CREDIT TRANS.doc

8/13/2019 CREDIT TRANS.doc

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Put God First then Seek Wisdom182

MEMORYAIDINCIVILLAW

CREDIT TRANSACTIONS

All transactions involving thepurchase or loan of goods, services,or money in the present with apromise to pay or deliver in thefuture

Contracts of securityTypes:1. Secured transactions or contracts of

real security - supported by acollateral or an encumbrance ofproperty.

2. Unsecured transactions or contracts

of personal security- supported onlyby a promise or personalcommitment of another such as aguarantor or surety.

Security

Something given, deposited, orserving as a means to ensurefulfilment or enforcement of anobligation or of protecting someinterest in property.

Types of Securitya. personal when an individual

becomes surety or guarantorb. real or property when a

mortgage, pledge, antichresis,charge or lien or other deviceused to have property held, outof which the person to be madesecure can be compensated forloss

Bailment

The delivery of property of oneperson to another in trust for a

specific purpose, with a contract,epress or implied, that the trustshall be faithfully eecuted and theproperty returned or duly accountedfor when the special purpose isaccomplished or !ept until the bailorclaims it.

Parties:1. bailor - the giver" one who delivers

property2. bailee- the recipient" one who

receives the custody or possession of

the thing thus delivered

LOAN (Articles !"" # !$%

A contract wherein one of the

parties delivers to another, eithersomething not consumable so thatthe latter may use the same for acertain time and return it or moneyor other consumable thing, upon thecondition that the same amount ofthe same !ind and #uality shall bepaid. $Art 1%&&'

C&aracteristics:1. Real Contract delivery of the thing

loaned is necessary for theperfection of the contractNOTE: An accepted promise to ma!ea future loan is a consensualcontract, and therefore binding uponthe parties but it is only afterdelivery, will the real contract ofloan arise. $Art 1%&('

2. Unilateral Contract - once thesub)ect matter has been delivered,it creates obligations on the part ofonly one of the parties $i.e.

borrower'.

'ins:1. Commodatum when the bailor

$lender' delivers to the bailee$borrower' a non-consumable thingso that the latter may use it for acertain time and return the identicalthing.

'ins of commoatum:a. Ordinary Commodatum use by

the borrower of the thing is for a

certain period of timeb. Precarium - one whereby thebailor may demand the thingloaned at will and it eists in thefollowing cases*i. neither the duration nor

purpose of the contract isstipulated

ii. the use of the thing ismerely tolerated by theowner

CREDIT TRANSACTIONS


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2. Simple loan or mutuum where thelender delivers to the borrowermoney or other consumable thingupon the condition that the latter

shall pay the same amount of thesame !ind and #uality.

Commoatum )utuum

'ey: COPS*LOTR1. Object

+on-consumable onsumable

2. Cause

ratuitous ay or may not begratuitous

3. Purpose

/se or temporarypossession

onsumption

4. Subject Matter0eal or personalproperty

nly personalproperty

5. Ownership of the thing

0etained by thebailor

asses to the debtor

6. Thing to be returne

3act thing loaned 3#ual amount of thesame !ind and#uality

!. "ho bears ris# of $oss

4ailor 5ebtor

%. "hen to return

6n case of urgent

need, even beforethe epiration of theterm

nly after the

epiration of theterm

Loan Creit5elivery by one partyand the receipt ofother party of agiven sum of moneyor other consumablething upon anagreement, epressor implied, to repaythe same.

Ability of a person toborrow money orthings by virtue ofthe trust orconfidence reposedby the lender that hewill pay what hepromised.

Loan Creit1. 6nterest ta!en atthe epiration of thecredit

6nterest is ta!en inadvance

2. Always on adouble name paper$two signaturesappear with bothparties held liablefor payment'

Always on a singlename paper $i.e.promissory note withno indorse-mentother than thema!er'

CO))ODAT+) (Articles !", # !,-%

Nature:

1. P+RPOSE: 4ailee in commodatum

ac#uires the temporary use of thething but not its fruits $unlessstipulated as an incidental part ofthe contract'.$Art 1%&7'

/se must be temporary,otherwise the contract may be adeposit.

2. CA+SE: 3ssentially gratuitous" itceases to be a commodatum if anycompensation is to be paid by theborrower who ac#uires the use, insuch case there arises a lease

contract. Similar to a donation in that it

confers a benefit to therecipient. The presumption isthat the bailor has loaned thething for having no needtherefor.

&. S+B.ECT )ATTER: enerally non-consumable whether real or personalbut if the consumable goods are notfor consumption as when they aremerely for ehibition, consumablegoods may be the sub)ect of thecommodatum. $Art 1%&8'

(. 4ailor need not be the owner of thething owned $Art. 1%&9' since by theloan, ownership does not pass to theborrower.

A mere lessee or usufructuarymay lend but the borrower orbailee himself may not lend norlease the thing loaned to him toa third person $Art 1%&2:2;'

,/ Purely Personal (Art !"!%:

5eath of either party terminatesthe contract unless bystipulation, the commodatum istransmitted to the heirs of eitheror both parties.

4ailee can neither lend nor leasethe ob)ect of the contract to athird person.


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NOTE:/se of the thing loanedmay etend to members of thebailee


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NOTES:

6f the above re#uisites concur,the bailee has the right of

retention for damages. The bailor cannot eempt

himself from the payment ofepenses or damages byabandoning the thing to thebailee.

SI)PLE LOAN OR )+T++) (Art !," #!$%

A contract whereby one partydelivers to another, money or otherconsumable thing with the

understanding that the same amountof the same !ind and #uality shall bepaid. $Art. 1%7&'

NOTES:

The mere issuance of the chec!s

does not result in the perfection ofthe contract of loan. The ivil odeprovides that the delivery of bills ofechange and mercantiledocuments, such as chec!s, shallproduce the effect of payment onlywhen they have been encashed

$Gerales (s! CA )*+ SCRA &,+'. 6t isonly after the chec!s have producedthe effect of payment that thecontract of loan may be deemedperfected.

The obligation is >to pay? and not toreturn because the consumption ofthe thing loaned is the distinguishingcharacter of the contract of mutuumfrom that of commodatum.

+o estafa is committed by a personwho refuses to pay his debt or denies

its eistence.

Simple Loan5)utuum Rent

1. 5elivery of moneyor some consumablething with a promiseto pay an e#uivalentof the same !ind and#uality

5elivery of some non-consumable thing inorder that the othermay use it during acertain period andreturn it to theformer.

2. There is a transferof ownership of the

thing delivered

There is no transferof ownership of the

thing delivered

&. 0elationshipbetween the partiesis that of obligor-obligee

0elationship is thatof a landlord andtenant

(. reditor receivespayment for his loan

wner of theproperty rentedreceivescompensation orprice either inmoney, provisions,chattels, or labor

from the occupantthereof in return forits use $Tolentino vson@ales, 7 hil 779

1%2B'

Loan Sale

1. 0eal contract onsensual contract

2. enerallyunilateral becauseonly borrower hasobligations

4ilateral andreciprocal

NOTE:6f the property is >sold?, but thereal intent is only to give the ob)ect as

securityfor a debt as when the >price?is comparatively small there really is acontract of loan with an >e#uitablemortgage.?

Commoatum5)utuum

Barter

1. Sub)ect matter ismoney or fungiblethings

Sub)ect matter isnon-fungible, $nonconsumable' things

2. 6n commodatum,the bailee is boundto return theidentical thingborrowed when thetime has epired orpurpose served

The thing withe#uivalent value isgiven in return forwhat has beenreceived

&. utuum may begratuitous andcommodatum isalways gratuitous

nerous, actually amutual sale


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6orm of Payment (Art !,,%:1. 6f the thing loaned is money -

payment must be made in the

currency stipulated, if it is possible"otherwise it is payable in thecurrency which is legal tender in thehilippines and in case ofetraordinary inflation or deflation,the basisi of payment shall be thevalue of the currency at the time ofthe creation of the obligation

2. 6f what was loaned is a fun"i#let$in" ot$er t$an money - theborrower is under obligation to paythe lender another thing of the same!ind, #uality and #uantity. 6n case it

is impossible to do so, the borrowershall pay its value at the time of theperfection of the loan.

Interest

The compensation allowed by law orfied by the parties for the loan orforbearance of money, goods orcredits

0e#uisites for 5emandability* (ELI%1. must be epressly stipulated

3ceptions*a. indemnity for damagesb. interest accruing from

unpaid interest2. must be lawful&. must be in writing

Compoun Interest

GENERAL RULE: /npaid interest shallnot earn interest.

EXCEPTONS:1. when )udicially demanded2. when there is an epress

stipulation $must be in writing in

view of Art. 1%78'

7uielines for t&e application ofproper interest rates1. 6f there is stipulation* that rate shall

be applied2. The following are the rules of thumb

for the applicationCimposition ofinterest rates*a' Dhen an obligation, regardless

of its source, i.e., law,contracts, #uasi-contracts,delicts or #uasi-delicts is

breached, the contravenor canbe held liable for damages.

b' Dith regard particularly to anaward of interest in the concept

of actual and compensatorydamages, the rate of interest, aswell as the accrual thereof, isimposed, as follows*i. Dhen the obligation

breached consists ofpayment of a sum of money-loan or for#earance ofmoney., the interest shall bethat which is stipulated oragreed upon by the parties.6n absence of an agreement,the rate shall be the legal

rate $i.e. 12E per annum'computed from default.NOTE:The interest due shallitself earn legal interestfrom the time it is )udiciallydemanded

ii. 6n other cases, the rate ofinterest shall be si percent$8E' per annum.NOTE:+o interest, however,shall be ad)udged onunli#uidated claims ordamages ecept when or

until the demand can beestablished with reasonablecertainty. Dhen the demandcannot be established, theinterest shall begin to runonly from the date of the)udgment of the court ismade.

iii. Dhen the )udgment of thecourt awarding a sum ofmoney becomes final ande/ecutory, the rate of legalinterest, whether the casefalls under paragraph i or iiabove, shall be 12E perannum from such finalityuntil its satisfaction, thisinterim period being deemedto be by then an e#uivalentto a forbearance of credit.$Eastern S$ippin" Lines (s!CA0 1uly *)0 *223'

NOTES:

Central 4an5 Circular No! 3*&fiing

the rate of interest at 12E per


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annum deals with loans, forbearanceof any money, goods or credits and)udgments involving such loans, orforbearance in the absence of

epress agreement to such rate 6nterest as indemnity for damages is

payable only in case of default ornon-performance of the contract. Asthey are distinct claims, they may bedemanded separately. $Sentinel6nsurance o., 6nc. vs A, 192 S0A71B'

Central Ban3 Circular No/ !8,$5ec.1, 1%92' removed the /sury Fawceiling on interest rates for securedand unsecured loans, regardless ofmaturity.

9aliity of unconsciona0le interest ratein a loan

Supreme ourt in Sps! Solan"on(s! 1ose Sala6ar0 G!R! No! *)'2330 1une)20 )77*, said that since the usury lawhad been repealed by 4 ir. +o. %7there is no more maimum rate ofinterest and the rate will )ust depend onthe mutual agreement of the parties$citing Lim La8 (s! Olympic Sa8mill Co!0*)2 SCRA 3,2'. 4ut the Supreme ourt

said that nothing in said circular grantslenders carta #lanc$e authority to raiseinterest rates to level which will eitherenslave their borrowers or lead to ahemorrhaging of their assets $citing

Almeda (s! CA0 )'& SCRS )2)'. 6n 9edel(s! CA0 )22 SCRA 3+*, it was ruled thatwhile stipulated interest of 7.7E permonth on a loan is usurious pursuant to4 ircular +o. %7, the same must bee#uitably reduced for being ini#uitous,unconscionable and eorbitant. 6t iscontrary to morals, $contra #onos

mores'. 6t was reduced to 12E perannum in consonant with )ustice and fairplay.

DEPOSIT (Articles !$- # -88!%

A contract constituted from themoment a person receives a thingbelonging to another, with theobligation of safely !eeping it and ofreturning the same.

C&aracteristics:

1. Real Contract - contract isperfected by the delivery of thesub)ect matter.

2. Unilateral -"ratutitous deposit.-

only the depositary has anobligation.

&. 4ilateral -onerous deposit. -gives rise to obligations on thepart of both the depositary anddepositor.

Deposit )utuum1. Purpose

rincipal purpose issafe!eeping orcustody

rincipal purpose isconsumption

2. "hen to &eturn

5epositor candemand the return ofthe sub)ect matter atwill

The lender must waituntil the epirationof the period grantedto the debtor

3. Subject MatterSub)ect matter maybe movable orimmovable property

Sub)ect matter isonly money or otherfungible thing

4. &e$ationship0elationship is thatof lender $creditor'and borrower$debtor'.

0elationship is thatof depositor anddepositary.

5. Co'pensationThere can becompensation ofcredits.

+ compensation ofthings deposited witheach other $eceptby mutualagreement'.

Deposit Commoatum

1. urpose isSafe!eeping

1. urpose is thetransfer of the use

2. ay be gratuitous 2. 3ssentially andalways gratuitous

&. ovableCcorporealthings only in case ofetra)udicial deposit

&. 4oth movable andimmovable may bethe ob)ect

'ins of Deposit:1. Gudicial $Se#uestration' ta!es place

when an attachment or sei@ure ofproperty in litigation is ordered.

2. 3tra-)udiciala. Holuntary one wherein the

delivery is made by the will of

the depositor or by two or more


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persons each of whom believeshimself entitled to the thingdeposited. $Arts 1%89 1%%7'

b. +ecessary one made in

compliance with a legalobligation, or on the occasion ofany calamity, or by travellers inhotels and inns $Arts 1%%8 -2(', or by travellers withcommon carriers $Art 1B&( 1B&7'.

NOTE: The chief differencebetween a voluntary deposit and anecessary deposit is that in theformer, the depositor has acomplete freedom in choosing thedepositary, whereas in the latter,

there is lac! of free choice in thedepositor.

.uicial Etra*;uicial1. Creation

Dill of the court Dill of the partiesor contract

2. Purpose

Security or to insurethe right of a partyto property or torecover in case offavorable )udgment

ustody andsafe!eeping

3. Subject Matterovables orimmovables,but generallyimmovables

ovables only

4. Cause

Always onerous ay be compen-sated or not, butgenerally gratuitous

5. "hen 'ust the thing be returne/pon order of thecourt or when

litigation is ended

/pon demand ofdepositor

6. (n whose beha$f it is he$

erson who has aright

5epositor or thirdperson designated

GENERAL RULE: ontract of deposit isgratuitous $Art 1%87'

EXCEPTONS:1. when there is contrary

stipulation2. depositary is engaged in business

of storing goods

&. property saved from destructionwithout !nowledge of the owner

NOTES:

Article 1%88 does not embraceincorporeal property, such as rightsand actions, for it follows the personof the owner, wherever he goes.

A contract for the rent of safet)eposit bo*es is not an ordinarycontract of lease of things but aspecial 5ind of deposit" hence, it isnot to be strictly governed by theprovisions on deposit. The relationbetween a ban! and its customer isthat of a bailor and bailee. $A Agrovs A, 21% S0A (28'

O0li1ations of t&e Depositary (Art !


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the right of any third personwho ac#uired the thing ingood faith $Art 1%B1'

Time of return:a/ Upon demand even though aspecified period or time for suchreturn may have been fiedecept when the thing is)udicially attached while in thedepositary&at to return: product,accessories, and accessions ofthe thing deposited $Art 1%9&'

&. +ot to deposit the thing with a thirdperson unless authori@ed by epressstipulation $Art 1%B&'

The depositor is liable for theloss of the thing deposited underArticle 1%B& if*a. hetransfers the deposit with a thirdperson without authority

although there is no negligenceon his part and the third person"b. hedeposits the thing with a thirdperson who is manifestly carelessor unfit although authori@edeven in the absence ofnegligence" orc. the thingis lost through the negligence ofhis employees whether the latterare manifestly careless or not.

(. 6f the thing deposited should earninterest $Art 1%B7'*a. to collect interest and the

capital itself as it fall due

b. to ta!e steps to preserve itsvalue and rights corresponding toit

7. +ot to commingle things deposited ifso stipulated $Art 1%B8'

8. +ot to ma!e use of the thingdeposited unless authori@ed $Art1%BB'

GENERAL RULE: 5eposit is forsafe!eeping of the sub)ect matterand not for use. The unauthori@eduse by the depositary would ma!ehim liable for damages.

EXCEPTONS:1. Dhen the preservation of the

thing deposited re#uires its use2. Dhen authori@ed by the

depositor

NOTE: The permission to use is +Tpresumed ecept when such use isnecessary for the preservation of thething deposited.

Effect if permission to use is 1i?en(Art !


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MEMORYAIDINCIVILLAW

his fault, which is presumedunless proved otherwise

c. to !eep the secret of the depositwhen the seal or loc! is bro!en

with or without his fault $Art1%91'NOTE: The depositary isauthori@ed to open the thingdeposited which is closed andsealed when $Art 1%92'*i. there is presumed authority

$i.e. when the !ey has beendelivered to him or theinstructions of the depositorcannot be done withoutopening it'

ii. necessity

9. To change the way of the deposit ifunder the circumstances, thedepositary may reasonably presumethat the depositor would consent tothe change if he !new of the facts ofthe situation, provided, that theformer notifies the depositor thereofand wait for his decision, unlessdelay would cause danger

%. To pay interest on sums converted topersonal use if the deposit consistsof money $Art 1%9&'

1. To be liable for loss through

fortuitous event (S+DA%* $Art 1%B%'*a. if stipulatedb. if he uses the thing without the

depositorIs permissionc. if he elays its returnd. if he allows others to use it,

even though he himself mayhave been authori@ed to use thesame

NOTES:

Jied, savings, and current deposits

of money in ban!s and similarinstitutions shall be governed by theprovisions concerning simple loan!$Art 1%9'

The general rule is that a ban! can

compensate or set off the deposit inits hands for the payment of anyindebtedness to it on the part of thedepositor. 6n true deposit,compensation is not allowed.

Irre1ular eposit )utuum

1. The consumablething deposited maybe demanded at willby the depositor

1. Fender is boundby the provisions ofthe contract andcannot demandrestitution until the

time for payment, asprovided in thecontract, has arisen

2. The only benefit isthat which accruesto the depositor

2. 3ssential cause forthe transaction is thenecessity of theborrower

&. The irregulardepositor has apreference overother creditors withrespect to the thing

deposited

&. ommon creditorsen)oy no preferencein the distribution ofthe debtor


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may have received or to assign hisright of action against the buyer incase the price has not been paid him$Art 1%%1'.

O0li1ations of t&e Depositor (Art !!- #!!,%:1. To pay epenses for preservation

a. f t$e deposit is "ratuitous, thedepositor is obliged toreimburse the depositary forepenses incurred for thepreservation of the thingdeposited $Art 1%%2'

b. f t$e deposit is for (alua#leconsideration, epenses forpreservation are borne by the

depositary unless there is acontrary stipulation

2. To pay loses incurred by thedepositary due to the character ofthe thing deposited

GENERAL RULE: The depositor shallreimburse the depositary for any lossarising from the character of the thingdeposited.

EXCEPTONS:1. at the time of the deposit, the

depositor was not a8are of the

dangerous character of the thing2. when depositor was not e/pected

to 5no8 the dangerous characterof the thing

3. when the depositor notified thedepository of the same

4. the depositary 8as a8are of it8it$out ad(icefrom the depositor

Etin1uis&ment of 9oluntary Deposit(Art !!,%1. Foss or destruction of the thing

deposited2. 6n case of gratuitous deposit, upon

the death of either the depositor orthe depositary

3. ther causes, such as return of thething, novation, merger, epirationof the term fulfilment of theresolutory condition, etc $Art 12&1'

Necessary Deposits1. ade in compliance with a legal

obligation2. ade on the occasion of any

calamity such as fire, storm, flood,

pillage, shipwrec! or other similarevents $deposito misera#le'

3. ade by travellers in hotels and innsor by travellers with common carrier

Deposit 0y Tra?ellers in &otels aninns:

The !eepers of hotels or inns shall beresponsible as depositaries for thedeposit of effects made by travellers

pro(ided*a. +otice was given to them or to

their employees of the effectsbrought by the guest" and

b. The guests ta!e the precautionswhich said hotel-!eepers or theirsubstitutes advised relative tothe care and vigilance of theireffects.

NOTES:

Fiability etends to vehicles, animals

and articles which have beenintroduced or placed in the anneesof the hotel.

Fiability shall 3KF/53 losses which

proceed from force ma)eure. The

act of a thief or robber is notdeemed force ma)eure unless donewith the use of arms or irresistibleforce.

The hotel-!eeper cannot free

himself from the responsibility byposting notices to the effect that heis not liable for the articles broughtby the guest. Any stipulation to sucheffect shall be void.

+otice is necessary only for suing

civil liability but not in criminalliability.

7+ARANT (Articles -82< # -8@2%

A contract whereby a person$guarantor' binds himself to thecreditor to fulfil the obligation ofthe principal debtor in case t$elatter fail to do so.

Classification of 7uaranty:1. 6n the 4road sense*

a. ersonal - the guaranty is the

credit given by the person who


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guarantees the fulfilment of theprincipal obligation.

b. 0eal - the guaranty is theproperty, movable or

immovable.

2. As to its Ori"ina. onventional - agreed upon by

the parties.b. Fegal - one imposed by virtue of

a provision of a law.c. Gudicial - one which is re#uired

by a court to guarantee theeventual right of one of the

parties in a case.&. As to Consideration

a. ratuitous - the guarantor doesnot receive any price orremuneration for acting as such.

b. nerous - the guarantor receivesvaluable consideration.

(. As to the Person "uaranteeda. Single - one constituted solely to

guarantee or secureperformance by the debtor ofthe principal obligation.

b. 5ouble or sub-guaranty - one

constituted to secure thefulfilment by the guarantor of aprior guaranty.

7. As to Scope and E/tenta. 5efinite - the guaranty is limited

to the principal obligation only,or to a specific portion thereof.

b. 6ndefinite or simple - one whichnot only includes the principalobligation but also all itsaccessories including )udicialcosts

S+RETSIP

A contract whereby a person $surety'binds himself solidarily with theprincipal debtor

A relation which eists where oneperson $principal' has underta!en anobligation and another person$surety' is also under a direct andprimary obligation or other duty tothe obligee, who is entitled to butone performance, and as between

the two who are bound, the second

rather than the first should perform$A"ro Con"lomerates0 nc! (s! CA0,3+ SCRA 3'7'

NOTES:

The reference in Article 2(B tosolidary obligations does not meanthat suretyship is withdrawn fromthe applicable provisions governingguaranty. A surety is almost thesame as a solidary debtor, eceptthat he himself is a principal debtor.

6n suretyship, there is but onecontract, and the surety is bound bythe same agreement which binds theprincipal. A surety is usually boundwith the principal by the sameinstrument, eecuted at the sametime and upon the sameconsideration $Palmares (s CA0 )++SCRA 3))'

6t is not for the obligee to see to it

that the principal debtor pays thedebt or fulfill the contract, but forthe surety to see to it that theprincipal debtor pays or performs$Paramount nsurance Corp (s CA0,*7 SCRA ,%%'

Nature of Suretys unerta3in1:

1. Lia#ility is contractual andaccessory #ut directNOTE: =e directly, primarily ande#ually binds himself with theprincipal as original promisor,although he possesses no direct orpersonal interest over the latter


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against the principal eventhough he was not a party to theproceedings. The nature of itsunderta!ing ma!es it privy to all

proceedings against its principal$inman General AssuranceCorp! (s! Sali50 *++ SCRA %37'

4. Surety is not entitled to t$e #enefitof e/$austionNOTE:=e assumes a solidary liabilityfor the fulfilment of the principalobligation $To8ers Assurance Corp(s! Ororama Supermart0 +7 SCRA)&)' as an original promissory anddebtor from the beginning.

5. Underta5in" is to creditor and not

to de#tor!NOTE: The surety ma!es nocovenant or agreement 8it$ t$e

principal that it will fulfil theobligation guaranteed for the benefitof the principal. Such a promise isnot implied by law either" and this istrue even where under the contractthe creditor is given the right to suethe principal, or the latter and thesurety at the same time. $Arran6 (s!9anila idelity ; Surety Co!0 nc!0*7* P$il! )%)'

6. Surety is not entitled to notice ofprincipal


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his acceptance. Dith respectto the creditor, no suchre#uirement is neededbecause he binds himself to

nothing. =owever, when there is

merely an offer of a"uaranty, or merely aconditional "uaranty, in thesense that it re#uires actionby the creditor before theobligation becomes fied, itdoes not become bindinguntil it is accepted and untilnotice of such acceptance bythe creditor is given to, orac#uired by, the guarantor,

or until he has notice or!nowledge that the creditorhas performed the conditionand intends to act upon theguaranty.

4ut in any case, the creditoris not precluded fromwaiving the re#uirement ofnotice.

The consideration of theguaranty is the same as theconsideration of the principal

obligation. The creditor may proceed

against the guarantor althoughhe has no right of action againstthe principal debtor.

B. +ot presumed. 6t must be epressedand reduced in writing.NOTE:A power of attorney to loanmoney does not authori@e the agentto ma!e the principal liable as asurety for the payment of the debtof a third person. $4P (s! Coster0 3%P$il! '23'

9. Jalls under the Statute of Jraudssince it is a >special promise toanswer for the debt, default ormiscarriage of another?.

%. Strictly interpreted against thecreditor and in favor of theguarantorCsurety and is not to beetended beyond its terms orspecified limits. $9a"dalena Estates0nc! (s Rodri"ue60 *+ SCRA 2&%' Therule of strictissimi >uris commonlypertains to an accommodation surety

because the latter acts without

motive of pecuniary gain and hence,should be protected against un)ustpecuniary impoverishment byimposing on the principal, duties

a!in to those of a fiduciary.

NOTES:

The rule will apply only after ithas been definitely ascertainedthat the contract is one ofsuretyship or guaranty. 6t cannotbe used as an aid in determiningwhether a party


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1. rimarily oftransfer

1. ontract ofsecurity

2. /nless the note ispromptly presentedfor payment atmaturity and duenotice of dishonorgiven to the indorserwithin a reasonabletime he will bedischarged abso-lutely from allliability thereon,whether he hassuffered any actualdamage or not

2. Jailure in either orboth of theseparticulars does notgenerally wor! as anabsolute discharge ofa guarantorarrantyA contract by which aperson is bound to

another for thefulfilment of apromise orengagement of athird party

An underta!ing thatthe title, #uality, or

#uantity of thesub)ect matter of thecontract is what ithas been representedto be, and relates tosome agreementmade ordinarily bythe party who ma!esthe warranty

NOTES:

A guaranty is gratuitous, unless thereis a stipulation to the contrary. The

cause of the contract is the samecause which supports the obligationas to the principal debtor.

The peculiar nature of a guaranty orsurety agreement is that is isregarded as valid despite theabsence of any direct considerationreceived by the guarantor or suretyeither from the principal debtor orfrom the creditor" a considerationmoving to the principal alone willsuffice.

6t is never necessary that the

guarantor or surety should receiveany part or benefit, if such there be,accruing to the principal. $Dille

lastic 6ndustries orp. vs. A, 278S0A (B9'

Dou0le or su0*1uaranty (Art -8, -npar%

ne constituted to guarantee theobligation of a guarantor

Continuin1 1uaranty (Art -8,"%

ne which is not limited to a singletransaction but which contemplatesa future course of dealings, coveringa series of transactions generally foran indefinite time or until revo!ed.

NOTES:

rospective in operation $?i@o (s CA0)*& SCRA 2'

onstrued as continuing when by theterms thereof it is evident that theob)ect is to give a standing credit tothe principal debtor to be used from

time to time either indefinitely oruntil a certain period, especially ifthe right to recall the guaranty isepressly reserved $?i@o (s CA0 )*&SCRA 2'

>Juture debts? may also refer to

debts eisting at the time of theconstitution of the guaranty but theamount thereof is un!nown and notto debts not yet incurred andeisting at that time.

3ception to the concept of

continuing guaranty is c$attelmort"a"e. A chattel mortgage canonly cover obligations eisting at thetime the mortgage is constituted andnot those contracted subse#uent tothe eecution thereof -T$e 4el"ianCat$olic 9issionaries0 nc! (s!9a"allanes Press0 nc!0 32 P$il &3%.!An eception to this is in case ofstoc!s in department stores, drugstores, etc. -Torres (s! Lim>ap0 '&P$il *3*.!


15/34


MEMORYAIDINCIVILLAW

Etent of 7uarantors lia0ility: (Art-8,,%1. Dhere the guaranty definite* 6t is

limited in whole or in part to the

principal debt, to the eclusion ofaccessories.

2. Dhere guaranty indefinite or simple*6t shall comprise not only theprincipal obligation, but also all itsaccessories, including the )udicialcosts, provided with respect to thelatter, that the guarantor shall onlybe liable for those costs incurredafter he has been )udicially re#uiredto pay.

ualifications of a 1uarantor: (Arts

-8,$*-8,


16/34


MEMORYAIDINCIVILLAW

NOTES:

The creditor can claim from theguarantors only the shares they are

respectively bound to pay e/cept8$en solidarity is stipulated or ifany of t$e circumstancesenumerated in Article )7'2 s$ouldta5e place!

The right of contribution ofguarantors who pays re#uires thatthe payment must have been made$a' in virtue of a )udicial demand, or$b' because the principal debtor isinsolvent $Art 2B&'.

6f any of the guarantors should be

insolvent, his share shall be borne bythe others including the payingguarantor in the same )ointproportion following the rule insolidary obligations.

The above rule shall not beapplicable unless the payment hasbeen made in virtue of a )udicialdemand or unless the principaldebtor is insolvent.

The right to contribution orreimbursement from his co-guarantors is ac#uired ipso >ure byvirtue of said payment without theneed of obtaining from the creditorany prior cession of rights to suchguarantor.

The co-guarantors may set upagainst the one who paid, the samedefenses which have pertained tothe principal debtor against thecreditor and which are not purelypersonal to the debtor. $Art 2B('

Proceure =&en creitor sues: $Art.

282' The creditor must sue the principal

alone" the guarantor cannot be suedwith his principal, much less aloneecept in Art. 27%.

*! Notice to "uarantor of t$e action

The guarantor must be +T6J635so that he may appear, if he sodesires, and set up defenses hemay want to offer.

6f the guarantor appears, he is

still given the benefit of

ehaustion even if )udgmentshould be rendered against himand principal debtor. =isvoluntary appearance does not

constitute a renunciation of hisright to ecussion $see Art.27%$1''.

uarantor cannot set up thedefenses if he does not appearand it may no longer be possiblefor him to #uestion the validityof the )udgment renderedagainst the debtor.

2. A guarantor is entitled to be heardbefore and eecution can be issuedagainst him where he is not a partyin the case involving his principal

$procedural due process'.

7uarantors Ri1&t of Inemnity orReim0ursement (Art -8$$%

GENERAL RULE:uaranty is a contractof indemnity. The guarantor who ma!espayment is entitled to be reimbursed bythe principal debtor.

NOTE:The indemnity consists of* (DIED%1. Total amount of t$e e#t no

right to demand reimbursementuntil he has actually paid thedebt, unless by the terms of thecontract, he is given the rightbefore ma!ing payment. =ecannot collect more than whathe has paid.

2. Le"al interest thereon from thetime the payment was made!nown $notice of payment ineffect a demand so that if thedebtor does not payimmediately, he incurs in delay'to the debtor, even though it did

not earn interest for thecreditor. uarantor


17/34


MEMORYAIDINCIVILLAW

depend upon his will or own actsor his fault for these are hiseclusive personal responsibilityand it is not )ust that they be

shouldered by the debtor.4. ,ama"es if they are due in

accordancewith law. eneral rules ondamages apply.

EXCEPTONS:1. Dhere the guaranty is

constituted without the!nowledge or against the will ofthe principal debtor, theguarantor can recover onlyinsofar as the payment had been

beneficial to the debtor $Art.27'.

2. ayment by a third person whodoes not intend to be reimbursedby the debtor is deemed to be adonation, which, however,re#uires the debtorit&out notice to e0tor: (Art

-8$@%

The debtor may interposeagainst the guarantor thosedefenses which he could haveset up against the creditor at the

time the payment was made,e.g. the debtor can set upagainst the guarantor thedefense of previousetinguishment of the obligationby payment.

-/ Before )aturity (Art -8$!%

+ot entitled to reimbursementunless the payment was madewith the consent or has beenratified by the debtor

Effect of Repeat Payment 0y e0tor:(Art -8


18/34


MEMORYAIDINCIVILLAW

GENERAL RULE: uarantor has nocause of action against debtor until afterthe former has paid the obligation

EXCEPTON: Article 2B1

NOTES:

Article 2B1 is applicable and

available to the surety. $9anilaSurety ; idelity Co!0 nc! (s 4atuConstruction ; Co!0 *7* P$il 323'

0emedy of guarantor*

$a' obtain release from theguaranty" or

$b' demand a security that shallprotect him from anyproceedings by the creditor, and

against the danger of insolvencyof the debtor

Art/ -8$$ Art/ -8


19/34


MEMORYAIDINCIVILLAW

&. ledgor, mortgagor, antichreticdebtor must have free isposal oftheir property, or be legallyauthori@ed for such purpose.

NOTES:

Third persons can pledge ormortgage their own property tosecure the principal obligation.

6t is not necessarily void simplybecause the accommodation pledgoror mortgagor did not benefit fromthe same. So long as valid consentwas given, the fact that the loan wasgiven solely for the benefit of theprincipal debtor would not invalidatethe mortgage $GSS (s CA0 *%7 SCRA',,'

The accommodation pledgor or

mortgagor, without epresslyassuming personal liability for suchdebt, is not liable for the payment ofany deficiency, should the propertynot be sufficient to cover the debt$4an5 of America (s! AmericanRealty Corporation0 ,)* SCRA &'2'.

The accommodation pledgor or

mortgagor is not solidarily boundwith the principal obligor but his

liability etents only to the propertypledged or mortgaged. Should therebe any deficiency, the creditor hasrecourse on the principal debtor whoremains to be primarily bound.

The law grants to the

accommodation pledgor ormortgagor the same rights as aguarantor and he cannot bepre)udiced by any waiver of defenseby the principal debtor.

B/ Prohibition against Pactu'Co''issoriu' (Art -8@@F -"


20/34


MEMORYAIDINCIVILLAW

&. Dhere there was failure ofconsideration.

(. Dhere there is no debtor-creditor relationship

NOTES:

The mere embodiment of a realestate mortgage and a chattelmortgage in one document does nothave the effect of fusing bothsecurities into an indivisible whole.

The mortgagee, therefore, maylegally foreclose the real estatemortgage etra)udicially and waivethe chattel mortgage foreclosure,and maintain instead a personalaction for the recovery of the unpaidbalance of the credit $hil. 4an! ofommerce vs. acadaeg, 1% hil%91'

E/ "hen the principa$ ob$igationbeco'es ue the things in whichthe p$ege 'ortgage orantichresis consists 'a) bea$ienate for the pa)'ent to thecreitor. (Art/ -8@


21/34


MEMORYAIDINCIVILLAW

1. Realcontract it is perfected by thedelivery of the thing pledged by thedebtor who is called thepled"or to

the creditor who is called thepled"ee, or to a third person bycommon agreement"

2. Accessory contract it has no independenteistence of its own"

&. Unilateral contract it creates an obligationsolely on the part of the creditor toreturn the thing sub)ect thereofupon the fulfilment of the principalobligation" and

(. Su#sidiar

y contract the obligation incurreddoes not arise until the fulfilmentof the principal obligation which issecured.

Consieration in ple1e:

6nsofar as the pledgor is concerned,

the cause is the principal obligation.

6f the pledgor is not the debtor, thecause is the compensation stipulatedfor the pledge or the mere liberalityof the pledgor.

Etent of ple1e: /nless stipulatedotherwise, pledge etends to the fruits,interests or earnings of the thing.

Ri1&ts an O0li1ations of a Ple1orRi1&ts O0li1ations

1. To demand return incase of reasonablegrounds to feardestruction orimpairment of the thingwithout the pledgee


22/34


MEMORYAIDINCIVILLAW

21. To retain ecess value receivedin the public sale $Art 2117'22. To retain the thing until after fullpayment of the debt $Art 2%9'

2&. To be reimbursed for the epensesmade for the preservation of the thingpledged $Art 2%%'2(. To ob)ect to the alienation of thething27. To possess the thing $Art 2%9'28. To sell at public auction in case ofnon-payment of debt at maturity $Art2112'2B. To choose which of the severalthings pledged shall be sold $Art 211%'

O0li1ations of t&e Ple1ee

DE: CU?A,1. Ta!e care of the thing with thediligence of a good father of a family$Art 2%%'2. Not to use thing unless authori@ed orby the owner or its preservation re#uiresits use $Art 21('&. Not to deposit the thing with a &rd

person unless so stipulated $Art 21'(. 0esponsibility for acts of agents andemployees as regards the thing $Art21'7. To advise pledgor of danger to the

thing $Art 21B'8. To advise pledgor of the result of thepublic auction $Art 2118'

RI7T O6 PLED7OR TO S+BSTIT+TETIN7 PLED7ED (ART/-8


23/34


MEMORYAIDINCIVILLAW

REAL ESTATE )ORT7A7E(Articles --2*-"%

A contract whereby the debtor

secures to the creditor thefulfilment of a principal obligation,specially sub)ecting to such securityimmovable property or real rightsover immovable property in case theprincipal obligation is not compliedwith at the time stipulated.

C&aracteristics of t&e contract:*! Real)! Accessory,! Su#sidiary(. Unilateral it creates only an

obligation on the part of thecreditor who must free theproperty from the encumbranceonce the obligation is fulfilled.

NOTES:

As an accessory contract, itsconsideration is that of the principalcontract from which it receives life.

A mortgage does not involve a

transfer, cession or conveyance ofproperty but only constitutes a lienthereon. /ntil discharged, it followsthe property wherever it goes andsubsists notwithstanding changes ofownership.

A mortgage gives the mortgagee no

right or claim to the possession ofthe property, and therefore, a meremortgagee has no right to e)ect anoccupant of the property mortgagedunless the mortgage should containsome provision to that effect. The

only right of a mortgagee in case ofnon-payment of a debt secured bymortgage would be to foreclose themortgage and have the encumberedproperty sold to satisfy theoutstanding indebtedness. 6f thepossession is transferred to themortgagee, it must not epressly befor purpose of applying the fruits tothe interest then to the principal ofthe credit, for then it would be anantichresis.

6t is not an essential re#uisite that

the principal of the mortgage creditbears interest, or that the interestas compensation for the use of the

principal and en)oyment of its fruitsbe in the form of a certain percentthereof.

Special Re4uisites in aition tothe co''on essentia$ re-uisites:

1. 6t can cover only immovableproperty and alienable real rightsimposed upon immovables $Art212('"

2. 6t must appear in a public instrument$Art. 2127'" and

&. 0egistration in the registry of

property is necessary to bind thirdpersons, but not for the validity ofthe contract $Art 2127'.

An order for foreclosure cannotbe refused on the ground thatthe mortgage had not beenregistered provided no innocentthird parties are involved.

NOTE: Dhere a mortgage is not valid orfalse, the principal obligation which itguarantees is not rendered null and void.Dhat is lost only is the right to foreclose

the mortgage as a special remedy forsatisfying or settling the indebtednesswhich is the principal obligation but themortgage deed remains as evidence orproof of a personal obligation of thedebtor and the amount due to thecreditor may be enforced in an ordinarypersonal action.

'ins:1. oluntary agreed to by the parties

or constituted by the will of theowner of the property on which it is

created2. Le"al one re#uired by law to be

eecuted in favour of certainpersons

The persons in whose favour thelaw establishes a mortgage haveno other right than to demandthe eecution and the recordingof the document in which themortgage is formali@ed $Art 2127par 2'

&. E=uita#le one which, althoughlac!ing the formalities of a


24/34


MEMORYAIDINCIVILLAW

mortgage, shows the intention of theparties to ma!e the property asecurity for a debt

PLED7E REAL )ORT7A7E1. onstituted onmovables

1. onstituted onimmovables

2. roperty isdelivered to pledgeeor by commonconsent to a thirdperson

2. 5elivery is notnecessary

&. +ot valid againstthird persons unless adescription of thething pledged anddate of pledgeappear in a public

instrument

&. +ot valid againstthird persons unlessregistered

Etent of )ort1a1e:

Absent epress stipulation to thecontrary, the mortgage includes theaccessions, improvements, growingfruits and income of the propertynot yet received when the obligationbecomes due and to the amount ofthe indemnity granted or owing tothe proprietor from the insurers ofthe property mortgaged, or in virtueof epropriation for public use $Art

212B'

O0;ect of )ort1a1e:

Juture property cannot be an ob)ectof a contract of mortgage $Art297:2;' =owever, a stipulationsub)ecting to the mortgage lien,properties $improvements' which themortgagor may subse#uently ac#uireinstall, or use in connection withreal property already mortgagedbelonging to the mortgagor is valid$eople


25/34


MEMORYAIDINCIVILLAW

of redemptionecept on ban!swhich provides fora right ofredemption

redemption

5. eriod ofredemption startsfrom the finality ofthe )udgment untilorder ofconfirmation

5. eriod to redeemstart from date ofregistration ofcertificate of sale

6. +o need for aspecial power ofattorney in thecontract ofmortgage

6. Special power ofattorney in favor ofmortgagee isneeded in thecontract

NOTES:

A foreclosure sale retroacts to thedate of registration of the mortgageand that a person who ta!es amortgage in good faith and forvaluable consideration, the recordshowing clear title to the mortgagor,will be protected against e#uitableclaims on the title in favor of thirdpersons, of which he had no actualor constructive notice $St! ?ominicCorporation (s! AC *'* SCRA '%%'.

Dhere there is a right to redeem,

inade#uacy of price is not material

because the )udgment debtor mayreac#uire the property or else sellhis right to redeem and thus recoverany loss he claims to have sufferedby reason of the price obtained atthe auction sale and conse#uentlynot sufficient to set aside the sale.ere inade#uacy of the priceobtained at the sheriffthe price is so inade#uate asto shoc! the conscience of thecourt? ta!ing into consideration thepeculiar circumstances attendantthereto. $Sulit (s! CA0 )&+ SCRA 33*.

Should there remain a balance due

to the mortgagee after applying theproceeds of the sale, the mortgageeis entitled to recover the deficiency.This rule applies both to )udicial andetra-)udicial foreclosure realmortgage.

The action to recover a deficiency

after foreclosure prescribes after 1

years from the time the right ofaction accrues $Arts 11(2 N 11(('.

Stipulation of upset price or GtipoH

6t is a stipulation in a mortgage ofreal property of minimum price atwhich the property shall be sold, tobecome operative in the event of aforeclosure sale at public auction. 6tis null and void for the propertymust be sold to the highest bidder.arties cannot, by agreement,contravene the law and interferewith the lawful procedure of thecourts $46 vs Lulo, &1 hil (B8'

Etra;uicial foreclosure real property

(Act No/ "",% The law covers only real estate

mortgages. 6t is intended merely toregulate the etra)udicial sale of theproperty mortgaged if and when themortgagee is given a special powerof epress authority to do so in thedeed itself or in a documentanneed thereto.

The authority to sell is notetinguished by the death of themortgagor $or mortgagee' as it is anessential and inseparable part of abilateral agreement $Pere6 (s PN40*% SCRA +,,'.

+o sale can be legally made outsidethe province in which the propertysold is situated" and in case theplace within said province in whichthe sale is to be made is the sub)ectof stipulation, such sale shall bemade in the said place in themunicipal building of themunicipality in which the property orpart thereof is situated.

Proceure for etra;uicial foreclosureof 0ot& real estate mort1a1e uner ActNo/ "", an c&attel mort1a1e unerAct No/ ,8@ -A!9! No! 22H*7H7'H70

1anuary *'0 )777.1. Jiling of application before the

3ecutive Gudge through the ler! ofourt

2. ler! of ourt will eamine whetherthe re#uirement of the law havebeen complied with, that is, whetherthe notice of sale has been posted

for not less than 2 days in at least


26/34


MEMORYAIDINCIVILLAW

three $&' public places of themunicipality or city where theproperty is situated, and if the sameis worth more than (., that

such notice has been published oncea wee! for at least three $&'consecutive wee!s in a newspaper ofgeneral circulation in the city ofmunicipality

&. The certificate of sale must beapproved by the 3ecutive Gudge

(. Dhere the application concernsetra)udicial foreclosure of realmortgages in different locationscovering one indebtedness, only onefiling fee corresponding to such debtshall be collected

7. The ler! of ourt shall issuecertificate of payment indicating theamount of indebtedness, the filingfees collected, the mortgages soughtto be foreclosed, the description ofthe real estates and their respectivelocations

8. The notice of sale shall be publishedin a newspaper of general circulationpursuant to Section 1, 5 +o. 1B%

B. The application of shall be raffledamong all sheriffs

9. After the redemption period has

epired, the ler! of ourt shallarchive the records.

%. +o auction sale shall be held unlessthere are at least two $2'participating bidders, otherwise thesale shall be postponed to anotherdate. 6f on the new date set forthfor the sale there shall not be atleast two bidders, the sale shall thenproceed. The names of the biddersshall be reported to the Sheriff ofthe +otary ublic, who conductedthe sale to the ler! of ourt beforethe issuance of the certificate ofsale.

NOTES:

The ortgagor and ortgagee haveno right to waive the posting andpublication re#uirements under Act.+o. &1&7. +otices are given to securebidders and prevent a sacrifice ofthe property. learly, the statutoryre#uirements of posting andpublication are mandated, not for

the mortgagor


27/34


MEMORYAIDINCIVILLAW

1. E=uity of Redemption right ofmortgagor to redeem the mortgagedproperty after his default in theperformance of the conditions of the

mortgage within the %-day periodfrom the date of the service of theorder of foreclosure or eventhereafter but before theconfirmation of the sale. Applies to)udicial foreclosure of real mortgageand chattel mortgage foreclosure.

NOTE: 0edemption of the ban!inginstitutions is allowed within one yearfrom confirmation of sale.

2. Ri"$t of Redemption right of

mortgagor to redeem the mortgagedproperty within one year from thedate of registration of the certificateof sale. Applies only to etra)udicialforeclosure of real mortgage.

NOTE: The right of redemption, as longas within the period prescribed, may beeercised irrespective of whether or notthe mortgagee has subse#uentlyconveyed the property to some otherparty $Sta! "nacia Rural 4an50 nc! (s!CA0 ),7 SCRA '*,'

Perio of Reemption1. 3tra-)udicial $Act O&1&7'

a. natural person one year fromregistration of the certificate ofsale with 0egistry of 5eeds

b. )uridical person same rule asnatural person

c. )uridical person $mortgagee isban!' - three months afterforeclosure or beforeregistration of certificate offoreclosure which ever is earlier$sec. (B, of eneral 4an!ingFaw'

2. Gudicial before confirmation of thesale by the court

NOTE: Allowing a redemption after thelapse of the statutory period, when thebuyer at the foreclosure sale does notob)ect but even consents to theredemption, will uphold the policy of thelaw which is to aid rather than defeatthe right of redemption. There is nothing

in the law which prevents a waiver of

the statutory period for redemption$0amire@ vs A, 21% S0A 7%9'.

Amount of t&e reemption price:

1. ortgagee is not a ban! $Act +o.&1&7, in relation to Sec. 29, 0ule &%of 0ules of ourt'a. purchase price of the propertyb. 1E interest per month on the

purchase pricec. taes paid and amount of

purchaserinwriting.? $Art 21&('


1. 6t can cover only the fruits of animmovable property" $Art 21&2'

2. 5elivery of the immovable isnecessary for the creditor to receive


28/34


MEMORYAIDINCIVILLAW

the fruits and not that the contractshall be binding"

&. Amount of principal and interestmust be specified in writing $Art.

21&('" and(. 3press agreement that debtor will

give possession of the property tocreditor and that the latter willapply the fruits to the interest, ifany, then to the principal of hiscredit. $Art 21&2'

NOTE: The obligation to pay interest isnot of the essence of the contract ofantichresis, there being nothing in theode to show that antichresis is onlyapplicable to securing the payment of

interest-bearing loans. n the contrary,antichresis is susceptible of guaranteeingall !inds of obligations, pure orconditional

Antic&resis Ple1e1. 0efers to realproperty

1. 0efers to personalproperty

2. erfected by mereconsent

2. erfected bydelivery of the thingpledged

&. onsensual contract &. 0eal ontract

Antic&resis Real )ort1a1e1. roperty isdelivered to creditor

1. 5ebtor usuallyretains possession ofthe property

2. reditor ac#uiresonly the right toreceive the fruits ofthe property, hence,it does not produce areal right

2. reditor does nothave any right toreceive the fruits"but the mortgagecreates a real rightover the property

&. The creditor,

unless there isstipulation to thecontrary, is obligedto pay the taes andcharges upon theestate

&. The creditor has

no such obligation

(. 6t is epresslystipulated that thecreditor givenpossession of theproperty shall applyall the fruits thereofto the payment ofinterest, if owing,

and thereafter to the

(. There is no suchobligation on part ofmortgagee

principal

Sub)ect matter of both is real property

O0li1ations of antic&retic creitor:

1 To pay taes and charges on theestate, including necessary epensesNOTE: reditor may avoid said

obligation by*a. compelling debtor to

reac#uire en)oyment of theproperty or

b. by stipulation to thecontrary

2 To apply all the fruits, afterreceiving them, to the payment ofinterest, if owing, and thereafter tothe principal

& To render an account of the fruits tothe debtor

( To bear the epenses necessary forits preservation and repair

Remeies of creitor in case of non*payment of e0t

1. 4ring an action for specificperformance" or

2. etition for the sale of the realproperty as in a foreclosure ofmortgages under 0ule 89 of the

0ules of ourt.$Art 21&B'

NOTES:

The parties, however, may agree onan etra)udicial foreclosure in thesame manner as they are allowed incontracts of mortgage and pledge$Ta(era (s! El Fo"ar ilipino0 nc!0&+ P$il %*)'.

A stipulation authori@ing theantichretic creditor to appropriatethe property upon the non-payment

of the debt within the agreed periodis void $Art 299'.

CATTEL )ORT7A7E(Articles -28*-2%

A contract by virtue of whichpersonal property is recorded in thehattel ortgage 0egister as asecurity for the performance of anobligation $Art 21('.

C&aracteristics


29/34


MEMORYAIDINCIVILLAW

1. Accessory contract it is for thepurpose of securing the performanceof a principal obligation

2. ormal contract registration in the

hattel ortgage 0egister isindispensable for its validity

&. Unilateral contract it producesonly obligations on the part of thecreditor to free the thing from theencumbrance on fulfilment of theobligation.


1. 6t can cover only personal ormovable property in general"however, the parties may treat as

personal property that which by itsnature would be real property"

2. 0egistration of the mortgage withthe hattel ortgage 0egister wherethe mortgagor resides" if property islocated in a different province,registration in both provincesre#uired"

&. 5escription of the property as wouldenable the parties or other personsto identify the same afterreasonable investigation and in#uiry"and

(. Accompanied by an affida(it of "oodfait$to bind third persons, but notfor the validity of the contract.

7. 6t can cover only obligations eistingat the time the mortgage isconstituted.NOTE: A mortgage containing astipulation in regard to futureadvances in the credit will ta!eeffect only from the date the sameare made and not from the date ofthe mortgage $1aca (s ?a(ao Lum#erCo!0 **, SCRA *7%'

Effect of re1istration: Creates a realri"$t

The registration of the chattelmortgage is an effective and bindingnotice to other creditors of itseistence and creates a real right ora lien which, being recorded, followsthe chattel wherever it goes. Theregistration gives the mortgageesymbolical possession $Nort$ern9otors0 nc! (s! Co=uia0 &+ SCRA

,%3'.

Effect of failure to re1ister c&attelmort1a1e in t&e c&attel mort1a1ere1istry

Article 21( ma!es the recording inthe hattel ortgage 0egister anessential re#uisite but if theinstrument is not recorded, themortgage is ne(ert$eless #indin"#et8een t$e parties. 4ut the personin whose favour the law establishes amortgage has no other right than todemand the eecution and therecording of the document.

C&attel )ort1a1e Ple1e

1. 5elivery of thepersonal propertyto the mortgage isnot necessary

1. 5elivery of thething pledged isnecessary

2. registration inthe hattelortgage 0egistryis necessary for itsvalidity

2. registration notnecessary to bevalid

&. 6f property isforeclosed, thee/cessover theamount due goes tothe debtor

&. 5ebtor is notentitled to e/cessunless otherwiseagreed or ecept incase of legalpledge

(. 6f there isdeficiencyafterforeclosure,creditor is entitledto recover thedeficiency from thedebtor, eceptunder Art. 1(9(

(. 6f there isdeficiency, creditoris not entitled torecovernotwithstandingany stipulation tothe contrary

Sub)ect matter of both is movableproperty

Affia?it of 7oo 6ait&

ath in a contract of chattelmortgage wherein the partiesPseverally swear that the mortgage ismade for the purpose of securing theobligation specified in the conditionsthereof and for no other purposesand that the same is a )ust and validobligation and one not entered intofor the purpose of fraud.? $Sec. 7,hattel ortgage Faw'


30/34


MEMORYAIDINCIVILLAW

Effect of a0senceThe special affidavit is re#uired onlyfor the purpose of transforming analready valid mortgage into

>preferred mortgage.? Thus, it isnot necessary for the validity of thechattel mortgage itself but only togive it a preferred status. 6n otherwords, its absence vitiates themortgage only as against thirdpersons without notice li!e creditorsand subse#uent encumbrancers.

6oreclosure of C&attel )ort1a1eNOTES:

Joreclosure sale in chattel mortgageis by public auction under Act +o.

179, but the parties may stipulatethat it be by private sale.

The mortgagee may, after thirty $&'

days from the time of the conditionbro!en, cause the mortgagedproperty to be sold at public auctionby a public officer. The &-dayperiod is also a grace period for themortgagor to discharge the mortgageobligation. After the sale of thechattel at public auction, the rightof redemption is no longer available

to the mortgagor $Ca#ral (s!E(an"elista0 )+ SCRA *777'.

Application of procee of sale:1. osts and epenses of !eeping

and sale2. ayment of the obligation

secured by the mortgage&. laims of persons holding

subse#uent mortgages in theirorder

(. The balance, if any, shall bepaid to the mortgagor or person

holding under him

NOTES:

The creditor may maintain an actionfor the deficiency, ecept if thechattel mortgage is constituted assecurity for the purchase of personalproperty paya#le in instalments$Art. 1(9('.

The action for deficiency may bebrought within ten $1' years fromthe time the cause of action accrues

$Arts 11(1 and 11(2'.

nly e#uity of redemption is

available to the mortgagor" thelatter can no longer redeem afterthe confirmation of the foreclosure

sale.

Ri1&t of reemption

Dhen the condition of a chattelmortgage is bro!en the followingmay redeem*a' mortgagor"b' person holding a subse#uentmortgage" orc' subse#uent attaching creditor.

An attaching creditor who soredeems shall be subrogated to the

rights of the mortgagee and entitledto foreclose the mortgage in thesame manner that the mortgageecould foreclose it.

The redemption is made by paying ordelivering to the mortgagee theamount due on such mortgage andthe costs, and epenses incurred bysuch breach of condition before thesale thereof $Sec 1&, Act +o. 179'.

Ri1&t to possession of forecloseproperty

1. 0eal mortgage After theredemption period has epired, thepurchaser of the property has theright to a conveyance and to beplaced in possession thereof.

NOTES:

urchaser is not obliged to bringa separate suit for possession.=e must invo!e the aid of thecourts and as! for a D06T JSS3SS6+.

Section B of Act +o. &1&7 allowsthe purchaser to ta!e possessionof the foreclosed property duringthe period of redemption uponfiling of an e parte applicationand approval of a bond.

2. hattel mortgage Dhen defaultoccurs and the creditor desires toforeclose, the creditor has the rightto ta!e the property as a preliminarystep for its sale.


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NOTE:Dhere the debtor refuses toyield the property, the creditor


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Article 22(2 ma!es no distinction

between registered and unregisteredvendorin the ordernamed?.

6n contrast with Articles 22(1 and22(2, Article 22(( creates no lienson determinate property which

follow such property. Dhat Article

22(( creates are simply rights infavour of certain creditors to havethe cash and other assets of theinsolvent applied in a certain

se#uence or order of priority. Article 22((, particularly par $1('

item $1' thereof, is not applicable toobligations of the State as it is arecogni@ed doctrine that the State isalways solvent. 6t is inconceivablefor the State to voluntarily initiateinsolvency or general li#uidationproceedings or to be sub)ected tosuch proceedings under its own laws.

&. Co''on Creits those listedunder Art. 22(7, which shall be paid

pro rata regardless of dates.NOTE:rdinary referred and ommonredits cover only >free property? of thedebtor, or those not sub)ected to Specialreferred redit.

Effects of Article 8 of La0or Coe toArt --22:1. 0emoved the one-year limitation

found in +o. 2 of Art. 22((2. oving up the claims for unpaid

wages $and other monetary claims'of laborers or wor!ers of insolventfrom second priority to first priorityin the order of preferenceestablished by Art. 22((

NOTES:

6n case of ban!ruptcy or li#uidationof the employerdeclaration?of ban!ruptcy, or >)udicial?li#uidation have been eliminated,nevertheless, according to the S,ban!ruptcy or li#uidationproceedings are still necessary forthe operation of the preferenceaccorded to wor!ers under Art. 11of the Fabor ode. $?4P (s! NLRC*+, SCRA ,)+I RA No! &%*' Sec *7'


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6n case of rehabilitation, the

preference of credit granted toemployees under Art 11 of theFabor ode is not applicable

$Ru##er8orld JP$ils!K (s CA0 ,7'SCRA %))'.

Refectionary Creit

6ndebtedness incurred in the repairor reconstruction of somethingpreviously made, such repair orreconstruction being made necessaryby the deterioration or destructionof the thing as it formerly eisted.

ORDER O6 PRE6ERENCE O6 CREDITS

Arts. 22(1 and 22(2, )ointly withArts. 22(8 to 22(% establish a t8oHtier order of preference*

/ 0irst tier includes taes, dutiesand fees due on specific movable orimmovable property"

-/ Secon tier all other specialpreferred $non-ta' credits shall besatisfied pro-rata, out of anyresidual value of the specificproperty to which such creditsrelate.

NOTES:

The pro-rata rule does not apply tocredits annotated in the 0egistry ofroperty by virtue of a )udicial

order, by attachments andeecutions, which are preferred asto >later credits?. 6n satisfyingseveral credits annotated by

attachments or eecutions, the ruleis still preference according to thepriority of the credits in the order oftime.

6n order to ma!e the pro rating

provided in Art 22(% fully effective,the preferred creditors enumeratedin +os. 2 to 1( of Art 22(2 mustnecessarily be convened, and theimport of their claims ascertained.There must be first some proceedingwhere the claims of all the preferredcreditors may be bindingly

ad)udicated, e.g. insolvency,settlement of decedent


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of dates.

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