Credit Transaction Memory Aid

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

the custody or possession of the thing
thus delivered
LOAN (Articles 1933 1961)
A contract wherein one of the parties

delivers to another, either something not
consumable so that the latter may use
the same for a certain time and return it
or money or other consumable thing,
upon the condition that the same
amount of the same kind and quality
shall be paid. (Art 1933)
Characteristics:
1. Real Contract delivery of the thing
loaned is necessary for the perfection of
the contract
NOTE: An accepted promise to make a
future loan is a consensual contract, and
therefore binding upon the parties but it
is only after delivery, will the real
contract of loan arise. (Art 1934)
2. Unilateral Contract - once the subject
matter has been delivered, it creates
obligations on the part of only one of
the parties (i.e. borrower).
Kinds:
1. Commodatum when the bailor (lender)
delivers to the bailee (borrower) a nonconsumable thing so that the latter may
use it for a certain time and return the
identical thing.
Kinds of commodatum:
a. Ordinary Commodatum use by the
borrower of the thing is for a certain
period of time
b. Precarium - one whereby the bailor
may demand the thing loaned at will
and it exists in the following cases:
i. neither the duration nor purpose
of the contract is stipulated
ii. the use of the thing is merely
tolerated by the owner
CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)

183
MEMORY AID
2. Simple loan or mutuum where the

lender delivers to the borrower
money or other consumable thing
upon the condition that the latter
shall pay the same amount of the
same kind and quality.
Commodatum
Mutuum
Key: COPS-LOTR
1. Object
Non-consumable
Consumable
2. Cause
Gratuitous
May or may not be
gratuitous
3. Purpose
Use or temporary Consumption
possession
4. Subject Matter
Real or personal Only
personal
property
property
5. Ownership of the thing
Retained
by
the Passes to the debtor
bailor
6. Thing to be returned
Exact thing loaned
Equal amount of the
same
kind
and
quality
7. Who bears risk of loss
Bailor
Debtor
8. When to return
In case of urgent Only
after
the
need, even before expiration of the
the expiration of the term
term
Loan
Credit
Delivery by one party

and the receipt of
other party of a
given sum of money
or other consumable
thing
upon
an
agreement, express
or implied, to repay
the same.
Ability of a person to
borrow money or
things by virtue of
the
trust
or
confidence reposed
by the lender that he
will pay what he
promised.
Loan
Credit
1. Interest taken at
Interest is taken in
CIVIL LAW COMMITTEE
the expiration of the

credit
2. Always on a
double name paper
(two
signatures
appear with both
parties held liable
for payment)
IN
CIVIL LAW
advance
Always on a single
name paper (i.e.
promissory note with
no
indorse-ment
other
than
the
maker)
COMMODATUM (Articles 1935 1952)

Nature:
1. PURPOSE: Bailee in commodatum
acquires the temporary use of the thing
but not its fruits (unless stipulated as an
incidental part of the contract).(Art
1935)
Use must be temporary, otherwise
the contract may be a deposit.
2. CAUSE: Essentially gratuitous; it ceases
to
be
a
commodatum
if
any
compensation is to be paid by the
borrower who acquires the use, in such
case there arises a lease contract.
Similar to a donation in that it
confers a benefit to the recipient.
The presumption is that the bailor
has loaned the thing for having no
need therefor.
3. SUBJECT MATTER: Generally nonconsumable whether real or personal
but if the consumable goods are not for
consumption as when they are merely
for exhibition, consumable goods may be
the subject of the commodatum. (Art
1936)
4. Bailor need not be the owner of the
thing owned (Art. 1938) since by the
loan, ownership does not pass to the
borrower.
A mere lessee or usufructuary may
lend but the borrower or bailee
himself may not lend nor lease the
thing loaned to him to a third person
(Art 1932[2])
5. Purely Personal (Art 1939):
Stephen

184
MEMORY AID
Death of either party terminates

the
contract
unless
by
stipulation, the commodatum is
transmitted to the heirs of either
or both parties.
Bailee can neither lend nor lease
the object of the contract to a
third person.
NOTE:Use of the thing loaned

may extend to members of the
bailees household except:
a.
contrary stipulation;
b.
nature of the thing
forbids such use
Obligations of the Bailee: (Arts 1941
1945)
1. To pay for the ordinary expenses for
the use and preservation of the thing
loaned. (Art 1941)
2. To be liable for the loss of the thing
even if it should be through
a
fortuitous event in the following
cases: (KLAS D)
a. when he keeps it longer than the
period stipulated, or after the
accomplishment of its use
b. when he lends or leases it to
third persons who are not
members of his household
c. when the thing loaned has been
delivered with appraisal of its
value
d. when, being able to save either
of the thing borrowed or his own
things, he chose to save the
latter; or
e. when the bailee devoted the
thing for any purpose different
from that for which it has been
loaned (Art 1942)
3. To be liable for the deterioration of
thing loaned (a) if expressly
stipulated; (b) if guilty of fault or
negligence; or (c) if he devotes the
thing to any purpose different from
that for which it has been loaned
CIVIL LAW COMMITTEE
IN
CIVIL LAW
4. To pay for extraordinary expenses arising

from the actual use of the thing by the
bailee, which shall be borne equally by
both the bailor and the bailee, even
though the bailee acted without fault,
unless there is a stipulation to the
contrary (Art 1949 par 2)
5. To return the thing loaned
The bailee has no right to retain the
thing loaned as security for claims
he has against the bailor even for
extraordinary expenses except for a
claim for damages suffered because
of the flaws of the thing loaned.
NOTES:
However, the
bailees right
extends
no
further
than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
He cannot lawfully sell the thing
to satisfy such damages without
courts approval.
In case there are two or more
bailees, their obligation shall be
solidary.
Obligations of the bailor (Art 1946 Art

1952):
1. To respect the duration of the loan
GENERAL RULE: Allow the bailee the
use of the thing loaned for the duration
of the period stipulated or until the
accomplishment of the purpose for
which the commodatum was instituted.
EXCEPTIONS:
a.
In case of urgent need in
which case bailee may demand its
return or temporary use;
b.
The bailor may demand
immediate return of the thing if the
bailee
commits
any
act
of
ingratitude specified in Art. 765.
2. To refund to the bailee extraordinary
expenses for the preservation of the
thing loaned, provided the bailee brings
the same to the knowledge of the bailor
before incurring them, except when
Stephen

185
MEMORY AID
they are so urgent that the reply to
the notification cannot be awaited
without danger.
3. To be liable to the bailee for
damages for known hidden flaws.
Requisites:
a. There is flaw or defect in the
thing loaned;
b. The flaw or defect is hidden;
c. The bailor is aware thereof;
d. He does not advise the bailee of
the same; and
e. The bailee suffers damages by
reason of said flaw or defect
NOTES:
If the above requisites concur,
the bailee has the right of
retention for damages.
The bailor cannot exempt
himself from the payment of
expenses
or
damages
by
abandoning the thing to the
bailee.
SIMPLE LOAN OR MUTUUM (Art 1953
1961)
A contract whereby one party
delivers to another, money or other
consumable
thing
with
the
understanding that the same amount
of the same kind and quality shall be
paid. (Art. 1953)
NOTES:
The mere issuance of the checks
does not result in the perfection of
the contract of loan. The Civil Code
provides that the delivery of bills of
exchange
and
mercantile
documents, such as checks, shall
produce the effect of payment only
when they have been encashed
(Gerales vs. CA 218 SCRA 638). It is
only after the checks have produced
the effect of payment that the
CIVIL LAW COMMITTEE
IN
CIVIL LAW
contract of loan may be deemed

perfected.
The obligation is to pay and not to
return because the consumption of the
thing loaned is the distinguishing
character of the contract of mutuum
from that of commodatum.
No estafa is committed by a person who
refuses to pay his debt or denies its
existence.
Simple Loan/Mutuum
Rent
1. Delivery of money
or some consumable
thing with a promise
to pay an equivalent
of the same kind and
quality
Delivery of some nonconsumable thing in

order that the other
may use it during a
certain period and
return it to the
former.
2. There is a transfer
of ownership of the
thing delivered
There is no transfer
of ownership of the
thing delivered
3. Relationship
between the parties
is that of obligorobligee
Relationship is that
of a landlord and
tenant
4. Creditor receives
payment for his loan
Owner of the
property rented
receives
compensation or
price either in
money, provisions,
chattels, or labor
from the occupant
thereof in return for
its use (Tolentino vs
Gonzales, 50 Phil 558
1927)
Loan
1.
Real contract
2. Generally
unilateral because
only borrower has
obligations
Sale
Consensual contract
Bilateral
reciprocal
and
Stephen

186
MEMORY AID
NOTE: If the property is sold, but the
real intent is only to give the object as
security for a debt as when the price
is comparatively small there really is a
contract of loan with an equitable
mortgage.
Commodatum/
Mutuum
Barter
1. Subject matter is
money or fungible
things
Subject matter is
non-fungible, (non
consumable) things
2. In commodatum,
the bailee is bound
to return the
identical thing
borrowed when the
time has expired or
purpose served
The thing with

equivalent value is
given in return for
what has been
received
3. Mutuum may be
gratuitous and
commodatum is
always gratuitous
Onerous, actually a
mutual sale
Form of Payment (Art 1955):

1. If the thing loaned is money payment must be made in the
currency stipulated, if it is possible;
otherwise it is payable in the
currency which is legal tender in the
Philippines
and
in
case
of
extraordinary inflation or deflation,
the basisi of payment shall be the
value of the currency at the time of
the creation of the obligation
2. If what was loaned is a fungible
thing other than money - the
borrower is under obligation to pay
the lender another thing of the same
kind, quality and quantity. In case it
is impossible to do so, the borrower
shall pay its value at the time of the
perfection of the loan.
Interest
CIVIL LAW COMMITTEE
IN
CIVIL LAW
The compensation allowed by law or

fixed by the parties for the loan or
forbearance of money, goods or credits
Requisites for Demandability: (ELI)
1. must be expressly stipulated
Exceptions:
a. indemnity for damages
b. interest accruing from unpaid
interest
2. must be lawful
3. must be in writing
Compound Interest
GENERAL RULE: Unpaid interest shall not
earn interest.
EXCEPTIONS:
1. when judicially demanded
2. when there is an express stipulation
(must be in writing in view of Art.
1956)
Guidelines for the application of proper
interest rates
1. If there is stipulation: that rate shall be
applied
2. The following are the rules of thumb for
the application/imposition of interest
rates:
a) When an obligation, regardless of its
source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is
breached, the contravenor can be
held liable for damages.
b) With regard particularly to an award
of interest in the concept of actual
and compensatory damages, the
rate of interest, as well as the
accrual thereof, is imposed, as
follows:
i. When the obligation breached
consists of payment of a sum of
money (loan or forbearance of
money), the interest shall be
that which is stipulated or
agreed upon by the parties. In
absence of an agreement, the
rate shall be the legal rate (i.e.
12% per annum) computed from
default.
NOTE: The interest due shall
itself earn legal interest from
Stephen

187
MEMORY AID
the time it is judicially
demanded
ii. In other cases, the rate of
interest shall be six percent
(6%) per annum.
NOTE: No interest, however,
shall
be
adjudged
on
unliquidated
claims
or
damages except when or
until the demand can be
established with reasonable
certainty. When the demand
cannot be established, the
interest shall begin to run
only from the date of the
judgment of the court is
made.
iii. When the judgment of the
court awarding a sum of
money becomes final and
executory, the rate of legal
interest, whether the case
falls under paragraph i or ii
above, shall be 12% per
annum from such finality
until its satisfaction, this
interim period being deemed
to be by then an equivalent
to a forbearance of credit.
(Eastern Shipping Lines vs.
CA, July 12, 1994)
and unsecured
maturity.
CIVIL LAW COMMITTEE
loans,
CIVIL LAW
regardless
of
Validity of unconscionable interest rate in

a loan
Supreme Court in Sps. Solangon vs.
Jose Salazar, G.R. No. 125944, June 29,
2001, said that since the usury law had been
repealed by CB Cir. No. 905 there is no more
maximum rate of interest and the rate will
just depend on the mutual agreement of the
parties (citing Lim Law vs. Olympic Sawmill
Co., 129 SCRA 439). But the Supreme Court
said that nothing in said circular grants
lenders carta blanche authority to raise
interest rates to level which will either
enslave their borrowers or lead to a
hemorrhaging of their assets (citing Almeda
vs. CA, 256 SCRS 292). In Medel vs. CA, 299
SCRA 481, it was ruled that while stipulated
interest of 5.5% per month on a loan is
usurious pursuant to CB Circular No. 905,
the same must be equitably reduced for
being
iniquitous,
unconscionable
and
exorbitant. It is contrary to morals, (contra
bonos mores). It was reduced to 12% per
annum in consonant with justice and fair
play.
DEPOSIT (Articles 1962 2009)
NOTES:
Central Bank Circular No. 416 fixing
the rate of interest at 12% per
annum deals with loans, forbearance
of any money, goods or credits and
judgments involving such loans, or
forbearance in the absence of
express agreement to such rate
Interest as indemnity for damages is
payable only in case of default or
non-performance of the contract. As
they are distinct claims, they may be
demanded
separately.
(Sentinel
Insurance Co., Inc. vs CA, 182 SCRA
517)
Central Bank Circular No. 905 (Dec.
10, 1982) removed the Usury Law
ceiling on interest rates for secured
IN
A contract constituted from the moment

a person receives a thing belonging to
another, with the obligation of safely
keeping it and of returning the same.
Characteristics:
1. Real Contract - contract is perfected
by the delivery of the subject
matter.
2. Unilateral (gratutitous deposit) only
the
depositary
has
an
obligation.
3. Bilateral (onerous deposit) - gives
rise to obligations on the part of
both the depositary and depositor.
Deposit
Mutuum
1. Purpose
Principal purpose is
Principal purpose is
safekeeping or
consumption
Stephen

188
MEMORY AID
custody
2. When to Return
Depositor can
The lender must wait
demand the return of until the expiration
the subject matter at of the period granted
will
to the debtor
3. Subject Matter
Subject matter may
Subject matter is
be movable or
only money or other
immovable property
fungible thing
4. Relationship
Relationship is that
Relationship is that of
of lender (creditor)
depositor and
and borrower
depositary.
(debtor).
5. Compensation
There can be
NO compensation of
compensation of
things deposited with
credits.
each other (except
by mutual
agreement).
Deposit
Commodatum
1. Purpose is
Safekeeping
1. Purpose is the
transfer of the use
2. May be gratuitous
2. Essentially and
always gratuitous
3. Movable/corporeal
things only in case of
extrajudicial deposit
3. Both movable and

immovable may be
the object
Kinds of Deposit:
1. Judicial (Sequestration) takes place
when an attachment or seizure of
property in litigation is ordered.
2. Extra-judicial
a. 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. (Arts 1968 1995)
b. Necessary one made in
compliance
with
a
legal
obligation, or on the occasion of
any calamity, or by travellers in
hotels and inns (Arts 1996 CIVIL LAW COMMITTEE
IN
CIVIL LAW
2004), or by travellers with common

carriers (Art 1734 1735).
NOTE: The chief difference between a
voluntary deposit and a necessary
deposit is that in the former, the
depositor has a complete freedom in
choosing the depositary, whereas in the
latter, there is lack of free choice in the
depositor.
Judicial
Extra-judicial
1. Creation
Will of the court
Will of the parties
or contract
2. Purpose
Security or to insure
Custody and
the right of a party
safekeeping
to property or to
recover in case of
favorable judgment
3. Subject Matter
Movables or
Movables only
immovables,
but generally
immovables
Always onerous
4. Cause
May be compensated or not, but
generally gratuitous
5. When must the thing be returned

Upon order of the
Upon demand of
court or when
depositor
litigation is ended
6. In whose behalf it is held
Person who has a
Depositor or third
right
person designated
GENERAL RULE: Contract of deposit is

gratuitous (Art 1965)
EXCEPTIONS:
1. when there is contrary stipulation
2. depositary is engaged in business of
storing goods
3. property saved from destruction
without knowledge of the owner
NOTES:
Article 1966 does not embrace
incorporeal property, such as rights and
Stephen

189
MEMORY AID
actions, for it follows the person of

the owner, wherever he goes.
A contract for the rent of safety
deposit boxes is not an ordinary
contract of lease of things but a
special kind of deposit; hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a bank and its customer is
that of a bailor and bailee. (CA Agro
vs CA, 219 SCRA 426)
Obligations of the Depositary (Art 1972

1991):
1. To keep the thing safely (Art 1972)
Exercise
over
the
thing
deposited the same diligence as
he would exercise over his
property
2. To return the thing (Art 1972)
Person to whom the thing must
be returned:
a.
Depositor, to his heirs and
successors, or the person who
may have been designated in the
contract
b. If the depositary is capacitated he is subject to all the
obligations of a depositary
whether or not the depositor is
capacitated. If the depositor is
incapacitated, the depositary
must return the property to the
legal representative of the
incapacitated or to the depositor
himself if he should acquire
capacity (Art 1970).
c. If the depositor is capacitated
and
the
depositary
is
incapacitated - the latter does
not incur the obligation of a
depositary but he is liable:
i..to
return
the
thing
deposited while still in his
possession;
ii.to pay the depositor the
amount which he may have
benefited himself with the
thing or its price subject to
the right of any third person
CIVIL LAW COMMITTEE
IN
CIVIL LAW
who acquired the thing in good

faith (Art 1971)
Time of return:
a. Upon demand even though a
specified period or time for such
return may have been fixed except
when the thing is judicially attached
while in the depositarys possession
or should he have been notified of
the opposition of a third person to
the return or the removal of the
thing deposited. (Art 1998)
b. If deposit gratuitous, the
depositary may return the thing
deposited notwithstanding that a
period has been fixed for the
deposit if justifiable reasons exists
for its return.
c.
If the deposit is for a
valuable
consideration,
the
depositary has no right to return the
thing
deposited
before
the
expiration of the time designated
even
if
he
should
suffer
inconvenience as a consequence.(Art
1989)
What
to
return:
product,
accessories, and accessions of the
thing deposited (Art 1983)
3. Not to deposit the thing with a third
person unless authorized by express
stipulation (Art 1973)
The depositor is liable for the loss of
the thing deposited under Article
1973 if:
a.
he transfers
the deposit with a third person
without authority although there is
no negligence on his part and the
third person;
b.
he deposits
the thing with a third person who is
manifestly careless or unfit although
authorized even in the absence of
negligence; or
c.
the thing is
lost through the negligence of his
Stephen

190
MEMORY AID
employees whether the latter
are manifestly careless or not.
4. If the thing deposited should earn
interest (Art 1975):
a. to collect interest and the
capital itself as it fall due
b. to take steps to preserve its
value and rights corresponding to
it
5. Not to commingle things deposited if
so stipulated (Art 1976)
6. Not to make use of the thing
deposited unless authorized (Art
1977)
GENERAL RULE: Deposit is for
safekeeping of the subject matter
and not for use. The unauthorized
use by the depositary would make
him liable for damages.
EXCEPTIONS:
1. When the preservation of the
thing deposited requires its use
2. When
authorized
by
the
depositor
NOTE: The permission to use is NOT
presumed except when such use is
necessary for the preservation of the
thing deposited.
Effect if permission to use is given
(Art 1978):
1.
If thing deposited is
non-consumable, the contract
loses the character of a deposit
and
acquires
that
of
a
commodatum despite the fact
that the parties may have
denominated it as a deposit,
unless safekeeping is still the
principal purpose.
2. If thing deposited consists of
money/consumable things, the
contract is converted into a
simple loan or mutuum unless
safekeeping is still the principal
purpose in which case it is called
an irregular deposit. Example:
bank deposits are irregular
deposits in nature but governed
by law on loans.
CIVIL LAW COMMITTEE
IN
CIVIL LAW
7. When the thing deposited is delivered

sealed and closed :
a. to return the thing deposited in the
same condition
b. to pay for damages should the seal
or lock be broken through his fault,
which is presumed unless proved
otherwise
c. to keep the secret of the deposit
when the seal or lock is broken with
or without his fault (Art 1981)
NOTE: The depositary is authorized
to open the thing deposited which is
closed and sealed when (Art 1982):
i. there is presumed authority (i.e.
when the key has been delivered
to him or the instructions of the
depositor cannot be done
without opening it)
ii. necessity
8. To change the way of the deposit if
under the circumstances, the depositary
may reasonably presume that the
depositor would consent to the change if
he knew of the facts of the situation,
provided, that the former notifies the
depositor thereof and wait for his
decision, unless delay would cause
danger
9. To pay interest on sums converted to
personal use if the deposit consists of
money (Art 1983)
10. To be liable for loss through fortuitous
event (SUDA): (Art 1979):
a. if stipulated
b. if he uses the thing without the
depositor's permission
c. if he delays its return
d. if he allows others to use it, even
though he himself may have been
authorized to use the same
NOTES:
Fixed, savings, and current deposits of
money in banks and similar institutions
shall be governed by the provisions
concerning simple loan. (Art 1980)
The general rule is that a bank can
compensate or set off the deposit in its
hands for the payment of any
Stephen

191
MEMORY AID
indebtedness to it on the part of the
depositor.
In
true
deposit,
compensation is not allowed.
Irregular deposit
Mutuum
1. The consumable
thing deposited may
be demanded at will
by the depositor
1. Lender is bound
by the provisions of
the contract and
cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
2. The only benefit is

that which accrues
to the depositor
2. Essential cause for

the transaction is the
necessity of the
borrower
3. The irregular
depositor has a
preference over
other creditors with
respect to the thing
deposited
3. Common creditors
enjoy no preference
in the distribution of
the debtors property
Rule when there are two or more

depositors (Art 1985):
1. If thing deposited is divisible and
depositors are not solidary: Each
depositor can demand only his
proportionate share thereto.
2. If obligation is solidary or if thing is
not divisible: Rules on active
solidarity shall apply, i.e. each one
of the solidary depositors may do
whatever may be useful to the
others but not anything which may
be prejudicial to the latter, (Art.
1212) and the depositary may return
the thing to anyone of the solidary
depositors unless a demand, judicial
or extrajudicial, for its return has
been made by one of them in which
case, delivery should be made to him
(Art. 1214).
3. Return to one of depositors
stipulated. The depositary is bound
to return it only to the person
designated although he has not made
any demand for its return.
CIVIL LAW COMMITTEE
IN
CIVIL LAW
NOTES:
The depositary may retain the thing in
pledge until full payment of what may
be due him by reason of the deposit (Art
1994).
The depositors heir who in good faith
may have sold the thing which he did
not know was deposited, shall only be
bound to return the price he may have
received or to assign his right of action
against the buyer in case the price has
not been paid him (Art 1991).
Obligations of the Depositor (Art 1992
1995):
1. To pay expenses for preservation
a. If the deposit is gratuitous, the
depositor is obliged to reimburse
the
depositary
for
expenses
incurred for the preservation of the
thing deposited (Art 1992)
b. If the deposit is for valuable
consideration,
expenses
for
preservation are borne by the
depositary unless there is a contrary
stipulation
2. To pay loses incurred by the depositary
due to the character of the thing
deposited
GENERAL RULE: The depositor shall

reimburse the depositary for any loss arising
from the character of the thing deposited.
EXCEPTIONS:
1. at the time of the deposit, the
depositor was not aware of the
dangerous character of the thing
2. when depositor was not expected to
know the dangerous character of the
thing
3. when the depositor notified the
depository of the same
4. the depositary was aware of it
without advice from the depositor
Extinguishment of Voluntary Deposit (Art
1995)
1. Loss or destruction of the thing
deposited
Stephen

192
MEMORY AID
2. In case of gratuitous deposit, upon
the death of either the depositor or
the depositary
3. Other causes, such as return of the
thing, novation, merger, expiration
of the term fulfilment of the
resolutory condition, etc (Art 1231)
Necessary Deposits
1. Made in compliance with a legal
obligation
2. Made on the occasion of any
calamity such as fire, storm, flood,
pillage, shipwreck or other similar
events (deposito miserable)
3. Made by travellers in hotels and inns
or by travellers with common carrier
Deposit by Travellers in hotels and

inns:
The keepers of hotels or inns shall be
responsible as depositaries for the
deposit of effects made by travellers
provided:
a. Notice was given to them or to
their employees of the effects
brought by the guest; and
b. The guests take the precautions
which said hotel-keepers or their
substitutes advised relative to
the care and vigilance of their
effects.
NOTES:
Liability extends to vehicles, animals
and articles which have been
introduced or placed in the annexes
of the hotel.
Liability shall EXCLUDE losses which
proceed from force majeure. The act
of a thief or robber is not deemed
force majeure unless done with the
use of arms or irresistible force.
The hotel-keeper cannot free
himself from the responsibility by
posting notices to the effect that he
is not liable for the articles brought
CIVIL LAW COMMITTEE
IN
CIVIL LAW
by the guest. Any stipulation to such

effect shall be void.
Notice is necessary only for suing civil
liability but not in criminal liability.
GUARANTY (Articles 2047 2084)
A contract whereby a person (guarantor)

binds himself to the creditor to fulfil the
obligation of the principal debtor in case
the latter fail to do so.
Classification of Guaranty:
1. In the Broad sense:
a. Personal - the guaranty is the credit
given by the person who guarantees
the fulfilment of the principal
obligation.
b. Real - the guaranty is the property,
movable or immovable.
2. As to its Origin
a. Conventional - agreed upon by the
parties.
b. Legal - one imposed by virtue of a
provision of a law.
c. Judicial - one which is required by a
court to guarantee the eventual
right of one of the parties in a case.
3. As to Consideration
a. Gratuitous - the guarantor does not
receive any price or remuneration
for acting as such.
b. Onerous - the guarantor receives
valuable consideration.
4. As to the Person guaranteed
a. Single - one constituted solely to
guarantee or secure performance by
the debtor of the principal
obligation.
b. Double or sub-guaranty - one
constituted to secure the fulfilment
by the guarantor of a prior
guaranty.
5. As to Scope and Extent
a. Definite - the guaranty is limited to
the principal obligation only, or to a
specific portion thereof.
Stephen

193
MEMORY AID
b. Indefinite or simple - one which
not only includes the principal
obligation but also all its
accessories including judicial
costs
SURETYSHIP
A contract whereby a person (surety)
binds himself solidarily with the
principal debtor
A relation which exists where one
person (principal) has undertaken an
obligation and another person
(surety) is also under a direct and
primary obligation or other duty to
the obligee, who is entitled to but
one performance, and as between
the two who are bound, the second
rather than the first should perform
(Agro Conglomerates, Inc. vs. CA,
348 SCRA 450)
NOTES:
The reference in Article 2047 to
solidary obligations does not mean
that suretyship is withdrawn from
the applicable provisions governing
guaranty. A surety is almost the
same as a solidary debtor, except
that he himself is a principal debtor.
In suretyship, there is but one
contract, and the surety is bound by
the same agreement which binds the
principal. A surety is usually bound
with the principal by the same
instrument, executed at the same
time
and
upon
the
same
consideration (Palmares vs CA, 288
SCRA 422)
It is not for the obligee to see to it
that the principal debtor pays the
debt or fulfill the contract, but for
the surety to see to it that the
principal debtor pays or performs
(Paramount Insurance Corp vs CA,
310 SCRA 377)
Nature of Suretys undertaking:

1. Liability
is
contractual
accessory but direct
CIVIL LAW COMMITTEE
and
IN
CIVIL LAW
NOTE: He directly, primarily and equally

binds himself with the principal as
original promisor, although he possesses
no direct or personal interest over the
latters obligation, nor does he receive
any benefits therefrom. (PNB vs CA, 198
SCRA 767)
2. Liability limited by the terms of the
contract.
NOTE: It cannot be extended by
implication beyond the terms of the
contract (PNB vs CA, 198 SCRA 767)
3. Liability arises only if principal debtor
is held liable.
NOTES:
The creditor may sue separately or
together the principal debtor and
the surety. Where there are several
sureties, the obligee may proceed
against any one of them.
In the absence of collusion, the
surety is bound by a judgment
against the principal even though he
was not a party to the proceedings.
The nature of its undertaking makes
it privy to all proceedings against its
principal (Finman General Assurance
Corp. vs. Salik, 188 SCRA 740)
4. Surety is not entitled to the benefit of
exhaustion
NOTE: He assumes a solidary liability for
the fulfilment of the principal obligation
(Towers Assurance Corp vs. Ororama
Supermart, 80 SCRA 262) as an original
promissory and debtor from the
beginning.
5. Undertaking is to creditor and not to
debtor.
NOTE: The surety makes no covenant or
agreement with the principal that it will
fulfil the obligation guaranteed for the
benefit of the principal. Such a promise
is not implied by law either; and this is
true even where under the contract the
creditor is given the right to sue the
principal, or the latter and the surety at
the same time. (Arranz vs. Manila
Fidelity & Surety Co., Inc., 101 Phil.
272)
Stephen

194
MEMORY AID
6. Surety is not entitled to notice of
principals default
NOTE: The creditor owes no duty of
active diligence to take care of the
interest of the surety and the surety
is bound to take notice of the
principals default and to perform
the obligation. He cannot complain
that the creditor has not notified
him in the absence of a special
agreement to that effect. (Palmares
vs CA, 288 SCRA 422)
7. Prior demand by the creditor upon
principal is not required
NOTE: As soon as the principal is in
default, the surety likewise is in
default.
8. Surety is not exonerated by neglect
of creditor to sue principal
Characteristics
of
Guaranty
and
Suretyship:
1. Accessory - It is indispensable
condition for its existence that there
must be a principal obligation.
NOTES:
Guaranty may be constituted to
guarantee the performance of a
voidable
or
unenforceable
contract. It may also guarantee
a natural obligation. (Art 2052)
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor.
2. Subsidiary and Conditional - takes
effect only in case the principal
debtor fails in his obligation.
NOTES:
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor. But a guarantor may
bind himself for less than that of
the principal (Art 2054)
CIVIL LAW COMMITTEE
IN
CIVIL LAW
A guaranty may be given as security
3.
4.
5.
6.
for future debts, the amount of

which is not yet known; there can
be no claim against the guarantor
until the debt is liquidated.
A
conditional obligation may also be
secured. (Art 2053)
Unilateral - may be entered even w/o
the intervention of the principal debtor,
in which case Art. 1236 and 1237 shall
apply and it gives rise only to a duty on
the part of the guarantor in relation to
the creditor and not vice versa.
Nominate
Consensual
It is a contract between the
guarantor/surety and creditor.
NOTES:
Acceptance of guaranty by creditor
and notice thereof to guarantor:
In declaring that guaranty must
be express, the law refers solely
and exclusively to the obligation
of the guarantor because it is he
alone who binds himself by his
acceptance. With respect to the
creditor, no such requirement is
needed because he binds himself
to nothing.
However, when there is merely
an offer of a guaranty, or
merely a conditional guaranty,
in the sense that it requires
action by the creditor before the
obligation becomes fixed, it
does not become binding until it
is accepted and until notice of
such acceptance by the creditor
is given to, or acquired by, the
guarantor, or until he has notice
or knowledge that the creditor
has performed the condition and
intends to act upon the
guaranty.
But in any case, the creditor is
not precluded from waiving the
requirement of notice.
Stephen

195
MEMORY AID
The
consideration
of
the
guaranty is the same as the
consideration of the principal
obligation.
The creditor may proceed
against the guarantor although
he has no right of action against
the principal debtor.
7. Not presumed. It must be expressed
and reduced in writing.
NOTE: A power of attorney to loan
money does not authorize the agent
to make the principal liable as a
surety for the payment of the debt
of a third person. (BPI vs. Coster, 47
Phil. 594)
8. Falls under the Statute of Frauds
since it is a special promise to
answer for the debt, default or
miscarriage of another.
9. Strictly interpreted against the
creditor and in favor of the
guarantor/surety and is not to be
extended beyond its terms or
specified limits. (Magdalena Estates,
Inc. vs Rodriguez, 18 SCRA 967) The
rule of strictissimi juris commonly
pertains to an accommodation surety
because the latter acts without
motive of pecuniary gain and hence,
should be protected against unjust
pecuniary
impoverishment
by
imposing on the principal, duties
akin to those of a fiduciary.
NOTES:
The rule will apply only after it
has been definitely ascertained
that the contract is one of
suretyship or guaranty. It cannot
be used as an aid in determining
whether a partys undertaking is
that of a surety or guarantor.
(Palmares vs CA, 288 SCRA 292)
It does not apply in case of
compensated sureties.
10. It is a contract which requires that
the guarantor must be a person
distinct form the debtor because a
CIVIL LAW COMMITTEE
IN
CIVIL LAW
person cannot be the personal guarantor

of himself.
NOTE: However, in a real guaranty, like
pledge and mortgage, a person may
guarantee his own obligation with his
personal or real properties.
Guaranty
Suretyship
1. Liability depends
upon an independent
agreement to pay the
obligation if primary
debtor fails to do so
1. Surety assumes
liability as regular
party
to
the
undertaking
2. Collateral
taking
2. Surety is
original promisor
an
3.
Surety
primarily liable
is
under-
3.
Guarantor
secondarily liable
is
4. Guarantor binds
himself to pay if
the
principal
CANNOT PAY
4. Surety undertakes
to pay if the principal
DOES NOT PAY
5.
Insurer of
solvency of debtor
5.
Insurer of the
debt
6.
Guarantor can
avail of the benefit
of
excussion
and
division
in
case
creditor
proceeds
against him
6.
Surety cannot
avail of the benefit of
excussion and division
Indorsement
Guaranty
1.
Primarily
transfer
of
2. Unless the note is

promptly presented
for
payment
at
maturity and due
notice of dishonor
given to the indorser
within a reasonable
time he will be
discharged
absolutely
from
all
liability
thereon,
whether
he
has
suffered any actual
damage or not
1.
Contract
security
of
2. Failure in either or
both
of
these
particulars does not
generally work as an
absolute discharge of
a guarantors liability,
but his is discharged
only to the extent of
the loss which he may
have
suffered
in
consequence thereof
Stephen

196
MEMORY AID
3. Indorser does not
warrant the solvency.
He is answerable on a
strict
compliance
with the law by the
holder, whether the
promisor is solvent or
not
3.
Guarantor
warrants the solvency
of the promisor
4. Indorser can
sued as promisor
4. Guarantor cannot be
sued as promisor
be
Guaranty
Warranty
A contract by which a
person is bound to
another for the
fulfilment of a
promise or
engagement of a
third party
An undertaking that
the title, quality, or
quantity of the
subject matter of the
contract is what it
has been represented
to be, and relates to
some agreement
made ordinarily by
the party who makes
the warranty
NOTES:
A guaranty is gratuitous, unless there
is a stipulation to the contrary. The
cause of the contract is the same
cause which supports the obligation
as to the principal debtor.
The peculiar nature of a guaranty or
surety agreement is that is is
regarded as valid despite the
absence of any direct consideration
received by the guarantor or surety
either from the principal debtor or
from the creditor; a consideration
moving to the principal alone will
suffice.
It is never necessary that the
guarantor or surety should receive
any part or benefit, if such there be,
accruing to the principal. (Willex
Plastic Industries Corp. vs. CA, 256
SCRA 478)
CIVIL LAW COMMITTEE
IN
CIVIL LAW
Double or sub-guaranty (Art 2051 2nd par)

One constituted to guarantee the
obligation of a guarantor
Continuing guaranty (Art 2053)
One which is not limited to a single
transaction but which contemplates a
future course of dealings, covering a
series of transactions generally for an
indefinite time or until revoked.
NOTES:
Prospective in operation (Dio vs CA,
216 SCRA 9)
Construed as continuing when by the
terms thereof it is evident that the
object is to give a standing credit to the
principal debtor to be used from time to
time either indefinitely or until a certain
period, especially if the right to recall
the guaranty is expressly reserved (Dio
vs CA, 216 SCRA 9)
Future debts may also refer to debts
existing at the time of the constitution
of the guaranty but the amount thereof
is unknown and not to debts not yet
incurred and existing at that time.
Exception to the concept of continuing
guaranty is chattel mortgage. A chattel
mortgage can only cover obligations
existing at the time the mortgage is
constituted and not those contracted
subsequent to the execution thereof
(The Belgian Catholic Missionaries, Inc.
vs. Magallanes Press, Inc., 49 Phil 647).
An exception to this is in case of stocks
in department stores, drug stores, etc.
(Torres vs. Limjap, 56 Phil 141).
Extent of Guarantors liability: (Art 2055)
1. Where the guaranty definite: It is
limited in whole or in part to the
principal debt, to the exclusion of
accessories.
2. Where guaranty indefinite or simple: It
shall comprise not only the principal
obligation, but also all its accessories,
including the judicial costs, provided
with respect to the latter, that the
guarantor shall only be liable for those
Stephen

197
MEMORY AID
costs incurred after he has been
judicially required to pay.
Qualifications of a guarantor: (Arts
2056-2057)
1. possesses integrity
2. capacity to bind himself
3. has sufficient property to answer
for the obligation which he
guarantees
NOTES:
The qualifications need only be
present at the time of the perfection
of the contract.
The subsequent loss of the integrity
or
property
or
supervening
incapacity of the guarantor would
not operate to exonerate the
guarantor or the eventual liability he
has contracted, and the contract of
guaranty continues.
However, the creditor may demand
another guarantor with the proper
qualifications. But he may waive it if
he chooses and hold the guarantor to
his bargain.
Benefit of Excussion (Art 2058)
The right by which the guarantor
cannot be compelled to pay the
creditor unless the latter has
exhausted all the properties of the
principal debtor, and has resorted to
all of the legal remedies against such
debtor.
NOTE:
Not applicable to a contract of
suretyship (Arts 2047, par. 2;
2059[2])
Cannot even begin to take place
before judgment has been obtained
against the debtor (Baylon vs CA,
312 SCRA 502)
When Guarantor is not entitled to the
benefit of excussion: (PAIRS)
CIVIL LAW COMMITTEE
IN
CIVIL LAW
1. If it may be presumed that an execution

on the property of the principal debtor
would not result in the satisfaction of
the obligation
Not necessary that the debtor be
judicially declared insolvent or
bankrupt
2. When he has absconded, or cannot be
sued within the Philippines unless he has
left a manager or representative
3. In case of insolvency of the debtor
Must be actual
4. If the guarantor has expressly renounced
it
5. If he has bound himself solidarily with
the debtor
Other grounds: (BIPS)
6. If he is a judicial bondsman or subsurety
7. If he fails to interpose it as a defense
before judgment is rendered against him
8. If the guarantor does not set up the
benefit against the creditor upon the
latters demand for payment from him,
and point out to the creditor available
property to the debtor within Philippine
territory, sufficient to cover the amount
of the debt (Art 2060)
Demand can be made only after
judgment on the debt
Demand must be actual; joining the
guarantor in the suit against the
principal debtor is not the demand
intended by law
9. Where the pledge or mortgage has been
given by him as special security
Benefit of Division (Art 2065)
Should there be several guarantors of
only one debtor and for the same debt,
the obligation to answer for the same is
divided among all.
Liability: Joint
NOTES:
The creditor can claim from the
guarantors only the shares they are
respectively bound to pay except when
Stephen

198
MEMORY AID
solidarity is stipulated or if any of

the circumstances enumerated in
Article 2059 should take place.
The right of contribution of
guarantors who pays requires that
the payment must have been made
(a) in virtue of a judicial demand, or
(b) because the principal debtor is
insolvent (Art 2073).
If any of the guarantors should be
insolvent, his share shall be borne by
the others including the paying
guarantor in the same joint
proportion following the rule in
solidary obligations.
The above rule shall not be
applicable unless the payment has
been made in virtue of a judicial
demand or unless the principal
debtor is insolvent.
The right to contribution or
reimbursement
from
his
coguarantors is acquired ipso jure by
virtue of said payment without the
need of obtaining from the creditor
any prior cession of rights to such
guarantor.
The co-guarantors may set up
against the one who paid, the same
defenses which have pertained to
the principal debtor against the
creditor and which are not purely
personal to the debtor. (Art 2074)
Procedure when creditor sues: (Art.

2062)
The creditor must sue the principal
alone; the guarantor cannot be sued
with his principal, much less alone
except in Art. 2059.
1. Notice to guarantor of the action
The guarantor must be NOTIFIED
so that he may appear, if he so
desires, and set up defenses he
may want to offer.
If the guarantor appears, he is
still given the benefit of
exhaustion even if judgment
CIVIL LAW COMMITTEE
IN
CIVIL LAW
should be rendered against him and

principal debtor. His voluntary
appearance does not constitute a
renunciation of his right to excussion
(see Art. 2059(1)).
Guarantor cannot set up the
defenses if he does not appear and
it may no longer be possible for him
to question the validity of the
judgment rendered against the
debtor.
2. A guarantor is entitled to be heard
before and execution can be issued
against him where he is not a party in
the case involving his principal
(procedural due process).
Guarantors Right of Indemnity or
Reimbursement (Art 2066)
GENERAL RULE: Guaranty is a contract of
indemnity. The guarantor who makes
payment is entitled to be reimbursed by the
principal debtor.
NOTE: The indemnity consists of: (DIED)
1. Total amount of the debt no right
to demand reimbursement until he
has actually paid the debt, unless by
the terms of the contract, he is
given the right before making
payment. He cannot collect more
than what he has paid.
2. Legal interest thereon from the
time the payment was made known
(notice of payment in effect a
demand so that if the debtor does
not pay immediately, he incurs in
delay) to the debtor, even though it
did not earn interest for the
creditor. Guarantors right to legal
interest is granted by law by virtue
of the payment he has made.
3. Expenses incurred by the guarantor
after having notified the debtor that
payment has been demanded of him
by the creditor; only those expenses
that the guarantor has to satisfy in
accordance
with
law
as
a
consequence of the guaranty (Art.
2055) not those which depend upon
his will or own acts or his fault for
Stephen

199
MEMORY AID
these are his exclusive personal
responsibility and it is not just
that they be shouldered by the
debtor.
4. Damages if they are due in
accordance
with law.
General rules on
damages apply.
EXCEPTIONS:
1. Where
the
guaranty
is
constituted
without
the
knowledge or against the will of
the
principal
debtor,
the
guarantor can recover only
insofar as the payment had been
beneficial to the debtor (Art.
2050).
2. Payment by a third person who
does not intend to be reimbursed
by the debtor is deemed to be a
donation,
which,
however,
requires the debtors consent.
But the payment is in any case
valid as to the creditor who has
accepted it (Art. 1238).
3. Waiver of the right to demand
reimbursement.
Guarantors right to Subrogation
(ART.2067)
Subrogation transfers to the person
subrogated, the credit with all the
rights thereto appertaining either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, subject to
stipulation
in
conventional
subrogation.
NOTE: This right of subrogation is
necessary to enable the guarantor to
enforce the indemnity given in Art. 2066.
It arises by operation of law upon
payment by the guarantor. It is not
necessary that the creditor cede to
the guarantor the formers rights
against the debtor.
It is not a contractual right. The
right of guarantor who has paid a
CIVIL LAW COMMITTEE
IN
CIVIL LAW
debt to subrogation does not stand upon

contract but upon the principles of
natural justice.
The guarantor is subrogated by virtue of
the payment to the rights of the
creditor, not those of the debtor.
Guarantor cannot exercise the right
of redemption of his principal
(Urrutia & Co vs Morena and Reyes,
28 Phil 261)
Effect of Payment by Guarantor

1. Without notice to debtor: (Art 2068)
The debtor may interpose against
the guarantor those defenses which
he could have set up against the
creditor at the time the payment
was made, e.g. the debtor can set
up against the guarantor the defense
of previous extinguishment of the
obligation by payment.
2. Before Maturity (Art 2069)
Not entitled to reimbursement
unless the payment was made with
the consent or has been ratified by
the debtor
Effect of Repeat Payment by debtor: (Art
2070)
GENERAL RULE: Before guarantor pays the
creditor, he must first notify the debtor (Art.
2068). If he fails to give such notice and the
debtor repeats payment, the guarantor can
only collect from the creditor and guarantor
has no cause of action against the debtor for
the return of the amount paid by guarantor
even if the creditor should become
insolvent.
EXCEPTION: The guarantor can still claim

reimbursement from the debtor in spite of
lack of notice if the following conditions are
present: (PIG)
a. guarantor
was
prevented
by
fortuitous event to advise the debtor
of the payment; and
b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
Stephen

200
MEMORY AID
Right of Guarantor to proceed against
debtor before payment
GENERAL RULE: Guarantor has no
cause of action against debtor until after
the former has paid the obligation
EXCEPTION: Article 2071
NOTES:
Article 2071 is applicable and
available to the surety. (Manila
Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494)
Remedy of guarantor:
(a) obtain
release
from
the
guaranty; or
(b) demand a security that shall
protect
him
from
any
proceedings by the creditor, and
against the danger of insolvency
of the debtor
Art. 2066
Art. 2071
Provides for the

enforcement of the
rights of the
guarantor/surety
against the debtor
after he has paid the
debt
Gives a right of
action after payment
Substantive right
Provides for his

protection before he
has paid but after he
has become liable
Protective remedy
before payment.
Preliminary remedy
Extinguishment of guaranty: (RA2CE2)

1. Release 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);
2. If the creditor voluntarily accepts
immovable or other properties in
payment of the debt, even if he
should afterwards lose the same
through eviction or conveyance of
property (Art 2077);
3. Whenever by some act of the
creditor, the guarantors even though
they are solidarily liable cannot be
subrogated to the rights, mortgages
CIVIL LAW COMMITTEE
IN
CIVIL LAW
and preferences of the former (Art

2080);
4. For the same causes as all other
obligations (Art 1231);
5. When the principal obligation is
extinguished;
6. Extension granted to the debtor by the
creditor without the consent of the
guarantor (Art 2079)
BOND
An undertaking that is sufficiently
secured, and not cash or currency
Bondsman (Art 2082)
A surety offered in virtue of a provision
of law or a judicial order. He must have
the qualifications required of a
guarantor and in special laws like the
Rules of Court.
NOTES:
Judicial bonds constitute merely a
special class of contracts of guaranty by
the fact that they are given in virtue
of a judicial order.
If the person required to give a legal or
judicial bond should not be able to do
so, a pledge or mortgage sufficient to
cover the obligation shall admitted in
lieu thereof (Art 2083)
A judicial bondsman and the sub-surety
are NOT entitled to the benefit of
excussion because they are not mere
guarantors, but sureties whose liability
is primary and solidary. (Art 2084)
PLEDGE, MORTGAGE AND ANTICHRESIS
I. Common Elements of Pledge, Mortgage,
and Antichresis (Articles 2085 2092)
A. Essential Requisites (SOD) (Art 2085)
1. Secures the fulfillment of a principal
obligation;
2. Pledgor, mortgagor, antichretic debtor
must be the absolute owner of the thing
pledged or mortgaged; and
The reason being that in anticipation
of a possible foreclosure sale in case
of default which is still a sale, the
Stephen

201
MEMORY AID
rule is that the seller must be
the owner of the thing sold
(Cavite Development Bank vs.
Lim, 324 SCRA 346)
3. Pledgor,
mortgagor,
antichretic
debtor must have free disposal of
their property, or be legally
authorized for such purpose.
NOTES:
Third persons can pledge or
mortgage their own property to
secure the principal obligation.
It is not necessarily void simply
because the accommodation pledgor
or mortgagor did not benefit from
the same. So long as valid consent
was given, the fact that the loan was
given solely for the benefit of the
principal debtor would not invalidate
the mortgage (GSIS vs CA, 170 SCRA
533)
The accommodation pledgor or
mortgagor,
without
expressly
assuming personal liability for such
debt, is not liable for the payment of
any deficiency, should the property
not be sufficient to cover the debt
(Bank of America vs. American
Realty Corporation, 321 SCRA 659).
The accommodation pledgor or
mortgagor is not solidarily bound
with the principal obligor but his
liability extents only to the property
pledged or mortgaged. Should there
be any deficiency, the creditor has
recourse on the principal debtor who
remains to be primarily bound.
The
law
grants
to
the
accommodation
pledgor
or
mortgagor the same rights as a
guarantor and he cannot be
prejudiced by any waiver of defense
by the principal debtor.
B. Prohibition
against
Pactum
Commissorium (Art 2088; 2137)
Pactum Commissorium
CIVIL LAW COMMITTEE
IN
CIVIL LAW
Stipulation whereby the thing pledged or

mortgaged, or under antichresis shall
automatically become the property of
the creditor in the event of nonpayment of the debt within the term
fixed.
Requisites:
1. There should be a pledge, mortgage, or
antichresis of property by way of
security for the payment of the principal
obligation; and
2. There should be a stipulation for an
automatic appropriation by the creditor
of the property in event of nonpayment
of the obligation within the stipulated
period.
GENERAL RULE: Pactum Commissorium is

forbidden by law and is declared null and
void.
EXCEPTION: The pledgee may appropriate
the thing pledged if after the first and
second auctions, the thing is not sold. (Art
2112)
NOTE: The security contract remains
valid; only the prohibited stipulation is
void.
C. Capability to secure all kinds of
obligations, i.e. pure or conditional
(Art 2091)
D. Indivisibility (Art 2089)
GENERAL RULE: A pledge, mortgage, or
antichresis is indivisible, even though the
debt may be divided among the successors
in interest of the debtor or of the creditor.
Their indivisibility is not affected by the
fact that the debtors are jointly or not
solidarily liable.
Consequences of indivisibility:
1. Single thing Every portion of the
property pledged or mortgaged is
answerable for the whole obligation
2. Several things All of the several things
pledged or mortgaged are liable for the
totality of the debt
3. Debtors heir/creditors heir - Neither
the debtors heir who has paid part of
Stephen

202
MEMORY AID
the
debt
cannot
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.
EXCEPTIONS:
1. Where each one of several things
guarantees
a
determinate
portion of the credit
2. Where only a portion of the loan
was released
3. Where there was failure of
consideration.
4. Where there is no debtorcreditor
relationship
NOTES:
The mere embodiment of a real
estate mortgage and a chattel
mortgage in one document does not
have the effect of fusing both
securities into an indivisible whole.
The mortgagee, therefore, may
legally foreclose the real estate
mortgage extrajudicially and waive
the chattel mortgage foreclosure,
and maintain instead a personal
action for the recovery of the unpaid
balance of the credit (Phil. Bank of
Commerce vs. Macadaeg, 109 Phil
981)
E. When the principal obligation
becomes due, the things in which
the
pledge,
mortgage,
or
antichresis
consists
may
be
alienated for the payment to the
creditor. (Art. 2087)
NOTES:
If the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
CIVIL LAW COMMITTEE
IN
CIVIL LAW
If he wishes to secure a title to the

mortgaged property, he can buy it in the
foreclosure sale (Montevirgin vs. CA, 112
SCRA 641)
F. Pledgor,
mortgagor,
antichretic
debtor retains ownership of the thing
given as a security
PLEDGE (Arts 2093 2123)
A contract wherein the debtor delivers

to the creditor or to a third person a
movable
or
document
evidencing
incorporeal rights for the purpose of
securing fulfilment of a principal
obligation with the understanding that
when the obligation is fulfilled, the
thing delivered shall be returned with
all its fruits and accessions.
Special Requisites (in addition to the

common essential requisites):
1. Possession of the thing pledged must be
transferred to the creditor or a third
person by agreement (Art 2093);
2. It can only cover movable property and
incorporeal
rights
evidenced
by
documents of title and the instruments
proving the right pledged shall be
delivered to the creditor, and if
negotiable must be endorsed (Art 2094);
and
3. The description of the thing pledged and
the date must appear in a public
instrument to bind third persons, but
not for the validity of the contract (Art
2096).
1.
2.
Kinds:
Conventional /Voluntary created by
contract
Legal created by operation of law
(examples: Art. 546, 1731 and 1914 NCC)
NOTES:
The provisions of possession, care and
sale of the thing as well as on the
termination of the pledge governing
conventional pledges are applicable to
Stephen

203
MEMORY AID
pledges created by operation of law

(Art 2121)
Unlike, however, in conventional
pledge where the debtor is not
entitled to the excess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
expenses, shall be delivered to the
debtor.
In legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must make a demand for the
payment of the amount due him;
otherwise he cannot exercise the
right of sale at public auction (Art
2122)
Characteristics:
1.
Real
contract it is perfected by the
delivery of the thing pledged by the
debtor who is called the pledgor to
the creditor who is called the
pledgee, or to a third person by
common agreement;
2.
Accessor
y contract it has no independent
existence of its own;
3.
Unilater
al contract it creates an obligation
solely on the part of the creditor to
return the thing subject thereof
upon the fulfilment of the principal
obligation; and
4.
Subsidiar
y contract the obligation incurred
does not arise until the fulfilment
of the principal obligation which is
secured.
Consideration in pledge:
Insofar as the pledgor is concerned,
the cause is the principal obligation.
If the pledgor is not the debtor, the
cause is the compensation stipulated
for the pledge or the mere liberality
of the pledgor.
CIVIL LAW COMMITTEE
IN
CIVIL LAW
Extent of pledge: Unless stipulated

otherwise, pledge extends to the fruits,
interests or earnings of the thing.
Rights and Obligations of a Pledgor
Rights
Obligations
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)
2. To bid and be
preferred at the public
auction (Art 2113)
3. To alienate the thing
pledged provided the
pledgee consents to the
sale (Art 2097)
4. To ask that the thing
pledged be deposited
(Arts 2104 & 2106)
1. To advise the
pledgee of the
flaws of the thing
(Art 2101)
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
2105)
Rights of the Pledgee

KEY: D SBC BA2R2OPS2
1. Option to demand replacement or
immediate payment of the debt in case of
deception as to substance or quality (Art
2109)
2. To sell at public auction in case of
reasonable grounds to fear destruction or
impairment of the thing without his fault
(Art 2108)
3. To bring actions pertaining to the owner
(Art 2103)
4. To choose which of several things
pledged shall be sold
5. To bid at the public auction (Art 2113)
6. To appropriate the thing in case of
failure of the 2nd public auction (Art 2112)
7. To apply said fruits, interests or earnings
to the interest, if any, then to the principal
of the credit (Art 2102)
8. To retain excess value received in the
public sale (Art 2115)
9. To retain the thing until after full
payment of the debt (Art 2098)
10. To be reimbursed for the expenses made
for the preservation of the thing pledged
(Art 2099)
Stephen

204
MEMORY AID
11. To object to the alienation of the
thing
12. To possess the thing (Art 2098)
non-payment of debt at maturity (Art
2112)
To choose which of the several things
pledged shall be sold (Art 2119)
14. Option to demand replacement or
immediate payment of the debt in case
of deception as to substance or quality
(Art 2109)
reasonable grounds to fear destruction
or impairment of the thing without his
fault (Art 2108)
16. To bring actions pertaining to the
owner (Art 2103)
17. To choose which of several things
pledged shall be sold
18. To bid at the public auction (Art
2113)
19. To appropriate the thing in case of
failure of the 2nd public auction (Art
2112)
20. To apply said fruits, interests or
earnings to the interest, if any, then to
the principal of the credit (Art 2102)
21. To retain excess value received
in the public sale (Art 2115)
22. To retain the thing until after full
payment of the debt (Art 2098)
23. To be reimbursed for the expenses
made for the preservation of the thing
pledged (Art 2099)
24. To object to the alienation of the
thing
25. To possess the thing (Art 2098)
non-payment of debt at maturity (Art
2112)
27. To choose which of the several things
pledged shall be sold (Art 2119)
Obligations of the Pledgee
KEY: CUDA3
1. Take care of the thing with the
diligence of a good father of a family
(Art 2099)
CIVIL LAW COMMITTEE
IN
CIVIL LAW
2. Not to use thing unless authorized or by

the owner or its preservation requires its use
(Art 2104)
3. Not to deposit the thing with a 3 rd person
unless so stipulated (Art 2100)
4. Responsibility for acts of agents and
employees as regards the thing (Art 2100)
5. To advise pledgor of danger to the thing
(Art 2107)
6. To advise pledgor of the result of the
public auction (Art 2116)
RIGHT OF PLEDGOR TO SUBSTITUTE THING
PLEDGED (ART.2107)
Requisites:
1. The pledgor has reasonable grounds
to
fear
the
destruction
or
impairment of the thin pledged
2. There is no fault on the part of the
pledgee
3. The pledgor is offering in place of
the thing, another thing in pledge
which is of the same kind and
quality as the former
4. The pledge does not choose to
exercise his right to cause the thing
pledged to be sold at public auction
NOTE: The pledgees right to have the thing
pledged sold at public sale granted under
the Article 2108 is superior to that given to
the pledgor to substitute the thing pledged
under Article 2107.
Prohibition against double pledge
Property which has been lawfully
pledged to one creditor cannot be
pledged to another as long as the first
one subsists.
NOTE: Possession of a creditor of the thing
pledged is an essential requisite of pledge.
Extinguishment of Pledge (CRAPS)
1. For the same causes as all other
obligations (Art 1231)
2.
Return of the thing pledged by the
pledgee to the pledgor (Art 2110)
3.
Statement in writing by the pledgee
that he renounces or abandons the
pledge (Art 2111)
4.
Payment of the debt (Art 2105)
Stephen

205
MEMORY AID
Sale of thing pledged at public
auction (Art 2115)
NOTE: The possession by the debtor or
owner of the thing pledged subsequent
to the perfection of the pledge gives rise
to a prima facie presumption that the
thing has been returned and, therefore,
that the pledge has been extinguished
but not the principal obligation itself.
(Art 2110)
Effect of sale of the thing pledged: (Art

2115)
1. The sale of the thing pledged shall
extinguish the principal obligation,
whether or not the proceeds of the
sale are equal to the amount of the
principal obligation, interest and
expenses in a proper case
2. If the price of the sale is more than
the amount due the creditor, the
debtor is not entitled to the excess
unless the contrary is provided
3. If the price of the sale is less, the
creditor is not entitled to recover
the deficiency even if there is a
stipulation to that effect
REAL ESTATE
2124-2131)
MORTGAGE
(Articles
A contract whereby the debtor

secures to the creditor the
fulfilment of a principal obligation,
specially subjecting to such security
immovable property or real rights
over immovable property in case the
principal obligation is not complied
with at the time stipulated.
Characteristics of the contract:

1. Real
CIVIL LAW COMMITTEE
CIVIL LAW
2. Accessory
3. Subsidiary
4. Unilateral it creates only an
obligation on the part of the
creditor who must free the property
from the encumbrance once the
obligation is fulfilled.
5.
Requirements for sale of thing pledged

at public auction: (Art 2112)
1. The debt is due and unpaid
2. Sale must be at a public auction
3. there must be notice to the pledgor
and owner, stating the amount due
4. Sale must be with the intervention
of a notary public
IN
NOTES:
As an accessory contract, its
consideration is that of the principal
contract from which it receives life.
A mortgage does not involve a transfer,
cession or conveyance of property but
only constitutes a lien thereon. Until
discharged, it follows the property
wherever
it
goes
and
subsists
notwithstanding changes of ownership.
A mortgage gives the mortgagee no right
or claim to the possession of the
property, and therefore, a mere
mortgagee has no right to eject an
occupant of the property mortgaged
unless the mortgage should contain
some provision to that effect. The only
right of a mortgagee in case of nonpayment of a debt secured by mortgage
would be to foreclose the mortgage and
have the encumbered property sold to
satisfy the outstanding indebtedness. If
the possession is transferred to the
mortgagee, it must not expressly be for
purpose of applying the fruits to the
interest then to the principal of the
credit, for then it would be an
antichresis.
It is not an essential requisite that the
principal of the mortgage credit bears
interest, or that the interest as
compensation for the use of the
principal and enjoyment of its fruits be
in the form of a certain percent thereof.
1. It can cover only immovable property
and alienable real rights imposed upon
immovables (Art 2124);
Stephen

206
MEMORY AID
2. It must appear in a public instrument
(Art. 2125); and
3. Registration in the registry of
property is necessary to bind third
persons, but not for the validity of
the contract (Art 2125).
An order for foreclosure cannot
be refused on the ground that
the mortgage had not been
registered provided no innocent
third parties are involved.
NOTE: Where a mortgage is not valid or
false, the principal obligation which it
guarantees is not rendered null and void.
What is lost only is the right to foreclose
the mortgage as a special remedy for
satisfying or settling the indebtedness
which is the principal obligation but the
mortgage deed remains as evidence or
proof of a personal obligation of the
debtor and the amount due to the
creditor may be enforced in an ordinary
personal action.
Kinds:
1. Voluntary agreed to by the parties
or constituted by the will of the
owner of the property on which it is
created
2. Legal one required by law to be
executed in favour of certain persons
The persons in whose favour the
law establishes a mortgage have
no other right than to demand
the execution and the recording
of the document in which the
mortgage is formalized (Art 2125
par 2)
3. Equitable one which, although
lacking the formalities of a
mortgage, shows the intention of the
parties to make the property a
security for a debt
PLEDGE
1. Constituted on
movables
2. Property is
delivered to pledgee
or by common
consent to a third
REAL MORTGAGE
1. Constituted on
immovables
2. Delivery is not
necessary
CIVIL LAW COMMITTEE
person
3. Not valid against
third persons unless a
description of the
thing pledged and
date of pledge
appear in a public
instrument
IN
CIVIL LAW
3. Not valid against

third persons unless
registered
Extent of Mortgage:
Absent express stipulation to the
contrary, the mortgage includes the
accessions,
improvements,
growing
fruits and income of the property not
yet received when the obligation
becomes due and to the amount of the
indemnity granted or owing to the
proprietor from the insurers of the
property mortgaged, or in virtue of
expropriation for public use (Art 2127)
Object of Mortgage:
Future property cannot be an object of
a contract of mortgage (Art 2085[2])
However, a stipulation subjecting to the
mortgage
lien,
properties
(improvements) which the mortgagor
may subsequently acquire install, or use
in connection with real property already
mortgaged belonging to the mortgagor is
valid (Peoples Bank and Trust Co. vs.
Dahican Lumber Co., 20 SCRA 84)
Special Rights:
1. Mortgagor - To alienate the mortgaged
property but the mortgage shall remain
attached to the property.
NOTE: A stipulation forbidding the owner
from alienating the immovable mortgage
shall be void (Art 2130) being contrary to
public policy inasmuch as the transmission of
property should not be unduly impeded.
2. Mortgagee - To claim from a 3rd person
in possession of the mortgaged property
the payment of the part of the credit
secured by the which said third person
possesses (Art 2129)
NOTE: It is necessary that prior demand for
payment must have been made on the
Stephen

207
MEMORY AID
debtor and the latter failed to pay (BPI
vs Concepcion & Hijos, Inc., 53 Phil 906)
Foreclosure
The remedy available to the
mortgagee by which he subjects the
mortgaged
property
to
the
satisfaction of the obligation to
secure that for which the mortgage
was given
NOTES:
It denotes the procedure adopted by
the mortgagee to terminate the
rights of the mortgagor on the
property and includes the sale itself
(DBP vs Zaragoza, 84 SCRA 668)
Foreclosure is valid where the debtor
is in default in the payment of his
obligation (Gobonseng, Jr. vs CA,
246 SCRA 472)
Kinds:
1. Judicial ordinary action for
foreclosure under Rule 68 of the
Rules of Court
2. Extrajudicial when mortgagee is
given a special power of attorney to
sell the mortgaged property by
public auction, under Act No. 3135
Judicial
foreclosure
1. There is court
intervention
2. Decisions are
appealable
3. Order of court
cuts off all rights of
the parties
impleaded
4. There is equity
of redemption
except on banks
which provides for
a right of
redemption
5. Period of
redemption starts
from the finality of
Extrajudicial
foreclosure
1. No court
intervention
2. Not appealable
because it is
immediately
executory
3. Foreclosure does
not cut off right of
all parties involved
4. There is right of
redemption
5. Period to redeem
start from date of
registration of
CIVIL LAW COMMITTEE
the judgment until

order of
confirmation
6. No need for a
special power of
attorney in the
contract of
mortgage
IN
CIVIL LAW
certificate of sale
6. Special power of
attorney in favor of
mortgagee is
needed in the
contract
NOTES:
A foreclosure sale retroacts to the date
of registration of the mortgage and that
a person who takes a mortgage in good
faith and for valuable consideration, the
record showing clear title to the
mortgagor, will be protected against
equitable claims on the title in favor of
third persons, of which he had no actual
or constructive notice (St. Dominic
Corporation vs. IAC 151 SCRA 577).
Where there is a right to redeem,
inadequacy of price is not material
because the judgment debtor may
reacquire the property or else sell his
right to redeem and thus recover any
loss he claims to have suffered by reason
of the price obtained at the auction sale
and consequently not sufficient to set
aside the sale. Mere inadequacy of the
price obtained at the sheriffs sale will
not be sufficient to set aside the sale
unless the price is so inadequate as to
shock the conscience of the court
taking into consideration the peculiar
circumstances attendant thereto. (Sulit
vs. CA, 268 SCRA 441)
Should there remain a balance due to
the mortgagee after applying the
proceeds of the sale, the mortgagee is
entitled to recover the deficiency. This
rule applies both to judicial and extrajudicial foreclosure real mortgage.
The action to recover a deficiency after
foreclosure prescribes after 10 years
from the time the right of action
accrues (Arts 1142 & 1144).
Stipulation of upset price or tipo
It is a stipulation in a mortgage of real
property of minimum price at which the
Stephen

208
MEMORY AID
property shall be sold, to become
operative in the event of a
foreclosure sale at public auction. It
is null and void for the property must
be sold to the highest bidder. Parties
cannot, by agreement, contravene
the law and interfere with the lawful
procedure of the courts (BPI vs Yulo,
31 Phil 476)
3.
4.
Extrajudicial foreclosure real property

(Act No. 3135)
The law covers only real estate
mortgages. It is intended merely to
regulate the extrajudicial sale of the
property mortgaged if and when the
mortgagee is given a special power
of express authority to do so in the
deed itself or in a document
annexed thereto.
The authority to sell is not
extinguished by the death of the
mortgagor (or mortgagee) as it is an
essential and inseparable part of a
bilateral agreement (Perez vs PNB,
17 SCRA 833).
No sale can be legally made outside
the province in which the property
sold is situated; and in case the
place within said province in which
the sale is to be made is the subject
of stipulation, such sale shall be
made in the said place in the
municipal
building
of
the
municipality in which the property or
part thereof is situated.
Procedure for extrajudicial foreclosure
of both real estate mortgage under Act
No. 3135 and chattel mortgage under
Act No. 1508 (A.M. No. 99-10-05-0,
January 15, 2000)
1. Filing of application before the
Executive Judge through the Clerk of
Court
2. Clerk of Court will examine whether
the requirement of the law have
been complied with, that is, whether
the notice of sale has been posted
for not less than 20 days in at least
three (3) public places of the
CIVIL LAW COMMITTEE
5.
6.
7.
8.
9.
IN
CIVIL LAW
municipality or city where the property

is situated, and if the same is worth
more than P400.00, that such notice has
been published once a week for at least
three (3) consecutive weeks in a
newspaper of general circulation in the
city of municipality
The certificate of sale must be approved
by the Executive Judge
Where
the
application
concerns
extrajudicial
foreclosure
of
real
mortgages
in
different
locations
covering one indebtedness, only one
filing fee corresponding to such debt
shall be collected
The Clerk of Court shall issue certificate
of payment indicating the amount of
indebtedness, the filing fees collected,
the mortgages sought to be foreclosed,
the description of the real estates and
their respective locations
The notice of sale shall be published in a
newspaper
of
general
circulation
pursuant to Section 1, PD No. 1079
The application of shall be raffled
among all sheriffs
After the redemption period has
expired, the Clerk of Court shall archive
the records.
No auction sale shall be held unless
there are at least two (2) participating
bidders, otherwise the sale shall be
postponed to another date. If on the
new date set forth for the sale there
shall not be at least two bidders, the
sale shall then proceed. The names of
the bidders shall be reported to the
Sheriff of the Notary Public, who
conducted the sale to the Clerk of Court
before the issuance of the certificate of
sale.
NOTES:
The Mortgagor and Mortgagee have no
right to waive the posting and
publication requirements under Act. No.
3135. Notices are given to secure
bidders and prevent a sacrifice of the
property.
Clearly,
the
statutory
requirements of posting and publication
are mandated, not for the mortgagors
Stephen

209
MEMORY AID
benefit, but for the public or third

persons. Failure to comply with the
statutory
requirements
as
to
publication of notice of auction sale
constitutes a jurisdictional defect
which invalidates the sale.Lack of
republication
of
notice
of
foreclosure sale made subsequently
after the original date renders such
sale void (PNB vs. Nepomuceno
Productions Inc., G.R. No. 139479.
December 27, 2002).
Sec 3 of Act 3135 does not require
personal or any particular notice on
the mortgagor much less on his
successors-in-interest where there is
no contractual stipulation therefor.
Hence, unless required in the
mortgage contract, the lack of such
notice is not a ground to set aside a
foreclosure sale.
Neither does Sec 3 require posting of
notice of sale on the mortgage
property and the certificate of
posting is not required, much less
considered indispensable, for the
validity of a foreclosure sale.
Redemption
It is the transaction by which the
mortgagor reacquires or buys back
the property which may have passed
under the mortgage, or divests the
property of the lien which the
mortgage may have created.
NOTES:
A sale by the mortgagor to a third
party of the mortgaged property
during the period for redemption
transfers only the right to redeem
the property and the right to
possess, use and enjoy the same
during said period.
Where sale with assumption of
mortgage not registered and made
without
the
consent
of the
mortgagee, the buyer, thereof, was
not validly substituted as debtor
CIVIL LAW COMMITTEE
IN
CIVIL LAW
and, hence, had no right to redeem

(Bonnevie vs. CA, 125 SCRA 122).
Kinds:
1. Equity of Redemption right of
mortgagor to redeem the mortgaged
property after his default in the
performance of the conditions of the
mortgage within the 90-day period from
the date of the service of the order of
foreclosure or even thereafter but
before the confirmation of the sale.
Applies to judicial foreclosure of real
mortgage
and
chattel
mortgage
foreclosure.
NOTE:
Redemption
of
the
banking
institutions is allowed within one year from
confirmation of sale.
2. Right of Redemption right of
mortgagor to redeem the mortgaged
property within one year from the date
of registration of the certificate of sale.
Applies only to extrajudicial foreclosure
of real mortgage.
NOTE: The right of redemption, as long as
within the period prescribed, may be
exercised irrespective of whether or not the
mortgagee has subsequently conveyed the
property to some other party (Sta. Ignacia
Rural Bank, Inc. vs. CA, 230 SCRA 513)
Period of Redemption
1. Extra-judicial (Act #3135)
a. natural person one year from
registration of the certificate of
sale with Registry of Deeds
b. juridical person same rule as
natural person
c. juridical person (mortgagee is bank)
- three months after foreclosure or
before registration of certificate of
foreclosure which ever is earlier
(sec. 47, of General Banking Law)
2. Judicial before confirmation of the
sale by the court
NOTE: Allowing a redemption after the
lapse of the statutory period, when the
Stephen

210
MEMORY AID
buyer at the foreclosure sale does not
object but even consents to the
redemption, will uphold the policy of the
law which is to aid rather than defeat
the right of redemption. There is nothing
in the law which prevents a waiver of
the statutory period for redemption
(Ramirez vs CA, 219 SCRA 598).
Amount of the redemption price:
1. Mortgagee is not a bank (Act No.
3135, in relation to Sec. 28, Rule 39
of Rules of Court)
a. purchase price of the property
b. 1% interest per month on the
purchase price
c. taxes paid and amount of
purchasers prior lien, if any,
with the same rate of interest
computed from the date of
registration of sale, up to the
time of redemption
2. Mortgagee is a bank (GBL 2000)
a. amount due under the mortgage
deed
b. interest
c. cost and expenses
NOTE: Redemption price in this
case is reduced by the income
received from the property
IN
CIVIL LAW
2. Formal contract it must be in a

specified form to be valid, i.e., in
writing. (Art 2134)
1.
2.
3.
4.

It can cover only the fruits of an
immovable property; (Art 2132)
Delivery of the immovable is necessary
for the creditor to receive the fruits and
not that the contract shall be binding;
Amount of principal and interest must
be specified in writing (Art. 2134); and
Express agreement that debtor will give
possession of the property to creditor
and that the latter will apply the fruits
to the interest, if any, then to the
principal of his credit. (Art 2132)
NOTE: The obligation to pay interest is not

of the essence of the contract of
antichresis, there being nothing in the Code
to show that antichresis is only applicable to
securing the payment of interest-bearing
loans. On the contrary, antichresis is
susceptible of guaranteeing all kinds of
obligations, pure or conditional
Antichresis
Pledge
1. Refers to real
property
2. Perfected by mere
consent
1. Refers to personal
property
2.
Perfected
by
delivery of the thing
pledged
3. Consensual contract 3. Real Contract
ANTICHRESIS (Articles 2132 -2139)
A contract whereby the creditor

acquires the right to receive the
fruits of an immovable of the debtor,
with the obligation to apply them to
the payment of the interest, if
owing, and thereafter to the
principal of his credit (Art 2132)
Characteristics
1. Accessory contract it secures the
performance of a principal obligation
CIVIL LAW COMMITTEE
Antichresis
Real Mortgage
1. Property is
delivered to creditor
1. Debtor usually
retains possession of
the property
2. Creditor does not
have any right to
receive the fruits;
but the mortgage
creates a real right
over the property
3. The creditor has no
such obligation
2. Creditor acquires
only the right to
receive the fruits of
the property, hence,
it does not produce a
real right
3. The creditor,
unless there is
stipulation to the
Stephen

211
MEMORY AID
IN
CIVIL LAW
contrary, is obliged to
pay the taxes and
charges upon the
estate
4. It is expressly
4. There is no such
stipulated that the
obligation on part of
creditor given
mortgagee
possession of the
property shall apply
all the fruits thereof
to the payment of
interest, if owing,
and thereafter to the
principal
Subject matter of both is real property
NOTES:
The parties, however, may agree on an
extrajudicial foreclosure in the same
manner as they are allowed in contracts
of mortgage and pledge (Tavera vs. El
Hogar Filipino, Inc., 68 Phil 712).
A stipulation authorizing the antichretic
creditor to appropriate the property
upon the non-payment of the debt
within the agreed period is void (Art
2088).
Obligations of antichretic creditor:

1 To pay taxes and charges on the
estate, including necessary expenses
NOTE: Creditor may avoid said
obligation by:
a. compelling
debtor
to
reacquire enjoyment of the
property or
b. by
stipulation
to
the
contrary
2 To apply all the fruits, after
receiving them, to the payment of
interest, if owing, and thereafter to
the principal
3 To render an account of the fruits to
the debtor
4 To bear the expenses necessary for
its preservation and repair
Remedies of creditor in case of nonpayment of debt
1.
1. Bring an action for specific

performance; or
2. Petition for the sale of the real
property as in a foreclosure of
mortgages under Rule 68 of the Rules
of Court.(Art 2137)
CHATTEL MORTGAGE (Articles 2140-2141)
Characteristics
1. Accessory contract it is for the purpose
of securing the performance of a
principal obligation
2. Formal contract registration in the
Chattel
Mortgage
Register
is
indispensable for its validity
3. Unilateral contract it produces only
obligations on the part of the creditor to
free the thing from the encumbrance on
fulfilment of the obligation.
2.
3.
4.
CIVIL LAW COMMITTEE
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).

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;
Registration of the mortgage with the
Chattel Mortgage Register where the
mortgagor resides; if property is located
in a different province, registration in
both provinces required;
Description of the property as would
enable the parties or other persons to
identify the same after reasonable
investigation and inquiry; and
Accompanied by an affidavit of good
faith to bind third persons, but not for
the validity of the contract.
Stephen

212
MEMORY AID
5. It can cover only obligations existing
at the time the mortgage is
constituted.
NOTE: A mortgage containing a
stipulation in regard to future
advances in the credit will take
effect only from the date the same
are made and not from the date of
the mortgage (Jaca vs Davao Lumber
Co., 113 SCRA 107)
Effect of registration: Creates a 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. vs. Coquia, 68 SCRA
374).
Effect of failure to register chattel
mortgage in the chattel mortgage
registry
Article 2140 makes the recording in
the Chattel Mortgage Register an
essential requisite but if the
instrument is not recorded, the
mortgage is nevertheless binding
between the parties. But the person
in whose favour the law establishes a
mortgage has no other right than to
demand the execution and the
recording of the document.
Chattel Mortgage
Pledge
1. Delivery of the
1. Delivery of the
personal property
thing pledged is
to the mortgage is
necessary
not necessary
2. registration in
2. registration not
the Chattel
necessary to be
Mortgage Registry
valid
is necessary for its
validity
3. If property is
3. Debtor is not
foreclosed, the
entitled to excess
CIVIL LAW COMMITTEE
excess over the

amount due goes to
the debtor
IN
CIVIL LAW
unless otherwise
agreed or except in
case of legal
pledge
4. If there is
deficiency, creditor
is not entitled to
recover
notwithstanding
any stipulation to
the contrary
4. If there is
deficiency after
foreclosure,
creditor is entitled
to recover the
deficiency from the
debtor, except
under Art. 1484
Subject matter of both is movable
property
Affidavit of Good Faith

Oath in a contract of chattel mortgage
wherein the parties "severally swear
that the mortgage is made for the
purpose of securing the obligation
specified in the conditions thereof and
for no other purposes and that the same
is a just and valid obligation and one not
entered into for the purpose of fraud.
(Sec. 5, Chattel Mortgage Law)
Effect of absence
The special affidavit is required only for
the purpose of transforming an already
valid
mortgage
into
preferred
mortgage. Thus, it is not necessary for
the validity of the chattel mortgage
itself but only to give it a preferred
status. In other words, its absence
vitiates the mortgage only as against
third persons without notice like
creditors
and
subsequent
encumbrancers.
Foreclosure of Chattel Mortgage
NOTES:
Foreclosure sale in chattel mortgage is
by public auction under Act No. 1508,
but the parties may stipulate that it be
by private sale.
The mortgagee may, after thirty (30)
days from the time of the condition
broken, cause the mortgaged property
to be sold at public auction by a public
officer. The 30-day period is also a grace
Stephen

213
MEMORY AID
period for the mortgagor to
discharge the mortgage obligation.
After the sale of the chattel at
public auction, the right of
redemption is no longer available to
the
mortgagor
(Cabral
vs.
Evangelista, 28 SCRA 1000).
Application of proceed of sale:
1. Costs and expenses of keeping
and sale
2. Payment of the obligation
secured by the mortgage
3. Claims of persons
holding
subsequent mortgages in their
order
4. The balance, if any, shall be paid
to the mortgagor or person
holding under him
NOTES:
The creditor may maintain an action
for the deficiency, except if the
chattel mortgage is constituted as
security for the purchase of personal
property payable in instalments
(Art. 1484).
The action for deficiency may be
brought within ten (10) years from
the time the cause of action accrues
(Arts 1141 and 1142).
Only equity of redemption is
available to the mortgagor; the
latter can no longer redeem after
the confirmation of the foreclosure
sale.
Right of redemption
When the condition of a chattel
mortgage is broken the following
may redeem:
a) mortgagor;
b) person holding a subsequent
mortgage; or
c) subsequent attaching creditor.
An attaching creditor who so
redeems shall be subrogated to the
rights of the mortgagee and entitled
to foreclose the mortgage in the
CIVIL LAW COMMITTEE
IN
CIVIL LAW
same manner that the mortgagee could

foreclose it.
The redemption is made by paying or
delivering to the mortgagee the amount
due on such mortgage and the costs, and
expenses incurred by such breach of
condition before the sale thereof (Sec
13, Act No. 1508).
Right to possession of foreclosed property

1. Real mortgage After the redemption
period has expired, the purchaser of the
property has the right to a conveyance
and to be placed in possession thereof.
NOTES:
Purchaser is not obliged to bring a
separate suit for possession. He
must invoke the aid of the courts
and ask for a WRIT OF POSSESSION.
Section 7 of Act No. 3135 allows the
purchaser to take possession of the
foreclosed property during the
period of redemption upon filing of
an ex parte application and approval
of a bond.
2. Chattel mortgage When default occurs
and the creditor desires to foreclose,
the creditor has the right to take the
property as a preliminary step for its
sale.
NOTE: Where the debtor refuses to yield
the property, the creditors remedy is to
institute an action either to effect
judicial foreclosure directly or to secure
possession (REPLEVIN) as a preliminary
to the sale contemplated in Section 14
or Act. No. 1508
CONCURRENCE AND PREFERENCE
CREDITS (Articles 2236 2251)
OF
Concurrence of Credits
Possession by two or more creditors of
equal rights or privileges over the same
property or all of the property of the
debtor
Preference of Credits
Stephen

214
MEMORY AID
Right held by a creditor to be

preferred in the payment of his
claim above others out of the
debtors assets.
NOTES:
The rules on preference of credits
apply only when two or more
creditors have separate and distinct
claims against the same debtor who
has insufficient property.
Preference creates no lien on
property, and, therefore, gives no
interest in property, specific or
general, to the preferred creditor
but a preference in application of
the proceeds after the sale. (Molina
vs. Somes, 31 Phil. 76)
The preferential right of credit
attains significance only after the
properties of the debtor have been
inventoried and liquidated, and the
claims held by his various creditors
have been established. (DBP vs.
NLRC, 183 SCRA 328)
Preference of
Credit
Lien
Applies only to
claims which do
not attach to
specific
properties
Creates a charge
on a particular
property
Liability of debtors property for his

obligations
GENERAL RULE: Debtor is liable with
all his property, present and future, for
the fulfilment of his obligations. (Art
2236)
EXEMPT PROPERTY:
1. Present
property
those
provided under Arts. 155 and 205
of the Family Code, Sec. 13, Rule
39 of the Rules of Court, and
Sec. 118 of the Public Land Act
2. Future property a debtor who
obtains a discharge from his
debts on account of his
CIVIL LAW COMMITTEE
IN
CIVIL LAW
insolvency, is not liable for the

unsatisfied claims of his creditors
with said property subject to certain
exceptions expressly provided by
law. (Secs. 68, 69, The Insolvency
Law [Act No. 1956])
3. Property under legal custody and
those
owned
by
municipal
corporations
necessary
for
governmental purposes
General Categories of Credit:
1. Special Preferred Credits - those
listed in Arts. 2241 and 2242 shall be
considered as mortgages and pledges of real
or personal property or liens (Art. 2243).
Hence, they are not included in the
insolvent debtor's assets.
NOTES:
Arts. 2241 and 2242 do not give the
order of preference or priority of
payment. They merely enumerate the
credits which enjoy preference with
respect to specific movables or
immovables. With respect to the same
specific movables or immovables,
creditors, with the exception of the
State (No. 1), merely concur.
They only find application when there is
a concurrence of credits, i.e., when the
same specific property of the debtor is
subjected to the claims of several
creditors and the value of such property
is insufficient to pay in full all the
creditors. In such a situation, the
question of preference will arise.
Article 2242 makes no distinction
between registered and unregistered
vendors lien (No. 2). Hence, any lien of
that kind enjoys the preferred credit
status. Unlike the unpaid price of real
property sold, mortgage credits (No. 5),
in order to be given preference, should
be recorded in the Registry of Property.
But a recorded mortgage credit is
superior to an unrecorded unpaid
vendors
lien
(De
Barretto
vs.
Villanueva, 1 SCRA 288)
Stephen

215
MEMORY AID
Ordinary Preferred Credits - those

listed in Art. 2244 as amended by
Art. 110 of the Labor Code.
NOTES:
The provision not only enumerates
the preferred credits with respect to
other property, real and personal, of
the debtor, but also gives their order
of preference in the order named.
In contrast with Articles 2241 and
2242, Article 2244 creates no liens
on determinate property which
follow such property. What Article
2244 creates are simply rights in
favour of certain creditors to have
the cash and other assets of the
insolvent applied in a certain
sequence or order of priority.
Article 2244, particularly par (14)
item (1) thereof, is not applicable to
obligations of the State as it is a
recognized doctrine that the State is
CIVIL LAW COMMITTEE
2.
CIVIL LAW
always solvent. It is inconceivable for

the State to voluntarily initiate
insolvency
or
general
liquidation
proceedings or to be subjected to such
proceedings under its own laws.
The priority rule applies to credits

annotated in the Registry of
Property. As to credits mentioned in
No. 7 of Article 2242, there is
preference among the attachments
or executions according to the order
of the time they were levied upon
the property. The pro rata rule in
Article 2249 does not apply;
otherwise, the result would be
absurd. The preference of a credit
annotated by an attachment or
execution could be defeated by
simply
obtaining
a
writ
of
attachment or execution, no matter
how much later (Manabat vs Laguna
Federation of Facomas, Inc., 19
SCRA 621).
The last paragraph of Article
2241 applies only when the right of
ownership in such property continues
in the debtor, and, therefore, it is
not applicable to cases where the
debtor has parted with his ownership
therein, as where he has sold the
property (Pea vs. Mitchell, 9 Phil
587)
IN
Common Credits those listed under

Art. 2245, which shall be paid pro rata
regardless of dates.
NOTE: Ordinary Preferred and Common
Credits cover only free property of the
debtor, or those not subjected to Special
Preferred Credit.
3.
Effects of Article 110 of Labor Code to Art

2244:
1. Removed the one-year limitation found
in No. 2 of Art. 2244
2. Moving up the claims for unpaid wages
(and other monetary claims) of laborers
or workers of insolvent from second
priority to first priority in the order of
preference established by Art. 2244
NOTES:
In case of bankruptcy or liquidation of
the employers business, the unpaid
wages and other monetary claims of the
employees
shall
be
given
first
preference and shall be paid in full
before the claims of the government and
other creditors may be paid. The terms,
declaration
of
bankruptcy,
or
judicial
liquidation
have
been
eliminated, nevertheless, according to
the SC, bankruptcy or liquidation
proceedings are still necessary for the
operation of the preference accorded to
workers under Art. 110 of the Labor
Code. (DBP vs. NLRC 183 SCRA 328; RA
No. 6715 Sec 10)
In case of rehabilitation, the preference
of credit granted to employees under Art
110 of the Labor Code is not applicable
(Rubberworld [Phils.] vs CA, 305 SCRA
722).
Stephen

216
MEMORY AID
Refectionary Credit
Indebtedness incurred in the repair
or reconstruction of something
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly existed.
IN
CIVIL LAW
other liquidation proceedings except

where there are not more than one
creditor.
ORDER OF PREFERENCE OF CREDITS
Arts. 2241 and 2242, jointly with

Arts. 2246 to 2249 establish a twotier order of preference:
1. First tier includes taxes, duties
and fees due on specific movable or
immovable property;
2. Second tier all other special
preferred (non-tax) credits shall be
satisfied pro-rata, out of any
residual value of the specific
property to which such credits
relate.
NOTES:
The pro-rata rule does not apply to
credits annotated in the Registry of
Property by virtue of a judicial
order,
by
attachments
and
executions, which are preferred as
to later credits. In satisfying
several
credits
annotated
by
attachments or executions, the rule
is still preference according to the
priority of the credits in the order of
time.
In order to make the pro rating
provided in Art 2249 fully effective,
the preferred creditors enumerated
in Nos. 2 to 14 of Art 2242 must
necessarily be convened, and the
import of their claims ascertained.
There must be first some proceeding
where the claims of all the preferred
creditors
may
be
bindingly
adjudicated,
e.g.
insolvency,
settlement of decedents estate, or
CIVIL LAW COMMITTEE
Credits
which do not enjoy any

preference with respect to specific
property because they are not among
those mentioned in Arts. 2241 and 2242
and those while included in said articles
are unpaid because the value of the
property to which the preference refers
is less than the preferred credit or
credits, shall be satisfied in the order
established in Art. 2244 with reference
to other real and/or personal property.
Common credits or those which do not
fall under Arts. 2241, 2242, and 2244 do
Stephen

217
MEMORY AID
IN
CIVIL LAW
not enjoy any preference and shall

be paid pro rata regardless of dates.
CIVIL LAW COMMITTEE
Stephen

Credit Transaction Memory Aid

Uploaded by

Copyright:

Available Formats

Credit Transaction Memory Aid

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Credit Transaction Memory Aid

Uploaded by

Copyright:

Available Formats

San Beda College of Law

giver; one who delivers

2. bailee- the recipient; one who receives

LOAN (Articles 1933 1961)

A contract wherein one of the parties

San Beda College of Law

2. Simple loan or mutuum where the

Delivery by one party

CIVIL LAW COMMITTEE

the expiration of the

COMMODATUM (Articles 1935 1952)

San Beda College of Law

Death of either party terminates

NOTE:Use of the thing loaned

4. To pay for extraordinary expenses arising

Obligations of the bailor (Art 1946 Art

San Beda College of Law

contract of loan may be deemed

Delivery of some nonconsumable thing in

San Beda College of Law

The thing with

Form of Payment (Art 1955):

The compensation allowed by law or

San Beda College of Law

CIVIL LAW COMMITTEE

Validity of unconscionable interest rate in

A contract constituted from the moment

San Beda College of Law

3. Both movable and

2004), or by travellers with common

5. When must the thing be returned

GENERAL RULE: Contract of deposit is

San Beda College of Law

actions, for it follows the person of

Obligations of the Depositary (Art 1972

who acquired the thing in good

San Beda College of Law

7. When the thing deposited is delivered

San Beda College of Law

2. The only benefit is

2. Essential cause for

Rule when there are two or more

GENERAL RULE: The depositor shall

San Beda College of Law

Deposit by Travellers in hotels and

by the guest. Any stipulation to such

GUARANTY (Articles 2047 2084)

A contract whereby a person (guarantor)

San Beda College of Law

Nature of Suretys undertaking:

NOTE: He directly, primarily and equally

San Beda College of Law

A guaranty may be given as security

for future debts, the amount of

San Beda College of Law

person cannot be the personal guarantor

2. Unless the note is

San Beda College of Law

CIVIL LAW COMMITTEE