitous although it
C.2.1.2. Gratuitous simple loan/mutuum
may also be onerous for there
C.2.2. For sole benefit of bailor
may be stipulation of interest
C.2.2.1. Gratuitous deposit
As to Purpose
C.2.2.2. Mandatum
C.2.3. For benefit of both parties Use or temporary possession Consumption
C.2.3.1. Deposit for compensation As to Subject Matter
C.2.3.2. Involuntary deposit Any property Personal property
C.2.3.3. Pledge As to Ownership of the thing
C.2.3.4. Bailment for hire Retained by bailor Passes to the debtor
As to Risk of Loss
LOAN Bailor Debtor or bailee
As to Time of Return
A. Contract of loan a contract wherein one of the parties deliver to In case of urgent need and Upon expiration of the term
another, either something not consumable so that the latter may use the commission of any acts of only
same for a certain time and return it; or money, or other consumable ingratitude, even before the
things, upon the condition that the same amount of the same kind and expiration of the term
quality shall be paid (Art. 1933)
A.1. Characteristic COMMODATUM
A.1.1. Real contract
A.1.1.1. Accepted promise to make future loan is a A. Nature:
consensual contract, and therefore binding upon A.1. Bailee acquired the temporary use of the thing but not its fruits
parties. However it is only after delivery of the since the bailor remains the owner (Art. 1935)
subject matter will the contract of loan arise A.1.1. Exception: When there is a stipulation to make use of the
A.1.1.2. Non fulfillment of an accepted promise will give fruits of the thing loaned (Art. 1940)
rise to an action for damage only A.2. if the bailee is not entitled to the use of the thing, the contract is a
A.1.1.3. the accepted promise to give, despite giving rise to deposit (Art. 1962)
an action for damages by reason of its breach, B. Characteristics
does not constitute the real contract of loan B.1. Real
(Saura Import and Export Co. Inc. v. B.2. Principal
Development Bank of the Philippines) B.3. Gratuitous
A.1.2. Unilateral contract B.4. Personal in nature
A.2. Cause of Consideration C. Kinds of Commodatum
A.2.1. As to borrower the acquisition of the thing C.1. Ordinary Commodatum use of the thing by the bailee is for a
A.2.2. As to lender the right to demand its return or its certain period of time (Art. 1933)
equivalent C.2. Precarium one whereby the bailor may demand the thing loaned
B. Loan v. Credit at will (Art. 1947)
Loan Credit C.2.1. A contract is precarium when:
Art. 1933 Ability of a person to borrow money or C.2.1.1. the duration and purpose of the contract are not
things by virtue of the trust or confidence stipulated
reposed by the lender so that he will pay C.2.1.2. the use of the thing is merely tolerated by the
what he may promise within a specified owner
period D. Cause: liberality of bailor
D.1. if any compensation is to be paid by the borrower there a arises a
The concession of credit necessarily lease contract
involves the granting of loans up to the limit D.2. if the consideration is to render some service, an innominate
of the amount fixed in the credit (People v. contract will result
Concepcion) E. Subject Matter
C. Loan v. Discounting Paper E.1. GR: Non consumable goods, whether movable or immovable (Art.
Loan Discounting Paper 1936-1937)
Interest is taken at the expiration of Interest is deducted in advance E.1.1. Exception: Consumable goods may be the subject matter
the credit of Commodatum if the purpose of the contract is not the
Less expensive than discounting More expensive than obtaining consumption of the object (Art. 1936)
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CREDIT TRANSACTIONS
DANA-Notes

F. Bailor need not be the owner of the thing loaned (Art. 1938) I. OBLIGATIONS OF THE BAILOR
F.1. It is sufficient that the bailor has: I.1. Respect the duration of the loan (Art. 1946)
F.1.1. Possessory interest I.1.1. GR: he cannot demand return before the expiration of the
F.1.2. The right to use which he may assert against the bailee or period or accomplishment of the use
third persons but not the rightful owner I.1.1.1. Exception:
G. Effects of the Principle that Commodatum is Purely Personal (Art. I.1.1.1.1. in case of urgent need of the thing; he
1939) may demand its return or temporary use
G.1. Death of either bailor or the bailee extinguishes the contract I.1.1.1.1.1. Effect: contract of Commodatum
G.1.1. Exceptions: is suspended while the thing is in
G.1.1.1. when there is a contrary stipulation that the possession of the bailor
Commodatum is transmitted to the heirs of either I.1.1.1.2. If the bailee commits any act of
or both parties ingratitude specified in Art. 765
G.1.1.2. if there are two or more borrowers, the death of I.1.1.1.2.1. Bailee should commit some
one does not extinguish the contract in the offenses against the person,
absence of stipulation to the contrary honor or property of the bailor, or
G.2. Bailee can neither lend or lease the objects of the contract to a his wife or children under his
third person parental authority
G.2.1. Exceptions: I.1.1.1.2.2. Bailee imputes to the bailor any
G.2.1.1. agreement to the contrary criminal offense, or any act
G.2.1.2. members of the household may make use of the involving moral turpitude, even
thing loaned though he should prove it, unless
G.2.1.2.1. Exception: the crime or the act has been
G.2.1.2.1.1. if there is contrary stipulation committed against the bailee
G.2.1.2.1.2. if the nature of the thing forbids himself, his wife or children
such use under his authority
H. OBLIGATIONS OF THE BAILEE I.1.1.1.2.3. Bailee unduly refuses the bailor
H.1. Take care of the thing with diligence of a good father of a family support when the bailee is legally
H.2. Return the identical thing loaned upon the expiration of the term or or morally bound to give support
upon the accomplishment of the purpose to the bailor
H.3. Pay for the ordinary expenses for the use and preservation of the I.2. Refund to the bailee extraordinary expenses for the preservation of
thing loaned (Art. 1941) the thing, provided that the bailee brings the same to the
H.4. Liable for loss even if it should be through a fortuitous event in the knowledge of the bailor before incurring them, except when the
following cases (Art. 1942) ***GR: not liable reply to the notification cannot be awaited without danger (Art.
H.4.1. When he keeps it longer than the period stipulated, or after 1949)
the accomplishment of its use I.2.1. Exception: expenses caused by fortuitous event on the
H.4.2. when he lends or leases it to third persons who are not occasion of the actual use of the thing by the bailee, even
members of his household though he acted without fault, loaned shall be borne by the
H.4.3. when the thing loaned has been delivered with appraisal of bailor and bailee
its value unless there is a stipulation exempting the bailee I.2.1.1. Exception: stipulation for a different apportionment
from responsibility in case of fortuitous event of expenses
H.4.4. when being able to save either the thing borrowed or his I.2.2. Notice is required because it is possible that the bailor may
own things, he chose to save the latter not want to incur the extraordinary expenses
H.4.5. when the bailee devoted the thing for a different use from I.3. Liable to the bailee for damages for known hidden flaws (Art.
that agreed upon 1951)
H.5. Liable for deterioration due to the use of the thing ***GR: not liable I.3.1. Requisites:
(Art. 1943) I.3.1.1. Existence of flaw or defect
H.5.1. if expressly stipulated I.3.1.2. Flaw or defect is hidden
H.5.2. if guilty of fault or negligence I.3.1.3. Bailor is aware thereof
H.5.3. if he devotes the thing to any purpose different from that for I.3.1.4. Bailee suffers damages by reason of said flaw or
which it has been loaned defect
H.5.4. if he uses the thing beyond the period stipulated I.3.2. No right of Abandonment bailor cannot exempt himself
H.6. Pay for extraordinary expenses arising from the actual use of the from the payment of expenses or damages by abandoning
thing, even though the bailee acted without fault. in this case, the the thing to the bailee
bailor and the bailee shall bear the expenses equally (Art. 1942)
H.6.1. exception: if there is a stipulation for different MUTUUM
apportionment
H.6.2. Right of retention A. A person who receives a loan of money or any other fungible thing
H.6.2.1. GR: Bailee has no right to retain the thing loaned acquires the ownership thereof, and is bound to pay to the creditor an
as security on the ground that the bailor owes him equal amount of the same kind and quality. (Art. 1953)
something, even though it may be by reason of B. Contract of Barter A contract whereby one person transfers the
expenses ownership of non-fungible things to another with the obligation on the part
H.6.2.1.1. Exception: Bailor shall be liable for of the latter to give things of the same kind, quantity, and quality shall be
damages suffered by the bailee by reason considered a barter. (Art. 1954)
therefor and right of retention ceases B.1. Commodatum/Mutuum v Barter
when the bailee is reimbursed (Art. 1951) Commodatum/ Mutuum Barter
H.6.2.2. Retention or adverse claim of bailee cannot ripen As to Subject Matter
into title by ordinary acquisitive prescription In mutuum Money or fungible Non fungible
(Catholic Vicar Apostolic of the Mt. Province v things
CA) As to Return of the Subject Matter
H.7. Pay for the expenses other than those under Art. 1941 and 1949 In Commodatum the bailee is The thing with equivalent value
Of the Civil Code for the purpose of making use of the thing (Art. bound to return the identical is given in return for what has
1950) thing borrowed been received
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CREDIT TRANSACTIONS
DANA-Notes

As to Cause or Consideration F.5. GR: accrued interest shall not earn interest
Mutuum may be gratuitous and Always onerous and is actually F.5.1. Exception:
Commodatum is essentially a mutual sale F.5.1.1. When judicially demanded as provided for in Art.
gratuitous 2212
C. Subject matter: Consumable or fungible goods F.5.1.2. when there is an express stipulation made by the
D. OBLIGATION OF BORROWER parties, to wit: that the interest due an unpaid shall
D.1. pay to the lender an equal amount of the same kind and quality be added to the principal obligation and the
D.1.1. the thing must be returned upon the end of the period. resulting total amount shall earn interest
However the borrower can lose the right to use the period F.6. If the borrower pays interest when there has been no stipulation
in the instances provided in Art. 1198. If the parties did not therefor, the provisions of this Code concerning solutio indebiti, or
agree on a period Art. 1197 applies natural obligations, shall be applied, as the case may be. (Art.
D.1.2. Creditor may demand payment and borrower can make 1960)
payment prior to the maturity date if the loan is gratuitous. F.7. Usurious contracts shall be governed by the Usury Law and other
But if it is with interest, it is otherwise special laws, so far as they are not inconsistent with this Code (Art.
D.1.3. No criminal liability for failure to pay borrower 1961)
acquires ownership of the money, goods, or personal
property borrowed. Being the owner, the borrower can DEPOSIT
dispose of the thing and his act will not be considered
misappropriation thereof B. Contract of deposit contract constituted from the moment a person
D.2. pay interest if expressly stipulated in writing receives a thing belonging to another, with the obligation of safely keeping
E. Forms of Payment: (Art. 1955) it and returning the same
E.1. If the thing loaned is money, payment must be made in the B.1. Purpose: Safekeeping
currency stipulated, if it is possible to deliver such currency; B.2. Characteristics
otherwise that which is legal tender in the Philippines. In case of B.2.1. Real
extraordinary inflation or deflation, payment shall be in the value of B.2.2. Unilateral
the currency at the time of the creation of the obligation B.2.3. Bilateral
E.2. If the thing loaned is other than money, the borrower is under B.3. Deposit v Mutuum
obligation to pay the lender another thing of the same kind, quality Deposit Mutuum
and quantity even if it should change in value. In case it is As to purpose
impossible to do so, the borrower shall pay its value at the time of For safekeeping or custody Consumption
the perfection of the loan As to time of return
F. INTEREST Depositor can demand return Period must be respected by
F.1. Kinds of interest anytime the lender
F.1.1. Simple interest that which is paid for the principal at a As to subject matter
certain rate fixed or stipulated by the parties Movable/ corporeal things only Money or fungible
F.1.2. Compound interest that which is imposed upon interest in case of extrajudicial deposit
due and unpaid. The accrued interest is added to the
principal sum and the whole is treated as a new principal any property in case of judicial
upon which the interest for the next period is calculated deposit
F.1.3. Legal interest that which the law directs to be charged in As to relationship
the absence of any agreement as to the rate between the Depositor and depositary Lender and borrower
parties As to compensation
F.1.4. Lawful interest that which the law allows or does not
Generally gratuitous May be gratuitous, or with a
prohibit, that is, the rate of interest within the maximum stipulation to pay interest
prescribed by law
B.4. Deposit v Commodatum
F.1.5. Unlawful or usurious interest that which is paid or
Deposit Commodatum
stipulated to be paid beyond the maximum fixed by law
F.2. No interest shall be due unless it has been expressly As to purpose
stipulated in writing. (Art. 1956) safekeeping Transfer of the use
F.2.1. Requisites for recovery of interest As to time of return
F.2.1.1. the payment of interest must be expressly Depositary can always be Borrower can use the thing for
stipulated required to return the thing at the period stipulated, and can
F.2.1.2. the agreement to pay interest must be in writing any time be required to return only in
F.2.1.3. the interest must be lawful case of urgent need or when
F.2.2. Art. 1956 is subject to 2 exceptions: the bailee has committed any of
F.2.2.1. Indemnity for damages the debtor in delay is the acts of ingratitude under
liable to pay legal interest (6%) as indemnity for Art. 765
damages even in the absence of stipulation for the As to Subject matter
payment of interest Movable/corporeal things only Both movable and immovable
F.2.2.2. Interest accruing from unpaid interest interest in case of extrajudicial deposit
due shall earn interest from the time it is judicially
demanded although the obligation may be silent Any property in case of judicial
upon this point deposit
F.3. Contracts and stipulations, under any cloak or device whatever, As to Compensation
intended to circumvent the laws against usury shall be void. The May be gratuitous Essentially gratuitous
borrower may recover in accordance with the laws on usury. (Art. B.5. Deposit v Barter/Sale
1957) Deposit Sale and barter
F.3.1. Usurious contract should not be considered void in its As to Transfer of Ownership
entirety but only as to the interest involved Ownership is not transferred Ownership is transferred upon
F.4. In the determination of the interest, if it is payable in kind, its value delivery
shall be appraised at the current price of the products or goods at As to Nature
the time and place of payment.
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CREDIT TRANSACTIONS
DANA-Notes
Real Consensual
As to Consideration
Generally gratuitous Always onerous
B.6. GR: contract of deposit is gratuitous (Art. 1965)
B.6.1. Exceptions:
B.6.1.1. where there is contrary stipulation
B.6.1.2. where depositary engaged in business of storing
goods
B.6.1.3. when property saved from destruction without
knowledge of the owner
B.7. Subject Matter: only movable things (Art. 1966)
C. Kinds of deposit
C.1. judicial one which takes place when an attachment or seizure of
property in litigation is ordered
C.1.1. The depositary of property or objects sequestrated cannot
be relieved of his responsibility until the controversy which
gave rise thereto has come to an end, unless the court so
orders. (Art. 2007)
C.2. extrajudicial
C.2.1. voluntary one wherein the delivery is made by the will of
the depositor or by two or more persons each of whom
believes himself entitled to the thing deposited
C.2.2. necessary one made in compliance with
C.2.2.1. a legal obligation, or
C.2.2.2. on the occasion of any calamity, or
C.2.2.3. by travelers in hotels and inns or
1. When hotel-keeper is liable regardless
of the amount of care exercised:
a. The loss or injury to the personal
property of the guests is caused
by his servants or employees as
well as by strangers provided that
notice has been given and proper
precautions taken
b. The loss is caused by the act of a
thief or robber done without the
use of arms and irresistible force,
for in this case, the hotel-keeper is
apparently negligent
2. When hotel-keeper is not liable:
a. The loss or injury is caused by
force majeure, like flood, fire, theft
by a stranger with the use of arms
or irresistible force, etc. unless he
is guilty of fault or negligence in
failing to provide against the loss
or injury from his cause
b. The loss is due to the acts of the
guest, his family, servants, or
visitors
c. The loss arises from the character
of the things brought into the hotel
3. The hotel-keeper cannot free himself from
responsibility by posting notices to the
effect that he is not liable for the articles
brought by the guest. Any stipulation
between the hotel-keeper and the guest
whereby the responsibility of the former as
set forth in articles 1998 to 2001 is
suppressed or diminished shall be void.
(Art. 2003)
4. The hotel-keeper has a right to retain the
things brought into the hotel by the guest,
as a security for credits on account of
lodging, and supplies usually furnished to
hotel guests (Art. 2004)
B.1.1.1. by travelers with common carriers
C. Effects of the incapacity of the Depositary or Depositor
C.1. If the depositary is capacitated, he is subject to all the obligations
of a depositary whether the depositor is capacitated or not (Art.
1970)
C.2. If the depositary is incapacitated, he does not incur obligation of a
depositary. However he is liable to:
C.2.1. Return the thing deposited while still in his possession
C.2.2. Pay the depositor the amount by which he may have
benefited himself with the thing or its price subject to the
right of any third person who acquired the thing in good
faith, in which case the depositor may only bring an action
against him for its recovery
D. OBLIGATIONS OF THE DEPOSITARY
D.1. to keep the thing safely (Art. 1972)
D.1.1. GR: Good father of a family shall be required
D.1.1.1. Exception: the required degree of care is greater
when:
1. it is the depositary who voluntarily offered
to keep the thing
2. the deposit is compensated
3. the deposit produces benefit to the
depositary
D.2. to return the thing (Art. 1972)
D.2.1. Persons to whom the thing must be returned:
D.2.1.1. Depositor, to his heirs and successor, or the
person who may have been designated in the
contract (Art. 1972)
1. if there are two or more persons, each
claiming to be entitled to a thing, the
depositary can file an action to compel the
depositors to interplead among themselves
D.2.1.2. Guardian or administrator of the person who made
the deposit if the latter is incapacitated at the time
of deposit or the latter himself should he acquire
capacity (Art. 1970)
D.2.1.3. Legal representative of the depositor should the
latter subsequent lose his capacity during the
deposit (Art. 1986)
D.2.2. Time of Return:
GR: thing deposited must be returned to the depositor
upon demand, even though a specified period or time for
such return may have been fixed.
D.2.2.1. Exception: (Art. 1988 and 1989)
1. It cannot be returned upon demand when
the thing is judicially attached while in the
depositarys possession there must be
immediate notice to depositor of
attachment
2. the deposit cannot be returned upon
demand if the depositary has been notified
of the opposition of a third person to the
return or removal of the thing deposited
there must be immediate notice to
depositor of opposition
3. If the deposit is gratuitous, the depositary
may return the thing deposited
notwithstanding that a period has been
fixed for the deposit if justifiable reasons
exists for its return
If the depositor refused to receive it, the
depositary may secure its consignation
from the court
D.2.3. What to Return:
D.2.3.1. Thing deposited shall be returned with all its
products, accessories and accessions. (Art. 1983)
D.2.3.2. If by force majeure or government order, the
depositary loses the thing, and receives money or
another thing in its place, he shall deliver the sum
or other thing to the depositor (Art. 1990)
D.2.4. Where to Return:
D.2.4.1. If at the time the deposit was made a place was
designated for the return of the thing, the
depositary must take the thing deposited to such
place; but the expenses for transportation shall be
borne by the depositor.
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CREDIT TRANSACTIONS
DANA-Notes
D.2.4.2. If no place has been designated for the return, it
shall be made where the thing deposited may be,
even if it should not be the same place where the
deposit was made, provided that there was no
malice on the part of the depositary.
D.3. Not to deposit the thing with a third person unless authorized by
express stipulation (Art. 1973)
D.3.1. If deposit with a third person is allowed, the depositary is
liable for the loss if he deposited the thing with a person
who is manifestly careless or unfit.
D.3.2. The depositary is responsible for the negligence of his
employees.
D.3.3. In urgent cases, depositary may deposit the thing with third
persons if such is necessary for the preservation of the
thing
D.4. To change the way of the deposit if under the circumstances he
may reasonably presume that the depositor would consent to the
change if he knew of the facts of the situation. However, before the
depositary may make such change, he shall notify the depositor
thereof and wait for his decision, unless delay would cause
danger. (Art. 1974)
D.5. If the thing deposited should earn interest:
D.5.1. To collect interest and the capital itself as they fall due
D.5.2. To take necessary steps to preserve its value and the right
with regard to it (Art. 1975)
D.5.2.1. Art.1975 cannot apply to a depositary of
certificates bonds, securities or instruments, which
earn interest if such documents are kept in a
rented safety deposit box (CA Agro Industrial Dev.
Corp. v. CA)
D.6. Not to commingle things of the same kind and quality deposited if
so stipulated (Art. 1976)
D.7. Not to make use of the thing deposited unless authorized (Art.
1977)
D.7.1. when the preservation of the thing deposited requires its
use, it must be used but only for that purpose
D.7.2. Irregular deposit if safekeeping is still the principal
purpose of the contract although there is a permission to
use the consumable thing
D.8. To be liable for loss through fortuitous event (Art. 1979)
D.8.1. If stipulated
D.8.2. If he uses the thing without the depositors permission
D.8.3. if he delays its return
D.8.4. if he allows others to use it, even though he himself have
been authorized to use the same
D.9. Liability when the thing deposited is delivered closed and sealed
D.9.1. to return the thing deposited in the same condition
D.9.2. to pay for damages should the seal or lock be broken
through his fault, which is presumed
D.9.3. to keep the secret of the deposit when the seal or lock is
broken with or without his fault (Art. 1981)
D.10. To return products, accessories and accessions (Art. 1983)
D.11. To pay interest on sums converted to personal use from the day of
conversion if the deposit consists of money (Art. 1983 and 1986)
D.12. To advise the true owner that a deposit has been made should he
discover that the thing deposited was stolen from the owner (Art.
1984)
D.12.1. Depositary cannot demand that the depositor prove his
ownership of the thing deposited
D.12.2. If the owner, in spite of such information, does not claim it
within the period of one month, the depositary shall be
relieved of all responsibility by returning the thing deposited
to the depositor.
A.1.1. If the depositary has reasonable grounds to believe that the
thing has not been lawfully acquired by the depositor, the
former may return the same
B. Rule When there are two or more depositors
B.1. When there are two or more depositors, if they are not solidary,
and the thing admits of division, each one cannot demand more
than his share.
B.2. When there is solidarity or the thing does not admit of division, the
provisions of Articles 1212 and 1214 shall govern. However, if
there is a stipulation that the thing should be returned to one of the
depositors, the depositary shall return it only to the person
designated.
C. Depositarys Right of Retention depositor may retain the thing in
pledge until full payment of what may be due him by reason of the deposit
(Art. 1994)
D. Rule when an heir of the depositor sold the thing deposited The
depositor's heir who in good faith may have sold the thing which he did
not know was deposited, shall only be bound to return the price he may
have received or to assign his right of action against the buyer in case the
price has not been paid him (Art. 1991)
E. OBLIGATIONS OF THE DEPOSITOR
E.1. To pay expenses for preservation if the deposit is gratuitous
(Art. 1992)
E.2. To pay for losses incurred by the depositary due to the character
of the thing deposited (Art. 1993)
E.2.1. Exception:
E.2.1.1. At the time of the deposit, the deposit was not
aware of the dangerous character of the thing
E.2.1.2. Depositor was not expected to know the
dangerous character of the thing
E.2.1.3. Depositor notified the depository of the same
E.2.1.4. Depositary was aware of its without advice from
the depositor
F. EXTINGUISHMENT
F.1. Upon the loss or destruction of the thing deposited;
F.2. In case of a gratuitous deposit, upon the death of either the
depositor or the depositary.
F.2.1. Deposit for compensation does not extinguish the deposit
F.3. return of the thing by the depositary
F.4. conversion of a deposit into another contract if the depositor allows
the depositary to use the thing
F.5. acquisition of the right to possess the thing deposited by the
depositary
WAREHOUSE RECEIPTS LAW
A. Warehouse receipt written acknowledgement by a warehouseman that
he has received and holds certain goods therein described in store for the
person to whom it is issued
B. Issue of Warehouse Receipt law
B.1. Warehouse receipts may be issued by any warehouseman
B.2. Form and contents of the receipt:
B.2.1. does not require any particular form, though it has provided
for certain essential terms which must be embodied in ever
warehouse receipt:
B.2.1.1. Location of the warehouse
B.2.1.2. Date of the issue of the receipt
B.2.1.3. Consecutive number of the receipt
B.2.1.4. Person to whom goods are deliverable
B.2.1.5. Rate of storage charges
B.2.1.6. Description of the goods or of the packages
B.2.1.7. Signature of the warehouseman
B.2.1.8. Warehousemans ownership of or interest in
goods
B.2.1.9. Statement of the amount of advances made and of
liabilities incurred
B.2.2. Effect of omission of any of essential terms
B.2.2.1. validity of receipt NOT affected
B.2.2.2. warehouseman liable for damages
B.2.2.3. Negotiability of receipt NOT affected
B.2.2.4. Contract converted to ordinary deposit
B.2.3. A warehouseman may insert in a receipt issued by him any
other terms and conditions provided that such terms and
conditions shall not:
B.2.3.1. Be contrary to the provisions of this Act.
B.2.3.2. In any wise impair his obligation to exercise that
degree of care in the safe-keeping of the goods
entrusted to him which is reasonably careful man
would exercise in regard to similar goods of his
own.
C. OBLIGATIONS OF THE WAREHOUSE MAN
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C.1. Principal obligations of the warehouseman
C.1.1. to take care of the goods entrusted to his safekeeping
C.1.2. to deliver them to the holder of the receipt or the depositor
provided the conditions under Sec. 8 are fulfilled
C.1.2.1. Warehouseman will not be liable for misdelivery, if
delivered to
C.1.2.1.1. Person lawfully entitled to the possession
of the goods, or his agent;
C.1.2.1.2. Person entitled to delivery under a non-
negotiable receipt or with written authority
C.1.2.1.3. Person in possession of a negotiable
receipt
C.1.2.2. Where a warehouseman delivers the goods to one
who is not in fact lawfully entitled to the
possession of them, the warehouseman shall be
liable as for conversion
C.1.2.2.1. he shall be so liable, if prior to such
delivery he had either:
(a) Been requested, by or on behalf of the
person lawfully entitled to a right of
property or possession in the goods, not
to make such deliver; or
(b) Had information that the delivery
about to be made was to one not lawfully
entitled to the possession of the goods.
C.1.2.3. warehouseman cannot refuse to deliver the goods
on the ground that he has acquired title or right to
the possession of the same unless such title or
right is derived
C.1.2.3.1. directly or indirectly from a transfer made
by the depositor at the time of the deposit
for storage or subsequent thereto or
C.1.2.3.2. from the warehousemans lien
C.1.2.4. If more than one person claims the title or
possession of the goods, the warehouseman may,
require all known claimants to interplead.
C.2. Other obligations of the warehouseman
C.2.1. to stamp duplicate on copies of negotiable receipt
C.2.1.1. Duplicate on the face of a receipt -
warehouseman warrants:
C.2.1.1.1. that the duplicate is an accurate copy of
the original receipt
C.2.1.1.2. such original receipt is uncancelled at the
date of the issue of the duplicate
C.2.1.2. warehouseman may not be compelled to deliver
the goods by virtue of the duplicate only unless the
procedure provided for in Sec. 14 is followed
C.2.2. to place non-negotiable or not negotiable on a non-
negotiable receipt
C.2.3. to cancel negotiable receipts upon delivery or part delivery
C.2.4. to honor altered receipts in appropriate cases
C.2.4.1. Effects of alteration on liability of warehouseman
C.2.4.1.1. Alteration immaterial liable according to
its ORIGINAL tenor
C.2.4.1.2. Alteration material but authorized
liable according to the terms of the receipt
as altered
C.2.4.1.3. Material alteration innocently made but
Unauthorized liable according to its
ORIGINAL tenor
C.2.4.1.4. Material alteration fraudulently made
liable according to the ORIGINAL tenor
C.2.5. to not issue receipt if goods are not inexistent
C.2.5.1. Warehouseman is not liable for issuing the receipt,
although the goods are not of the kind which the
marks or labels upon them indicate or of the kind
they were said to be by the depositor.
C.2.6. to properly describe the goods covered by the receipt
C.2.7. to keep the goods separate and to not comingle the goods
C.2.8. obligation with respect to goods in case of attachment or
levy upon goods for which a negotiable receipt has been
issued
C.2.8.1. While in possession of such warehouseman, the
goods cannot be attached or levied upon under an
execution unless:
C.2.8.1.1. document be first surrendered
C.2.8.1.2. its negotiation is enjoined
C.2.8.1.3. the document is impounded by the court
C.2.8.2. Sec. 25 do NOT apply if the person depositing is
NOT the owner of the goods or one who has no
right to convey title to the goods binding upon the
owner
Neither does it apply to actions for recovery or
manual delivery of goods by the real owner nor to
cases where the attachment is made before the
issuance of the negotiable receipt of title
D. Court may order the delivery of the goods only:
D.1. upon proof of the loss or destruction of the receipt
D.2. upon the giving of a bond with sufficient sureties to be approved by
the court
E. Warehousemans lien
E.1. Goods subject to lien
E.1.1. Goods belonging to depositor or his principal
E.1.2. Goods stored in fraud of true owners rights
E.2. A warehouseman loses his lien upon goods:
E.2.1. By surrendering possession thereof, or
E.2.2. By refusing to deliver the goods when a demand is made
with which he is bound to comply under the provisions of
this Act.
E.3. A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him until
the lien is satisfied.
E.4. Remedies of warehouseman for enforcing his lien:
E.4.1. by refusing to deliver the goods until the lien is satisfied
E.4.2. by causing the extrajudicial sale of the property and
applying the proceeds to the value of the lien
E.4.3. by filing a civil action for collection of the unpaid charges or
by way of counterclaim in an action to recover the property
from him, or such other remedies allowed by law for the
enforcement of a lien against personal property, or to a
creditor against his debtor, for the collection from the
depositor of all the charges which the depositor has bound
himself to pay
E.5. Effect of sale of goods
E.5.1. sale of good warehouseman is not liable for nondelivery
even if the receipt given for the goods when they were
deposited be negotiated
E.5.2. where the sale was made WITHOUT the publication
required and before the time specified by law sale is void
and the purchaser acquires no title
F. Acts for which warehouseman is liable
F.1. failure to stamp duplicate on copies of a negotiable receipt
F.2. failure to place non-negotiable or not negotiable on a non-
negotiable receipt
F.3. misdelivery of the goods
F.4. failure to effect cancellation of a negotiable receipt upon delivery of
the goods
F.5. issuing receipt for non-existing goods or misdescribed goods
F.6. failure to take care of the goods
F.7. failure to give notice in case of sale of goods to satisfy his lien or
because the goods are perishable or hazardous
GUARANTY
A. Nature
A.1. Contract of guaranty a contract whereby a person called the
guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter fail to do so (Art. 2047)
A.1.1. Classification of guaranty
A.1.1.1. Guaranty in the broad sense:
A.1.1.1.1. Personal credit given by the person who
guarantees the fulfillment of the principal
obligation
A.1.1.1.2. Real property
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A.1.1.1.2.1. movable pledge or chattel
mortgage
A.1.1.1.2.2. immovable real mortgage or
antichresis
A.1.1.2. As to its origin:
A.1.1.2.1. Conventional constituted by agreement
of the parties
A.1.1.2.2. Legal imposed by virtue of a provision
of law
A.1.1.2.3. Judicial required by a court to
guarantee the eventual right of one of the
parties in a case
A.1.1.3. As to consideration:
A.1.1.3.1. Gratuitous where the guarantor does
not receive any price or remuneration for
acting as such
A.1.1.3.2. Onerous where the guarantor receives
valuable consideration for his guaranty
A.1.1.4. As to person guaranteed:
A.1.1.4.1. Single constituted solely to guarantee or
secure performance by the debtor of the
principal obligation
A.1.1.4.2. Double or sub-guaranty constituted to
secure the fulfillment by the guarantor of
a prior guaranty (differ from where several
guarantors concur)
A.1.1.5. As to its scope and extent:
A.1.1.5.1. Definite(or limited) where the guaranty
is limited to the principal obligation only,
or to a specific portion thereof
A.1.1.5.2. Indefinite (or unlimited) where the
guaranty includes not only the principal
obligation but also all its accessories
including judicial costs
A.1.1.6. may be continuing or not
A.1.2. Scope of guarantee
A.1.2.1. Definite limited to the principal obligation only or
to a specific portion thereof
A.1.2.2. Indefinite or simple includes not only the
principal obligation but also all its accessories
including judicial costs
A.1.2.3. Specific
A.1.2.4. Continuing
A.1.3. Payment by the guarantor
A.1.3.1. GR: payment must be made in the manner
provided in the principal contract
A.1.3.1.1. Exception: In the absence of any
express provision, payment must be
made as follows:
A.1.3.1.1.1. Place of payment in the
absence of an express
stipulation, it must be at the
domicile of the debtor
A.1.3.1.1.2. Time of payment in general,
pay as soon the creditor was
unsuccessful in exhausting the
properties of the debtor
A.2. Suretyship a person (surety) binds himself solidarily with the
principal debtor. Surety guarantees the performance by the
principal obligor of an obligation or undertaking in favor of the
oblige
A.2.1. Nature of suretys undertaking
A.2.1.1. Liability is contractual and accessory but direct
A.2.1.1.1. Surety is directly, primarily, and equally
bound with the principal as original
promisor although he possess no direct or
personal interest over the latters
obligations nor does he receive any
benefit therefrom, regardless of w/n the
principal debtor is financially capable to
fulfill his obligations (PNB v CA)
A.2.1.1.2. effect: creditor is given the right to directly
proceed against either the principal
debtor or the surety
A.2.1.1.3. surety does not insure the solvency of the
debtor but rather the debt itself
A.2.1.2. Liability is limited by terms of contract
A.2.1.2.1. contract of surety is not presumed; it
cannot extend to more than what is
stipulated (Visayan Surety & Insurance
Corp. v. CA)
A.2.1.2.2. Creditors may recover from the surety as
part of their damages, interest at the legal
rate, even if the surety would thereby
become liable to pay more than the
amount stipulated
A.2.1.3. Liability arises only if principal debtor is liable
A.2.1.3.1. In the absence of collusion, the surety is
bound by a judgment against the principal
even though he was not a party to the
proceedings. The nature of its
undertaking making it privy to all
proceedings against its principal (Finman
General Assurance Corp. Salik)
A.2.1.3.2. creditor may sue, separately or together,
the principal debtor and the surety
A.2.1.3.3. where there are several sureties, the
oblige may proceed against any one of
them (Art. 1216)
A.2.1.4. Surety is not entitled to exhaustion
A.2.1.4.1. the surety assumes a solidary liability for
the fulfillment of the principal obligation as
an original promissory and debtor from
the beginning(Towers Assurance Corp.
v Ororama Supermart)
A.2.1.5. Undertaking is to creditor, not to debtor
A.2.1.5.1. principal cannot claim that there has been
a breach of the suretys obligation when
the surety fails or refuses to pay the debt
for the principals account such failure
or refusal does not have the effect of
relieving the principal of his obligation to
pay
A.2.1.6. Surety is not entitled to notice of principals default
A.2.1.6.1. Surety is bound to take notice of the
principals default and to perform the
obligation. He cannot claim that the
creditor has not notified him in the
absence of a special agreement to that
effect in the contract of suretyship
A.2.1.7. Prior demand by the creditor upon principal not
required
A.2.1.7.1. as soon as the principal is in default, the
surety likewise is in default
A.2.1.7.2. proper remedy of the surety is to pay the
debt and pursue the principal for
reimbursement
A.2.1.8. Surety is not exonerated by neglect of creditor to
sue principal
A.2.1.8.1. There is nothing to prevent the creditor
from proceeding against the principal at
any time (Palmares v CA)
A.2.1.8.2. neglect of the creditor to sue the principal
at the time the debt falls dues does not
discharge the surety, even if such delay
continues until the principal becomes
insolvent
A.3. Characteristics of Guaranty and Suretyship
A.3.1. Accessory
A.3.2. Subsidiary and conditional takes effect only when he
principal debtor fails in his obligation
A.3.3. Unilateral -
A.3.4. Nominate
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A.3.5. Consensual B.4. A married woman may guarantee an obligation without the
A.3.6. Falls under the Statute of Frauds husband's consent, but shall not thereby bind the conjugal
A.3.7. It requires that the guarantor must be a person distinct from partnership, except in cases provided by law (Art. 2049)
the debtor because a person cannot be the personal B.5. Guarantors liability does not extinguished by his death
guarantor of himself transmissible to his successors
A.3.7.1. exception: Real guaranty like pledge and C. Acceptance of Guaranty and Notice Thereof by the Creditor
mortgage C.1. When necessary
A.3.8. Gratuitous unless there is a contrary stipulation C.1.1. When there is merely an offer of a guaranty, or merely a
A.4. Guaranty v Suretyship conditional guaranty requiring an action by the creditor
Guaranty Suretyship before the obligation becomes fixed
Undertaking that the debtor Undertaking that the debt shall C.2. When unnecessary
shall pay be paid C.2.1. Where the transaction is not merely an offer but amounts to
Liability of the guarantor Surety assumes liability as a a direct and unconditional promise of guaranty
depends upon an independent regular party to the undertaking D. RIGHTS OF A GUARANTOR
agreement to pay the obligation D.1. Benefit of excussion guarantor cannot be compelled to pay the
if the primary debtor fails to do creditor unless the latter has exhausted all the properties of the
so principal debtor, and has resorted to all of the legal remedies
Engagement o f the guarantor Surety is charged as an original against such debtor (Art. 2058)
is a collateral undertaking promisor and debtor from the D.1.1. How Exercised:
beginning D.1.1.1. He must set it up against the creditor upon the
Guarantor is secondarily or Suretys liability is direct, latters demand for payment from him
subsidiarily liable primary and absolute D.1.1.2. Point out the available property of the debtor
Guarantor is not bound to take Surety is ordinarily, held to within the Philippines, sufficient to cover the
notice of the non-performance know every default of his amount of the debt
of his principal principal D.1.2. Creditor who failed to Exhaust and Resort to all legal
Guarantor is often discharged Surety will not be discharged remedies shall suffer the loss but only to the extent of the
by the mere indulgence of the either by the mere indulgence value of the said property for the insolvency of the debtor
creditor of the principal, and is of the creditor of the principal or D.1.3. This is not applicable to a contract of suretyship
usually not liable unless notified by want of notice of the default D.1.4. Excussion shall not take place:
of the default of the principal of the principal D.1.4.1. If it may be presumed that an execution on the
Guarantor can claim release Surety cannot claim release property of the principal debtor would not result in
the satisfaction of the obligation
from his obligation from his obligation under Art.
2080 D.1.4.2. When he has absconded, or cannot be sued within
the Philippines unless he has left a manager or
A.5. Guaranty v Warranty
representative;
Guaranty Warranty
D.1.4.3. In case of insolvency of the debtor;
A contract by which a person is An undertaking that the title, D.1.4.4. If the guarantor has expressly renounced it;
bound to another for the quality, or quantity of the D.1.4.5. If he has bound himself Solidarily with the debtor
fulfillment of a promise or subject matter of a contract is D.1.4.6. When the debt is a Natural obligation or an
engagement of a third party what it has been represented to unenforceable obligation
be, and relates to some D.1.4.7. If he is a judicial Bondsman or sub-surety
agreement made ordinarily by D.1.4.8. If he fails to interpose it as a defense before
the party who makes the judgment is rendered against him
warranty D.1.4.9. if the guarantor does not set up the benefit against
B. Qualifications the creditor upon the latters demand for payment
B.1. Qualifications of a guarantor from him
B.1.1. He possesses integrity D.1.4.10. Where the pledge or mortgage has been given by
B.1.2. He has capacity to bind himself him as Special security
B.1.3. he has sufficient property to answer for the obligation which D.1.5. In every action by the creditor, which must be against the
he guarantees principal debtor alone, except in the cases mentioned in
B.2. GR: Qualification need only be present at the time of the perfection Article 2059, the former shall ask the court to notify the
of the contract guarantor of the actionso that the guarantor may set up
B.2.1. When the guarantor is selected by the principal debtor defenses (Art. 2062)
because the latter answers for the solvency of the former. D.1.6. The guarantor of a guarantor shall enjoy the benefit of
In this case the guarantor must possess the qualifications excussion, both with respect to the guarantor and to the
prescribed not only at the moment the guaranty is given but principal debtor (Art. 2064)
also until the extinguishment of the debt D.2. Benefit of division should there be several guarantors of only
B.2.2. The creditor may demand from another guarantor with one debtor and for the same debt, the obligation to answer for the
proper qualification. But he may waive it if he chooses and same is divided among all (Art. 2065)
hold the guarantor to his bargain (Estate of K.H. Hemady D.2.1. Exception:
v Luzon Surety Co. Inc.) D.2.1.1. When solidarity is expressly stipulated
B.3. Selection of guarantor D.2.1.2. If any of the circumstances enumerated in Art.
B.3.1. Specified person stipulated as guarantor substitution of 2059 should take place
guarantor may not be demanded because the selection of D.3. Right to contribution of a guarantor who pays if there is
the guarantor is a term or condition of the agreement and solidary liability
as a party, the creditor is bound thereby D.3.1. GR: May demand of each of the others the share which is
B.3.2. Guarantor selected by the principal debtor principal proportionally owing from him, provided any of the following
debtor answers for the qualification of guarantor until the conditions are met:
extinguishment of the debt D.3.1.1. Payment has been made by virtue of a judicial
B.3.3. Guarantor personally designated by the creditor demand
responsibility for the selection should fall upon him and not D.3.1.2. Principal debtor is insolvent (Art. 2073)
on the debtor D.3.2. Exception:
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D.3.2.1. The insolvent guarantor cannot be made to pay. In
such case, his share shall be borne by the others
including the paying guarantor in the same joint
proportion
D.3.2.2. When co-guarantors have defenses against the
one who paid the same which have pertained to
the principal debtor against the creditor and which
are not purely personal to the debtor (Art. 2074)
D.3.3. A sub-guarantor, in case of the insolvency of the guarantor
for whom he bound himself, is responsible to the co-
guarantors in the same terms as the guarantor (Art. 2075)
D.4. Right of indemnity or reimbursement
D.4.1. GR: The guarantor who makes payment is entitled to be
reimbursed by the principal debtor
D.4.1.1. Exceptions:
D.4.1.1.1. Where the guaranty is constituted without
the knowledge or against the will of the
principal debtor, the guarantor can
recover only insofar as the payment had
been beneficial to the debtor (Art. 2050)
D.4.1.1.2. Payment by a third person who does not
intend to be reimbursed by the debtor is
deemed to be a donation, which,
however, requires the debtors consent.
But the payment is in any case valid as to
the creditor who has accepted it (Art.
1238)
D.4.1.1.3. waiver of the right to demand
reimbursement
D.4.2. Under Art. 2066, the indemnity consists of:
D.4.2.1. The total amount of the debt
D.4.2.2. The legal interests thereon from the time the
payment was made known to the debtor, even
though it did not earn interest for the creditor
D.4.2.3. The expenses incurred by the guarantor after
having notified the debtor that payment had been
demanded of him;
D.4.2.4. Damages, if they are due
D.4.3. Effect of Payment of guarantor
D.4.3.1. Without notice to debtor debtor may interpose
against the guarantor those defenses which he
could have set up against the creditor at the time
the payment was made (Art. 2068)
D.4.3.2. Before maturity not entitled to reimbursement
until the expiration of the period, unless the
payment was made with the consent or has been
ratified by the debtor (Art. 2069)
D.4.3.3. After maturity the fact that payment was actually
made after said term is not material. What is
controlling is that default and demand on
guarantor had taken place while the guarantee
was still in force
D.4.4. Repeat Payment by debtor
D.4.4.1. GR: before guarantor pays the creditor, he must
first notify the debtor, otherwise the latter may set
up defenses he could have set up against the
creditor (Art. 2068 and 2070)
If he fails to give such notice and the debtor
repeats payment, the guarantor can only collect
from the creditor and the 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
D.4.4.1.1. Exception: the guarantor can still claim
reimbursement from the debtor in spite of
lack of notice if the following conditions
are present:
D.4.4.1.1.1. guarantor was prevented by
fortuitous event to advise the
debtor of the payment
D.4.4.1.1.2. creditor becomes insolvent
D.4.4.1.1.3. guaranty is gratuitous
D.5. Right of guarantor to proceed against debtor before payment
D.5.1. GR: Guarantor has no right to proceed against the principal
debtor until he has actually paid the debt
D.5.1.1. Exceptions:
D.5.1.1.1. When he is sued for payment
D.5.1.1.2. Insolvency of the principal debtor
D.5.1.1.3. Debtor has bound himself to relieve him
from the guaranty within a specified
period, and this period has expired
D.5.1.1.4. Debt becomes demandable
D.5.1.1.5. Lapse of 10 years, when theres no fixed
period for its maturity
D.5.1.1.6. Reasonable ground to fear that the
principal will abscond
D.5.1.1.7. Debtor is in imminent danger of becoming
insolvent (Art. 2071)
D.5.1.2. Action of the guarantor is to:
D.5.1.2.1. Obtain release from the guaranty
D.5.1.2.2. Demand a security that shall protect him
from any proceedings by the creditor and
from the danger of insolvency of the
debtor (Art. 2071)
D.6. Right to subrogation subrogation transfer to the person
subrogated the credit with all the rights thereto appertaining either
against the debtor or against third persons, be they guarantors or
possessors of mortgages, subject to stipulation in conventional
subrogation (Art. 1303)
D.6.1. Benefit of subrogation cannot invoke where guarantor has
no right to be reimbursed
D.6.2. Payment against the will of the debtor, cannot compel the
creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty
D.7. If one, at the request of another, becomes a guarantor for the debt
of a third person who is not present, the guarantor who satisfies
the debt may sue either the person so requesting or the debtor for
reimbursement.
E. Effect of Compromise
E.1. A compromise between the creditor and the principal debtor
benefits the guarantor but does not prejudice him.
E.2. That which is entered into between the guarantor and the creditor
benefits but does not prejudice the principal debtor (Art. 2063)
F. EXTINGUISHMENT OF GUARANTY
F.1. Causes:
F.1.1. Releases in favor of one of the guarantors, without the
consent of the others, benefits all to the extent of the share
of the guarantor to whom it has been granted (Art. 2078)
F.1.2. If the creditor voluntarily accepts immovable or other
properties in payment of the debt, even if he should
afterwards lose the same through eviction or conveyance
of property (Art. 2077)
F.1.3. Whenever by some act of the creditor, the guarantors,
even though they are solidarily liable, cannot be
subrogated to the rights, mortgages and preferences of the
former (Art. 2060)
F.1.4. For the same causes as all other obligations (Art. 2076)
F.1.5. When principal obligation is extinguished
F.1.6. Extension granted to the debtor by the creditor without the
consent of the guarantor (Art. 2079)
F.1.6.1. Mere failure on the part of the creditor to demand
payment after the debt has become due does not
of itself constitute any extension of time
(Hongkong & Shanghai Bank v Aldecoa & Co)
F.1.6.2. Such delay, however, extinguishes the guaranty
F.1.6.2.1. when the delay is for such length of time
as to allow prescription of the action to
enforce payment
F.1.6.2.2. when upon maturity, the guarantor
requires the creditor to enforce payment
against the debtor, but the creditor fails to
act and the debtor subsequently becomes
insolvent
F.2. Guarantor is released in the following instances:
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F.2.1. Creditor did not collect from third persons
F.2.2. Obligations payable in installments
F.2.2.1. GR: Extension of time as to one or more will not
affect the liability of the surety for the others
F.2.2.1.1. Exception: if the whole unpaid balance
has become automatically due for failure
to pay an installment, the act of the
creditor of extending the payment without
the guarantors consent discharges the
guarantor
F.2.3. Consent to extension is not waived in advance by the
guarantor
F.2.4. Extension granted by creditor on bond
F.2.5. Extension granted to first-tier obligors cannot prejudice
second-tier parties
F.2.6. Material alterations, which essentially vary the terms of the
contract without consent of the surety, will release the
surety from liability
G. Defenses available to the guarantor
G.1. As provided in Art. 2068
G.2. Those available to co-guarantors in Art. 2074
G.3. Provided on Art. 2081 except those which are personal to the
debtor
H. Legal and Judicial Bonds
H.1. Bond undertaking that is sufficiently secured, and not cash or
currency
H.1.1. Nature of bond: contractual
H.2. Bondsman a surety offered in virtue of a provision of law or a
judicial order.
H.2.1. Shall have the qualifications prescribed in Article 2056 and
in special laws. (art. 2082)
H.2.2. Qualification of a personal bondsman
H.2.2.1. he possess integrity
H.2.2.2. he has capacity to bind himself
H.2.2.3. he has sufficient property to answer for the
obligation, which he guarantees
H.3. If the person bound to give a bond in the cases of the preceding
article, should not be able to do so, a pledge or mortgage
considered sufficient to cover his obligation shall be admitted in
lieu thereof (Art. 2083)
H.4. A judicial bondsman cannot demand the exhaustion of the
property of the principal debtor.
A sub-surety in the same case, cannot demand the exhaustion of
the property of the debtor of the surety.(Art. 2084)
COMMON PROVISION OF PLEDGE AND MORTGAGE
A. Essential requisites (Art. 2085)
A.1. Secures the fulfillment of a principal obligation
A.2. Pledgor and mortgagor must be the absolute owner of the thing
pledge or mortgaged
A.2.1. third person can pledge or mortgage their own property or
other persons property with authority and consent of the
owner of the property pledge or mortgaged
A.2.2. Pledge or mortgage constituted by impostor
A.2.2.1. GR: pledge or mortgage is void
A.2.2.2. Exception: If the certificate of title was already in
the name of the forger or imposter when the land
was sold or mortgaged to an innocent purchaser
or mortgagee, there being nothing to excite
suspicion, the vendee or mortgagee has the right
to rely on what appeared in the certificate of title of
the vendor or mortgagor and acquires an
enforceable right
A.3. and mortgagor must have free disposal of their property, or be
legally authorized for such purpose
A.4. When the principal obligation becomes due, the subject matter of
the pledge or mortgage may be alienated for the payment to the
creditor (Art. 2087)
B. Prohibition against Pactum Commissorium
B.1. The creditor cannot appropriate things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null
and void (Art. 2088)
B.2. Pactum Commissorium stipulation whereby the thing used as a
security shall automatically become the property of the creditor in
the event of non-payment of the principal obligation
B.2.1. GR: Pactum Commissorium is forbidden by law. Any
stipulation to that effect is declared null and void
(Hechanova v. Adil)
B.2.1.1. Exception: The pledgee may appropriate the thing
pledge if after the first and second auctions, the
thing is not sold (Art. 2112)
B.2.2. Requisites:
B.2.2.1. There should be a pledge, mortgage, or
antichresis of property
B.2.2.2. There is a stipulation for an automatic
appropriation by the creditor of the property in
case of nonpayment of principal obligation (A.
Francisco Realty and Dev. Corp. v. CA)
B.2.3. Permissible stipulations:
B.2.3.1. Subsequent modification of original contract
B.2.3.2. Subsequent voluntary cession of property
B.2.3.3. Promise to assign or sell
B.2.3.4. Authority to take possession of property upon
foreclosure
C. All kinds of obligation can be secured
D. Indivisibility
D.1. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the
creditor (Art. 2089)
D.2. the fact that the debtors are not solidarily liable do not affect the
indivisibility of the pledge or mortgage
D.3. Consequences of indivisibility
D.3.1. Single thing every portion of the property pledge or
mortgaged is answerable for the whole obligation as it falls
dues
D.3.2. Several things all of them are liable for the totality of the
dent and the creditor does not have to divide his action by
distributing the debt, among the various things pledge or
mortgage
D.3.3. Neither the debtors heir who has paid part of the debt can
ask for proportionate extinguishment, nor creditors heir
who received his share of the debt return the pledge or
cancel the mortgage as long as the debt is not completely
satisfied
D.4. Exceptions to the rule of indivisibility
D.4.1. where each one of several things guarantees a
determinate portion of the credit
D.4.2. where only a portion of the loan was released
D.4.3. where there was a failure of consideration
D.4.4. where there is no debtor-creditor relationship as when a
third party is the pledgor or mortgagor
E. Possession of a mortgagee or pledgee is not in the concept of an
owner, thus the subject property cannot be acquired through acquisitive
prescription, unless they renounce their status as such
F. Pledgor and mortgagor retains ownership of the thing given as security
G. Promise to constitute pledge or mortgage, if accepted, give rise only
to a personal right binding upon the parties and creates no real right
In the property (Art. 2092)
G.1. The accommodation pledgor or mortgagor is not solidary bound
with the principal obligor but his liability extends only to the
property pledge or mortgaged. In case of deficiency, the creditor
recourse on the principal debtor who remains to be primarily bound
G.2. The invalidity of a pledge or mortgage does not affect the principal
contract of loan. While void, it can still be considered as an
instrument evidencing an indebtness (PNB v. Banatao)
Chattel Mortgage Pledge
As to Delivery
Delivery of the personal property to Delivery of the thing is necessary
the mortgagee is not necessary
As to registration
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Registration in the Chattel Mortgage Registration is not necessary to be
registry is necessary for its validity valid
As to Procedure for Sale
The procedure for sale is found under The procedure for sale is found under
Sec. 14 Act No. 1508, as amended Art. 2112
As to Excess in Foreclosure Proceeds
If property is foreclosed, the excess Debtor is not entitled to excess unless
over the amount due goes to the otherwise agreed upon or except in
debtor case of legal pledge
As to Recovery of Deficiency
If there is deficiency after foreclosure, If there is deficiency, creditor is not
creditor is entitled to recover the entitled to recover notwithstanding
deficiency from the debtor, except any stipulation to the contrary
under Art. 1484
As to Subject Matter
May be constituted only over the May be constituted over any personal
personal property sold in installments property
Real Mortgage Pledge
As to Subject Matter
Constituted on immovable property Constituted on movable property
As to Delivery of Property
Not necessary Property is delivered to pledgee or by
consent to a third person
As to Validity against third persons
Not valid against third persons without Not valid against third persons without
knowledge, unless registered knowledge, unless a description of the
thing pledge and date of the pledge
appear in a public instrument
As to Authority to sell
Mortgagor can sell the property Pledgor can sell the thing pledge only
mortgaged even without the consent with the consent of the pledgee
of the mortgagee
PLEDGE
A. Contract of Pledge contract wherein the debtor delivers to the creditor
or a third person a movable or document evidencing incorporeal rights for
the purpose of securing fulfillment 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
A.1. Nature: Real contract
A.2. Requisites: (in addition to the common essential requisites under
Art. 2085)
A.2.1. Possession of the thing pledge must be transferred to the
creditor or a third person by agreement (Art. 2093)
A.2.2. All movables which are within the commerce of men,
provided they are susceptible of possession (Art. 2094)
and incorporeal rights evidence by documents of title, in
which case, the instruments proving the right pledged shall
be delivered to the creditor, and if negotiable, must be
endorsed
A.2.3. Description of the thing pledged and the date must appear
in a public instrument to bind third persons, but not for the
validity of the contract (Art. 2096)
A.3. Kinds of Pledge
A.3.1. Conventional or Voluntary
A.3.2. Legal
A.3.2.1. provisions on the possession, care, and sale of the
thing pledged governing conventional pledges are
applicable to pledges created by operation of law
(Art. 2121)
A.3.2.2. A thing under Legal pledge may be sold only after
demand of the amount for which the thing is
retained. The public auction shall take place within
1 month after such demand (Art. 2122)
A.4. Characteristics
A.4.1. Real
A.4.2. Accessory
A.4.3. Unilateral
A.4.4. Subsidiary
A.5. Extent of pledge: Unless stipulated otherwise, it extends to the
fruits, interests or earnings of the thing
A.6. In case of doubt as to whether a transaction is a pledge or a dation
in payment, the presumption is in favor of pledge; the latter being
the lesser transmission of rights and interests (Manila Banking
Corp. v. Teodoro)
B. RIGHTS OF PLEDGOR
B.1. To Demand return in case of reasonable grounds to fear
destruction or impairment of the thing without the pledgees fault,
subject to the duty of replacement (Art. 2107)
B.1.1. 2 Remedies granted to the Pledgor
B.1.1.1. to demand the return of the thing pledge upon
offering another thing in pledge
B.1.1.2. Cause the same to be sold at a public sale
B.1.2. Requisites:
B.1.2.1. Pledgor has reasonable grounds to fear the
destruction or impairment of the thing pledged
B.1.2.2. No fault on the part of the pledgee
B.1.2.3. Pledgor offers another thing which is of the same
kind and quality as the former
B.1.2.4. Pledgee does not choose to exercise his right to
cause the thing to be sold at public auction
B.1.2.5. Pledgee advised the pledgor without delay
B.2. To Bid and be preferred at the public auction (Art. 2113)
B.3. To Alienate the thing pledged provided the pledgee consents to
the sale (Art. 2097)
B.4. To Ask that the thing pledged be deposited in any of the following
cases:
B.4.1. If the creditor uses the thing without authority or misuses
the thing, he may deposit the thing judicially or extra
judicially (Art. 2104)
B.4.2. If the thing is in danger of being lost or impaired because of
negligence or willful act of the pledgee, he may deposit the
thing with a third person (Art. 2016)
C. OBLIGATIONS OF THE PLEDGOR
C.1. To Advise the pledgee of the flaws of the thing (Art. 2101 and
1951)
C.2. Not to demand the return of the thing until after full payment of the
debt, including interest due thereon and expenses incurred for its
preservation (Art. 2015)
C.2.1. Exception: Pledgor is allowed to substitute the thing pledge
which is in danger of destruction or impairment with
another thing of the same kind and quality (Art. 2107)
D. RIGHTS OF THE PLEDGEE
D.1. Option to Demand replacement or immediate payment of the debt
in case of deception as to substance or quality (Art. 2109)
D.2. To Sell at public auction in case of reasonable grounds to fear
destruction or impairment of the thing without his fault (Art. 2108)
D.3. To Bring actions pertaining to the owner or to defend it against
third persons (Art. 2103)
D.4. To Choose which of several things pledged shall be sold (Art.
2119)
D.5. To Collect and receive amount due on credit pledged (Art. 2118)
D.6. To Bid at the public auction, unless he is the only bidder (Art.
2113)
D.7. To Appropriate the thing in case of failure of the second public
auction (Art. 2112)
D.8. To Apply the fruits, interests or earnings of the pledge to the
interest, if any, then to the principal of the credit (Art. 2102)
D.9. To Retain excess value received on the public auction
D.10. To Retain the thing until after full payment of the debt
D.11. To be Reimbursed for the expenses made for the preservation of
the thing pledged (Art. 2099)
D.12. To Object to the alienation of the thing
D.13. To Possess the thing (Art. 2098)
D.14. To Sell at public auction in case of non-payment of debt at maturity
E. OBLIGATIONS OF THE PLEDGEE
E.1. To Take care of the thing with diligence of a good father of a family
and be liable for the loss or deterioration of such (Art. 2099)
E.2. Not to Use the thing unless authorized by the owner or its
preservation requires its use (Art. 2104)
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E.3. Not to Deposit the thing with a third person unless so stipulated B.1.4.1. the insurers of the property managed
(Art. 2100) B.1.4.2. Expropriation for public use (Art. 2127)
E.4. Responsibility for Acts of agents and employees as regards the B.2. Reason: The ownership of such accession, accessories, and
thing (Art. 2100) improvements subsequently introduced also belongs to the
E.5. To Advise pledgor of the danger of the thing mortgagor who is the owner of the principal (Castro, Jr. v. CA)
E.6. To Advise the pledgor of the result of the public action (Art. 2116) B.3. Exceptions:
E.7. To Return the thing upon payment of debt B.3.1. An express stipulation excluding them
F. Double Pledge is prohibited B.3.2. There is evidence sufficiently overthrowing the presumption
G. Third person who has any right in or interest to the thing pledged may pay that the mortgagor owns the mortgaged property
the debt as soon as it becomes due and demandable. The creditor cannot B.4. Art. 2127 is irrelevant and inapplicable to mortgages and their
refuse to accept payment (Art. 2117) foreclosures if the mortgagor is later found or declared to be not
H. EXTINGUISHMENT OF PLEDGE the true owners of the property (PNB v. SPs. Maraon)
H.1. Same Causes as all other obligations C. Effects of Mortgage
H.2. Return of the thing pledged by the pledgee to the pledgor C.1. It create real rights
H.3. Statement in writing by the pledgee that he renounces or C.1.1. The mortgage directly and immediately subject the property
Abandons the pledge (Art. 2111) upon which it is imposed, whoever the possessor may be,
H.4. Payment of the debt to the fulfillment of the obligation for whose security it is
H.5. Sale of the thing pledged at public auction constituted (Art. 2126)
H.5.1. Requirements for sale of the thing pledge at public C.1.2. Until discharged upon payment of the obligation, it follows
auction the property wherever it goes and subsists notwithstanding
H.5.1.1. Debt is due and unpaid changes of ownership
H.5.1.2. Sale must be at public auction C.2. It create merely an encumbrance
H.5.1.3. there must be notice to the pledgor and owner C.2.1. A mortgage is merely a security for a debt and an
stating the amount due encumbrance upon the property. It does not extinguish the
H.5.1.4. Sale must be with the intervention of a notary title of the debtor who remains the owner (McCullough v.
public Veloso & Serna)
H.5.2. Nature of the Bids: must be for Cash (Art. 2114) D. STIPULATIONS ON MORTGAGE CONTRACTS
H.6. Appropriation under Art. 2112 D.1. Valid
D.1.1. Including After-Acquired Properties
REAL MORTGAGE D.1.2. Blanket or Dragnet Clause phrased to subsume all debts
of past or future origins
A. Contract of Real Mortgage a contract whereby the debtor secures to D.1.2.1. A mortgage with a dragnet clause is an offer by
the creditor the fulfillment of a principal obligation, specially subjecting to the mortgagor to the bank to provide the security
such security immovable property or real rights over immovable property of the mortgage for advances of an when they
in case the principal obligation is not complied with at the time stipulated were made
A.1. Characteristics D.1.2.1.1. Exception: It can be said that the offer
A.1.1. Real was not accepted by the bank when a
A.1.2. Accessory subsequent advance was made because
A.1.3. Subsidiary of a new security. A mortgage containing
A.1.4. Unilateral a dragnet clause will not be extended to
A.1.5. Indivisible cover future advances unless the
A.1.6. Inseparable document evidencing the subsequent
A.2. Cause or consideration in Mortgage: same as of the principal advances refers to the mortgage as
contract providing security therefor.
A.3. Special Requisites In this case, the security specifically
A.3.1. It can cover only immovable property and alienable real executed for subsequent loans must first
rights imposed upon immovable (Art. 2124) be exhausted before the mortgaged
A.3.1.1. Future property cannot be an object of a contract property can be resorted to (Prudential
of mortgage (Art. 2085) Bank v. Alviar)
However, a stipulation subjecting to the mortgage D.1.3. Requiring Mortgagees Consent Before Alienation
lien, properties and improvements (After-acquired D.1.3.1. valid and binding but only in the sense that the
properties) added to a property already mortgaged mortgagee cannot be compelled to recognize the
which the mortgagor may subsequently acquire, sale while the loan is still unpaid
install, or use in connection with real property D.1.4. Grant of First Refusal
already mortgaged is valid D.1.4.1. A sale made in violation of the mortgagees
A.3.2. It must appear in a public instrument (Art. 2125) contractual right of first refusal is rescissible. The
A.3.2.1. When mortgage is in private document, no valid buyer is presumed to have been notified thereof
mortgage is constituted (Hechanova v. Adil) by the registration of the mortgagee deed
A.3.3. It must be recorded in the Registry of Property (Art. 2125) containing such stipulation, which equates to
to bind third persons notice to the whole world (litonjua v. L&R Corp)
A.4. Kinds of Mortgage D.1.5. Acceleration Clause stipulation stating that on the
A.4.1. Voluntary occasion of the mortgagors default, the whole sum
A.4.2. Legal remaining unpaid automatically becomes due and payable
A.4.3. Equitable D.1.5.1. (Luzon Dev. Bank v. Conquilla)
B. Extent of Mortgage D.2. Void
B.1. Mortgage extends to the following: D.2.1. Forbidding Alienation of Mortgaged Property (Art. 2131)
B.1.1. Natural Accessions D.2.2. Upset Price or TIPO minimum price at which the
B.1.2. Growing fruits property shall be sold at a public auction
B.1.3. Rents or income not yet received when the obligation D.2.2.1. To become operative in the event of a foreclosure
becomes due sale at public auction, is null and void for property
B.1.4. Amount of Indemnity granted or owing to the proprietor must be sold to the highest bidder
from: E. RIGHTS
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E.1. Right to Possession involve an issue that is intimately related to the

E.1.1. GR: The mortgagee has no right or claim to the possession foreclosure proceedings; and lastly, the motions
of the property resolution is not determinative of the foreclosures
E.1.1.1. Exception: If there is a stipulation to the contrary outcome
E.2. Right in Case of Legal Mortgages Further, Act No. 3135 has no requirement for the
E.2.1. The person in whose favor the law establishes a mortgage determination of the mortgaged properties
has the right to demand the execution and recording of the appraisal value (Sycamore Ventures Corp. v.
document in which the mortgage is formalized (Art. 2125) Metropolitan Bank & Trust)
E.3. Doctrine of Mortgagee in Good faith A.1.2. Who may Exercise: creditor-mortgagee or his assigns
E.3.1. A mortgagee has a right to rely in good faith on the A.1.3. What is its Extent
certificate of title of the mortgagor of the property govern as A.1.3.1. GR: must be limited to the amount mentioned in
security and in the absence of any sign that might arouse the mortgage document
suspicion, has no obligation to undertake further A.1.3.1.1. Exception: If it is intended to secure future
investigation and other indebtness
E.3.2. Diligence Required of a Mortgagee-Bank A.1.4. How to Construe Public Notice of Foreclosure: Must be
E.3.2.1. If the mortgagee is a bank or a financing strictly complied with, and slight deviations will invalidate
institution, the general rule that a purchaser or the sale or render it voidable (Roxas v. CA)
mortgagee of land is not required to look further A.1.5. Kinds of Foreclosure
than what appears on the face of the Torrens A.1.5.1. Judicial ordinary foreclosure under Rule 68 of
Certificate of Title does not apply (Premiere Dev. Rules of Court
Bank v. CA) A.1.5.2. Extrajudicial when mortgagee is given a special
E.3.2.2. It is settled that banks, their business being power of attorney to sell the mortgaged property
impressed with public interest more care and by public auction, under Act No. 3135
prudence than private individuals in their dealings, A.1.5.2.1. Construction of Act No. 3135 must be
even those involving registered lands (Philippine equally and mutually beneficial to both
Trust Company v. CA) parties (PNB v. Cabatingan)
E.3.2.3. To be considered a mortgagee in good faith, a A.1.5.3. Judicial Foreclosure v. Extrajudicial
bank should diligently conduct an investigation of Foreclosure
the land offered as a collateral. This is especially Judicial Foreclosure Extrajudicial
applicable in cases where the subject land was not Foreclosure
mortgaged by the owner. Failure to exercise such As to Court Intervention
diligence shall not entitle the bank to protection There is court No court intervention
under the law (Arguelles v. Malarayat Rural intervention
Bank, Inc.) As to the Right of Appeal
E.3.3. Mortgagee Creditor v. Judgment Creditor Decisions are Not appealable, it is
E.3.3.1. While the law expects a mortgagee-creditor to appealable immediately executor
inquire as a reasonably prudent man would As to Cutting Off of Rights
regarding the encumbrances on the property in The order of the court Foreclosure does not
question, no such knowledge is imputed to a cuts off all rights of the cut off the rights of all
judgment creditor who merely seeks the parties impleaded parties involved
satisfaction of the judgment awarded in his favor
As to the Right of Redemption
(DSM Construction & Dev. Corp. v. CA)
There is equity of There is a right of
E.4. Registration of Mortgage
redemption, except on redemption
E.4.1. Once a mortgage has been signed in due form, the
banks which provides
mortgagee is entitled to its registration as a matter of right
for a right of
E.4.2. Effect of registration: A registered mortgage right over
redemption
property previously sold is inferior to the buyers
As to the Period of redemption
unregistered right
Reason: If the original owner had sold the thing, then he no Starts from the finality Starts from the date of
longer had ownership and free disposal of it so as to be of the judgment until registration of the
able to mortgage (State Investment House, Inc. v. CA) order of confirmation certificate of sale
E.5. Alienation or assignment of mortgage credit As to Necessity of a SPA
E.5.1. Mortgage credit may be alienated or assigned to a third No need SPA in favor of the
person, in whole or in part, with the formalities required by mortgagee is needed
law (Art. 2128)/ As to Governing Rule
E.6. Alienation of mortgaged property Governed by Rule 68 Governed by Art. 3135
E.6.1. Mortgagor may alienate the mortgaged property but the of the Rules of Court
mortgage shall remain attached to the property A.1.6. Procedure
E.7. To claim from a third person in possession of the mortgaged A.1.6.1. Steps in Judicial Foreclosure
property the payment of the part of the credit secured by the A.1.6.1.1. Judicial action brought to the proper court
property which said third person possesses (Art. 2129) having jurisdiction
E.8. FORECLOSURE remedy available to the mortgagee by which A.1.6.1.2. Order by the Court for Mortgagor to Pay
he subjects the mortgaged property to the satisfaction of the mortgage debt; if the court find the
obligation to secure that for which the mortgage was given complaint to be well-founded, within a
A.1.1. When to Exercise period of not less than 90 days nor more
A.1.1.1. When the principal obligation is not paid when due than 120 days from the entry of judgment
A.1.1.2. Also when the debtor violated the terms and A.1.6.1.3. Sale to the highest bidder at public
conditions of the mortgage contract auction if the mortgagor fails to pay at the
A.1.1.3. A motion for the appointment of independent time directed in the court order
commissioner cannot serve as a prejudicial A.1.6.1.4. Confirmation of sales
question. It is not a main action but a mere A.1.6.1.4.1. Before Confirmation of a judicial
incident of the main proceedings; it does not foreclosure sale, the court retains
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control of the proceedings by
exercising a sound discretion in
regard to it, either granting or
withholding confirmation
(Salazar v. De Torres)
A.1.6.1.5. Execution of Judgment
A.1.6.1.5.1. The proper remedy to seek
reversal of a judgment in an
action for foreclosure is an
appeal from the judgment itself
or from the order confirming the
sale of foreclosed real estate
(Sps. Agbada v. Inter-Urban
Developers, Inc.)
A.1.6.1.6. Application of the Proceed of the Sale
A.1.6.1.6.1. Costs of Sale
A.1.6.1.6.2. Amount due the mortgagee
A.1.6.1.6.3. Claims of junior encumbrances
or persons holding subsequent
mortgages in the order of their
priority
A.1.6.1.6.4. Balance, if any, shall be paid to
the mortgagor or his duly
authorized agent, or to the
person entitled to it
A.1.6.1.7. Execution of Sheriffs Certificate
A.1.6.2. Steps in Extrajudicial Foreclosure
A.1.6.2.1. Filing of an application before the
Executive Judge through the Clerk of
Court
A.1.6.2.2. Clerk of Court will examine whether the
following requirements of the law have
been complied with
A.1.6.2.2.1. Posting of notice
A.1.6.2.2.2. Publication (if property is worth
more than P400)
A.1.6.2.2.2.1. Under Rural Banks Act,
the posting of a notice of
the foreclosure of the
real estate mortgage in
at least 2 of the most
conspicuous public
places not only in the
municipality but also in
the barrio where the
land mortgaged is
situated during the 60
day period immediately
preceding the public
auction is mandatory
(Guanco v. Antolo)
A.1.6.2.3. The application shall be raffled among
different sheriffs
A.1.6.2.4. An auction sale may be had even with
just 1 participating bidder
A.1.6.2.4.1. The name/s of the bidder/s shall
be reported by the Sheriff or the
Notary Public, who conducted
the sale to the Clerk of Court
before the issuance of the
certificate of sale (Sps. Certeza
v. Phil. Savings Bank)
A.1.6.2.4.2. The indivisibility of a real estate
mortgage is not violated by
conducting two separate
foreclosure proceedings on
mortgaged properties located in
different cities or municipalities
as long as each parcel of land is
answerable for the entire debt
(Sps. Yu v. Philippine
Commercial International
Bank)
A.1.6.2.5. The Clerk of Court shall issue a certificate
of payment
A.1.6.2.6. Certificate of sale must be approved by
the Executive Judge
A.1.6.2.7. After the redemption period has expired,
the Clerk of Court shall archive the
records
A.1.6.2.7.1. Authority to Sell is not
extinguished by the death of the
mortgagor (or mortgagee) as it is
an essential and inseparable part
of a bilateral agreement (Perez
v. PNB)
A.1.7. Remedy of Debtor Aggrieved by Foreclosure under Act No.
3135
A.1.7.1. File a petition that the sale be set aside and that
the writ of possession be cancelled, specifying the
damage to him
A.1.7.1.1. Causes:
A.1.7.1.1.1. The mortgage was not violated
A.1.7.1.1.2. The sale was not made in
accordance with provision
thereof
A.1.7.2. Ask annulment of foreclosure on the following
grounds:
A.1.7.2.1. Fraud, collusion, accident, mutual
mistake, breach of trust or misconduct by
the purchaser
A.1.7.2.2. The sale has not been fairly and regularly
conducted
A.1.7.2.3. The price was inadequate and
inadequacy was so great as to shock the
conscience of the court (United Coconut
Planters Bank v. CA)
A.1.8. Posting and Publication Under Act No. 3135
A.1.8.1. The mortgagor and mortgagee neither have nor
right to waive the posting and publication
requirements. Notices are given to secure bidders
A.1.8.2. Failure constitutes judicial defect, which
invalidates the sale
A.1.8.3. As long as the object of the notice are attained the
sufficiency or validity of a notice of sale is not
affected by immaterial errors or simple mistakes or
omissions not calculated to deter or mislead
bidders, to depreciate the value of the property, or
to prevent from bring a fair price (Sps. Certeza v.
Philippine Savings Bank)
A.1.8.4. Republication is required in case the auction sale
is rescheduled, and absence of such invalidates
the foreclosure sale
A.1.8.5. No requirement of personal notice on the
mortgagor where there is no contractual stipulation
thereof
A.1.8.6. No certificate of posting is required
A.1.8.6.1. Exception: if necessary to prove
compliance with required notice of posting
A.1.8.7. Foreclosure proceedings have in their favor the
presumption of regularity
A.1.9. Effect of Inadequacy of Price
A.1.9.1. GR: When there is a right to redeem, inadequacy
of price is immaterial because the judgment debtor
may reacquire the property easier at a low price or
sell his right to redeem
A.1.9.1.1. Exception: when the prince is so
inadequate as to shock the conscience of
the court taking into consideration the
peculiar circumstances attendant thereto
(United Coconut Planters Bank v. CA)
A.2. Recovery of Deficiency
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A.2.1. After the auction sale is effected and the resulting
deficiency is ascertained, the mortgagee-creditor is entitled
to secure a deficiency judgment which may immediately be
executed, whether or not the mortgagor is still entitled to
redeem the property sold
A.2.2. Judicial Foreclosure mortgagee is specifically given the
right to claim for deficiency
A.2.3. Extrajudicial Foreclosure No such right is given
A.2.4. In both judicial and extrajudicial foreclosure, when a third
person is the mortgagor, he is not liable for any deficiency
in the absence of a contrary stipulation
A.2.5. Action prescribes after 10 years from the time the right of
action accrues
A.3. Redemption transaction by which the mortgagor reacquires or
buys back the property which may have passed under the
mortgage, or divest the property of the lien which the mortgage
may have created
A.3.1. Kinds of Redemption
A.3.1.1. Equity Redemption right of the defendant to
extinguish the mortgage and retain ownership of
the property by paying the secured debt within the
period provided by law
A.3.1.1.1. Exception: there is not right of redemption
from judicial foreclosure sale after the
confirmation of the sale, except those
granted by banks and financial institution
as provided by the General Banking Act
A.3.1.2. Right of Redemption right of a mortgagor to
redeem the mortgaged property in an extrajudicial
foreclosure of real mortgage
A.3.2. Requisites of a valid exercise of the Right of
Redemption:
A.3.2.1. must be made within 12 months from the date of
registration of the sale in the Office of the Registry
A.3.2.2. Payment of the purchase price of the property
involved, plus 1% interest per month thereon,
together with the amounts of assessments of
taxes thereon, if any, paid by the purchaser and
the amount of his prior lien, if any, with the same
rate of interest computed from the date of
registration of the sale, up to the time of
redemption
A.3.2.3. Writ of notice of the redemption must be served on
the officer who made the sale, and a duplicate
filed with the Registry of Property of the Province
A.3.2.4. Tender of payment within the prescribed period to
make the redemption valid or preserved the right
of redemption for future enforcement
A.3.3. Effect of Failure to Redeem: title over the property
consolidates in the purchaser
A.3.4. Period of redemption:
A.3.4.1. Extrajudicial
A.3.4.1.1. Natural person 1 year from registration
of the certificate of sale with Registry of
Deeds
A.3.4.1.2. Juridical Person same as natural
person
A.3.4.1.3. Juridical Person AND Bank 3 months
after foreclosure or before registration of
certificate of foreclosure whichever is
earlier
A.3.4.2. Judicial
A.3.4.2.1. within the period of 90 to 120 days from
the date of the service of the order of
foreclosure or even thereafter, but before
the order of confirmation of the sale
A.3.4.3. Allowing redemption after the lapse of the
statutory period, when the buyer at the foreclosure
sale does not object but even consents to the
redemption, will uphold the policy of law which is
to aid rather than defeat the right of redemption
(Ramirez v. CA)
A.3.5. Persons entitled to exercise right of redemption:
A.3.5.1. Mortgagor or one in privity of title with mortgagor
A.3.5.2. Successors in interests
A.3.6. Payment of Redemption
A.3.6.1. To Whom: purchaser or redemptioner, or for him
to the officer who made the sale
A.3.6.2. Medium of Payment: cash or in check
A.3.7. Amount of Redemption Price
A.3.7.1. When mortgagee is not a bank
A.3.7.1.1. Purchase price of the property
A.3.7.1.2. 1% interest per month on the purchase
price from the date of registration of the
certificate up to the time of redemption
A.3.7.1.3. Necessary expenses incurred by the
purchaser for the improvements made by
him to preserve the property during the
period of redemption
A.3.7.1.4. Taxes paid and amount of purchasers
prior lien, if any, with the same rate of
interest computed from the date of
registration of sale, up tothe time of
redemption
A.3.7.2. When mortgagee is a bank
A.3.7.2.1. Amount fixed by the Court or amount due
under the Mortgage deed
A.3.7.2.2. Interest
A.3.7.2.3. Costs and Expenses
A.4. Right to Possession of Third Persons as purchaser
A.4.1. Both during and after the period of redemption, the
purchaser at the foreclosure sale is entitled as of right to a
writ of possession, regardless of whether or not there is a
pending suit for annulment of the mortgage or the
foreclosure itself
A.4.2. Writ of Possession an order whereby a sheriff is
commanded to place in possession of real or personal
property, the person entitled thereto such as when a
property is extrajudicially foreclose
A.4.3. Right for the issuance of a writ of possession never
prescribes
A.4.4. When writ of possession is not available:
A.4.4.1. where mortgaged property under lease previously
registered in the Registry of Property or despite
non-registration, the mortgagee has prior
knowledge of the existence and duration of the
lease
A.4.4.2. Where mortgagor refuses to surrender property
sold. The remedy is to file an ordinary action for
the recovery of possession
A.4.4.3. When third party is in actual possession adverse
to the judgment debtor
A.5. Options in case of death of debtor
A.5.1. GR: A secured creditor holding a real estate mortgage has
3 distinct, independent, and mutually exclusive remedies
that can be alternatively pursued in case the mortgagor
dies
A.5.1.1. To waive the mortgage and claim the entire debt
from the estate of the mortgagor as an ordinary
claim
A.5.1.2. To foreclose the mortgage judicially and prove any
deficiency as an ordinary claim
A.5.1.3. To rely on the mortgage exclusively, foreclosing
the same at any time before it is barred by
prescription without a right to file a claim for any
deficiency
CHATTEL MORTGAGE
A. Contract of Mortgage a contract by virtue of which personal property is
recorded in the Chattel Mortgage register as a security for the
performance of an obligation (Art. 2140)
A.1. Characteristics
A.1.1. Accessory
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A.1.2. Formal
A.1.3. Unilateral
A.2. Special Requisites:
A.2.1. It 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 (Art. 2140)
A.2.1.1. A real property may be considered as a personal
property for purposes of executing a chattel
mortgage thereon as long as the parties to the
contract so agree and no innocent third party will
be prejudiced thereby. Once the parties so
agreed, they are already stopped from claiming
otherwise (Makati leasing and Financial
Corporation v. Weaver Textile Mills, Inc.)
A.2.1.2. Properties Held to be Mortgageable under
Chattel Mortgage Law
A.2.1.2.1. Shares of stock in a corporation
(Monserrat v. Ceron)
A.2.1.2.2. Interest in the business
A.2.1.2.3. Machinery treated by the parties as
personal property subsequently installed
on leased land (Davo Sawmill Co., Inc.
v. Castillo)
A.2.1.2.4. Vessel, but it is essential that the
mortgage is recorded in the office of the
Philippine Coast Guard of the port of
documentation of such vessels
A.2.1.2.5. Motor vehicles
A.2.1.2.6. Housed of mixed materials
A.2.1.2.7. House intended to be demolished
A.2.1.2.8. House built on rented land
A.2.1.2.9. Machinery which is movable in its nature
and becomes immobilized only by
destination or purpose (Makati leasing
and Financial Corporation v. Weaver
Textile Mills, Inc.)
A.2.1.2.10. House of strong materials
A.2.2. Registration of the mortgage with the Chattel Mortgage
Register where the mortgagor resides. If the property is
located in a different province registration in both provinces
is required
A.2.3. Description of the property as would enable the parties or
other persons to identify the same after reasonable
investigation and inquiry
A.2.4. Accompanied by an affidavit for the purpose of
transforming an already valid mortgage to a preferred
mortgage
A.2.5. It can cover only obligations existing at the time the
mortgage is constituted
A.2.5.1. A mortgage containing a stipulation in regard to
future advance in the credit will take effect only
from the date the same are made and not from the
date of the mortgage
A.3. Mortgage of Improvements on Land
A.3.1. Although the parties to a contract may treat certain
improvements and crops as chattels, insofar as they are
concerned, it is now settled in our jurisdiction, in general,
such improvements, if falling under the provisions of Art.
415 are immovable property
As consequence, am mortgage constituted in the
improvement must be susceptible of:
A.3.1.1. Registration as a real estate mortgage
A.3.1.2. Annotation on the certificate of title to the land to
which they form part, although the land itself may
not be subject to said encumbrance (Tolentino v.
Baltazar)
A.4. Extent of Chattel Mortgage: cover only property described
therein and not like or substituted property therafter acquired by
the mortgagor and placed in the same depositary as the property
originally mortgaged, anything in the mortgage to the contrary
notwithstanding
A.4.1. Stipulation Including After-Acquired Property is valid and
binding where the after-acquired property is
A.4.1.1. In renewal of or in substitution for goods on hand
A.4.1.2. Purchased with the proceeds of the sale of such
goods (Torres v. Limjap)
A.5. Creation of Chattel Mortgage: the registration of the personal
property in the Chattel Mortgage Register as security for the
performance of the obligation (Art. 2140)
A.5.1. Period within which registration Should be made: no
specific time
A.5.2. Venue of Registration
A.5.2.1. If he resides in the PH in the office of the register
of deed of the province in which the mortgagor
resides at the time of the making of the chattel
mortgage
A.5.2.2. If he does not reside in the PH in the province in
which the property is located
A.5.2.3. If the property is situated in the province different
form that in which the mortgagor resides
mortgage shall be recorded in both provinces
A.5.3. Effect of registration
A.5.3.1. It create real right the registration of the chattel
mortgage is an effective and binding notice to
other creditors of its existence and creates a real
right or a lien which, being recorded, follows the
chattel wherever it goes. The registration gives the
mortgagee symbolical possession (Northern
Motors, Inc. v. Coquia)
A.5.3.2. Add nothing to the mortgage
A.5.4. Effect of Failure to register
A.5.4.1. mortgage is still binding between parties, however
the person in whose favor the law establishes a
mortgage has no other right than to demand the
execution and the recording of the document
B. Foreclosure of Chattel Mortgage
B.1. After payment of the debt or performance of the condition specified
in the Chattel Mortgage, the mortgagee must discharge the
mortgage in the manner provided by law. Otherwise, he may be
held liable for damages by any person entitled to redeem the
mortgage
B.1.1. Public Sale
B.1.1.1. If the mortgagor defaults in the payment of the
secured debt or otherwise fails to comply with the
conditions of the mortgage, the creditor has nor
right to appropriate to himself the personal
property because he is permitted only to recover
his credit from the proceeds of the sale of the
property at a public auction through a public officer
in the manner prescribed in Sec. 14 of Act No.
1508
B.1.2. Private Sale
B.1.2.1. There is nothing illegal, immoral, or against public
order in an agreement for the private sale of the
personal properties covered by the chattel
mortgage
B.2. Period to Foreclose: mortgagee may after 30 days from the time
the condition is broken, cause the mortgaged property to be sold
at public auction by a public officer
B.3. Application of Proceeds of Foreclosure Sale
B.3.1. Costs and expenses of keeping the property and its sale
B.3.2. Payment of the obligation secured by the mortgage
B.3.3. Claims of persons holding subsequent mortgages in their
order
B.3.4. Balance, if any, shall be paid to the mortgagor or person
holding under him
C. Right of Mortgagee
C.1. To Recover Deficiency
C.1.1. Where mortgage is foreclosed: Creditor may maintain an
action for deficiency although the Chattel mortgage Law is
silent on this point
C.1.1.1. action for deficiency may be brought within 10
years from the time the cause of action accrues
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C.1.2. Where mortgage is constituted as security for purchase of
personal property payable in installments: No deficiency
judgment can be asked and any agreement to the contrary
shall be void
C.1.3. Where mortgaged property is subsequently attached and
sold: the mortgagee is entitled to deficiency judgment in an
action for specific performance
C.2. To the Possession of the Foreclosed Property
C.2.1. After default: right of the creditor to take the mortgaged
property is implied from the provision (Art. 2087) which
gives him the right to sell
C.2.2. Before default: he is not entitled to possession. Otherwise,
the contract becomes a pledge
C.3. To Institute an action either to effect judicial foreclosure directly or
to secure possess as preliminary to the sale when mortgagor
refuses to yield property
D. Offenses involving Chattel Mortgage
D.1. Knowingly removing any personal property mortgaged under the
Chattel Mortgage Law to any province or city other than the one in
which it was located at the time of the execution of the mortgage
without the written consent of the mortgagee
D.2. Selling or pledging personal property already mortgaged, or any
part thereof, under the term of the Chattel Mortgage Law without
the consent of the mortgagee written on the back of the mortgage
and duly recorded in the Chattel Mortgage Register
ANTICHRESIS
A. Concurrence of Credits this implies the possession by two or more
creditors of equal rights or privileges over the same property or all of the
property of the debtor
B. Preference of Credits It is the right to be paid first
B.1. Rules on Preference Applicable when:
B.1.1. there are two or more creditors
B.1.2. with separate and distinct claims
B.1.3. against the same debtor
B.1.4. who has insufficient property
B.2. There must be a proceeding such as an insolvency proceeding
wherein the creditors can file their claims. The right becomes
significant only after the properties of the debtor have been
inventoried and liquidated, and the claims of the various creditors
have been established (Barretto v. Villanueva; Phil Savings
Bank v. Lantin; DBP v. NLRC)
C. 3 general Categories of Credit
C.1. Special preferred credits listed in Articles 2241 and 2242
C.2. Ordinary preferred credits listed in Art. 2244
C.3. Common credits listed under Art. 2245
D. 2 Tier Order of Preference
D.1. First-Tier includes only taxes, duties and fees due on a specific
movable or immovable property
D.2. Second-Tier all other special preferred (non-tax) credits. These
credits are to be satisfied pari passu and pro rata out of any
residual value of the specific property to which such other credits
relate

A. Contract of Antichresis a contract whereby the creditor acquires the

right to receive the fruits of an immovable property 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
A.1. Characteristics:
A.1.1. Accessory
A.1.2. Formal
A.2. Special Requisites:
A.2.1. It can recover only the fruits of an immovable property but
not the immovable itself
A.2.2. Delivery of the immovable is necessary only for the creditor
to receive the fruits and not for the contract to be binding
A.2.3. Amount of principal and interest must be specified in
writing(Art. 2134)
A.2.4. Express agreement that the debtor will give possession of
the property to creditor and that the letter will apply the
fruits to the interest, if any, then to the principal of his credit
(Art. 2132)
B. RIGHTS OF ANTICHRETIC CREDITOR
B.1. Right to the fruits and income of the thing (Art. 2132)
B.1.1. Actual market value of the fruits at the time of application
thereof to the interest and principal shall be the measure of
such application (Art. 2133)
B.2. To retain the thing until the debt is paid (Art. 2136)
B.3. To have the thing sold upon non-payment at maturity (Art. 2137)
B.4. Preference to the proceeds of the sale of the thing
B.5. To be reimbursed for his expense for machinery and other
improvements on the land, and for the sums paid as land taxes
C. OBLIGATIONS OF ANTRICRETIC CREDITOR
C.1. To pay taxes and charges on the estate if there has been no
stipulation to the contrary, and to bear the expenses necessary for
the preservation and repair. The sums spent shall be deducted
from the fruits (Art. 2136)
C.2. To apply all the fruits, after receiving them, to the payment of
interest, if owing, and thereafter to the principal in accordance with
the provisions of Art. 2133 or 2138
C.3. To render an account of the fruits to the debtor
D. Remedies of Creditor in case of default
D.1. Action for specific performance
D.2. Petition for the sale of the real property as in an foreclosure of
mortgages under Rule 68 of the Rules of Court

CONCURRENCE AND PREFERENCE OF CREDITS

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