Professional Documents
Culture Documents
Credit Transactions Reviewer 12125125
Credit Transactions Reviewer 12125125
Credit Transactions Reviewer 12125125
• Those supported by a collateral or encumbrance of property or 1. THOSE FOR THE SOLE BENEFIT OF THE BAILOR
some other security intended to secure the fulfillment of the
principal obligation • This kind belongs to gratuitous deposit and mutuum bailor
derives the entire benefit, the bailee is liable for damages to the
2. UNSECURED TRANSACTIONS goods in his possession only in cases of gross negligence. The
bailee is required to use slight care and is liable only for gross
• Those fulfillment of which by the principal debtor is secured or negligence
supported only by a promise to pay the personal commitment
of the debtor 2. THOSE FOR THE SOLE BENEFIT OF THE BAILEE
1. Bailor retains the title of the personal property • Bailments of mere keeping
2. The possession or temporary control of the property is • Bailments of carriage
delivered or transferred • Bailments of goods delivered to another to do work upon
3. The bailee accepts possession of the property • Bailements of goods delivered to another to work with
4. The possession of the bailee is for specific purposes • Bailments for security
5. The parties intend that identical property will be returned to the • Bailments of vendor in possession after sale
bailor at the end of the bailment unless the bailor directs that it
be given to another person or its disposal by the bailee • This kind includes deposit for a compensation including
voluntary or necessary deposit, pledge, and bailments for hire.
BAILMENT VS CUSTODY These bailments are known as “mutual-benefit bailments”. It
said that the bailee is required to use ordinary care, and is
1
DAVP
4. FORTUITOUS EVENT Simple loan may be gratuitous or with a stipulation to pay interest.
• This includes miserable deposit. In commodatum the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower. (1740a)
B. EXTRAORDINARY BAILMENTS
KINDS OF LOAN
KINDS OF COMMODATUM
1. COMMODATUM
1. ORDINARY
• The bailor delivers to the bailee a non-consummable things so
• The possession of the bailee is more secure for he has the that the latter may use it for a certain time and return the
right to retain the thing loaned until the expiration of the identical thing.
period agreed upon or the accomplishment of the use for • It is loan of use, because there is a transfer of the use of the
which the commodatum has been constituted thing borrowed
• Even if there is no stipulated time to return the thing loaned but • Where the lender delivers to the borrower money or other
as long as the purpose the thing loaned is achieved, it is consummable thing upon the condition that the latter shall pay
necessary that the thing must be returned. the same amount of the same kind and quality
• It is a loan of consumption, because there is a transfer of the
C. PRECARIUM ownership of the thing, which is generally received for
consumption.
• One whereby the bailor demand(absolute) the thing loaned at
will COMMODATUM VS MUTUUM
Not consummable Consummable
Not absolute: The actual act of returning the thing.
Ownership of the thing loaned Ownership is transferred or delivered
is retained by the lender
Art. 1933. By the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter may use Gratuitous Maybe gratuitous or onerous
the same for a certain time and return it, in which case the contract
is called a commodatum; or money or other consumable thing, upon
2
DAVP
Bailor may demand the Bailor may not demand its return • No required foem for a commodatum. Since commodatum is a
return of the thing loaned before the lapse of the term real contract, delivery of the thing perfects the contract. Until
before the expiration of the delivery, there is no contract of commodatum.
term, in case of urgent need
• Commodatum may be made orally or in writing. In thus regard,
Loss of the subject matter is Loss of the subject matter is suffered by commodatum, being gratuitous is not of tye cornerstone of
suffered by the bailor since the borrower even if caused exclusively commercial life, it usually occurs between friends, relatives
he is the owner by a fortuitous event and he is not and neighbors.
therefore, discharge from his duty to
pay.
NOTE: The bailor need not be owner of the thing loaned. It is
sufficient that the bailor gas the right to allow the use of the thing by
Art. 1934. An accepted promise to deliver something by way of the bailee. Thus a usufructuary or a lessee can enter into a contract of
commodatum or simple loan is binding upon parties, but the commodatum.
commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (n) EXTINGUISHMENT OF THE CONTRACT OF
COMMODATUM
• The fact that the commodatum and mutuum are real contracts
which require the delivery of the subject matter thereof for 1. Expiration of the stipulated period or accomplishment of the
their perfection. Delivery is necessary in view of the purpose use
of the contract which is transfer either thr use or ownership 2. Return by the bailee of the thing after demand by the bailor,
of the thing loaned. in the event that the bailor has urgent need of the thing
3. Return in case of precarium or in the event the bailee
COMMODATUM commits ingratitude
4. Loss of the thing
Art. 1935. The bailee in commodatum acquires the used of the thing 5. The death of either the bailor or the bailee
loaned but not its fruits; if any compensation is to be paid by him who
acquires the use, the contract ceases to be a commodatum. (1941a) Art. 1936. Consumable goods may be the subject of commodatum if
the purpose of the contract is not the consumption of the object, as
• In general, a commodatum covers things that are not when it is merely for exhibition. (n)
consummable. If the thing is consummable, then the bailee will
not be able to comply with the obligation to return the thing.
3
DAVP
When a person allowed another to build a warehouse on the Art. 1941. The bailee is obliged to pay for the ordinary expenses for
former’s house so that the latter may use the property for a certain the use and preservation of the thing loaned. (1743a)
period without any payment of rentals. If rental is paid, the contract
would be one of lease. PRINCIPAL OBLIGATIONS OF THE BAILEE:
A lends to B an oversized bottle of wine to be used as a sample or 6. To take good care of the thing with the diligence of a good
for advertisement. If the intention of the parties is to have the father of the family
consummable goods loaned returned at the end of the peroos agreed
upon, the loan is commodatum not mutuum. 6. Use the thing loaned only for the purpose for which it was
loaned and for no other purpose
Art. 1937. Movable or immovable property may be the object of
commodatum. (n) 6. Pay ordinary expenses for the use and preservation of the
thing and a portion of extraordinary expenses arising from
Art. 1938. The bailor in commodatum need not be the owner of the the actual use of the thing
thing loaned. (n)
6. Return and not to retained the thing loaned except under
• The bailor need not be owner of the thing loaned since certain circumstances.
ownership does not pass to the borrower in commodatum. It is
sufficient if the bailor has such possessory interest in the Art. 1942. The bailee is liable for the loss of the thing, even if it
subject matter or right to its use which he may assert against should be through a fortuitous event:
the bailee and third person although not against the rightful
owner. Hence a mere lessee of the thing of the thing or the
usufructuary may lend but the borrower or bailee himself may (1) If he devotes the thing to any purpose different from that for
not lend nor lease the thing loaned to him to a third person. which it has been loaned;
Art. 1939. Commodatum is purely personal in character. (2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
Consequently: constituted;
(1) The death of either the bailor or the bailee extinguishes the (3) If the thing loaned has been delivered with appraisal of its value,
contract;
unless there is a stipulation exemption the bailee from responsibility
in case of a fortuitous event; (NOTE: It must be express)
(2) The bailee can neither lend nor lease the object of the contract to
a third person. However, the members of the bailee's household may
make use of the thing loaned, unless there is a stipulation to the (4) If he lends or leases the thing to a third person, who is not a
member of his household;
contrary, or unless the nature of the thing forbids such use. (n)
4
DAVP
7
DAVP
ISSUE: Whether M has the right to demand the release of the DEPOSIT VS MUTUUM
materials and the equipment or to claim damages against C? DEPOSIT MUTUUM
The principal purpose is The consumption of the subject
HELD: 1. contract is binding only upon the parties. Contracts are safekeeping or mere custody matter
binding upon the parties who execute them. When there is no privity The depositor can demand the The lender must wait until the
of contract, there is likewise no obligation or liability to speak about return of the thing at will expiration of the period granted
and thus no cause of action arises. The burdenis on the plaintiff to to the debtor
prove the bailment or deposit and the performance of conditions Both movable or immovable Only money or other
precedent to the right of action. Depositary is obliged to return the may be the object consumable thing may be the
thing to the depositor, or to his heirs or successors, or to the person object
who my have been designated in the contract. DEPOSIT VS COMMODATUM
DEPOSIT COMMODATUM
2.CONTRACT OF DEPOSIT NOT PROVEN The principal purpose is It is the transfer of use
There was indeed a contract of deposit between C and MCBI, it is safekeeping or mere custody
still incumbent upon M to prove its existence and ht it was Deposit may be gratuitous It is essentially and always
executed in his favior, M miserably filed to do so. The only pieces gratuitous
of evience M presented to prove the conract of deposit were the In extrjudicial deposit, only Both movable and immovable
delivey receipts. They are usigned nd not duly receive authenticated by movable things may be the property may be the object
either MCBI, C or M. Or any of their representatives. Delivery receipts object
have. No probative val at all. Every cause of action excontrctu must
be founde upon a cntract, oral or written, express or implied. M also
8
DAVP
9
DAVP
10
DAVP
11
DAVP
12
DAVP
➢ It involves envelope ➢ The depositary cannot require that the depositor prove his
➢ It absolute not to open the closed and sealed thing ownership over the thing.
deposited. An exception is Art. 1982 ➢ To constitute a deposit, it is not essential that the depositor e
the owner of the thing deposited, and to acquire proof of
Art. 1982. When it becomes necessary to open a locked box or ownership may open the door to fraud and ad faith, for the
receptacle, the depositary is presumed authorized to do so, if the depositary, on the pretense of requiring proof of ownership
key has been delivered to him; or when the instructions of the may be able to retain the thing
depositor as regards the deposit cannot be executed without opening
the box or receptacle. (n) Art. 1985. When there are two or more depositors, if they are not
solidary, and the thing admits of division, each one cannot demand
➢ Exception to art. 1981 more than his share.
Art. 1983. The thing deposited shall be returned with all its When there is solidarity or the thing does not admit of division, the
products, accessories and accessions. provisions of Articles 1212 and 1214 shall govern. However, if there is
a stipulation that the thing should be returned to one of the depositors,
Should the deposit consist of money, the provisions relative to agents the depositary shall return it only to the person designated. (1772a)
in article 1896 shall be applied to the depositary. (1770)
13
DAVP
Art. 1994. The depositary may retain the thing in pledge until the full (2) When it takes place on the occasion of any calamity, such
payment of what may be due him by reason of the deposit. (1780) as fire, storm, flood, pillage, shipwreck, or other similar events.
(1781a)
➢ It will include the expenses incurred under Article 1992, the
indemnification for any loss suffered pursuant to Art. 1993, ➢ The more immedite object is to save the property rather than its
and any agreed remuneration in case of onerous deposits safekeeping.
Art. 1995. A deposit its extinguished: Illustration: Thus if X saves Y’s television in case of fire, X is
supposed to be its depositary
(1) Upon the loss or destruction of the thing deposited
14
DAVP
Art. 1999. The hotel-keeper is liable for the vehicles, animals and Art. 2004. The hotel-keeper has a right to retain the things brought
articles which have been introduced or placed in the annexes of the into the hotel by the guest, as a security for credits on account of
hotel. (n) lodging, and supplies usually furnished to hotel guests. (n)
17
DAVP
Query: How may a negotiable receipt be negotiated? 1. It is a consensual contract, because it is perfected by mere consent
subjec to Statute of Fraud
Answer: By SIMPLE DELIVERY or by INDORSEMENT
2. It is generally unilateral contract
WITH DELIVERY
2.1. It give rise only to a duty on the part of the guarantor in relation to
the creditor and not vice versa although after its fulfillment, the
BY INDORSEMENT WITH DELIVERY principal debtor becomes liable to indemnify the guarantor but this is
➢ Where the goods are deliverable to the bearer of merely an incident of the cotnract.
the receipt and it indorsed (e.g. ordered by the
bearer to be deliverable to a specified person) 2.2. It may be entered into even without the intervention of the
➢ The indorsement may be an INDORSEMENT IN principal debtor
BLANK, an INDORSEMENT TO BEARER or an
INDORSEMENT TO A SPECIFIED PERSON. 3. It is an accessory contract, because it is dependent for its existence
upon the principal obligation guaranteed by it. It is also subsidiary and
GUARANTY AND SURETYSHIP conditional because it takes effect only when the principal debtor fails
in his obligation, subject to certain limitations.
Art. 2047. By guaranty a person, called the guarantor, binds himself to
the creditor to fulfill the obligation of the principal debtor in case the 4. It is formal contract, because it is governed by the Statute of Frauds
latter should fail to do so.
5. It is generally a gratuitous contract but it may be an onerous
If a person binds himself solidarily with the principal debtor, the contract.
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship. (1822a) SOURCE OF THE GUARANTOR’S OBLIGATIONS
19
DAVP
Art. 2054. A guarantor may bind himself for less, but not for more ➢ As a contract, guaranty requires the expression of consent on
than the principal debtor, both as regards the amount and the onerous the part of the guarantor to be bound. It cannot be presumed
nature of the conditions. because of the existence of a contract or principal obligation.
Should he have bound himself for more, his obligations shall be Art. 2056. One who is obliged to furnish a guarantor shall present
reduced to the limits of that of the debtor. (1826) a person who possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he
➢ Inasmuch as a contract of guaranty is only a subsidiary and guarantees. The guarantor shall be subject to the jurisdiction of
accessory contract, the guarantor cannot bind himself for more the court of the place where this obligation is to be complied with.
than the principal debtor and even if he does, his liability shall (1828a)
be reduced to the limits of that of the debtor. But a guarantor
Art. 2057. If the guarantor should be convicted in first instance of a
may bind himself for less than that of the principal. crime involving dishonesty or should become insolvent, the creditor
may demand another who has all the qualifications required in the
PRINCIPAL’S LIABILITY MAY EXCEED GUARANTOR’S
preceding article. The case is excepted where the creditor has required
OBLIGATION and stipulated that a specified person should be the guarantor. (1829a)
➢ The measure of the guarantor’s or surety’s obligation is not,
QUALIFICATIONS OF GUARANTOR
however, the measure of the principal’s obligation. Thus, the
amount specified in a surety bond as the surety’s obligation ✓ He possesses integrity
does not limit the extent of the damages that may be recovered ✓ He has capacity to bind himself
from the principal, the latter’s liability being governed by the ✓ He has sufficient property to answer for the obligation which
obligation he assumed under his contract. he guarantees
Art. 2055. A guaranty is not presumed; it must be express and cannot ➢ The qualifications need only be present at the time of the
extend to more than what is stipulated therein. perfection of the contract. So the subsequent loss or integrity or
property or supervening incapacity of the guarantor would not
operate to exenorate the guarantor of the eventual liability he
25
DAVP
EEFECTS OF GUARANTY Art. 2059. The excussion shall not take place:
Art. 2058. The guarantor cannot be compelled to pay the creditor (1) If the guarantor has expressly renounced it;
unless the latter has exhausted all the property of the debtor, and has
resorted to all the legal remedies against the debtor. (1830a) (2) If he has bound himself solidarily with the debtor;
✓ PAYMENT PRIOR TO EXHAUSTION (2) If he has bound himself solidarily with the debtor;
➢ While a guararantor enjoys the benefit of excussion, nothing
prevents him from paying the obligation once demand is made (3) In case of insolvency of the debtor;
on him, excussio after all, is a rigt granted to him by law and as
such he may opt to make use of it or waive it. The law does not (4) When he has absconded, or cannot be sued within the
prohibit the payment by a guarantor on his own volition. Philippines unless he has left a manager or representative;
26
DAVP
ANSWER: It shall be the guarantor who will shoulder the defiency. If The benefit of division against the co-guarantors ceases in the same
the creditor does not proceed with the debtor’s property thru creditor’s cases and for the same reasons as the benefit of excussion against the
negligence is not therefore that guarantor’s fault principal debtor. (1837)
Art. 2063. A compromise between the creditor and the principal ➢ It entitles the several guarantors of only one debtor and for
debtor benefits the guarantor but does not prejudice him. That which is one debt, even if they are bound solidarily, each with
entered into between the guarantor and the creditor benefits but does different guarantor, or if there be two or more guarantors
not prejudice the principal debtor. (1835a) of the same debtor but not only for the same debt.
➢ Their liability is only joint that is, the obligation to answer
➢ If the guaranty is for compensation, the guarantor took the risk for the debt is divided among all of them. Therefore, the
of the debt. guarantors are not liable to the creditor beyond the shares
➢ The guarantor cannot represent the debtor in compromise, which they are respectively bound to pay.
because the guarantor is compromising his own obligation. ➢ The obligation of the guarator with respect to his co-
That is why compensation is paid to the guarantor for taking guarantors is not subsidiary, but direct and does not
risk depend as to its origin on the solvency or insolvency of the
latter, although afterwards, if one of them should turn out
Art. 2064. The guarantor of a guarantor shall enjoy the benefit of to be insolvent, his share has to be borne by the others.
excussion, both with respect to the guarantor and to the principal
debtor. (1836) EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND
THE GUARANTOR
➢ A guarantor has the right to demand the exhaustion of the
properties of the principal debtor Art. 2066. The guarantor who pays for a debtor must be
➢ A sub-guarantor enjoys the benefit of excussion not only with indemnified by the latter.
respect to the principal debtor but also with respect to the
guarantor for the reason that he stands with respect to the The indemnity comprises:
guarantor on the same footing as the latter does with respect to
the principal debtor (1) The total amount of the debt;
28
DAVP
Art. 2068. If the guarantor should pay without notifying the debtor,
• EXPENSES INCURRED BY THE GUARANTOR the latter may enforce against him all the defenses which he could
➢ The expenses referred to are only those that the guarantor has have set up against the creditor at the time the payment was made.
to satisfy in accordance with law as a consequence of the (1840)
guaranty not those which depend upon his will or own acts or
his fault for these are his exclusive personal responsibility and ➢ It assumes that the guarantor may pay the credior without any
it is not just that they be shouldered by the debtor. These notification to the debtor.
espenses are limited to those incurred by the guarantor
29
DAVP
Art. 2069. If the debt was for a period and the guarantor paid it before Art. 2071. The guarantor, even before having paid, may proceed
it became due, he cannot demand reimbursement of the debtor against the principal debtor:
until the expiration of the period unless the payment has been
ratified by the debtor. (1841a) (1) When he is sued for the payment;
➢ Ratification is thru debtor’s payment to the guarantor. (2) In case of insolvency of the principal debtor;
Art. 2070. If the guarantor has paid without notifying the debtor, and (3) When the debtor has bound himself to relieve him from
the latter not being aware of the payment, repeats the payment, the the guaranty within a specified period, and this period has
former has no remedy whatever against the debtor, but only expired;
against the creditor. Nevertheless, in case of a gratuitous guaranty,
if the guarantor was prevented by a fortuitous event from advising (4) When the debt has become demandable, by reason of
the debtor of the payment, and the creditor becomes insolvent, the the expiration of the period for payment;
debtor shall reimburse the guarantor for the amount paid. (1842a)
(5) After the lapse of ten years, when the principal
➢ As a general rule, before the guarantor pays the creditor, he obligation has no fixed period for its maturity, unless it be
must first notify the debtor. If he fails to give such notice, of such nature that it cannot be extinguished except within
and the debtor repeats the payment, the guarantors only a period longer than ten years;
remedy is to collect from the creditor. If the creditor should
become insolvent, being at fault for not advising the debtor, the (6) If there are reasonable grounds to fear that the
guarantor must bear the loss. principal debtor intends to abscond;
➢ Expn: the guarantor may still claim reimbursement from the
debtor in spite of lack of notice if the following conditions are (7) If the principal debtor is in imminent danger of
present becoming insolvent.
▪ The creditor becomes insolvent
30
DAVP
The provisions of this article shall not be applicable, unless the Art. 2076. The obligation of the guarantor is extinguished at the same
payment has been made by virtue of a judicial demand or unless the time as that of the debtor, and for the same causes as all other
principal debtor is insolvent. (1844a) obligations. (1847)
➢ Since guaranty is an accessory and subsidiary contract, it is
➢ The obligation of several guarantors of the same debtor and also extinguished when the principal obligation is extinguished
for the same debt is joint. Each is bound to pay only his
proportionate share MODES OF EXTINGUISHMENT
➢ IF ANY OF THE GUARANTORS SHOULD BE • DIRECT
INSOLVENT, HIS SHARE SHALL BE BORNE BY THE ✓ Contract of guaranty is extinguished independentl
OTHERS INCLUDING THE PAYING GUARANTOR IN ✓ Consequence: principal obligation may still exist
THE SAME JOINT PROPORTION • INDIRECT
✓ Contract of guaranty is indirectly extinguished
PROBLEM: A owes B 90 thousand, hence A has 3 guarantors (G1,
G2, G3) G2 and G3 became insolvent, since G1 was left as the sole A GUARANTY MAY BE EXTINGUISHED:
guarantor • PAYMENT OR PERFORMANCE
• DACION EN PAGO
ANSWER: Debtor shall reimburse the sole guarantor ➢ Art. 2077. If the creditor voluntarily accepts immovable or
other property in payment of the debt, even if he should
Art. 2074. In the case of the preceding article, the co-guarantors may afterwards lose the same through eviction, the guarantor is
set up against the one who paid, the same defenses which would have released. (1849)
pertained to the principal debtor against the creditor, and which are not ➢ The guarantor is released if the creditor voluntarily accepts
purely personal to the debtor. (1845) immovable or other property in payment of the debt, even is he
should afterwards lose the same through eviction
Art. 2075. A sub-guarantor, in case of the insolvency of the ➢ Caveat: Eviction
guarantor for whom he bound himself, is responsible to the co- ➢ Whether the creditor is evicted or not, the contract of
guarantors in the same terms as the guarantor. (1846) guaranty is extinguished but the principal obligation is
revived
33
DAVP
Art. 2083. If the person bound to give a bond in the cases of the It may guarantee:
preceding article, should not be able to do so, a pledge or mortgage
considered sufficient to cover his obligation shall be admitted in a. Valid, voidable and unenforceable obligations
lieu thereof. (1855) b. Pure obligations and conditional obligations
c. Present debts and debts to be incurred in the future
Art. 2084. A judicial bondsman cannot demand the exhaustion of d. Payment obligations and performance obligations.
the property of the principal debtor.
Art. 2085. The following requisites are essential to the contracts of ➢ It is essential that the contract be constituted only by the
pledge and mortgage: absolute owner of the thing pledge or mortgaged or at least by
the pledgor or mortgagor with the authority or consent of the
1. That they be constituted to secure the fulfillment of a owner of the property pledge or mortgaged.
principal obligation;
➢ Thus, a mortgaged of real property executed by one who is not
2. That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged; an owner thereof at the time of the execution of the mortgaged
3. That the persons constituting the pledge or mortgage have is without legal existence
the free disposal of their property, and in the absence ➢ A foreclosure sale, though essentially a forced sale, is still a
thereof, that they be legally authorized for the purpose. sale under which the mortgagor in default, the forced seller,
becomes obliged to transfer ownership of the thing sold to
Third persons who are not parties to the principal obligation may the highest bidder, who in turn, is obliged to pay the bid
secure the latter by pledging or mortgaging their own property.
(1857) price in money or its equivalent.
38
DAVP
➢ It is the consequence the fact tha the pledgor in parting with his Art. 2107. If there are reasonable grounds to fear the destruction
property transmits only possession but not ownership or impairment of the thing pledged, without the fault of the
➢ Commodatum: use pledgee, the pledgor may demand the return of the thing, upon
➢ Deposit: safe keeping offering another thing in pledge, provided the latter is of the same
➢ Pledge: security kind as the former and not of inferior quality, and without
Common: they cannot use the thing unless using is necessary prejudice to the right of the pledgee under the provisions of the
for its preservation (i.e. Bus, machines, printing press) following article.
➢ In deposit: the use of the thing deposited is an exception when
it is necessary The pledgee is bound to advise the pledgor, without delay, of any
➢ In pledge: the use is prohibited unless there is consent danger to the thing pledged. (n)
➢ In deposit: it may require the return of the thing
➢ In pledge: the use is allowed provided there is consent. If REMEDIES GRANTED UNDER ARTICLE 2107:
misused, the return cannot be demanded but instead, the
remedy is to judicially or extrajudicially deposit the thing in 1. The right to demand the return of the thing pledged upon
which the pledgor is entitled to the right to select its depositary offering another thing in pledge
2. The right to cause the same to e sold at a public sale
39
DAVP
40
DAVP
FORMALITIES OF THE SALE: Art. 2114. All bids at the public auction shall offer to pay the
purchase price at once. If any other bid is accepted, the pledgee is
1. The debt is due and unpaid deemed to have been received the purchase price, as far as the
2. The sale must be at public auction pledgor or owner is concerned. (n)
3. The must be notice to the pledgor, stating the amount due
4. The sale must be made with the intervention of the notary ➢ All bids including that of the pledgor must be for cash. If the
public pledgee accepts a bid other than for cash, the pledgor or owner
has the rigt to consider that the pledgee has received the
This article does not require posting of the notice of sale and purchase price in cash.
publication. Notification to the pledgor is sufficient. Only notary
public can conduct a public auction after proper notice is sent to Art. 2115. The sale of the thing pledged shall extinguish the
the pledgor. The sale is extrajudicial in character. principal obligation, whether or not the proceeds of the sale are
equal to the amount of the principal obligation, interest and
The pledgee may appropriate the thing pledged if after the first expenses in a proper case. If the price of the sale is more than said
and second auction,the thing is not sold. It is an exception to amount, the debtor shall not be entitled to the excess, unless it is
pactum commisorium. otherwise agreed. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding any
The debtor is not entitled to the excess in case the value of the stipulation to the contrary. (n)
thing pledge is more than the prncipal obligation.
➢ As a general rule, the debtor is not entitle dto the excess unless
Art. 2113. At the public auction, the pledgor or owner may bid. He there is an agreement to the contrary. This s obviously to
shall, moreover, have a better right if he should offer the same compensate the creditor for his risk of not being able to recover
terms as the highest bidder. deficiency in case the pledge is sold below the amount of the
principal obligation. The rule is nevertheless unfair since the
The pledgee may also bid, but his offer shall not be valid if he is obligation I fully satisfied. In effect it would result to a pacto
the only bidder. (n) commisoriu which is prohibited.
➢ Under the Chattel Mortgage Law, the mortgagor is entitled to
➢ If the debt is not paid and a public sale takes place, both the recover the excess of the proceeds of the sale in foreclosure
pledgor and the pledgee may bid. The pledgor shall be proceedings.
preffered if he offers the same terms as the highest biddr, the
41
DAVP
Art. 2117. Any third person who has any right in or to the thing ➢ A third person who is not a party to the principal
pledged may satisfy the principal obligation as soon as the latter obligation may secure the latter by pleding his own
becomes due and demandable.(n) property. The law grants him the same rights as a
guarantor and he cannot be prejudiced by any waiver
➢ As a general rule, the creditor is not bound to accept payment defense by the principal debtor.
or performance by a third person who has no interest in the
fulfillment of the obligation. Art. 2121. Pledges created by operation of law, such as those
referred to in Articles 546, 1731, and 1994, are governed by the
Art. 2118. If a credit which has been pledged becomes due before foregoing articles on the possession, care and sale of the thing as
it is redeemed, the pledgee may collect and receive the amount well as on the termination of the pledge. However, after payment
due. He shall apply the same to the payment of his claim, and of the debt and expenses, the remainder of the price of the sale
deliver the surplus, should there be any, to the pledgor. (n) shall be delivered to the obligor. (n)
➢ It is not obligatory for the pledgee to collect and receive the Art. 2122. A thing under a pledge by operation of law may be sold
amount due on the credit pledge. He is merely given the right only after demand of the amount for which the thing is retained.
to do so. The public auction shall take place within one month after such
demand. If, without just grounds, the creditor does not cause the
Art. 2119. If two or more things are pledged, the pledgee may public sale to be held within such period, the debtor may require
choose which he will cause to be sold, unless there is a stipulation the return of the thing. (n)
to the contrary. He may demand the sale of only as many of the
things as are necessary for the payment of the debt. (n) Art. 2123. With regard to pawnshops and other establishments,
which are engaged in making loans secured by pledges, the special
➢ The right of choice given to the pledgee as to which of the laws and regulations concerning them shall be observed, and
thing pledge he shall cause to be sold is limited only by subsidiarily, the provisions of this Title. (1873a)
stipulation. After sufficient property has been sold to satisfly
the obligation plus interest and expenses, no more shall be sold.
42
DAVP
Art. 2124. Only the following property may be the object of a 1. When the price of a sale with right to repurchase is
contract of mortgage: unusually inadequate;
2. When the vendor remains in possession as lessee or
(1) Immovables; otherwise;
(2) Alienable real rights in accordance with the laws, 3. When upon or after the expiration of the right to
imposed upon immovables. repurchase another instrument extending the period of
redemption or granting a new period is executed;
Nevertheless, movables may be the object of a chattel mortgage. 4. When the purchaser retains for himself a part of the
(1874a) purchase price;
REAL MORTGAGE
➢ Is a contract whereby the debtor secures to the creditor the 5. When the vendor binds himself to pay the taxes on the
fulfillment of a principal obligation, specially subjecting to thing sold;
such scurity immovable property or real rights over immovable 6. In any other case where it may be fairly inferred that the
property which obligation shall be satisfied with the proceeds real intention of the parties is that the transaction shall
of the sale of said property or ights in case the said obligation secure the payment of a debt or the performance of any
is not complied with at the time stipulated other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to
KINDS OF MORTGAGE
1. VOLUNTARY- one which is agrred to between the parties or be received by the vendee as rent or otherwise shall be considered
constituted by the will of the owner of the property on which it as interest which shall be subject to the usury laws. (n)
is created
2. LEGAL- one reqired by law to be executed n favor of certain CHARACTERISTIC OF MORTGAGE
person ➢ It is an accessor and subsidiary contract. It is also unilateral
3. EQUITABLE- one which, lacks the proper formalities, because it creates only an obligation on the part of the creditor
words, or other requisites of a mortgage required by law, who must free the property from the encumbrances once the
nevertheless the intention of the parties to burden real property obligation is fulfilled. A mortgage is also a nominate contract.
44
DAVP
Art. 2125. In addition to the requisites stated in Article 2085, it is DOCTRINE OF MORTGAGEE IN GOOD FAITH
indispensable, in order that a mortgage may be validly constituted,
that the document in which it appears be recorded in the Registry ➢ The mortgagee has a right to rely in good faith on what appears
of Property. If the instrument is not recorded, the mortgage is on the certificate of itle of the mortgagor to the property given
nevertheless binding between the parties. as security nd in the absence of anything to excite suspicion, he
is under no obligation to to look beyond the certificate and
The persons in whose favor the law establishes a mortgage have no investigate the titleof the mortgagor appearing on the face of
other right than to demand the execution and the recording of the the certificate. The public interest in upholding the
document in which the mortgage is formalized. (1875a) indefeasibility of a certificate of title, a s evidence of lawful
ownership of the land or of any encubrances, protects a
ESSENTIAL REQUISITE OF MORTGAGE buyer who, in good faitj, relied upon what appears on the
face of the certificate of title.
1. PUBLIC DOCUMENT- acts and contracts which have for ➢ The right or lien of an innocent purchaser in value shall be
their object the creation of real rigts over immovable property respected and protected even if the mortgagor obtained his tile
must appear in a public document. Failure to observe the through fraud. The remedy of the persons prejudiced is to
bring an action for damages against the person who caused
45
DAVP
49
DAVP
50
DAVP
52
DAVP
INJUNCTION TO PREVENT FORECLOSURE ➢ It is not necessary for the sheriff to take physical possession of
the mortgaged property. Levying upon the property is
➢ Where the parties have stiuplated in their agreement that the distinguishable from levying n the morgagor’s interest in it.
mortgagee is authorized to foreclose the mortgage upon the ➢ The mortgagor’s equity of redemption can be levied upon by
mortgagor’s default, the mortgagee has a clear right to the means of a writ of execution, with the result that this interest
foreclosure in case of the mortgagor’s default. Thus, the will pas to the purchaser at the execution sale.
issuance of writ of preliminary injuction is proper. 2. Right of redemption- or right of the mortgagor in case of
extrajudicial foreclosure to redeem the mortgaged property
REDEMPTION within a certain period from and after it was sold for the
satisfaction of the mortgage debt. It is generally available only
➢ It is a transaction by which the mortgagor reacquires or buys in case of an extrajudicial foreclosure of real estate mortgage,
back the property which may have passed under the mortgage the right of redemption is is only when the lw provides. The
or divest the property of the lien which the mortgage may have mortgagor may redeem the property at any time within he term
created of one year from and after the date of the sale. The sheriff’s
sale of registered and unregistered lands does not affect as a
KINDS OF REDEMPTION consequence or bind the land until the sale is registered in the
Register of Deeds. If no redemption was made within the
1. Equity of redemption- or the right of the mortgagor in case of period prescribed, the purchaser becomes the absolute owner of
judicial foreclosure to redeem the mortgaged property after his the property. The one year peiod for the exercise of the right of
default in the performance of the coditions of the mortgage but redemption is subject to the prvision of special laws.
before the confirmation of the sale of the mortgaged property.
This applies to banking institutions. It is simply the right of the REQUISITES OF A VALID REDEMPTION
53
DAVP
Art. 2132. By the contract of antichresis the creditor acquires the ANTICHRESIS VS PLEDGE
right to receive the fruits of an immovable of his debtor, with the ANTICHRESIS PLEDGE
obligation to apply them to the payment of the interest, if owing, Refers to fruits of real property Personal property
and thereafter to the principal of his credit. (1881) Perfected by mere consent Perfected by delivery oft the
(provided that the contract is in thing pledge
written form)
Consensual contract Real contract
CHARACTERISTIC OF THE CONTRACT
1. It is an accessory contract because it secures the performance ANTICHRESIS VS MORTGAGE
of a principal obligation ANTICHRESIS MORTGAGE
54
DAVP
But the latter, in order to exempt himself from the obligations ACQUISITION BY CREDITOR OF PROPERTY BY
imposed upon him by the preceding article, may always compel PRESCRIPTION
the debtor to enter again upon the enjoyment of the property,
except when there is a stipulation to the contrary. (1883) ➢ The creditor in antichresis and his successor-in-interest cannot
ordinarily acquire by prescription the land given to him, sny
➢ The debtor cannot demand its return until the debt is totally greement to the contrary being void. He cannot acquire
paid. However, if the creditor does not want to pay the taxes ownership of the real estate unless he repudiates his status as
and incur the expenses necessary for the preservation and an antichretic creditor
repair of the property he may compel the debtor to reacquire
the enjoyment of the same except when there is contray to he Art. 2138. The contracting parties may stipulate that the interest
stipulation. upon the debt be compensated with the fruits of the property
which is the object of the antichresis, provided that if the value of
Art. 2137. The creditor does not acquire the ownership of the real the fruits should exceed the amount of interest allowed by the laws
estate for non-payment of the debt within the period agreed upon. against usury, the excess shall be applied to the principal. (1885a)
56
DAVP
57
DAVP
1. Shares of stock in a corporation- if the owner of the shares is RECORDING AS A REQUIREMNT FOR VALIDITY
not domiciled in the same province where the corporation is
domiciled, the registration must be made in both provinces 1. RECORDING REQUIRED- recording is required for validity
2. Machinery treated by the parties as personal property based on the Civil Code definition of chattel mortgage- “by
3. Vessels vhattel mortgaged, personal propery os recorded in the Chattel
4. Motor vehicle- a mortgage of any motor vehicle in order to Mortgage Register as a security for the performance of an
affect third persons should not only be registered in the Chattel obligation”
Mortgage Registry, but the same should also be recorded in the 2. RECORDING NOT REQUIRED- unregistered mortgage
LTO as required by said law. The failure of the mortgagee to will stil be binding upon the parties but will not be binding
report the mortage executed in his favor has the effect of upon third person
making said mortgage ineffective against a purchaser in good
faith who registered his purchase of the same vehicle in LTO The law does not provide any specific time withing which the
5. House of mixed materials chattel mortgage should be recorded in the Chattel Mortgag
6. House intended to be demolished Register
7. House built on rented land- it did not form part of the land,
for it is settled that an object placed on land by one who had AFFIDAVIT OF GOOD FAITH
only a temporary right to the same, such as the lessee or
usufructuary does not ecome immonilized by the attachment ➢ It is an oath in a contract of chattel mortgage wherein the
8. House of strong material parties severally swear that the mortgage is made for the
purpose of secuing the obligation specified in the conditiond
Under Chattel Mortgaged Law, it requires that the description of thereof and for no other purposes and that the same is a just
the mortgaged property be such as to be enable the parties to the and valid obligation and one not entered into for the prupose of
58
DAVP
59
DAVP
61
DAVP