credit transactions san beda

8/13/2019 Credit Transactions San Beda

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San Beda College of Law182

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

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

CIVILLAWCOMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP : Alnaia Ha!!iman, Doro"#y $ayon S%BJECT HEADS: C#ri!"oer Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Aleandro Ca!a-ar)Pro&er"y+, 'a.R#odora*errer)ill! and Succe!!ion+, Ian Dominic Pua)O-li(a"ion! and Con"rac"!+, S#a Elia# Dumama)Sale! and /ea!e+,Jo#n S"een0uiam-ao)PAT+, C#ri!"oer Ca-i(ao)Credi" Tran!ac"ion!+, /i(aya Ali&ao)Tor"! and Dama(e!+, An"#onyPur(anan)/TD+,'a. Rica!ion Tu(adi )Con1lic"! o1 /a2+

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 at 6nterest is ta!en in

the epiration of thecredit

advance

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 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 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 leasecontract.

Similar to a donation in that itconfers a benefit to therecipient. The presumption is

that 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 the

thing 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 !"!%:

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5eath of either party terminatesthe contract unless bystipulation, the commodatum istransmitted to the heirs of either

or both parties. 4ailee can neither lend nor lease

the ob)ect of the contract to athird person.

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


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&. To be liable to the bailee fordamages for !nown hidden flaws.

Re4uisites:

a. There is flaw or defect in thething loaned"

b. The flaw or defect is hidden"c. The bailor is aware thereof"d. =e does not advise the bailee of

the same" ande. The bailee suffers damages by

reason 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 party

delivers 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!sdoes 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 distinguishing

character 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 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 Barter

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)utuum

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

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 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 itis 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 shall

not 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 rates1. 6f there is stipulation* that rate shall

be applied2. The following are the rules of thumb

for 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 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 oruntil the demand can beestablished with reasonable

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certainty. 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#uivalent

to 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 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 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 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 thingbelonging 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 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$ationship

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0elationship 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 and

always 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 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 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 insure

the right of a partyto property or torecover in case offavorable )udgment

ustody and

safe!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 isgratuitous $Art 1%87'

EXCEPTONS:1. when there is contrary

stipulation2. depositary is engaged in business

of storing goods&. property saved from destruction

without !nowledge of the owner

NOTES:

Article 1%88 does not embrace

incorporeal 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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1. To !eep the thing safely $Art 1%B2'

3ercise over the thingdeposited the same diligence ashe would eercise over his

property2. To return the thing $Art 1%B2'

Person to =&om t&e t&in1 must0e returne:

a. 5epositor, to his heirs andsuccessors, or the person whomay have been designated in thecontract

b. 6f the depositary is capacitated -he is sub)ect to all theobligations of a depositarywhether or not the depositor iscapacitated. 6f the depositor is

incapacitated, the depositarymust return the property to thelegal representative of theincapacitated or to the depositorhimself if he should ac#uirecapacity $Art 1%B'.

c. 6f the depositor is capacitatedand the depositary isincapacitated - the latter doesnot incur the obligation of adepositary but he is liable*

i..to return the thingdeposited while still in his

possession"ii.to pay the depositor the

amount 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 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 the

loss 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:

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1. Dhen the preservation of thething 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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other creditors withrespect to the thingdeposited

the debtor


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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 totheir 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, animalsand articles which have beenintroduced or placed in the anneesof the hotel.

Fiability shall 3KF/53 losses which

proceed from force ma)eure. The actof a thief or robber is not deemedforce ma)eure unless done with theuse of arms or irresistible force.

The hotel-!eeper cannot freehimself 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 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 ofa provision of a law.

c. Gudicial - one which is re#uiredby a court to guarantee theeventual right of one of theparties in a case.

&. As to Considerationa. ratuitous - the guarantor does

not receive any price orremuneration for acting as such.

b. nerous - the guarantor receivesvaluable consideration.

(. As to the Person "uaranteed

a. Single - one constituted solely toguarantee 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 which

not 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 betweenthe two who are bound, the secondrather than the first should perform$A"ro Con"lomerates0 nc! (s! CA0,3+ SCRA 3'7'

NOTES:

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The reference in Article 2(B to

solidary obligations does not meanthat suretyship is withdrawn fromthe applicable provisions governing

guaranty. 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 itthat 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 directNOTE: =e directly, primarily ande#ually binds himself with the

principal as original promisor,although he possesses no direct orpersonal interest over the latter


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NOTES:

uaranty may be constituted toguarantee the performance of avoidable or unenforceable

contract. 6t may also guaranteea natural obligation. $Art 272'

The guarantor cannot bind

himself for more than theprincipal debtor and even if hedoes, his liability shall bereduced to the limits of that ofthe debtor.

2. Su#sidiary and Conditional - ta!eseffect only in case the principaldebtor fails in his obligation.

NOTES:

The guarantor cannot bindhimself for more than theprincipal debtor and even if hedoes, his liability shall bereduced to the limits of that ofthe debtor. 4ut a guarantor maybind himself for less than that ofthe principal $Art 27('

A guaranty may be given as

security for future debts, theamount of which is not yet!nown" there can be no claim

against the guarantor until thedebt is li#uidated. A conditionalobligation may also be secured.$Art 27&'

3. Unilateral - may be entered evenwCo the intervention of the principaldebtor, in which case Art. 12&8 and12&B shall apply and it gives rise onlyto a duty on the part of theguarantor in relation to the creditorand not vice versa.

4. +ominate5. onsensual6. 6t is a contract between the

guarantorCsurety and creditor.

NOTES:

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

6n declaring that guaranty

must be epress, the lawrefers solely and eclusively

to the obligation of theguarantor because it is healone who binds himself byhis acceptance. Dith respect

to 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 until

notice 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 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 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 or

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specified limits. $9a"dalena Estates0nc! (s Rodri"ue60 *+ SCRA 2&%' Therule of strictissimi >uris commonlypertains to an accommodation surety

because the latter acts withoutmotive of pecuniary gain and hence,should be protected against un)ustpecuniary 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 determining

whether a party


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cause which supports the obligationas to the principal debtor.

The peculiar nature of a guaranty orsurety agreement is that is is

regarded 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 theguarantor 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 contemplates

a 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 or

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

>Juture debts? may also refer todebts 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 the

time 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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he chooses and hold the guarantor tohis bargain.

Benefit of Ecussion (Art -8,@%

The right by which the guarantorcannot be compelled to pay thecreditor unless the latter hasehausted all the properties of theprincipal debtor, and has resorted toall of the legal remedies against suchdebtor.

NOTE:

+ot applicable to a contract ofsuretyship $Arts 2(B, par. 2"27%:2;'

annot even begin to ta!e placebefore )udgment has been obtainedagainst the debtor $4aylon vs A,&12 S0A 72'

>&en 7uarantor is not entitle to t&e0enefit of ecussion: $A60S'1. 6f it may be presumed that an

eecution on the property of theprincipal debtor would not result inthe satisfaction of the obligation

+ot necessary that the debtor be)udicially declared insolvent or

ban!rupt2. Dhen he has absconded, or cannot

be sued within the hilippines unlesshe has left a manager orrepresentative

&. 6n case of insolvency of the debtor

ust be actual(. 6f the guarantor has epressly

renounced it7. 6f he has bound himself solidarily

with the debtor

Ot$er "rounds:(BIPS%8. 6f he is a )udicial 0ondsman or sub-

suretyB. 6f he fails to interpose it as a

defense before )udgment is renderedagainst him

9. 6f the guarantor does not set up thebenefit against the creditor upon thelatter


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The co-guarantors may set up

against 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 principalalone" 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 the

defenses 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 or

Reim0ursement (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 right

before ma!ing payment. =ecannot collect more than whathe has paid.

2. Le"al interest thereon from the

time 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 didnot earn interest for thecreditor. uarantor


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7uarantors ri1&t to Su0ro1ation(ART/-8$


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afterhe has paid thedebt

ives a right ofaction afterpayment

rotective remedy#eforepayment.

Substantive right reliminary remedy

Etin1uis&ment of 1uaranty: $0A232'1. Release in favor of one of the

guarantors, without the consent ofthe others, benefits all to the etentof the share of the guarantor towhom it has been granted $Art2B9'"

2. 6f the creditor voluntarily acceptsimmovable or other properties inpayment of the debt, even if heshould afterwards lose the same

through eviction or conveyance ofproperty $Art 2BB'"&. Dhenever by some act of the

creditor, the guarantors even thoughthey are solidarily liable cannot besubrogated to the rights, mortgagesand preferences of the former $Art29'"

(. Jor the same causes as all otherobligations $Art 12&1'"

7. Dhen the principal obligation isetinguished"

8. Etension granted to the debtor by

the creditor without the consent ofthe guarantor $Art 2B%'

BOND

An underta!ing that is sufficientlysecured, and not cash or currency

Bonsman (Art -8@-%

A surety offered in virtue of aprovision of law or a )udicial order.=e must have the #ualificationsre#uired of a guarantor and inspecial laws li!e the 0ules of ourt.

NOTES:

Gudicial bonds constitute merely aspecial class of contracts of guarantyby the fact that they are given >invirtueM of a )udicial order.?

6f the person re#uired to give a legalor )udicial bond should not be ableto do so, a pledge or mortgagesufficient to cover the obligation

shall admitted in lieu thereof $Art29&'

A )udicial bondsman and the sub-surety are +T entitled to the

benefit of ecussion because theyare not mere guarantors, butsureties whose liability is primaryand solidary. $Art 29('

PLED7E )ORT7A7E AND ANTICRESISI/ Common Elements of Ple1e)ort1a1e an Antic&resis (Articles-8@, # -8!-%

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

1. Secures the fulfillment of a principal

obligation"2. ledgor, mortgagor, antichretic

debtor 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, 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 from

the 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 ormortgagor, without epresslyassuming personal liability for suchdebt, is not liable for the payment ofany deficiency, should the property

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not 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 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 bepre)udiced by any waiver of defenseby the principal debtor.

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


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return 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


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27. 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 Ple1eeED: 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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A contract whereby the debtorsecures to the creditor thefulfilment of a principal obligation,specially sub)ecting to such security

immovable 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 encumbrance

once the obligation is fulfilled.

NOTES:

As an accessory contract, its

consideration 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 follows

the 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. Theonly right of a mortgagee in case ofnon-payment of a debt secured bymortgage would be to foreclose the

mortgage 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 credit

bears interest, or that the interestas compensation for the use of theprincipal and en)oyment of its fruitsbe in the form of a certain percent

thereof.

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 of

the contract $Art 2127'. An order for foreclosure cannot

be 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 foreclosethe mortgage as a special remedy forsatisfying or settling the indebtednesswhich is the principal obligation but the

mortgage 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. Boluntary agreed to by the parties

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

2. 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

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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


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the partiesimpleaded

all 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 the

date 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! ?ominic

Corporation (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 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 and

etra-)udicial foreclosure realmortgage.

The action to recover a deficiencyafter 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 interfere

with 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 thedeed itself or in a document

anneed thereto. The authority to sell is not

etinguished 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 be

made 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! 22*77'70

1anuary *'0 )777.

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1. Jiling of application before the3ecutive Gudge through the ler! ofourt

2. ler! of ourt will eamine whether

the re#uirement of the law havebeen complied with, that is, whetherthe 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 of

the 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 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 tosecure bidders and prevent asacrifice of the property.learly, thestatutory re#uirements of postingand publication are mandated, notfor the mortgagor


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possess, use and en)oy the sameduring said period.

Dhere sale with assumption ofmortgage not registered and made

without 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 the

order 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 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 from

registration 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 of

foreclosure which ever is earlier$sec. (B, of eneral 4an!ingFaw'

2. Gudicial before confirmation of the

sale 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 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 pricec. taes paid and amount of

purchaser


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if owing, and thereafter to theprincipal of his credit $Art 21&2'

C&aracteristics

1. Accessory contract it secures theperformance of a principal obligation

2. ormal contract it must be in aspecified 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 contract

shall be binding"&. Amount of principal and interest

must 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 of

antichresis, 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 thing

pledged&. onsensual contract &. 0eal ontract

Antic&resis Real )ort1a1e1. roperty isdelivered to creditor

1. 5ebtor usuallyretains possession ofthe property

2. reditor ac#uires 2. reditor does not

only the right toreceive the fruits ofthe property, hence,it does not produce areal right

have 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 hasno such obligation

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

interest, 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 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 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$Ta(era (s! El o"ar ilipino0 nc!0&+ P$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 is &. 5ebtor is not

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foreclosed, thee/cessover theamount due goes tothe debtor

entitled to e/cessunless otherwiseagreed or ecept incase of legal

pledge(. 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'

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 )ort1a1e

NOTES: 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 the

mortgagor 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 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 or

delivering to the mortgagee the

CIVILLAWCOMMITTEE



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MEMORYAIDINCIVILLAW

amount 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 forecloseproperty1. 0eal mortgage After the

redemption 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 the

courts and as! for a D06T JSS3SS6+.

Section B of Act +o. &1&7 allows

the 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 right

to ta!e the property as a preliminarystep for its sale.NOTE:Dhere the debtor refuses toyield the property, the creditor


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MEMORYAIDINCIVILLAW

&. Co''on Creits those listedunder Art. 22(7, which shall be paidpro rata regardless of dates.

NOTE:rdinary referred and ommon

redits 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 preference

established 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 ,)+H RA No! &%*' Sec *7'

6n case of rehabilitation, thepreference of credit granted to

employees under Art 11 of theFabor ode is not applicable$Ru##er8orld IP$ils!J (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 t8otier 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 to

credits annotated in the 0egistry ofroperty by virtue of a )udicial

order, by attachments andeecutions, which are preferred asto >later credits?. 6n satisfyingseveral credits annotated byattachments 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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San Beda College of Law21!

MEMORYAIDINCIVILLAW

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

not fall under Arts. 22(1, 22(2, and22(( do not en)oy any preferenceand shall be paid pro rata regardlessof dates.

CIVILLAWCOMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP : Alnaia Ha!!iman, Doro"#y $ayon S%BJECT HEADS: C#ri!"oer Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Aleandro Ca!a-ar)Pro&er"y+, 'a.

credit transactions san beda

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