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182 2005CENTRALIZEDBAROPERATIONS

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

property

2. bailee- the recipient" one whoreceives the custody or possession ofthe thing thus delivered

LOAN (Articles !"" # !$%

A contract wherein one of theparties 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 the

sub)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 bythe borrower of the thing is for acertain period of time

b. 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

2005 CENTRALIZEDBAROPERATIONSEXECUTIVECOMMITTEEANDSUBJECTCHAIRPERSONS

Marice A!are"#$% (Over-all Chairperson), R$"a& Ja'a"(ar (Over-all Vice Chair), )$a"&a T$e"#i"$(VC-Acads),Je""i*er A"+(VC- Secretariat), J$, I"&-c#i.$ (VC-Finance), Eai"e Ma%-/a# (VC-EDP), A""a Mar+ari#a Ere% (VC-Logistics) J$"a#a"

Ma"+-"&a,a$ (Political La!), ra"ci% Be"e&ic# Re$#-#ar (La"or La!), R$'-a& Pa&ia (Civil La!), Car'ai"e T$rre%(#a$ation La!), Mar/ Da.i& Mar#i"e( (Cri%inal La!), ar", L-i%a Ae+re (Co%%ercial La!), Ji"/, A"" U,(&e%edial La!),Jac/ie L$- Ba-#i%#a(Legal Ethics)

CREDIT TRANSACTIONS

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ii. the use of the thing ismerely tolerated by theowner

2. Simple loan or mutuum where thelender delivers to the borrowermoney or other consumable thingupon the condition that the lattershall pay the same amount of thesame !ind and #uality.

Commoatum )utuum

'ey: COPS*LOTR1. Object

+on-consumable onsumable

2. Causeratuitous ay or may not be

gratuitous

3. Purpose

/se or temporarypossession

onsumption

4. Subject Matter

0eal 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 urgentneed, even beforethe epiration of theterm

nly after theepiration of theterm

Loan Creit5elivery by one party

and the receipt ofother party of agiven sum of moneyor other consumablething upon anagreement, epressor implied, to repaythe same.

Ability of a person to

borrow 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 liable

for payment'

Always on a singlename paper $i.e.promissory note withno indorse-mentother than the

ma!er'

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

Nature:

1. P+RPOSE: 4ailee in commodatumac#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 a

deposit.

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 leasecontract.

Similar to a donation in that itconfers a benefit to therecipient. The presumption isthat the bailor has loaned thething for having no need

therefor.

&. 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 the

borrower. A mere lessee or usufructuary

may 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.




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San Beda College of Law184

MEMOR)AIDINCIVILLA

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

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

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d. =e does not advise the bailee ofthe same" and

e. The bailee suffers damages byreason of said flaw or defect

NOTES:

6f the above re#uisites concur,

the bailee has the right ofretention for damages.

The bailor cannot eempthimself 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 theunderstanding 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 to

return 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 deniesits eistence.

Simple Loan5)utuum Rent

1. 5elivery of moneyor some consumable

5elivery of some non-consumable thing in

thing with a promiseto pay an e#uivalentof the same !ind and#uality

order that the othermay use it during acertain period andreturn it to theformer.

2. There is a transferof ownership of thething delivered

There is no transferof ownership of thething delivered

&. 0elationshipbetween the partiesis that of obligor-obligee

0elationship is thatof a landlord andtenant

(. reditor receivespayment for his loan

wner of theproperty rentedreceives

compensation orprice either inmoney, provisions,chattels, or labor

from the occupantthereof in return forits use $Tolentino vson@ales, 7 hil 7791%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 assecurityfor 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




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MEMOR)AIDINCIVILLA

&. utuum may begratuitous andcommodatum isalways gratuitous

nerous, actually amutual sale

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

payment must be made in thecurrency stipulated, if it is possible"otherwise it is payable in thecurrency which is legal tender in thehilippines and in case of

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

Interest The compensation allowed by law or

fied 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 inview of Art. 1%78'

7uielines for t&e application ofproper interest rates

1. 6f there is stipulation* that rate shallbe applied

2. The following are the rules of thumbfor the applicationCimposition of

interest rates*a' Dhen an obligation, regardless

of its source, i.e., law,contracts, #uasi-contracts,delicts or #uasi-delicts isbreached, the contravenor canbe held liable for damages.

b' Dith regard particularly to anaward of interest in the conceptof actual and compensatorydamages, the rate of interest, aswell as the accrual thereof, isimposed, as follows*

i. Dhen the obligationbreached 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 legalrate $i.e. 12E per annum'computed from default.NOTE:The interest due shallitself earn legal interest

from 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 oruntil 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 finality

until its satisfaction, thisCIVILLACOMMITTEEC'A&PE&SO* &o%+ald Padilla ASS#C'A&PE&SO* Vida ocar, Joce Vidad EDP * Alnai.a 'assi%an, Doroth /aon

S0JEC#'EADS* Christopher &e 1arasigan (Persons and Fa%il &elations), Ale2andro Casa"ar(Propert), 1a &hodoraFerrer(3ills and S+ccession), an Do%inic P+a(O"ligations and Contracts), Sha Eli2ah D+%a%a(Sales and Lease), John Stephen4+ia%"ao(PA#), Christopher Ca"igao(Credit #ransactions), Ligaa Alipao(#orts and Da%ages), Anthon P+rganan(L#D),1a &icasion #+gadi (Con5licts o5 La!)

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interim 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*&fiingthe rate of interest at 12E perannum deals with loans, forbearanceof any money, goods or credits and)udgments involving such loans, orforbearance in the absence ofepress agreement to such rate

6nterest as indemnity for damages ispayable 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$citing Lim La8 (s! Olympic Sa8mill Co!0*)2 SCRA 3,2'. 4ut the Supreme ourtsaid that nothing in said circular grantslenders carta #lanc$e authority to raiseinterest rates to level which will eitherenslave their borrowers or lead to a

hemorrhaging of their assets $citingAlmeda (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 #onosmores'. 6t was reduced to 12E perannum in consonant with )ustice and fairplay.

DEPOSIT (Articles !$- # -88!%

A contract constituted from themoment a person receives a thing

belonging to another, with theobligation of safely !eeping it and ofreturning the same.

C&aracteristics:1. Real Contract - contract is

perfected by the delivery of thesub)ect matter.

2. Unilateral -"ratutitous deposit.-only the depositary has anobligation.

&. 4ilateral -onerous deposit. -gives rise to obligations on the

part of both the depositary anddepositor.

Deposit )utuum1. Purpose

rincipal purpose issafe!eeping orcustody

rincipal purpose isconsumption

2. "hen to &eturn5epositor 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




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MEMOR)AIDINCIVILLA

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

when an attachment or sei@ure of

property in litigation is ordered.

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

delivery is made by the will ofthe depositor or by two or morepersons each of whom believeshimself entitled to the thingdeposited. $Arts 1%89 1%%7'

b. +ecessary one made incompliance with a legalobligation, or on the occasion ofany calamity, or by travellers in

hotels 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 Matter

ovables 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 whenlitigation 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 is

gratuitous $Art 1%87'EXCEPTONS:

1. when there is contrarystipulation

2. depositary is engaged in businessof storing goods

&. property saved from destructionwithout !nowledge of the owner

NOTES:

Article 1%88 does not embraceincorporeal property, such as rights

and 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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incapacitated - the latter doesnot incur the obligation of adepositary but he is liable*

i..to return the thing

deposited while still in hispossession"

ii.to pay the depositor theamount which he may havebenefited himself with thething or its price sub)ect tothe 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 such

return may have been fiedecept when the thing is)udicially attached while in thedepositary&at to return: product,accessories, and accessions of

the 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 authorityalthough there is no negligenceon his part and the third person"

b. hedeposits the thing with a thirdperson who is manifestlycareless or unfit although

authori@ed even in the absenceof negligence" 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 dueb. to ta!e steps to preserve its

value 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 use

2. Dhen authori@ed by thedepositor

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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MEMOR)AIDINCIVILLA

an irregular deposit. 3ample*ban! deposits are irre"ulardeposits in nature but governedby law on loans.

B. Dhen the thing deposited isdelivered sealed and closed *a. to return the thing deposited in

the same conditionb. to pay for damages should the

seal or loc! be bro!en throughhis fault, which is presumedunless proved otherwise

c. to !eep the secret of the depositwhen the seal or loc! is bro!enwith or without his fault $Art1%91'NOTE: The depositary is

authori@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. necessity9. To change the way of the deposit if

under the circumstances, thedepositary may reasonably presume

that 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 throughfortuitous 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 the

depositor. 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 thetime 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 thingdeposited

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

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The depositary may retain the thing

in pledge until full payment of whatmay be due him by reason of thedeposit $Art 1%%('.

The depositor

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MEMOR)AIDINCIVILLA

A contract whereby a person$guarantor' binds himself to thecreditor to fulfil the obligation of

the principal debtor in case t$elatter fail to do so.

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

a. ersonal - the guaranty is thecredit given by the person whoguarantees the fulfilment of theprincipal obligation.

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

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 theparties 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 - oneconstituted 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 one

person $principal' has underta!en anobligation and another person$surety' is also under a direct andprimary obligation or other duty tothe obligee, who is entitled to butone performance, and as betweenthe two who are bound, the secondrather 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 same

consideration $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 and

accessory #ut direct

NOTE: =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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3. Lia#ility arises only if principalde#tor is $eld lia#le!NOTES:

The creditor may sue separately

or together the principal debtorand the surety. Dhere there areseveral sureties, the obligee mayproceed against any one ofthem.

6n the absence of collusion, thesurety is bound by a )udgmentagainst the principal eventhough he was not a party to theproceedings. The nature of itsunderta!ing ma!es it privy to allproceedings 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 notto de#tor!

NOTE: The surety ma!es nocovenant or agreement 8it$ t$eprincipal 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 of

principal

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MEMOR)AIDINCIVILLA

6. 6t is a contract between theguarantorCsurety and creditor.

NOTES:

Acceptance of 1uaranty 0ycreitor an notice t&ereof to1uarantor:

6n declaring that guarantymust be epress, the lawrefers solely and eclusivelyto the obligation of theguarantor because it is healone who binds himself byhis acceptance. Dith respectto the creditor, no suchre#uirement is neededbecause he binds himself tonothing.

=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, or

ac#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 the

consideration of the principalobligation.

The creditor may proceedagainst 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 debt

of a third person. $4P (s! Coster0 3%P$il! '23'

9. Jalls under the Statute of Jraudssince it is a >special promise to

answer 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 suretybecause the latter acts withoutmotive of pecuniary gain and hence,should be protected against un)ust

pecuniary impoverishment byimposing on the principal, dutiesa!in to those of a fiduciary.

NOTES:

The rule will apply only after it

has been definitely ascertainedthat the contract is one ofsuretyship or guaranty. 6t cannotbe used as an aid in determiningwhether a party

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4. uarantor bindshimself to pay ifthe principalA++T AL

(. Surety underta!esto pay if the principal53S +T AL

7. 6nsurer ofsolvency of debtor

7. 6nsurer of thedebt

8. uarantor canavail of the benefitof ecussion anddivision in casecreditor proceedsagainst him

8. Surety cannotavail of the benefit ofecussion and division

Inorsement 7uaranty

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 toanother 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. Thecause of the contract is the same

cause which supports the obligationas to the principal debtor.

The peculiar nature of a guaranty or

surety 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. $Dillelastic 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 the

terms thereof it is evident that theob)ect is to give a standing credit tothe principal debtor to be used fromtime 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 not




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MEMOR)AIDINCIVILLA

to debts not yet incurred andeisting at that time.

3ception to the concept ofcontinuing guaranty is c$attel

mort"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*.!

Etent of 7uarantors lia0ility: (Art

-8,,%1. Dhere the guaranty definite* 6t is

limited in whole or in part to theprincipal 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,

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5emand can be made only after

)udgment on the debt

5emand must be actual" )oining

the guarantor in the suit against

the principal debtor is not thedemand intended by law

%. Dhere the pledge or mortgage hasbeen given by him as special security

Benefit of Di?ision (Art -8$,%

Should there be se(eral "uarantorsof only one de#torand for the samede#t, the obligation to answer forthe same is divided among all.

Fiability* Goint

NOTES: The creditor can claim from the

guarantors only the shares they arerespectively 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 of

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

The above rule shall not be

applicable 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 the

creditor 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 +T6J635

so 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 ofehaustion even if )udgmentshould be rendered against himand principal debtor. =isvoluntary appearance does notconstitute 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 rendered

against the debtor.2. A guarantor is entitled to be heard

before 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 in




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MEMOR)AIDINCIVILLA

effect 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. uarantorit&out notice to e0tor: (Art

-8$@%

The debtor may interpose

against the guarantor thosedefenses which he could haveset up against the creditor at thetime 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

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A/ +ssentia$ &e-uisites (SOD% (Art-8@,%

1. Secures the fulfillment of a principalobligation"

2. ledgor, mortgagor, antichreticdebtor must be the absolute ownerof the thing pledged or mortgaged"and

The reason being that inanticipation of a possibleforeclosure sale in case ofdefault which is still a sale, therule is that the seller must bethe owner of the thing sold$avite 5evelopment 4an! vs.Fim, &2( S0A &(8'

&. ledgor, mortgagor, antichretic

debtor must have free isposal oftheir property, or be legallyauthori@ed for such purpose.

NOTES:

Third persons can pledge or

mortgage 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 consent

was 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 ormortgagor is not solidarily boundwith the principal obligor but hisliability 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 theaccommodation pledgor ormortgagor the same rights as aguarantor and he cannot be

pre)udiced by any waiver of defenseby the principal debtor.

B/ Prohibition against Pactu'

Co''issoriu' (Art -8@@F -"

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2. Se(eral t$in"s All of the severalthings pledged or mortgaged areliable for the totality of the debt

&. ?e#tor

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MEMOR)AIDINCIVILLA

/nli!e, however, in conventional

pledge where the debtor is notentitled to the ecess unless it isotherwise agreed, in legal pledge,

the remainder of the price of thesale after payment of the debt andepenses, shall be delivered to thedebtor.

6n legal pledge, there is no definiteperiod for the payment of theprincipal obligation. The pledgeemust ma!e a demand for thepayment of the amount due him"otherwise he cannot eercise theright of sale at public auction $Art2122'

C&aracteristics:1. Real

contract it is perfected by thedelivery of the thing pledged by thedebtor who is called thepled"or tothe creditor who is called the

pled"ee, or to a third person bycommon agreement"

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

&. Unilater

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

(. Su#sidiary 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, the

cause 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 in 1. To advise the

case of reasonablegrounds to feardestruction orimpairment of the thingwithout the pledgee

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of deception as to substance or #uality$Art 21%'17. To sell at public auction in case ofreasonable grounds to fear destruction

or impairment of the thing without hisfault $Art 219'18. To 0ring actions pertaining to theowner $Art 21&'1B. To choose which of several thingspledged shall be sold19. To 0id at the public auction $Art211&'1%. To appropriate the thing in case offailure of the 2nd public auction $Art2112'2. To apply said fruits, interests orearnings to the interest, if any, then to

the principal of the credit $Art 212'21. 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 $Art

2112'2B. To choose which of the severalthings pledged shall be sold $Art 211%'

O0li1ations of t&e Ple1eeDE: 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 thething $Art 21B'8. To advise pledgor of the result of thepublic auction $Art 2118'

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

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MEMOR)AIDINCIVILLA

(. Sale must be with the interventionof a notary public

Effect of sale of t&e t&in1 ple1e: (Art

-,%1. The sale of the thing pledged shall

etinguish the principal obligation,whether or not the proceeds of thesale are e#ual to the amount of theprincipal obligation, interest andepenses in a proper case

2. 6f the price of the sale is more thanthe amount due the creditor, thedebtor is not entitled to the ecessunless the contrary is provided

&. 6f the price of the sale is less, thecreditor is not entitled to recover

the deficiency even if there is astipulation to that effect

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

A contract whereby the debtorsecures 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 complied

with 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 atransfer, 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 an

occupant of the property mortgagedunless the mortgage should containsome provision to that effect. Theonly 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 of

the 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 theprincipal 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 ofproperty 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 been

registered 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 foreclosethe 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 the

CIVILLACOMMITTEEC'A&PE&SO* &o%+ald Padilla ASS#C'A&PE&SO* Vida ocar, Joce Vidad EDP * Alnai.a 'assi%an, Doroth /aon


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creditor may be enforced in an ordinarypersonal action.

'ins:

1. oluntary agreed to by the partiesor constituted by the will of theowner of the property on which it iscreated

2. Le"al one re#uired by law to beeecuted in favour of certain persons

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 amortgage, 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 third

person

2. 5elivery is notnecessary

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

&. +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 $Art212B'

O0;ect of )ort1a1e:

Juture property cannot be an ob)ectof a contract of mortgage $Art297:2;' =owever, a stipulation

sub)ecting to the mortgage lien,properties $improvements' which themortgagor may subse#uently ac#uireinstall, or use in connection with

real property already mortgagedbelonging to the mortgagor is valid$eople

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MEMOR)AIDINCIVILLA

1. Gudicial ordinary action forforeclosure under 0ule 89 of the0ules of ourt

2. 3tra)udicial when mortgagee is

given a special power of attorney tosell the mortgaged property bypublic auction, under Act +o. &1&7

.uicialforeclosure

Etra;uicialforeclosure

1. There is courtintervention

1. +o courtintervention

2. 5ecisions areappealable

2. +ot appealablebecause it isimmediatelyeecutory

3. rder of courtcuts off all rights ofthe partiesimpleaded

3. Joreclosure doesnot cut off right ofall parties involved

4. There is e#uityof redemptionecept on ban!swhich provides fora right ofredemption

4. There is right ofredemption

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 materialbecause 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 at

the auction sale and conse#uently

not 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 1years 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 estatemortgages. 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 the

deed 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)ect

CIVILLACOMMITTEEC'A&PE&SO* &o%+ald Padilla ASS#C'A&PE&SO* Vida ocar, Joce Vidad EDP * Alnai.a 'assi%an, Doroth /aon


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of stipulation, such sale shall bemade in the said place in themunicipal building of themunicipality in which the property or

part 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, whether

the notice of sale has been postedfor not less than 2 days in at leastthree $&' public places of themunicipality or city where theproperty is situated, and if the sameis worth more than (., thatsuch 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 hasepired, 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 another

date. 6f on the new date set forth

for the sale there shall not be atleast two bidders, the sale shall thenproceed. The names of the biddersshall be reported to the Sheriff of

the +otary ublic, who conductedthe sale to the ler! of ourt beforethe issuance of the certificate ofsale.

NOTES:

The ortgagor and ortgagee have

no right to waive the posting andpublication re#uirements under Act.+o. &1&7. +otices are given tosecure bidders and prevent asacrifice of the property.learly, thestatutory re#uirements of posting

and publication are mandated, notfor the mortgagor

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NOTES:

A sale by the mortgagor to a thirdparty of the mortgaged property

during the period for redemptiontransfers only the right to redeemthe property and the right topossess, use and en)oy the sameduring said period.

Dhere sale with assumption ofmortgage not registered and madewithout the consent of themortgagee, the buyer, thereof, wasnot validly substituted as debtorand, hence, had no right to redeem$4onne(ie (s! CA0 *)' SCRA *))'.

'ins:1. E=uity of Redemption right of

mortgagor to redeem the mortgagedproperty after his default in theperformance of the conditions of themortgage 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 ofmortgagor 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 long

as 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 after

foreclosure 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 the

law which is to aid rather than defeatthe right of redemption. There is nothingin the law which prevents a waiver ofthe 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 price

c. taes paid and amount ofpurchaser

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fruits of an immovable of thedebtor, with the obligation to applythem to the payment of the interest,if owing, and thereafter to the

principal of his credit $Art 21&2'

C&aracteristics1. Accessory contract it secures the

performance of a principal obligation2. ormal contract it must be in a

specified form to be valid, i.e., >inwriting.? $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 receivethe fruits and not that the contractshall be binding"

&. Amount of principal and interestmust be specified in writing $Art.21&('" and

(. 3press agreement that debtor willgive 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 ofinterest-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 a

real right

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

over the property&. The creditor,unless there isstipulation to thecontrary, is obligedto pay the taes andcharges upon theestate

&. The creditor hasno such obligation

(. 6t is epresslystipulated that thecreditor givenpossession of theproperty shall applyall the fruits thereof

to the payment ofinterest, if owing,and thereafter to theprincipal

(. There is no suchobligation on part ofmortgagee

Sub)ect matter of both is real property

O0li1ations of antic&retic creitor:1 To pay taes and charges on the

estate, including necessary epensesNOTE: reditor may avoid said

obligation by*a. compelling debtor to

reac#uire en)oyment of the

property orb. by stipulation to the

contrary2 To apply all the fruits, after

receiving 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 the0ules of ourt.$Art 21&B'




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NOTES:

The parties, however, may agree onan etra)udicial foreclosure in thesame manner as they are allowed in

contracts 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-paymentof 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&aracteristics1. Accessory contract it is for the

purpose of securing the performanceof a principal obligation

2. ormal contract registration in thehattel 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 aspersonal 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 eisting

at 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 chattel

mortgage 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 Ple1e1. 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 the

amount due goes to

&. 5ebtor is notentitled to e/cessunless otherwise

agreed or ecept inCIVILLACOMMITTEEC'A&PE&SO* &o%+ald Padilla ASS#C'A&PE&SO* Vida ocar, Joce Vidad EDP * Alnai.a 'assi%an, Doroth /aon


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the debtor case of legalpledge

(. 6f there isdeficiencyafter

foreclosure,creditor is entitledto recover thedeficiency from thedebtor, eceptunder Art. 1(9(

(. 6f there isdeficiency, creditor

is 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 is

made 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'

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 mortgage

is 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 !eepingand sale

2. ayment of the obligationsecured by the mortgage

&. laims of persons holdingsubse#uent mortgages in theirorder

(. The balance, if any, shall bepaid to the mortgagor or personholding under him

NOTES:

The creditor may maintain an action

for 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 isavailable to the mortgagor" thelatter can no longer redeem after

the confirmation of the foreclosuresale.

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 so

redeems shall be subrogated to therights 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'.




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MEMOR)AIDINCIVILLA

Ri1&t to possession of forecloseproperty1. 0eal mortgage After the

redemption period has epired, the

purchaser of the property has theright to a conveyance and to beplaced in possession thereof.

NOTES:

urchaser is not obliged to bring

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

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1. Specia$ Preferre Creits - thoselisted in Arts. 22(1 and 22(2 shall beconsidered as mortgages and pledges ofreal or personal property or liens $Art.

22(&'. =ence, they are not included inthe insolvent debtorIs assets.

NOTES:

Arts. 22(1 and 22(2 do not give the

order of preference or priority ofpayment. They merely enumeratethe credits which en)oy preferencewith respect to specific movables orimmovables. Dith respect to thesame specific movables orimmovables, creditors, with t$ee/ception of t$e State -No! *.,

merely concur.

They only find application when

there is a concurrence of credits,i.e., when the same specificproperty of the debtor is sub)ectedto the claims of several creditors andthe value of such property isinsufficient to pay in full all thecreditors. 6n such a situation, the#uestion of preference will arise.

Article 22(2 ma!es no distinctionbetween registered and unregistered

vendorin the ordernamed?.

6n contrast with Articles 22(1 and22(2, Article 22(( creates no lienson determinate property whichfollow such property. Dhat Article22(( creates are simply rights in

favour of certain creditors to havethe cash and other assets of theinsolvent applied in a certainse#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 paidpro 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:




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MEMOR)AIDINCIVILLA

1. 0emoved the one-year limitationfound in +o. 2 of Art. 22((

2. oving up the claims for unpaidwages $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#uidation

of 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'

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 necessary

by 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 be

satisfied 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 ratingprovided 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 preferred

creditors may be bindinglyad)udicated, e.g. insolvency,settlement of decedent

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redits which do not en)oy anypreference with respect to specificproperty because they are not

among those mentioned in Arts. 22(1and 22(2 and those while included insaid articles are unpaid because thevalue of the property to which thepreference refers is less than thepreferred credit or credits, shall besatisfied in the order established inArt. 22(( with reference to otherreal andCor personal property.

ommon credits or those which donot fall under Arts. 22(1, 22(2, and22(( do not en)oy any preference

and shall be paid pro rata regardlessof dates.

2005 CENTRALIZEDBAROPERATIONSEXECUTIVECOMMITTEEANDSUBJECT

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