San Beda College of Law

182

MEMORY AID IN CIVIL LAW

CREDIT TRANSACTIONS
1. bailor - the
property
giver; one who delivers

2. bailee- the recipient; one who receives

CREDIT TRANSACTIONS the custody or possession of the thing
 All transactions involving the thus delivered
purchase or loan of goods, services,
or money in the present with a
promise to pay or deliver in the
future LOAN (Articles 1933 – 1961)

Contracts of security  A contract wherein one of the parties

Types: delivers to another, either something not
1. Secured transactions or contracts of consumable so that the latter may use
real security - supported by a the same for a certain time and return it
collateral or an encumbrance of or money or other consumable thing,
property upon the condition that the same
2. Unsecured transactions or contracts amount of the same kind and quality
of personal security - supported only shall be paid. (Art 1933)
by a promise or personal
commitment of another such as a Characteristics:
guarantor or surety 1. Real Contract – delivery of the thing
loaned is necessary for the perfection of
Security the contract
 Something given, deposited, or NOTE: An accepted promise to make a
serving as a means to ensure future loan is a consensual contract, and
fulfilment or enforcement of an therefore binding upon the parties but it
obligation or of protecting some is only after delivery, will the real
interest in property contract of loan arise. (Art 1934)
 Types of Security
a. personal – when an individual 2. Unilateral Contract - once the subject
becomes surety or guarantor matter has been delivered, it creates
b. real or property – when a obligations on the part of only one of
mortgage, pledge, antichresis, the parties (i.e. borrower).
charge or lien or other device
used to have property held, out  Kinds:
of which the person to be made 1. Commodatum – when the bailor (lender)
secure can be compensated for delivers to the bailee (borrower) a non-
loss consumable thing so that the latter may
use it for a certain time and return the
Bailment identical thing.
 The delivery of property of one  Kinds of commodatum:
person to another in trust for a a. Ordinary Commodatum – use by the
specific purpose, with a contract, borrower of the thing is for a certain
express or implied, that the trust period of time
shall be faithfully executed and the b. Precarium - one whereby the bailor
property returned or duly accounted may demand the thing loaned at will
for when the special purpose is and it exists in the following cases:
accomplished or kept until the bailor i. neither the duration nor purpose
claims it. of the contract is stipulated
ii. the use of the thing is merely
 Parties: tolerated by the owner
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

the expiration of the advance

credit
2. Always on a Always on a single
2. Simple loan or mutuum – where the double name paper name paper (i.e.
(two signatures promissory note with
lender delivers to the borrower
appear with both no indorse-ment
money or other consumable thing parties held liable other than the
upon the condition that the latter for payment) maker)
shall pay the same amount of the
same kind and quality. COMMODATUM (Articles 1935 – 1952)
 Nature:
Commodatum Mutuum
Key: COPS-LOTR 1. PURPOSE: Bailee in commodatum
1. Object acquires the temporary use of the thing
Non-consumable Consumable but not its fruits (unless stipulated as an
2. Cause incidental part of the contract).(Art
Gratuitous May or may not be
1935)
gratuitous
 Use must be temporary, otherwise
3. Purpose
Use or temporary Consumption the contract may be a deposit.
possession
4. Subject Matter 2. CAUSE: Essentially gratuitous; it ceases
Real or personal Only personal to be a commodatum if any
property property compensation is to be paid by the
5. Ownership of the thing borrower who acquires the use, in such
Retained by the Passes to the debtor case there arises a lease contract.
bailor  Similar to a donation in that it
6. Thing to be returned confers a benefit to the recipient.
Exact thing loaned Equal amount of the The presumption is that the bailor
same kind and has loaned the thing for having no
quality
need therefor.
7. Who bears risk of loss
Bailor Debtor
3. SUBJECT MATTER: Generally non-
8. When to return
consumable whether real or personal
In case of urgent Only after the
need, even before expiration of the but if the consumable goods are not for
the expiration of the term consumption as when they are merely
term for exhibition, consumable goods may be
the subject of the commodatum. (Art
1936)
Loan Credit
Delivery by one party Ability of a person to 4. Bailor need not be the owner of the
and the receipt of borrow money or thing owned (Art. 1938) since by the
other party of a things by virtue of loan, ownership does not pass to the
given sum of money the trust or borrower.
or other consumable confidence reposed  A mere lessee or usufructuary may
thing upon an by the lender that he lend but the borrower or bailee
agreement, express will pay what he
or implied, to repay promised.
himself may not lend nor lease the
the same. thing loaned to him to a third person
(Art 1932[2])

Loan Credit 5. Purely Personal (Art 1939):

1. Interest taken at Interest is taken in
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

 Death of either party terminates 4. To pay for extraordinary expenses arising

the contract unless by from the actual use of the thing by the
stipulation, the commodatum is bailee, which shall be borne equally by
transmitted to the heirs of either both the bailor and the bailee, even
or both parties. though the bailee acted without fault,
 Bailee can neither lend nor lease unless there is a stipulation to the
the object of the contract to a contrary (Art 1949 par 2)
third person. 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
NOTE:Use of the thing loaned extraordinary expenses except for a
may extend to members of the claim for damages suffered because
bailee’s household except: of the flaws of the thing loaned.
a. contrary stipulation;
b. nature of the thing NOTES:
forbids such use  However, the bailee’s right
extends no further than
Obligations of the Bailee: (Arts 1941 – retention of the thing loaned
1945) until he is reimbursed for the
1. To pay for the ordinary expenses for damages suffered by him.
the use and preservation of the thing  He cannot lawfully sell the thing
loaned. (Art 1941)
to satisfy such damages without
2. To be liable for the loss of the thing
court’s approval.
even if it should be through a
fortuitous event in the following  In case there are two or more
cases: (KLAS D) bailees, their obligation shall be
a. when he keeps it longer than the solidary.
period stipulated, or after the
accomplishment of its use Obligations of the bailor (Art 1946 – Art
b. when he lends or leases it to 1952):
third persons who are not 1. To respect the duration of the loan
members of his household GENERAL RULE: Allow the bailee the
c. when the thing loaned has been use of the thing loaned for the duration
delivered with appraisal of its of the period stipulated or until the
value accomplishment of the purpose for
d. when, being able to save either which the commodatum was instituted.
of the thing borrowed or his own EXCEPTIONS:
things, he chose to save the a. In case of urgent need in
latter; or which case bailee may demand its
e. when the bailee devoted the return or temporary use;
thing for any purpose different b. The bailor may demand
from that for which it has been immediate return of the thing if the
loaned (Art 1942) bailee commits any act of
3. To be liable for the deterioration of ingratitude specified in Art. 765.
thing loaned (a) if expressly
stipulated; (b) if guilty of fault or 2. To refund to the bailee extraordinary
negligence; or (c) if he devotes the expenses for the preservation of the
thing to any purpose different from thing loaned, provided the bailee brings
that for which it has been loaned the same to the knowledge of the bailor
before incurring them, except when
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

they are so urgent that the reply to contract of loan may be deemed
the notification cannot be awaited perfected.
without danger.  The obligation is “to pay” and not to
return because the consumption of the
3. To be liable to the bailee for thing loaned is the distinguishing
damages for known hidden flaws. character of the contract of mutuum
 Requisites: from that of commodatum.
a. There is flaw or defect in the  No estafa is committed by a person who
thing loaned;
refuses to pay his debt or denies its
b. The flaw or defect is hidden;
existence.
c. The bailor is aware thereof;
d. He does not advise the bailee of
Simple Loan/Mutuum Rent
the same; and
e. The bailee suffers damages by 1. Delivery of money Delivery of some non-
reason of said flaw or defect or some consumable consumable thing in
thing with a promise order that the other
to pay an equivalent may use it during a
of the same kind and certain period and
quality return it to the
NOTES: former.
 If the above requisites concur, 2. There is a transfer There is no transfer
the bailee has the right of of ownership of the of ownership of the
retention for damages. thing delivered thing delivered
 The bailor cannot exempt
himself from the payment of
expenses or damages by 3. Relationship Relationship is that
between the parties of a landlord and
abandoning the thing to the is that of obligor- tenant
bailee. obligee

SIMPLE LOAN OR MUTUUM (Art 1953 – 4. Creditor receives Owner of the

1961) payment for his loan property rented
 A contract whereby one party receives
delivers to another, money or other compensation or
consumable thing with the price either in
money, provisions,
understanding that the same amount
chattels, or labor
of the same kind and quality shall be
paid. (Art. 1953) from the occupant
thereof in return for
NOTES: its use (Tolentino vs
 The mere issuance of the checks Gonzales, 50 Phil 558
does not result in the perfection of 1927)
the contract of loan. The Civil Code
provides that the delivery of bills of Loan Sale
exchange and mercantile
1. Real contract Consensual contract
documents, such as checks, shall
produce the effect of payment only 2. Generally Bilateral and
when they have been encashed unilateral because reciprocal
(Gerales vs. CA 218 SCRA 638). It is only borrower has
only after the checks have produced obligations
the effect of payment that the
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

NOTE: If the property is “sold”, but the  The compensation allowed by law or
real intent is only to give the object as fixed by the parties for the loan or
security for a debt – as when the “price” forbearance of money, goods or credits
is comparatively small – there really is a  Requisites for Demandability: (ELI)
contract of loan with an “equitable 1. must be expressly stipulated
mortgage.” Exceptions:
a. indemnity for damages
Commodatum/ b. interest accruing from unpaid
Barter
Mutuum interest
2. must be lawful
1. Subject matter is Subject matter is 3. must be in writing
money or fungible non-fungible, (non
things consumable) things
Compound Interest
2. In commodatum, The thing with
GENERAL RULE: Unpaid interest shall not
the bailee is bound equivalent value is earn interest.
to return the given in return for EXCEPTIONS:
identical thing what has been 1. when judicially demanded
borrowed when the received 2. when there is an express stipulation
time has expired or (must be in writing in view of Art.
purpose served 1956)
3. Mutuum may be Onerous, actually a
gratuitous and mutual sale
Guidelines for the application of proper
commodatum is interest rates
always gratuitous 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
 Form of Payment (Art 1955): source, i.e., law, contracts, quasi-
1. If the thing loaned is money - contracts, delicts or quasi-delicts is
payment must be made in the breached, the contravenor can be
currency stipulated, if it is possible; held liable for damages.
otherwise it is payable in the b) With regard particularly to an award
currency which is legal tender in the of interest in the concept of actual
Philippines and in case of and compensatory damages, the
extraordinary inflation or deflation, rate of interest, as well as the
the basisi of payment shall be the accrual thereof, is imposed, as
value of the currency at the time of follows:
the creation of the obligation i. When the obligation breached
2. If what was loaned is a fungible consists of payment of a sum of
thing other than money - the money (loan or forbearance of
borrower is under obligation to pay money), the interest shall be
the lender another thing of the same that which is stipulated or
kind, quality and quantity. In case it agreed upon by the parties. In
is impossible to do so, the borrower absence of an agreement, the
shall pay its value at the time of the rate shall be the legal rate (i.e.
perfection of the loan. 12% per annum) computed from
default.
Interest NOTE: The interest due shall
itself earn legal interest from
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

the time it is judicially and unsecured loans, regardless of

demanded maturity.
ii. In other cases, the rate of
interest shall be six percent Validity of unconscionable interest rate in
(6%) per annum. a loan
NOTE: No interest, however, Supreme Court in Sps. Solangon vs.
shall be adjudged on Jose Salazar, G.R. No. 125944, June 29,
unliquidated claims or 2001, said that since the usury law had been
damages except when or repealed by CB Cir. No. 905 there is no more
until the demand can be maximum rate of interest and the rate will
established with reasonable just depend on the mutual agreement of the
certainty. When the demand parties (citing Lim Law vs. Olympic Sawmill
cannot be established, the Co., 129 SCRA 439). But the Supreme Court
interest shall begin to run said that nothing in said circular grants
only from the date of the lenders carta blanche authority to raise
judgment of the court is interest rates to level which will either
made. enslave their borrowers or lead to a
iii. When the judgment of the hemorrhaging of their assets (citing Almeda
court awarding a sum of vs. CA, 256 SCRS 292). In Medel vs. CA, 299
money becomes final and SCRA 481, it was ruled that while stipulated
executory, the rate of legal interest of 5.5% per month on a loan is
interest, whether the case usurious pursuant to CB Circular No. 905,
falls under paragraph i or ii the same must be equitably reduced for
above, shall be 12% per being iniquitous, unconscionable and
annum from such finality exorbitant. It is contrary to morals, (contra
until its satisfaction, this bonos mores). It was reduced to 12% per
interim period being deemed annum in consonant with justice and fair
to be by then an equivalent play.
to a forbearance of credit.
(Eastern Shipping Lines vs. DEPOSIT (Articles 1962 – 2009)
CA, July 12, 1994)
 A contract constituted from the moment
NOTES: a person receives a thing belonging to
 Central Bank Circular No. 416 fixing another, with the obligation of safely
the rate of interest at 12% per keeping it and of returning the same.
annum deals with loans, forbearance
of any money, goods or credits and Characteristics:
judgments involving such loans, or 1. Real Contract - contract is perfected
forbearance in the absence of by the delivery of the subject
express agreement to such rate matter.
 Interest as indemnity for damages is 2. Unilateral (gratutitous deposit) -
only the depositary has an
payable only in case of default or
obligation.
non-performance of the contract. As
3. Bilateral (onerous deposit) - gives
they are distinct claims, they may be
rise to obligations on the part of
demanded separately. (Sentinel
both the depositary and depositor.
Insurance Co., Inc. vs CA, 182 SCRA
517)
Deposit Mutuum
 Central Bank Circular No. 905 (Dec. 1. Purpose
10, 1982) removed the Usury Law Principal purpose is Principal purpose is
ceiling on interest rates for secured safekeeping or consumption
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

custody 2004), or by travellers with common

2. When to Return carriers (Art 1734 – 1735).
Depositor can The lender must wait NOTE: The chief difference between a
demand the return of until the expiration voluntary deposit and a necessary
the subject matter at of the period granted deposit is that in the former, the
will to the debtor
depositor has a complete freedom in
3. Subject Matter
choosing the depositary, whereas in the
Subject matter may Subject matter is
be movable or only money or other latter, there is lack of free choice in the
immovable property fungible thing depositor.
4. Relationship
Relationship is that Relationship is that of Judicial Extra-judicial
of lender (creditor) depositor and 1. Creation
and borrower depositary. Will of the court Will of the parties
(debtor). or contract
2. Purpose
5. Compensation Security or to insure Custody and
There can be NO compensation of the right of a party safekeeping
compensation of things deposited with to property or to
credits. each other (except recover in case of
by mutual favorable judgment
agreement).
3. Subject Matter
Deposit Commodatum Movables or Movables only
immovables,
1. Purpose is 1. Purpose is the but generally
Safekeeping transfer of the use immovables
4. Cause
2. May be gratuitous 2. Essentially and Always onerous May be compen-
always gratuitous sated or not, but
generally gratuitous
3. Movable/corporeal 3. Both movable and
things only in case of immovable may be
extrajudicial deposit the object 5. When must the thing be returned
Upon order of the Upon demand of
court or when depositor
 Kinds of Deposit: litigation is ended
1. Judicial (Sequestration) –takes place
6. In whose behalf it is held
when an attachment or seizure of
Person who has a Depositor or third
property in litigation is ordered. right person designated

2. Extra-judicial
a. Voluntary – one wherein the GENERAL RULE: Contract of deposit is
delivery is made by the will of gratuitous (Art 1965)
the depositor or by two or more EXCEPTIONS:
persons each of whom believes 1. when there is contrary stipulation
himself entitled to the thing 2. depositary is engaged in business of
deposited. (Arts 1968 – 1995) storing goods
b. Necessary – one made in 3. property saved from destruction
compliance with a legal without knowledge of the owner
obligation, or on the occasion of
any calamity, or by travellers in NOTES:
hotels and inns (Arts 1996 -  Article 1966 does not embrace
incorporeal property, such as rights and

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

actions, for it follows the person of who acquired the thing in good
the owner, wherever he goes. faith (Art 1971)
 A contract for the rent of safety
deposit boxes is not an ordinary  Time of return:
contract of lease of things but a a. Upon demand even though a
special kind of deposit; hence, it is specified period or time for such
not to be strictly governed by the return may have been fixed except
provisions on deposit. The relation when the thing is judicially attached
between a bank and its customer is while in the depositary’s possession
that of a bailor and bailee. (CA Agro or should he have been notified of
vs CA, 219 SCRA 426) the opposition of a third person to
the return or the removal of the
Obligations of the Depositary (Art 1972 thing deposited. (Art 1998)
–1991): b. If deposit gratuitous, the
1. To keep the thing safely (Art 1972) depositary may return the thing
 Exercise over the thing deposited notwithstanding that a
deposited the same diligence as period has been fixed for the
he would exercise over his deposit if justifiable reasons exists
property for its return.
2. To return the thing (Art 1972) c. If the deposit is for a
 Person to whom the thing must valuable consideration, the
be returned: depositary has no right to return the
a. Depositor, to his heirs and thing deposited before the
successors, or the person who expiration of the time designated
may have been designated in the even if he should suffer
contract inconvenience as a consequence.(Art
b. If the depositary is capacitated - 1989)
he is subject to all the
obligations of a depositary  What to return: product,
whether or not the depositor is accessories, and accessions of the
capacitated. If the depositor is thing deposited (Art 1983)
incapacitated, the depositary 3. Not to deposit the thing with a third
must return the property to the person unless authorized by express
legal representative of the stipulation (Art 1973)
incapacitated or to the depositor  The depositor is liable for the loss of
himself if he should acquire the thing deposited under Article
capacity (Art 1970). 1973 if:
c. If the depositor is capacitated a. he transfers
and the depositary is the deposit with a third person
incapacitated - the latter does without authority although there is
not incur the obligation of a no negligence on his part and the
depositary but he is liable: third person;
i..to return the thing b. he deposits
deposited while still in his the thing with a third person who is
possession; manifestly careless or unfit although
ii.to pay the depositor the authorized even in the absence of
amount which he may have negligence; or
benefited himself with the c. the thing is
thing or its price subject to lost through the negligence of his
the right of any third person

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
190

MEMORY AID IN CIVIL LAW

employees whether the latter 7. When the thing deposited is delivered

are manifestly careless or not. sealed and closed :
4. If the thing deposited should earn a. to return the thing deposited in the
interest (Art 1975): same condition
a. to collect interest and the b. to pay for damages should the seal
capital itself as it fall due or lock be broken through his fault,
b. to take steps to preserve its which is presumed unless proved
value and rights corresponding to otherwise
it c. to keep the secret of the deposit
5. Not to commingle things deposited if when the seal or lock is broken with
so stipulated (Art 1976) or without his fault (Art 1981)
6. Not to make use of the thing NOTE: The depositary is authorized
deposited unless authorized (Art to open the thing deposited which is
1977) closed and sealed when (Art 1982):
GENERAL RULE: Deposit is for i. there is presumed authority (i.e.
safekeeping of the subject matter when the key has been delivered
and not for use. The unauthorized to him or the instructions of the
use by the depositary would make depositor cannot be done
him liable for damages. without opening it)
EXCEPTIONS: ii. necessity
1. When the preservation of the 8. To change the way of the deposit if
thing deposited requires its use under the circumstances, the depositary
2. When authorized by the may reasonably presume that the
depositor depositor would consent to the change if
he knew of the facts of the situation,
NOTE: The permission to use is NOT provided, that the former notifies the
presumed except when such use is depositor thereof and wait for his
necessary for the preservation of the decision, unless delay would cause
thing deposited. danger
9. To pay interest on sums converted to
Effect if permission to use is given personal use if the deposit consists of
(Art 1978): money (Art 1983)
1. If thing deposited is 10. To be liable for loss through fortuitous
non-consumable, the contract event (SUDA): (Art 1979):
loses the character of a deposit a. if stipulated
and acquires that of a b. if he uses the thing without the
commodatum despite the fact depositor's permission
that the parties may have c. if he delays its return
denominated it as a deposit, d. if he allows others to use it, even
unless safekeeping is still the though he himself may have been
principal purpose. authorized to use the same
2. If thing deposited consists of
money/consumable things, the NOTES:
contract is converted into a  Fixed, savings, and current deposits of
simple loan or mutuum unless money in banks and similar institutions
safekeeping is still the principal shall be governed by the provisions
purpose in which case it is called concerning simple loan. (Art 1980)
an irregular deposit. Example:  The general rule is that a bank can
bank deposits are irregular compensate or set off the deposit in its
deposits in nature but governed hands for the payment of any
by law on loans.
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

indebtedness to it on the part of the

depositor. In true deposit, NOTES:
compensation is not allowed.  The depositary may retain the thing in
pledge until full payment of what may
Irregular deposit Mutuum be due him by reason of the deposit (Art
1994).
1. The consumable 1. Lender is bound
thing deposited may by the provisions of
 The depositor’s heir who in good faith
be demanded at will the contract and may have sold the thing which he did
by the depositor cannot demand not know was deposited, shall only be
restitution until the bound to return the price he may have
time for payment, as received or to assign his right of action
provided in the against the buyer in case the price has
contract, has arisen not been paid him (Art 1991).
2. The only benefit is 2. Essential cause for
that which accrues the transaction is the
Obligations of the Depositor (Art 1992 –
to the depositor necessity of the 1995):
borrower 1. To pay expenses for preservation
a. If the deposit is gratuitous, the
3. The irregular 3. Common creditors depositor is obliged to reimburse
depositor has a enjoy no preference the depositary for expenses
preference over in the distribution of incurred for the preservation of the
other creditors with the debtor’s property thing deposited (Art 1992)
respect to the thing b. If the deposit is for valuable
deposited
consideration, expenses for
preservation are borne by the
depositary unless there is a contrary
Rule when there are two or more stipulation
depositors (Art 1985): 2. To pay loses incurred by the depositary
1. If thing deposited is divisible and due to the character of the thing
depositors are not solidary: Each deposited
depositor can demand only his
proportionate share thereto. GENERAL RULE: The depositor shall
2. If obligation is solidary or if thing is
reimburse the depositary for any loss arising
not divisible: Rules on active
from the character of the thing deposited.
solidarity shall apply, i.e. each one
EXCEPTIONS:
of the solidary depositors may do
1. at the time of the deposit, the
whatever may be useful to the
depositor was not aware of the
others but not anything which may
dangerous character of the thing
be prejudicial to the latter, (Art.
2. when depositor was not expected to
1212) and the depositary may return
know the dangerous character of the
the thing to anyone of the solidary
thing
depositors unless a demand, judicial
3. when the depositor notified the
or extrajudicial, for its return has
depository of the same
been made by one of them in which
4. the depositary was aware of it
case, delivery should be made to him
without advice from the depositor
(Art. 1214).
3. Return to one of depositors
Extinguishment of Voluntary Deposit (Art
stipulated. The depositary is bound
1995)
to return it only to the person
1. Loss or destruction of the thing
designated although he has not made
deposited
any demand for its return.
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

2. In case of gratuitous deposit, upon by the guest. Any stipulation to such

the death of either the depositor or effect shall be void.
the depositary  Notice is necessary only for suing civil
3. Other causes, such as return of the liability but not in criminal liability.
thing, novation, merger, expiration
of the term fulfilment of the GUARANTY (Articles 2047 – 2084)
resolutory condition, etc (Art 1231)
 A contract whereby a person (guarantor)
Necessary Deposits binds himself to the creditor to fulfil the
1. Made in compliance with a legal obligation of the principal debtor in case
obligation the latter fail to do so.
2. Made on the occasion of any
calamity such as fire, storm, flood,  Classification of Guaranty:
pillage, shipwreck or other similar 1. In the Broad sense:
events (deposito miserable) a. Personal - the guaranty is the credit
3. Made by travellers in hotels and inns given by the person who guarantees
or by travellers with common carrier the fulfilment of the principal
obligation.
b. Real - the guaranty is the property,
movable or immovable.
Deposit by Travellers in hotels and
inns:
 The keepers of hotels or inns shall be
responsible as depositaries for the 2. As to its Origin
deposit of effects made by travellers a. Conventional - agreed upon by the
provided: parties.
a. Notice was given to them or to b. Legal - one imposed by virtue of a
their employees of the effects provision of a law.
brought by the guest; and c. Judicial - one which is required by a
b. The guests take the precautions court to guarantee the eventual
which said hotel-keepers or their right of one of the parties in a case.
substitutes advised relative to 3. As to Consideration
the care and vigilance of their a. Gratuitous - the guarantor does not
effects. receive any price or remuneration
NOTES: for acting as such.
 Liability extends to vehicles, animals b. Onerous - the guarantor receives
and articles which have been valuable consideration.
introduced or placed in the annexes 4. As to the Person guaranteed
of the hotel. a. Single - one constituted solely to
 Liability shall EXCLUDE losses which guarantee or secure performance by
proceed from force majeure. The act the debtor of the principal
of a thief or robber is not deemed obligation.
force majeure unless done with the b. Double or sub-guaranty - one
use of arms or irresistible force. constituted to secure the fulfilment
 The hotel-keeper cannot free by the guarantor of a prior
guaranty.
himself from the responsibility by
5. As to Scope and Extent
posting notices to the effect that he
a. Definite - the guaranty is limited to
is not liable for the articles brought
the principal obligation only, or to a
specific portion thereof.
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

b. Indefinite or simple - one which NOTE: He directly, primarily and equally

not only includes the principal binds himself with the principal as
obligation but also all its original promisor, although he possesses
accessories including judicial no direct or personal interest over the
costs latter’s obligation, nor does he receive
any benefits therefrom. (PNB vs CA, 198
SURETYSHIP SCRA 767)
2. Liability limited by the terms of the
 A contract whereby a person (surety) contract.
binds himself solidarily with the NOTE: It cannot be extended by
principal debtor implication beyond the terms of the
 A relation which exists where one contract (PNB vs CA, 198 SCRA 767)
person (principal) has undertaken an 3. Liability arises only if principal debtor
obligation and another person is held liable.
(surety) is also under a direct and NOTES:
primary obligation or other duty to  The creditor may sue separately or
the obligee, who is entitled to but together the principal debtor and
one performance, and as between the surety. Where there are several
the two who are bound, the second sureties, the obligee may proceed
rather than the first should perform against any one of them.
(Agro Conglomerates, Inc. vs. CA,  In the absence of collusion, the
348 SCRA 450) surety is bound by a judgment
NOTES: against the principal even though he
 The reference in Article 2047 to was not a party to the proceedings.
solidary obligations does not mean The nature of its undertaking makes
that suretyship is withdrawn from it privy to all proceedings against its
the applicable provisions governing principal (Finman General Assurance
guaranty. A surety is almost the Corp. vs. Salik, 188 SCRA 740)
same as a solidary debtor, except
that he himself is a principal debtor. 4. Surety is not entitled to the benefit of
 In suretyship, there is but one exhaustion
contract, and the surety is bound by NOTE: He assumes a solidary liability for
the same agreement which binds the the fulfilment of the principal obligation
principal. A surety is usually bound (Towers Assurance Corp vs. Ororama
with the principal by the same Supermart, 80 SCRA 262) as an original
instrument, executed at the same promissory and debtor from the
time and upon the same beginning.
consideration (Palmares vs CA, 288 5. Undertaking is to creditor and not to
SCRA 422) debtor.
 It is not for the obligee to see to it NOTE: The surety makes no covenant or
agreement with the principal that it will
that the principal debtor pays the
fulfil the obligation guaranteed for the
debt or fulfill the contract, but for
benefit of the principal. Such a promise
the surety to see to it that the
is not implied by law either; and this is
principal debtor pays or performs
true even where under the contract the
(Paramount Insurance Corp vs CA,
creditor is given the right to sue the
310 SCRA 377)
principal, or the latter and the surety at
the same time. (Arranz vs. Manila
Nature of Surety’s undertaking:
Fidelity & Surety Co., Inc., 101 Phil.
1. Liability is contractual and
272)
accessory but direct
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

6. Surety is not entitled to notice of  A guaranty may be given as security

principal’s default for future debts, the amount of
NOTE: The creditor owes no duty of which is not yet known; there can
active diligence to take care of the be no claim against the guarantor
interest of the surety and the surety until the debt is liquidated. A
is bound to take notice of the conditional obligation may also be
principal’s default and to perform secured. (Art 2053)
the obligation. He cannot complain 3. Unilateral - may be entered even w/o
that the creditor has not notified the intervention of the principal debtor,
him in the absence of a special in which case Art. 1236 and 1237 shall
agreement to that effect. (Palmares apply and it gives rise only to a duty on
vs CA, 288 SCRA 422) the part of the guarantor in relation to
7. Prior demand by the creditor upon the creditor and not vice versa.
principal is not required 4. Nominate
NOTE: As soon as the principal is in 5. Consensual
default, the surety likewise is in 6. It is a contract between the
default. guarantor/surety and creditor.
8. Surety is not exonerated by neglect
of creditor to sue principal NOTES:
 Acceptance of guaranty by creditor
Characteristics of Guaranty and
and notice thereof to guarantor:
Suretyship:
1. Accessory - It is indispensable  In declaring that guaranty must
condition for its existence that there be express, the law refers solely
must be a principal obligation. and exclusively to the obligation
NOTES: of the guarantor because it is he
 Guaranty may be constituted to alone who binds himself by his
acceptance. With respect to the
guarantee the performance of a
creditor, no such requirement is
voidable or unenforceable
needed because he binds himself
contract. It may also guarantee
to nothing.
a natural obligation. (Art 2052)
 The guarantor cannot bind  However, when there is merely
an offer of a guaranty, or
himself for more than the
merely a conditional guaranty,
principal debtor and even if he
in the sense that it requires
does, his liability shall be
action by the creditor before the
reduced to the limits of that of
obligation becomes fixed, it
the debtor.
does not become binding until it
2. Subsidiary and Conditional - takes
is accepted and until notice of
effect only in case the principal
such acceptance by the creditor
debtor fails in his obligation.
is given to, or acquired by, the
guarantor, or until he has notice
NOTES:
or knowledge that the creditor
 The guarantor cannot bind has performed the condition and
himself for more than the intends to act upon the
principal debtor and even if he guaranty.
does, his liability shall be  But in any case, the creditor is
reduced to the limits of that of
not precluded from waiving the
the debtor. But a guarantor may
requirement of notice.
bind himself for less than that of
the principal (Art 2054)
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
195

MEMORY AID IN CIVIL LAW

 The consideration of the person cannot be the personal guarantor

guaranty is the same as the of himself.
consideration of the principal NOTE: However, in a real guaranty, like
obligation. pledge and mortgage, a person may
 The creditor may proceed guarantee his own obligation with his
personal or real properties.
against the guarantor although
he has no right of action against
Guaranty Suretyship
the principal debtor.
7. Not presumed. It must be expressed 1. Liability depends 1. Surety assumes
and reduced in writing. upon an independent liability as regular
NOTE: A power of attorney to loan agreement to pay the party to the
money does not authorize the agent obligation if primary undertaking
to make the principal liable as a debtor fails to do so
surety for the payment of the debt
of a third person. (BPI vs. Coster, 47 2. Collateral under- 2. Surety is an
Phil. 594) taking original promisor
8. Falls under the Statute of Frauds
since it is a “special promise to 3. Guarantor is 3. Surety is
secondarily liable primarily liable
answer for the debt, default or
miscarriage of another”. 4. Surety undertakes
4. Guarantor binds
9. Strictly interpreted against the himself to pay if to pay if the principal
creditor and in favor of the the principal DOES NOT PAY
guarantor/surety and is not to be CANNOT PAY
extended beyond its terms or
specified limits. (Magdalena Estates, 5. Insurer of 5. Insurer of the
Inc. vs Rodriguez, 18 SCRA 967) The solvency of debtor debt
rule of strictissimi juris commonly
pertains to an accommodation surety 6. Guarantor can 6. Surety cannot
because the latter acts without avail of the benefit avail of the benefit of
motive of pecuniary gain and hence, of excussion and excussion and division
division in case
should be protected against unjust
creditor proceeds
pecuniary impoverishment by against him
imposing on the principal, duties
akin to those of a fiduciary. Indorsement Guaranty
NOTES: 1. Primarily of 1. Contract of
 The rule will apply only after it transfer security
has been definitely ascertained
that the contract is one of 2. Unless the note is 2. Failure in either or
suretyship or guaranty. It cannot promptly presented both of these
for payment at particulars does not
be used as an aid in determining
maturity and due generally work as an
whether a party’s undertaking is notice of dishonor absolute discharge of
that of a surety or guarantor. given to the indorser a guarantor’s liability,
(Palmares vs CA, 288 SCRA 292) within a reasonable but his is discharged
 It does not apply in case of time he will be only to the extent of
compensated sureties. discharged abso- the loss which he may
lutely from all have suffered in
10. It is a contract which requires that
liability thereon, consequence thereof
the guarantor must be a person whether he has
distinct form the debtor because a suffered any actual
damage or not
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
196

MEMORY AID IN CIVIL LAW

Double or sub-guaranty (Art 2051 2nd par)

3. Indorser does not 3. Guarantor  One constituted to guarantee the
warrant the solvency. warrants the solvency obligation of a guarantor
He is answerable on a of the promisor
strict compliance
with the law by the Continuing guaranty (Art 2053)
holder, whether the  One which is not limited to a single
promisor is solvent or transaction but which contemplates a
not future course of dealings, covering a
series of transactions generally for an
4. Indorser can be 4. Guarantor cannot be indefinite time or until revoked.
sued as promisor sued as promisor
NOTES:
Guaranty Warranty
 Prospective in operation (Diño vs CA,
A contract by which a An undertaking that
person is bound to the title, quality, or 216 SCRA 9)
another for the quantity of the  Construed as continuing when by the
fulfilment of a subject matter of the terms thereof it is evident that the
promise or contract is what it object is to give a standing credit to the
engagement of a has been represented principal debtor to be used from time to
third party to be, and relates to
time either indefinitely or until a certain
some agreement
made ordinarily by period, especially if the right to recall
the party who makes the guaranty is expressly reserved (Diño
the warranty vs CA, 216 SCRA 9)
 “Future debts” may also refer to debts
NOTES: existing at the time of the constitution
 A guaranty is gratuitous, unless there of the guaranty but the amount thereof
is a stipulation to the contrary. The is unknown and not to debts not yet
cause of the contract is the same incurred and existing at that time.
cause which supports the obligation  Exception to the concept of continuing
as to the principal debtor. guaranty is chattel mortgage. A chattel
 The peculiar nature of a guaranty or mortgage can only cover obligations
surety agreement is that is is existing at the time the mortgage is
regarded as valid despite the constituted and not those contracted
absence of any direct consideration subsequent to the execution thereof
received by the guarantor or surety (The Belgian Catholic Missionaries, Inc.
either from the principal debtor or vs. Magallanes Press, Inc., 49 Phil 647).
from the creditor; a consideration An exception to this is in case of stocks
moving to the principal alone will in department stores, drug stores, etc.
suffice. (Torres vs. Limjap, 56 Phil 141).
 It is never necessary that the
Extent of Guarantor’s liability: (Art 2055)
guarantor or surety should receive
1. Where the guaranty definite: It is
any part or benefit, if such there be,
limited in whole or in part to the
accruing to the principal. (Willex
principal debt, to the exclusion of
Plastic Industries Corp. vs. CA, 256
accessories.
SCRA 478)
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
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
197

MEMORY AID IN CIVIL LAW

costs incurred after he has been 1. If it may be presumed that an execution

judicially required to pay. on the property of the principal debtor
would not result in the satisfaction of
Qualifications of a guarantor: (Arts the obligation
2056-2057)  Not necessary that the debtor be
1. possesses integrity judicially declared insolvent or
2. capacity to bind himself bankrupt
3. has sufficient property to answer 2. When he has absconded, or cannot be
for the obligation which he sued within the Philippines unless he has
guarantees left a manager or representative
3. In case of insolvency of the debtor
NOTES:  Must be actual
 The qualifications need only be 4. If the guarantor has expressly renounced
present at the time of the perfection it
of the contract. 5. If he has bound himself solidarily with
 The subsequent loss of the integrity the debtor
or property or supervening
incapacity of the guarantor would Other grounds: (BIPS)
not operate to exonerate the 6. If he is a judicial bondsman or sub-
guarantor or the eventual liability he surety
has contracted, and the contract of 7. If he fails to interpose it as a defense
guaranty continues. before judgment is rendered against him
 However, the creditor may demand 8. If the guarantor does not set up the
another guarantor with the proper benefit against the creditor upon the
qualifications. But he may waive it if latter’s demand for payment from him,
he chooses and hold the guarantor to and point out to the creditor available
his bargain. property to the debtor within Philippine
territory, sufficient to cover the amount
Benefit of Excussion (Art 2058) of the debt (Art 2060)
 The right by which the guarantor  Demand can be made only after
cannot be compelled to pay the judgment on the debt
creditor unless the latter has  Demand must be actual; joining the
exhausted all the properties of the guarantor in the suit against the
principal debtor, and has resorted to principal debtor is not the demand
all of the legal remedies against such intended by law
debtor. 9. Where the pledge or mortgage has been
given by him as special security
NOTE:
 Not applicable to a contract of Benefit of Division (Art 2065)
suretyship (Arts 2047, par. 2;  Should there be several guarantors of
2059[2]) only one debtor and for the same debt,
 Cannot even begin to take place the obligation to answer for the same is
before judgment has been obtained divided among all.
against the debtor (Baylon vs CA,  Liability: Joint
312 SCRA 502)
NOTES:
When Guarantor is not entitled to the  The creditor can claim from the
benefit of excussion: (PAIRS) guarantors only the shares they are
respectively bound to pay except when

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
198

MEMORY AID IN CIVIL LAW

solidarity is stipulated or if any of should be rendered against him and

the circumstances enumerated in principal debtor. His voluntary
Article 2059 should take place. appearance does not constitute a
 The right of contribution of renunciation of his right to excussion
guarantors who pays requires that (see Art. 2059(1)).
the payment must have been made  Guarantor cannot set up the
(a) in virtue of a judicial demand, or defenses if he does not appear and
(b) because the principal debtor is it may no longer be possible for him
insolvent (Art 2073). to question the validity of the
 If any of the guarantors should be judgment rendered against the
insolvent, his share shall be borne by debtor.
the others including the paying 2. A guarantor is entitled to be heard
guarantor in the same joint before and execution can be issued
proportion following the rule in against him where he is not a party in
solidary obligations. the case involving his principal
 The above rule shall not be (procedural due process).
applicable unless the payment has
Guarantor’s Right of Indemnity or
been made in virtue of a judicial
Reimbursement (Art 2066)
demand or unless the principal
GENERAL RULE: Guaranty is a contract of
debtor is insolvent.
indemnity. The guarantor who makes
 The right to contribution or payment is entitled to be reimbursed by the
reimbursement from his co- principal debtor.
guarantors is acquired ipso jure by
virtue of said payment without the NOTE: The indemnity consists of: (DIED)
need of obtaining from the creditor 1. Total amount of the debt – no right
any prior cession of rights to such to demand reimbursement until he
guarantor. has actually paid the debt, unless by
 The co-guarantors may set up the terms of the contract, he is
against the one who paid, the same given the right before making
defenses which have pertained to payment. He cannot collect more
the principal debtor against the than what he has paid.
creditor and which are not purely 2. Legal interest thereon from the
personal to the debtor. (Art 2074) time the payment was made known
(notice of payment in effect a
Procedure when creditor sues: (Art. demand so that if the debtor does
2062) not pay immediately, he incurs in
 The creditor must sue the principal delay) to the debtor, even though it
alone; the guarantor cannot be sued did not earn interest for the
with his principal, much less alone creditor. Guarantor’s right to legal
except in Art. 2059. interest is granted by law by virtue
of the payment he has made.
1. Notice to guarantor of the action 3. Expenses incurred by the guarantor
 The guarantor must be NOTIFIED after having notified the debtor that
so that he may appear, if he so payment has been demanded of him
desires, and set up defenses he by the creditor; only those expenses
may want to offer. that the guarantor has to satisfy in
accordance with law as a
 If the guarantor appears, he is consequence of the guaranty (Art.
still given the benefit of 2055) not those which depend upon
exhaustion even if judgment his will or own acts or his fault for
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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these are his exclusive personal debt to subrogation does not stand upon
responsibility and it is not just contract but upon the principles of
that they be shouldered by the natural justice.
debtor.  The guarantor is subrogated by virtue of
4. Damages if they are due in the payment to the rights of the
accordance creditor, not those of the debtor.
with law. General rules on  Guarantor cannot exercise the right
damages apply.
of redemption of his principal
(Urrutia & Co vs Morena and Reyes,
EXCEPTIONS:
28 Phil 261)
1. Where the guaranty is
constituted without the
Effect of Payment by Guarantor
knowledge or against the will of
1. Without notice to debtor: (Art 2068)
the principal debtor, the
guarantor can recover only  The debtor may interpose against
insofar as the payment had been the guarantor those defenses which
beneficial to the debtor (Art. he could have set up against the
2050). creditor at the time the payment
2. Payment by a third person who was made, e.g. the debtor can set
does not intend to be reimbursed up against the guarantor the defense
by the debtor is deemed to be a of previous extinguishment of the
donation, which, however, obligation by payment.
requires the debtor’s consent.
But the payment is in any case 2. Before Maturity (Art 2069)
valid as to the creditor who has  Not entitled to reimbursement
accepted it (Art. 1238). unless the payment was made with
3. Waiver of the right to demand the consent or has been ratified by
reimbursement. the debtor

Guarantor’s right to Subrogation Effect of Repeat Payment by debtor: (Art

(ART.2067) 2070)
 Subrogation transfers to the person GENERAL RULE: Before guarantor pays the
subrogated, the credit with all the creditor, he must first notify the debtor (Art.
rights thereto appertaining either 2068). If he fails to give such notice and the
against the debtor or against third debtor repeats payment, the guarantor can
persons, be they guarantors or only collect from the creditor and guarantor
possessors of mortgages, subject to has no cause of action against the debtor for
stipulation in conventional the return of the amount paid by guarantor
subrogation. even if the creditor should become
insolvent.
NOTE: This right of subrogation is
necessary to enable the guarantor to EXCEPTION: The guarantor can still claim
enforce the indemnity given in Art. 2066. reimbursement from the debtor in spite of
 It arises by operation of law upon lack of notice if the following conditions are
payment by the guarantor. It is not present: (PIG)
necessary that the creditor cede to a. guarantor was prevented by
the guarantor the former’s rights fortuitous event to advise the debtor
against the debtor. of the payment; and
 It is not a contractual right. The b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
right of guarantor who has paid a

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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Right of Guarantor to proceed against and preferences of the former (Art

debtor before payment 2080);
GENERAL RULE: Guarantor has no 4. For the same causes as all other
cause of action against debtor until after obligations (Art 1231);
the former has paid the obligation 5. When the principal obligation is
EXCEPTION: Article 2071 extinguished;
6. Extension granted to the debtor by the
NOTES: creditor without the consent of the
 Article 2071 is applicable and guarantor (Art 2079)
available to the surety. (Manila
BOND
Surety & Fidelity Co., Inc. vs Batu
 An undertaking that is sufficiently
Construction & Co., 101 Phil 494)
secured, and not cash or currency
 Remedy of guarantor:
(a) obtain release from the Bondsman (Art 2082)
guaranty; or  A surety offered in virtue of a provision
(b) demand a security that shall
of law or a judicial order. He must have
protect him from any
the qualifications required of a
proceedings by the creditor, and
guarantor and in special laws like the
against the danger of insolvency
Rules of Court.
of the debtor
NOTES:
Art. 2066 Art. 2071
Provides for the Provides for his
 Judicial bonds constitute merely a
enforcement of the protection before he special class of contracts of guaranty by
rights of the has paid but after he the fact that they are given “in virtue…
guarantor/surety has become liable of a judicial order.”
against the debtor  If the person required to give a legal or
after he has paid the
debt
judicial bond should not be able to do
Gives a right of Protective remedy so, a pledge or mortgage sufficient to
action after payment before payment. cover the obligation shall admitted in
Substantive right Preliminary remedy lieu thereof (Art 2083)
 A judicial bondsman and the sub-surety
Extinguishment of guaranty: (RA2CE2) are NOT entitled to the benefit of
1. Release in favor of one of the excussion because they are not mere
guarantors, without the consent of guarantors, but sureties whose liability
the others, benefits all to the extent is primary and solidary. (Art 2084)
of the share of the guarantor to
whom it has been granted (Art PLEDGE, MORTGAGE AND ANTICHRESIS
2078); I. Common Elements of Pledge, Mortgage,
2. If the creditor voluntarily accepts and Antichresis (Articles 2085 – 2092)
immovable or other properties in
payment of the debt, even if he A. Essential Requisites (SOD) (Art 2085)
should afterwards lose the same 1. Secures the fulfillment of a principal
through eviction or conveyance of obligation;
property (Art 2077); 2. Pledgor, mortgagor, antichretic debtor
3. Whenever by some act of the must be the absolute owner of the thing
creditor, the guarantors even though pledged or mortgaged; and
they are solidarily liable cannot be  The reason being that in anticipation
subrogated to the rights, mortgages of a possible foreclosure sale in case
of default which is still a sale, the
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

rule is that the seller must be  Stipulation whereby the thing pledged or
the owner of the thing sold mortgaged, or under antichresis shall
(Cavite Development Bank vs. automatically become the property of
Lim, 324 SCRA 346) the creditor in the event of non-
3. Pledgor, mortgagor, antichretic payment of the debt within the term
debtor must have free disposal of fixed.
their property, or be legally
authorized for such purpose. Requisites:
1. There should be a pledge, mortgage, or
NOTES: antichresis of property by way of
 Third persons can pledge or security for the payment of the principal
mortgage their own property to obligation; and
secure the principal obligation. 2. There should be a stipulation for an
 It is not necessarily void simply automatic appropriation by the creditor
of the property in event of nonpayment
because the accommodation pledgor
of the obligation within the stipulated
or mortgagor did not benefit from
period.
the same. So long as valid consent
was given, the fact that the loan was
GENERAL RULE: Pactum Commissorium is
given solely for the benefit of the
principal debtor would not invalidate forbidden by law and is declared null and
the mortgage (GSIS vs CA, 170 SCRA void.
533) EXCEPTION: The pledgee may appropriate
the thing pledged if after the first and
 The accommodation pledgor or
second auctions, the thing is not sold. (Art
mortgagor, without expressly 2112)
assuming personal liability for such
debt, is not liable for the payment of NOTE: The security contract remains
any deficiency, should the property valid; only the prohibited stipulation is
not be sufficient to cover the debt void.
(Bank of America vs. American C. Capability to secure all kinds of
Realty Corporation, 321 SCRA 659). obligations, i.e. pure or conditional
 The accommodation pledgor or (Art 2091)
mortgagor is not solidarily bound
with the principal obligor but his D. Indivisibility (Art 2089)
liability extents only to the property GENERAL RULE: A pledge, mortgage, or
pledged or mortgaged. Should there antichresis is indivisible, even though the
be any deficiency, the creditor has debt may be divided among the successors
recourse on the principal debtor who in interest of the debtor or of the creditor.
remains to be primarily bound.  Their indivisibility is not affected by the
 The law grants to the fact that the debtors are jointly or not
accommodation pledgor or solidarily liable.
mortgagor the same rights as a
guarantor and he cannot be Consequences of indivisibility:
prejudiced by any waiver of defense 1. Single thing – Every portion of the
by the principal debtor. property pledged or mortgaged is
answerable for the whole obligation
B. Prohibition against Pactum 2. Several things – All of the several things
Commissorium (Art 2088; 2137) pledged or mortgaged are liable for the
totality of the debt
Pactum Commissorium 3. Debtor’s heir/creditor’s heir - Neither
the debtor’s heir who has paid part of
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

the debt cannot ask for  If he wishes to secure a title to the

proportionate extinguishment, nor mortgaged property, he can buy it in the
creditor’s heir who received his foreclosure sale (Montevirgin vs. CA, 112
share of the debt return the pledge SCRA 641)
or cancel the mortgage as long as
the debt is not completely satisfied. F. Pledgor, mortgagor, antichretic
debtor retains ownership of the thing
EXCEPTIONS: given as a security
1. Where each one of several things
guarantees a determinate PLEDGE (Arts 2093 – 2123)
portion of the credit
2. Where only a portion of the loan  A contract wherein the debtor delivers
was released to the creditor or to a third person a
3. Where there was failure of movable or document evidencing
consideration. incorporeal rights for the purpose of
4. Where there is no debtor- securing fulfilment of a principal
creditor relationship obligation with the understanding that
when the obligation is fulfilled, the
NOTES: thing delivered shall be returned with
 The mere embodiment of a real all its fruits and accessions.
estate mortgage and a chattel
mortgage in one document does not  Special Requisites (in addition to the
have the effect of fusing both common essential requisites):
securities into an indivisible whole. 1. Possession of the thing pledged must be
 The mortgagee, therefore, may transferred to the creditor or a third
legally foreclose the real estate person by agreement (Art 2093);
mortgage extrajudicially and waive 2. It can only cover movable property and
the chattel mortgage foreclosure, incorporeal rights evidenced by
and maintain instead a personal documents of title and the instruments
action for the recovery of the unpaid proving the right pledged shall be
balance of the credit (Phil. Bank of delivered to the creditor, and if
Commerce vs. Macadaeg, 109 Phil negotiable must be endorsed (Art 2094);
981) and
3. The description of the thing pledged and
E. When the principal obligation the date must appear in a public
becomes due, the things in which instrument to bind third persons, but
the pledge, mortgage, or not for the validity of the contract (Art
antichresis consists may be 2096).
alienated for the payment to the
creditor. (Art. 2087)  Kinds:
1. Conventional /Voluntary – created by
NOTES: contract
 If the debtor fails to comply with the 2. Legal – created by operation of law
(examples: Art. 546, 1731 and 1914 NCC)
obligation at the time it falls due,
the creditor is merely entitled to
NOTES:
move for the sale of the thing
pledged or mortgaged in order to  The provisions of possession, care and
collect the amount of his claim from sale of the thing as well as on the
the proceeds. termination of the pledge governing
conventional pledges are applicable to
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

pledges created by operation of law Extent of pledge: Unless stipulated

(Art 2121) otherwise, pledge extends to the fruits,
 Unlike, however, in conventional interests or earnings of the thing.
pledge where the debtor is not
entitled to the excess unless it is Rights and Obligations of a Pledgor
otherwise agreed, in legal pledge, Rights Obligations
the remainder of the price of the 1. To demand return in 1. To advise the
sale after payment of the debt and case of reasonable pledgee of the
grounds to fear flaws of the thing
expenses, shall be delivered to the destruction or (Art 2101)
debtor. impairment of the thing 2. Not to demand
 In legal pledge, there is no definite without the pledgee’s the return of the
period for the payment of the fault, subject to the thing until after
principal obligation. The pledgee duty of replacement full payment of
must make a demand for the (Art 2107) the debt,
2. To bid and be including interest
payment of the amount due him;
preferred at the public due thereon and
otherwise he cannot exercise the auction (Art 2113) expenses incurred
right of sale at public auction (Art 3. To alienate the thing for its
2122) pledged provided the preservation (Art
pledgee consents to the 2105)
Characteristics: sale (Art 2097)
1. Real 4. To ask that the thing
contract – it is perfected by the pledged be deposited
delivery of the thing pledged by the (Arts 2104 & 2106)
debtor who is called the pledgor to
the creditor who is called the Rights of the Pledgee
pledgee, or to a third person by KEY: D SBC BA2R2OPS2
common agreement; 1. Option to demand replacement or
2. Accessor immediate payment of the debt in case of
y contract – it has no independent deception as to substance or quality (Art
existence of its own; 2109)
3. Unilater 2. To sell at public auction in case of
al contract – it creates an obligation reasonable grounds to fear destruction or
solely on the part of the creditor to impairment of the thing without his fault
return the thing subject thereof (Art 2108)
upon the fulfilment of the principal 3. To bring actions pertaining to the owner
obligation; and (Art 2103)
4. Subsidiar 4. To choose which of several things
y contract – the obligation incurred pledged shall be sold
does not arise until the fulfilment 5. To bid at the public auction (Art 2113)
of the principal obligation which is 6. To appropriate the thing in case of
secured. failure of the 2nd public auction (Art 2112)
7. To apply said fruits, interests or earnings
Consideration in pledge: to the interest, if any, then to the principal
of the credit (Art 2102)
 Insofar as the pledgor is concerned,
8. To retain excess value received in the
the cause is the principal obligation. public sale (Art 2115)
 If the pledgor is not the debtor, the 9. To retain the thing until after full
cause is the compensation stipulated payment of the debt (Art 2098)
for the pledge or the mere liberality 10. To be reimbursed for the expenses made
of the pledgor. for the preservation of the thing pledged
(Art 2099)
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

11. To object to the alienation of the 2. Not to use thing unless authorized or by
thing the owner or its preservation requires its use
12. To possess the thing (Art 2098) (Art 2104)
13. To sell at public auction in case of 3. Not to deposit the thing with a 3 rd person
non-payment of debt at maturity (Art unless so stipulated (Art 2100)
2112) 4. Responsibility for acts of agents and
To choose which of the several things employees as regards the thing (Art 2100)
pledged shall be sold (Art 2119) 5. To advise pledgor of danger to the thing
14. Option to demand replacement or (Art 2107)
immediate payment of the debt in case 6. To advise pledgor of the result of the
of deception as to substance or quality public auction (Art 2116)
(Art 2109)
15. To sell at public auction in case of RIGHT OF PLEDGOR TO SUBSTITUTE THING
reasonable grounds to fear destruction PLEDGED (ART.2107)
or impairment of the thing without his  Requisites:
fault (Art 2108) 1. The pledgor has reasonable grounds
16. To bring actions pertaining to the to fear the destruction or
owner (Art 2103) impairment of the thin pledged
17. To choose which of several things 2. There is no fault on the part of the
pledged shall be sold pledgee
18. To bid at the public auction (Art 3. The pledgor is offering in place of
2113) the thing, another thing in pledge
19. To appropriate the thing in case of which is of the same kind and
failure of the 2nd public auction (Art quality as the former
2112) 4. The pledge does not choose to
20. To apply said fruits, interests or exercise his right to cause the thing
earnings to the interest, if any, then to pledged to be sold at public auction
the principal of the credit (Art 2102) NOTE: The pledgee’s right to have the thing
21. To retain excess value received pledged sold at public sale granted under
in the public sale (Art 2115) the Article 2108 is superior to that given to
22. To retain the thing until after full the pledgor to substitute the thing pledged
payment of the debt (Art 2098) under Article 2107.
23. To be reimbursed for the expenses
made for the preservation of the thing Prohibition against double pledge
pledged (Art 2099)  Property which has been lawfully
24. To object to the alienation of the pledged to one creditor cannot be
thing pledged to another as long as the first
25. To possess the thing (Art 2098) one subsists.
26. To sell at public auction in case of NOTE: Possession of a creditor of the thing
non-payment of debt at maturity (Art pledged is an essential requisite of pledge.
2112)
27. To choose which of the several things Extinguishment of Pledge (CRAPS)
pledged shall be sold (Art 2119) 1. For the same causes as all other
obligations (Art 1231)
Obligations of the Pledgee 2. Return of the thing pledged by the
KEY: CUDA3 pledgee to the pledgor (Art 2110)
1. Take care of the thing with the 3. Statement in writing by the pledgee
diligence of a good father of a family that he renounces or abandons the
(Art 2099) pledge (Art 2111)
4. Payment of the debt (Art 2105)

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

5. Sale of thing pledged at public 2. Accessory

auction (Art 2115) 3. Subsidiary
NOTE: The possession by the debtor or 4. Unilateral – it creates only an
owner of the thing pledged subsequent obligation on the part of the
to the perfection of the pledge gives rise creditor who must free the property
to a prima facie presumption that the from the encumbrance once the
thing has been returned and, therefore, obligation is fulfilled.
that the pledge has been extinguished
but not the principal obligation itself.
(Art 2110)
NOTES:
Requirements for sale of thing pledged  As an accessory contract, its
at public auction: (Art 2112) consideration is that of the principal
1. The debt is due and unpaid contract from which it receives life.
2. Sale must be at a public auction  A mortgage does not involve a transfer,
3. there must be notice to the pledgor
cession or conveyance of property but
and owner, stating the amount due
only constitutes a lien thereon. Until
4. Sale must be with the intervention
discharged, it follows the property
of a notary public
wherever it goes and subsists
notwithstanding changes of ownership.
Effect of sale of the thing pledged: (Art
2115)  A mortgage gives the mortgagee no right
1. The sale of the thing pledged shall or claim to the possession of the
extinguish the principal obligation, property, and therefore, a mere
whether or not the proceeds of the mortgagee has no right to eject an
sale are equal to the amount of the occupant of the property mortgaged
principal obligation, interest and unless the mortgage should contain
expenses in a proper case some provision to that effect. The only
2. If the price of the sale is more than right of a mortgagee in case of non-
the amount due the creditor, the payment of a debt secured by mortgage
debtor is not entitled to the excess would be to foreclose the mortgage and
unless the contrary is provided have the encumbered property sold to
3. If the price of the sale is less, the satisfy the outstanding indebtedness. If
creditor is not entitled to recover the possession is transferred to the
the deficiency even if there is a mortgagee, it must not expressly be for
stipulation to that effect purpose of applying the fruits to the
interest then to the principal of the
REAL ESTATE MORTGAGE (Articles credit, for then it would be an
2124-2131) antichresis.
 It is not an essential requisite that the
 A contract whereby the debtor principal of the mortgage credit bears
secures to the creditor the interest, or that the interest as
fulfilment of a principal obligation, compensation for the use of the
specially subjecting to such security principal and enjoyment of its fruits be
immovable property or real rights in the form of a certain percent thereof.
over immovable property in case the
principal obligation is not complied  Special Requisites (in addition to the
with at the time stipulated. common essential requisites):
1. It can cover only immovable property
Characteristics of the contract: and alienable real rights imposed upon
1. Real immovables (Art 2124);
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
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MEMORY AID IN CIVIL LAW

2. It must appear in a public instrument person

(Art. 2125); and 3. Not valid against 3. Not valid against
3. Registration in the registry of third persons unless a third persons unless
property is necessary to bind third description of the registered
thing pledged and
persons, but not for the validity of
date of pledge
the contract (Art 2125). appear in a public
 An order for foreclosure cannot instrument
be refused on the ground that
the mortgage had not been Extent of Mortgage:
registered provided no innocent  Absent express stipulation to the
third parties are involved. contrary, the mortgage includes the
NOTE: Where a mortgage is not valid or accessions, improvements, growing
false, the principal obligation which it fruits and income of the property not
guarantees is not rendered null and void. yet received when the obligation
What is lost only is the right to foreclose becomes due and to the amount of the
the mortgage as a special remedy for indemnity granted or owing to the
satisfying or settling the indebtedness proprietor from the insurers of the
which is the principal obligation but the property mortgaged, or in virtue of
mortgage deed remains as evidence or expropriation for public use (Art 2127)
proof of a personal obligation of the
debtor and the amount due to the Object of Mortgage:
creditor may be enforced in an ordinary  Future property cannot be an object of
personal action. a contract of mortgage (Art 2085[2])
However, a stipulation subjecting to the
 Kinds: mortgage lien, properties
1. Voluntary – agreed to by the parties (improvements) which the mortgagor
or constituted by the will of the may subsequently acquire install, or use
owner of the property on which it is in connection with real property already
created mortgaged belonging to the mortgagor is
2. Legal – one required by law to be valid (People’s Bank and Trust Co. vs.
executed in favour of certain persons Dahican Lumber Co., 20 SCRA 84)
 The persons in whose favour the
law establishes a mortgage have Special Rights:
no other right than to demand 1. Mortgagor - To alienate the mortgaged
the execution and the recording property but the mortgage shall remain
of the document in which the attached to the property.
mortgage is formalized (Art 2125
par 2) NOTE: A stipulation forbidding the owner
3. Equitable – one which, although from alienating the immovable mortgage
lacking the formalities of a shall be void (Art 2130) being contrary to
mortgage, shows the intention of the public policy inasmuch as the transmission of
parties to make the property a property should not be unduly impeded.
security for a debt
2. Mortgagee - To claim from a 3rd person
PLEDGE REAL MORTGAGE in possession of the mortgaged property
1. Constituted on 1. Constituted on the payment of the part of the credit
movables immovables secured by the which said third person
2. Property is 2. Delivery is not
possesses (Art 2129)
delivered to pledgee necessary
or by common
NOTE: It is necessary that prior demand for
consent to a third payment must have been made on the

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
207

MEMORY AID IN CIVIL LAW

debtor and the latter failed to pay (BPI the judgment until certificate of sale
vs Concepcion & Hijos, Inc., 53 Phil 906) order of
confirmation
Foreclosure 6. No need for a 6. Special power of
special power of attorney in favor of
 The remedy available to the
attorney in the mortgagee is
mortgagee by which he subjects the contract of needed in the
mortgaged property to the mortgage contract
satisfaction of the obligation to
secure that for which the mortgage NOTES:
was given  A foreclosure sale retroacts to the date
of registration of the mortgage and that
NOTES:
a person who takes a mortgage in good
 It denotes the procedure adopted by faith and for valuable consideration, the
the mortgagee to terminate the record showing clear title to the
rights of the mortgagor on the mortgagor, will be protected against
property and includes the sale itself equitable claims on the title in favor of
(DBP vs Zaragoza, 84 SCRA 668) third persons, of which he had no actual
 Foreclosure is valid where the debtor or constructive notice (St. Dominic
is in default in the payment of his Corporation vs. IAC 151 SCRA 577).
obligation (Gobonseng, Jr. vs CA,  Where there is a right to redeem,
246 SCRA 472) inadequacy of price is not material
because the judgment debtor may
 Kinds: reacquire the property or else sell his
1. Judicial – ordinary action for right to redeem and thus recover any
foreclosure under Rule 68 of the loss he claims to have suffered by reason
Rules of Court of the price obtained at the auction sale
2. Extrajudicial – when mortgagee is and consequently not sufficient to set
given a special power of attorney to aside the sale. Mere inadequacy of the
sell the mortgaged property by price obtained at the sheriff’s sale will
public auction, under Act No. 3135 not be sufficient to set aside the sale
unless “the price is so inadequate as to
Judicial Extrajudicial shock the conscience of the court”
foreclosure foreclosure taking into consideration the peculiar
1. There is court 1. No court circumstances attendant thereto. (Sulit
intervention intervention vs. CA, 268 SCRA 441)
2. Decisions are 2. Not appealable
appealable because it is
 Should there remain a balance due to
immediately the mortgagee after applying the
executory proceeds of the sale, the mortgagee is
3. Order of court 3. Foreclosure does entitled to recover the deficiency. This
cuts off all rights of not cut off right of rule applies both to judicial and extra-
the parties all parties involved judicial foreclosure real mortgage.
impleaded  The action to recover a deficiency after
4. There is equity 4. There is right of
of redemption redemption foreclosure prescribes after 10 years
except on banks from the time the right of action
which provides for accrues (Arts 1142 & 1144).
a right of
redemption Stipulation of upset price or “tipo”
5. Period of 5. Period to redeem  It is a stipulation in a mortgage of real
redemption starts start from date of property of minimum price at which the
from the finality of registration of
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
208

MEMORY AID IN CIVIL LAW

property shall be sold, to become municipality or city where the property

operative in the event of a is situated, and if the same is worth
foreclosure sale at public auction. It more than P400.00, that such notice has
is null and void for the property must been published once a week for at least
be sold to the highest bidder. Parties three (3) consecutive weeks in a
cannot, by agreement, contravene newspaper of general circulation in the
the law and interfere with the lawful city of municipality
procedure of the courts (BPI vs Yulo, 3. The certificate of sale must be approved
31 Phil 476) by the Executive Judge
4. Where the application concerns
Extrajudicial foreclosure real property extrajudicial foreclosure of real
(Act No. 3135) mortgages in different locations
 The law covers only real estate covering one indebtedness, only one
mortgages. It is intended merely to filing fee corresponding to such debt
regulate the extrajudicial sale of the shall be collected
property mortgaged if and when the 5. The Clerk of Court shall issue certificate
mortgagee is given a special power of payment indicating the amount of
of express authority to do so in the indebtedness, the filing fees collected,
deed itself or in a document the mortgages sought to be foreclosed,
annexed thereto. the description of the real estates and
 The authority to sell is not their respective locations
extinguished by the death of the 6. The notice of sale shall be published in a
mortgagor (or mortgagee) as it is an newspaper of general circulation
essential and inseparable part of a pursuant to Section 1, PD No. 1079
bilateral agreement (Perez vs PNB, 7. The application of shall be raffled
17 SCRA 833). among all sheriffs
 No sale can be legally made outside 8. After the redemption period has
the province in which the property expired, the Clerk of Court shall archive
sold is situated; and in case the the records.
place within said province in which 9. No auction sale shall be held unless
the sale is to be made is the subject there are at least two (2) participating
of stipulation, such sale shall be bidders, otherwise the sale shall be
made in the said place in the postponed to another date. If on the
municipal building of the new date set forth for the sale there
municipality in which the property or shall not be at least two bidders, the
part thereof is situated. sale shall then proceed. The names of
the bidders shall be reported to the
Procedure for extrajudicial foreclosure Sheriff of the Notary Public, who
of both real estate mortgage under Act conducted the sale to the Clerk of Court
No. 3135 and chattel mortgage under before the issuance of the certificate of
Act No. 1508 (A.M. No. 99-10-05-0, sale.
January 15, 2000)
1. Filing of application before the NOTES:
Executive Judge through the Clerk of  The Mortgagor and Mortgagee have no
Court right to waive the posting and
2. Clerk of Court will examine whether publication requirements under Act. No.
the requirement of the law have 3135. Notices are given to secure
been complied with, that is, whether bidders and prevent a sacrifice of the
the notice of sale has been posted property. Clearly, the statutory
for not less than 20 days in at least requirements of posting and publication
three (3) public places of the are mandated, not for the mortgagor’s
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
209

MEMORY AID IN CIVIL LAW

benefit, but for the public or third and, hence, had no right to redeem
persons. Failure to comply with the (Bonnevie vs. CA, 125 SCRA 122).
statutory requirements as to
publication of notice of auction sale  Kinds:
constitutes a jurisdictional defect 1. Equity of Redemption – right of
which invalidates the sale.Lack of mortgagor to redeem the mortgaged
republication of notice of property after his default in the
foreclosure sale made subsequently performance of the conditions of the
after the original date renders such mortgage within the 90-day period from
sale void (PNB vs. Nepomuceno the date of the service of the order of
Productions Inc., G.R. No. 139479. foreclosure or even thereafter but
December 27, 2002). before the confirmation of the sale.
 Sec 3 of Act 3135 does not require Applies to judicial foreclosure of real
personal or any particular notice on mortgage and chattel mortgage
the mortgagor much less on his foreclosure.
successors-in-interest where there is
no contractual stipulation therefor. NOTE: Redemption of the banking
Hence, unless required in the institutions is allowed within one year from
mortgage contract, the lack of such confirmation of sale.
notice is not a ground to set aside a
foreclosure sale. 2. Right of Redemption – right of
 Neither does Sec 3 require posting of mortgagor to redeem the mortgaged
property within one year from the date
notice of sale on the mortgage
of registration of the certificate of sale.
property and the certificate of
Applies only to extrajudicial foreclosure
posting is not required, much less
of real mortgage.
considered indispensable, for the
validity of a foreclosure sale.
NOTE: The right of redemption, as long as
within the period prescribed, may be
exercised irrespective of whether or not the
Redemption
mortgagee has subsequently conveyed the
 It is the transaction by which the
property to some other party (Sta. Ignacia
mortgagor reacquires or buys back
Rural Bank, Inc. vs. CA, 230 SCRA 513)
the property which may have passed
under the mortgage, or divests the
Period of Redemption
property of the lien which the
1. Extra-judicial (Act #3135)
mortgage may have created.
a. natural person – one year from
registration of the certificate of
NOTES:
sale with Registry of Deeds
 A sale by the mortgagor to a third b. juridical person – same rule as
party of the mortgaged property natural person
during the period for redemption c. juridical person (mortgagee is bank)
transfers only the right to redeem - three months after foreclosure or
the property and the right to before registration of certificate of
possess, use and enjoy the same foreclosure which ever is earlier
during said period. (sec. 47, of General Banking Law)
 Where sale with assumption of 2. Judicial – before confirmation of the
mortgage not registered and made sale by the court
without the consent of the
mortgagee, the buyer, thereof, was NOTE: Allowing a redemption after the
not validly substituted as debtor lapse of the statutory period, when the
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
210

MEMORY AID IN CIVIL LAW

buyer at the foreclosure sale does not 2. Formal contract – it must be in a

object but even consents to the specified form to be valid, i.e., “in
redemption, will uphold the policy of the writing.” (Art 2134)
law which is to aid rather than defeat
the right of redemption. There is nothing  Special Requisites (in addition to the
in the law which prevents a waiver of common essential requisites):
the statutory period for redemption 1. It can cover only the fruits of an
(Ramirez vs CA, 219 SCRA 598). immovable property; (Art 2132)
2. Delivery of the immovable is necessary
Amount of the redemption price: for the creditor to receive the fruits and
1. Mortgagee is not a bank (Act No. not that the contract shall be binding;
3135, in relation to Sec. 28, Rule 39 3. Amount of principal and interest must
of Rules of Court) be specified in writing (Art. 2134); and
a. purchase price of the property 4. Express agreement that debtor will give
b. 1% interest per month on the possession of the property to creditor
purchase price and that the latter will apply the fruits
c. taxes paid and amount of to the interest, if any, then to the
purchaser’s prior lien, if any, principal of his credit. (Art 2132)
with the same rate of interest
computed from the date of NOTE: The obligation to pay interest is not
registration of sale, up to the of the essence of the contract of
time of redemption antichresis, there being nothing in the Code
2. Mortgagee is a bank (GBL 2000) to show that antichresis is only applicable to
a. amount due under the mortgage securing the payment of interest-bearing
deed loans. On the contrary, antichresis is
b. interest susceptible of guaranteeing all kinds of
c. cost and expenses obligations, pure or conditional
NOTE: Redemption price in this
case is reduced by the income Antichresis Pledge
received from the property 1. Refers to real 1. Refers to personal
property property
2. Perfected by mere 2. Perfected by
consent delivery of the thing
pledged
3. Consensual contract 3. Real Contract

ANTICHRESIS (Articles 2132 -2139)

 A contract whereby the creditor Antichresis Real Mortgage

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

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
211

MEMORY AID IN CIVIL LAW

contrary, is obliged to NOTES:

pay the taxes and  The parties, however, may agree on an
charges upon the
estate extrajudicial foreclosure in the same
4. It is expressly 4. There is no such manner as they are allowed in contracts
stipulated that the obligation on part of of mortgage and pledge (Tavera vs. El
creditor given mortgagee Hogar Filipino, Inc., 68 Phil 712).
possession of the  A stipulation authorizing the antichretic
property shall apply creditor to appropriate the property
all the fruits thereof
upon the non-payment of the debt
to the payment of
interest, if owing, within the agreed period is void (Art
and thereafter to the 2088).
principal
Subject matter of both is real property CHATTEL MORTGAGE (Articles 2140-2141)

Obligations of antichretic creditor:  A contract by virtue of which personal

1 To pay taxes and charges on the property is recorded in the Chattel
estate, including necessary expenses Mortgage Register as a security for the
NOTE: Creditor may avoid said performance of an obligation (Art 2140).
obligation by:
a. compelling debtor to Characteristics
reacquire enjoyment of the 1. Accessory contract – it is for the purpose
property or of securing the performance of a
b. by stipulation to the principal obligation
contrary 2. Formal contract – registration in the
2 To apply all the fruits, after Chattel Mortgage Register is
receiving them, to the payment of indispensable for its validity
interest, if owing, and thereafter to 3. Unilateral contract – it produces only
the principal obligations on the part of the creditor to
3 To render an account of the fruits to free the thing from the encumbrance on
the debtor fulfilment of the obligation.
4 To bear the expenses necessary for
its preservation and repair  Special Requisites (in addition to the
common essential requisites):
Remedies of creditor in case of non- 1. It can cover only personal or movable
payment of debt property in general; however, the
parties may treat as personal property
1. Bring an action for specific that which by its nature would be real
performance; or property;
2. Petition for the sale of the real 2. Registration of the mortgage with the
property as in a foreclosure of Chattel Mortgage Register where the
mortgages under Rule 68 of the Rules mortgagor resides; if property is located
of Court.(Art 2137) in a different province, registration in
both provinces required;
3. Description of the property as would
enable the parties or other persons to
identify the same after reasonable
investigation and inquiry; and
4. Accompanied by an affidavit of good
faith to bind third persons, but not for
the validity of the contract.

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
212

MEMORY AID IN CIVIL LAW

5. It can cover only obligations existing excess over the unless otherwise
at the time the mortgage is amount due goes to agreed or except in
constituted. the debtor case of legal
NOTE: A mortgage containing a pledge
stipulation in regard to future 4. If there is 4. If there is
advances in the credit will take deficiency after deficiency, creditor
effect only from the date the same foreclosure, is not entitled to
are made and not from the date of creditor is entitled recover
the mortgage (Jaca vs Davao Lumber to recover the notwithstanding
Co., 113 SCRA 107) deficiency from the any stipulation to
debtor, except the contrary
Effect of registration: Creates a real under Art. 1484
right Subject matter of both is movable
 The registration of the chattel property
mortgage is an effective and binding
notice to other creditors of its Affidavit of Good Faith
existence and creates a real right or  Oath in a contract of chattel mortgage
a lien which, being recorded, follows wherein the parties "severally swear
the chattel wherever it goes. The that the mortgage is made for the
registration gives the mortgagee purpose of securing the obligation
symbolical possession (Northern specified in the conditions thereof and
Motors, Inc. vs. Coquia, 68 SCRA for no other purposes and that the same
374). is a just and valid obligation and one not
entered into for the purpose of fraud.”
Effect of failure to register chattel (Sec. 5, Chattel Mortgage Law)
mortgage in the chattel mortgage
registry Effect of absence
 Article 2140 makes the recording in The special affidavit is required only for
the Chattel Mortgage Register an the purpose of transforming an already
essential requisite but if the valid mortgage into “preferred
instrument is not recorded, the mortgage.” Thus, it is not necessary for
mortgage is nevertheless binding the validity of the chattel mortgage
between the parties. But the person itself but only to give it a preferred
in whose favour the law establishes a status. In other words, its absence
mortgage has no other right than to vitiates the mortgage only as against
demand the execution and the third persons without notice like
recording of the document. creditors and subsequent
encumbrancers.

Chattel Mortgage Pledge Foreclosure of Chattel Mortgage

1. Delivery of the 1. Delivery of the NOTES:
personal property thing pledged is  Foreclosure sale in chattel mortgage is
to the mortgage is necessary by public auction under Act No. 1508,
not necessary but the parties may stipulate that it be
2. registration in 2. registration not by private sale.
the Chattel necessary to be  The mortgagee may, after thirty (30)
Mortgage Registry valid
days from the time of the condition
is necessary for its
broken, cause the mortgaged property
validity
to be sold at public auction by a public
3. If property is 3. Debtor is not
officer. The 30-day period is also a grace
foreclosed, the entitled to excess
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
213

MEMORY AID IN CIVIL LAW

period for the mortgagor to same manner that the mortgagee could
discharge the mortgage obligation. foreclose it.
After the sale of the chattel at  The redemption is made by paying or
public auction, the right of delivering to the mortgagee the amount
redemption is no longer available to due on such mortgage and the costs, and
the mortgagor (Cabral vs. expenses incurred by such breach of
Evangelista, 28 SCRA 1000). condition before the sale thereof (Sec
13, Act No. 1508).
Application of proceed of sale:
1. Costs and expenses of keeping Right to possession of foreclosed property
and sale 1. Real mortgage – After the redemption
2. Payment of the obligation period has expired, the purchaser of the
secured by the mortgage property has the right to a conveyance
3. Claims of persons holding and to be placed in possession thereof.
subsequent mortgages in their
order NOTES:
4. The balance, if any, shall be paid  Purchaser is not obliged to bring a
to the mortgagor or person
separate suit for possession. He
holding under him
must invoke the aid of the courts
and ask for a WRIT OF POSSESSION.
NOTES:
 The creditor may maintain an action  Section 7 of Act No. 3135 allows the
purchaser to take possession of the
for the deficiency, except if the
foreclosed property during the
chattel mortgage is constituted as
period of redemption upon filing of
security for the purchase of personal
an ex parte application and approval
property payable in instalments
of a bond.
(Art. 1484).
 The action for deficiency may be 2. Chattel mortgage – When default occurs
brought within ten (10) years from and the creditor desires to foreclose,
the time the cause of action accrues the creditor has the right to take the
(Arts 1141 and 1142). property as a preliminary step for its
 Only equity of redemption is sale.
available to the mortgagor; the NOTE: Where the debtor refuses to yield
latter can no longer redeem after the property, the creditor’s remedy is to
the confirmation of the foreclosure institute an action either to effect
sale. judicial foreclosure directly or to secure
possession (REPLEVIN) as a preliminary
Right of redemption to the sale contemplated in Section 14
 When the condition of a chattel or Act. No. 1508
mortgage is broken the following
may redeem: CONCURRENCE AND PREFERENCE OF
a) mortgagor; CREDITS (Articles 2236 – 2251)
b) person holding a subsequent
mortgage; or Concurrence of Credits
c) subsequent attaching creditor.  Possession by two or more creditors of
 An attaching creditor who so equal rights or privileges over the same
property or all of the property of the
redeems shall be subrogated to the
debtor
rights of the mortgagee and entitled
to foreclose the mortgage in the
Preference of Credits
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
214

MEMORY AID IN CIVIL LAW

 Right held by a creditor to be insolvency, is not liable for the

preferred in the payment of his unsatisfied claims of his creditors
claim above others out of the with said property subject to certain
debtor’s assets. exceptions expressly provided by
law. (Secs. 68, 69, The Insolvency
NOTES: Law [Act No. 1956])
 The rules on preference of credits 3. Property under legal custody and
apply only when two or more those owned by municipal
creditors have separate and distinct corporations necessary for
claims against the same debtor who governmental purposes
has insufficient property.
General Categories of Credit:
 Preference creates no lien on 1. Special Preferred Credits - those
property, and, therefore, gives no listed in Arts. 2241 and 2242 shall be
interest in property, specific or considered as mortgages and pledges of real
general, to the preferred creditor or personal property or liens (Art. 2243).
but a preference in application of Hence, they are not included in the
the proceeds after the sale. (Molina insolvent debtor's assets.
vs. Somes, 31 Phil. 76)
 The preferential right of credit NOTES:
attains significance only after the  Arts. 2241 and 2242 do not give the
properties of the debtor have been order of preference or priority of
inventoried and liquidated, and the payment. They merely enumerate the
claims held by his various creditors credits which enjoy preference with
have been established. (DBP vs. respect to specific movables or
NLRC, 183 SCRA 328) immovables. With respect to the same
specific movables or immovables,
Preference of Lien creditors, with the exception of the
Credit State (No. 1), merely concur.
Applies only to Creates a charge
claims which do on a particular  They only find application when there is
not attach to property a concurrence of credits, i.e., when the
specific same specific property of the debtor is
properties subjected to the claims of several
creditors and the value of such property
Liability of debtor’s property for his is insufficient to pay in full all the
obligations creditors. In such a situation, the
GENERAL RULE: Debtor is liable with question of preference will arise.
all his property, present and future, for  Article 2242 makes no distinction
the fulfilment of his obligations. (Art between registered and unregistered
2236) vendor’s lien (No. 2). Hence, any lien of
that kind enjoys the preferred credit
EXEMPT PROPERTY: status. Unlike the unpaid price of real
1. Present property – those property sold, mortgage credits (No. 5),
provided under Arts. 155 and 205 in order to be given preference, should
of the Family Code, Sec. 13, Rule be recorded in the Registry of Property.
39 of the Rules of Court, and But a recorded mortgage credit is
Sec. 118 of the Public Land Act superior to an unrecorded unpaid
2. Future property – a debtor who vendor’s lien (De Barretto vs.
obtains a discharge from his Villanueva, 1 SCRA 288)
debts on account of his
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
215

MEMORY AID IN CIVIL LAW

 The priority rule applies to credits always solvent. It is inconceivable for

annotated in the Registry of the State to voluntarily initiate
Property. As to credits mentioned in insolvency or general liquidation
No. 7 of Article 2242, there is proceedings or to be subjected to such
preference among the attachments proceedings under its own laws.
or executions according to the order
of the time they were levied upon 3. Common Credits – those listed under
the property. The pro rata rule in Art. 2245, which shall be paid pro rata
Article 2249 does not apply; regardless of dates.
otherwise, the result would be NOTE: Ordinary Preferred and Common
absurd. The preference of a credit Credits cover only “free property” of the
annotated by an attachment or debtor, or those not subjected to Special
execution could be defeated by Preferred Credit.
simply obtaining a writ of
attachment or execution, no matter Effects of Article 110 of Labor Code to Art
how much later (Manabat vs Laguna 2244:
Federation of Facomas, Inc., 19 1. Removed the one-year limitation found
SCRA 621). in No. 2 of Art. 2244
 The last paragraph of Article 2. Moving up the claims for unpaid wages
(and other monetary claims) of laborers
2241 applies only when the right of
or workers of insolvent from second
ownership in such property continues
priority to first priority in the order of
in the debtor, and, therefore, it is
preference established by Art. 2244
not applicable to cases where the
debtor has parted with his ownership
therein, as where he has sold the
property (Peña vs. Mitchell, 9 Phil
587)
NOTES:
2. Ordinary Preferred Credits - those  In case of bankruptcy or liquidation of
listed in Art. 2244 as amended by the employer’s business, the unpaid
Art. 110 of the Labor Code. wages and other monetary claims of the
NOTES: employees shall be given first
 The provision not only enumerates preference and shall be paid in full
before the claims of the government and
the preferred credits with respect to
other creditors may be paid. The terms,
other property, real and personal, of
“declaration” of bankruptcy, or
the debtor, but also gives their order
“judicial” liquidation have been
of preference “in the order named”.
eliminated, nevertheless, according to
 In contrast with Articles 2241 and the SC, bankruptcy or liquidation
2242, Article 2244 creates no liens proceedings are still necessary for the
on determinate property which operation of the preference accorded to
follow such property. What Article workers under Art. 110 of the Labor
2244 creates are simply rights in Code. (DBP vs. NLRC 183 SCRA 328; RA
favour of certain creditors to have No. 6715 Sec 10)
the cash and other assets of the  In case of rehabilitation, the preference
insolvent applied in a certain
of credit granted to employees under Art
sequence or order of priority.
110 of the Labor Code is not applicable
 Article 2244, particularly par (14) (Rubberworld [Phils.] vs CA, 305 SCRA
item (1) thereof, is not applicable to 722).
obligations of the State as it is a
recognized doctrine that the State is
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
216

MEMORY AID IN CIVIL LAW

Refectionary Credit other liquidation proceedings except

 Indebtedness incurred in the repair where there are not more than one
or reconstruction of something creditor.
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly existed.

ORDER OF PREFERENCE OF CREDITS

 Arts. 2241 and 2242, jointly with

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

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

order, by attachments and

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
 Credits which do not enjoy any
time. preference with respect to specific
property because they are not among
 In order to make the pro rating
those mentioned in Arts. 2241 and 2242
provided in Art 2249 fully effective, and those while included in said articles
the preferred creditors enumerated are unpaid because the value of the
in Nos. 2 to 14 of Art 2242 must property to which the preference refers
necessarily be convened, and the is less than the preferred credit or
import of their claims ascertained. credits, shall be satisfied in the order
There must be first some proceeding established in Art. 2244 with reference
where the claims of all the preferred to other real and/or personal property.
creditors may be bindingly
adjudicated, e.g. insolvency,
 Common credits or those which do not
settlement of decedent’s estate, or fall under Arts. 2241, 2242, and 2244 do

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
 San Beda College of Law
217

MEMORY AID IN CIVIL LAW

not enjoy any preference and shall

be paid pro rata regardless of dates.

CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John
Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)