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GENERAL PROVISIONS Definitions of Credit or Security Transactions.
Credit transactions include all transactions involving the purchase of loan of goods, services or money in the present with a promise to pay or deliver in the future. > Without a promise to pay or deliver in the future, there can be no security transaction. B. Parties to a Bailment.
1. Bailor (Comodatario) – the giver, the party who delivers the possession or custody of the thing bailed. 2. Bailee (Comodante) – the recipient; the party who receives the possession or custody of the thing thus delivered. C. 1. Kinds of Bailment Contract. Those for the sole benefit of the bailor. 1.1 gratuitous deposit 1.2 mandatum Those for the sole benefit of the bailee 2.1 commodatun 2.2 gratuitous mutuum Those for the benefit of both parties 3.1 deposit for the compensation; involuntary deposit 3.2 pledge 3.3 bailments for hire Loan in General Characteristics of the Contract
1. Real Contract because the delivery of the thing loaned is necessary for the perfection of the contract (Article 1934; see also Article 1316); and 2. Unilateral Contract because once the subject matter has been delivered, it creates obligations on the part of only one of the parties, i. e. the borrower D.2 Kinds of Loan
1. Commodatum – where the bailor (lender) delivers to the bailee (borrower) a non-consumable thing so that the latter may use it for a certain time and return the identical thing; and 2. Mutuum – where the bailor (lender) delivers to the bailee (borrower) money or other consumable thing upon the condition that the latter shall pay same amount of the same kind of quality.
Distinctions between Commodatum and Mutuum Commodatum (Hiram) Mutuum (Utang) non1. subject matter is money or other consumable things 2. ownership borrower transferred to
1. subject matter consumable things
2. ownership retained by lender 3. essentially gratuitous 4. borrower must return same thing loaned the
3. may be gratuitous or onerous
4. borrower need only pay the
same amount of the same kind and quality 5. involves property only personal
5. may involved real or personal property
6. loan for use or temporary
possession 7. right to demand the return of the thing loaned before expiration of term in case of urgent need 8. loss is shouldered by bailor since he is the owner
6. loan for consumption 7. no right to demand return before the lapse of the term agreed upon 8. borrower suffers the loss even if the loss is caused exclusively by a fortuitous event
Distinction between Commodatum (Hiram) and Lease (Upa) Commodatum is a real contract, whereas lease is a cosensual contract.
2. The object of commodatum is a non-consumable (nonfungible) thing, whereas the object of lease may even be work or service. 3. Commodatum is essentially gratuitous, whereas lease is not gratuitous.
A. 1. 2. 3. 4. 5. 6.
Characteristics Gratuitous, otherwise it is a lease (Article 1935) Purpose is the temporary use of the thing loaned (Article 1935) Bailee’s right to use is limited to the thing loaned and not to its fruits (Article 1935) unless there is stipulation to the contrary (Article 1940) Subject matter is generally non-consumable things but may cover consumables if the purpose of the contract is for exhibition. Bailor need not to be the owner; it is sufficient that he has possessory interest over subject matter (Article 1938). Commodatum is purely personal in character hence death of either bailor or bailee extinguishes the contract (Article 1939)
General Rule: Bailee can neither lend nor lease the object of the contract to a third person. Exception: Member of bailee’s household
Exception to the exception: a) b) contrary stipulation nature of thing forbids such use
B. 1. 2.
Obligations of the Bailee Bailee is liable for ordinary expenses for the use and preservation of the thing loaned. General Rule: Bailee is not liable for loss or damage due to a fortuitous event (because the bailor retains ownership) Exceptions: a) b) Bailee devote thing to a different purpose Bailee keeps thing longer than the period stipulated or after the accomplishment of the use for which commodatum was constituted. Thing loaned was delivered with appraisal of its value (unless there is express stipulation to the contrary) Bailee lends thing to a third person not a member of his household Bailee, if being able to save either the thing borrowed or his own thing chose to save the latter
3. Bailees are solidarily liable when the thing is loaned to two or more bailees in the same contract. Note: 1. G.R.-Bailee is not liable for ordinary wear and tear due to use of the thing loaned. Exceptions: a.) b.) If he is guilty of fault or negligence If he devotes thing to any purpose different from that for which it has been loaned.
2. Bailee cannot retain the thing loaned as security for claims he has against the bailor, even though by reason of extraordinary expenses. C. Obligations of Bailor
1. To allow the bailee the use of the thing loaned for the duration of period stipulated or until the accomplishment of the purpose for which commodatum was constituted. Exceptions: a. b. b.1 b.2 b.3 urgent need during which time the commodatum is suspended. precarium if duration of the contract has not been stipulated if use or purpose of the thing has not been stipulated if use of thing is merely tolerated by the bailor
2. To refund extraordinary expenses for the preservation of the thing loaned provided bailor is notified before the expenses were incurred. Exception: urgent need hence no notice is necessary.
3. To refund 50% of the extraordinary expenses arising from actual use of the thing loaned (i.e. caused by fortuitous event) Exception: contrary stipulation
4. To pay damages to bailee for known hidden flaws in the thing loaned. Note: 1. Bailor has the right to demand return of the thing if bailee commits any act of ingratitude. D. Recent Jurisprudence on Commodatum Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals (165 SCRA 515) Private respondents were able to prove that their predecessors’ house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailee’s failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.
SIMPLE LOAN OR MUTUUM
Mutuum is a contract whereby one of the parties delivers to another party money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid. B. Characteristics
1. Borrower acquires ownership of the thing and can therefore dispose of the thing borrowed. There is no criminal liability for failure to pay one’s debt. 2. If the thing loaned is money, payment must be made in the currency which is legal tender in the Philippines and in case of extraordinary deflation or inflation, the basis of payment shall be the value of the currency at the time of the creation of the obligation. 3. If fungible thing was loaned, the borrower is obliged to pay the lender another thing of the same kind, quality and quantity. C. Distinctions between Mutuum (Utang) and Lease (Upa)
1. In mutuum, the object is money or any consumable (fungible) thing, whereas in lease, the object may be any thing, whether movable or immovable, fungible or nonfungible.
R. G. In mutuum. 145 SCRA 311. July 28. Cruz. The adjusted rate mentioned in the circular refers only to loans or forbearances of money. 71017. where a judgment award is based on an action for damages for personal injury. and if no regular interest had been agreed upon. then the payment of additional interest at a rate equal to the regular monetary interest. Tio Khe Chio vs. In mutuum. Rules on Interest 1. it must be expressly stipulated in writing (Article 1956). In the case of Philippine Rabbit Bus Lines. the Court held in GSIS vs. A debtor cannot be considered in delay who offered a check backed by sufficient deposit or ready to pay cash if the creditor chose that means of payment. vs. whereas in lease. Court of Appeals (198 SCRA 390) The appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money. the Court declared that the legal rate of interest is six (6%) percent per annum and not twelve (12%) percent. D. is the payment of the penalty interest at the rate agreed upon. 50 Phil. then payment of legal interest. 116) are applicable only to interest by way of 5 . 416 of the Central Bank which took effect on July 29. 52478. Court of Appeals. D. goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. the relationship that is created is that of landlord and tenant or lessor and lessee (Tolentino vs.2.R. Gregorio (115 SCRA 394) No interest is due where there was tender of payment prior to demand to pay or perform an agreed act. October 30. that the rates under the Usury Law (amended by P. Inc. 1986. 3. goods or credit. 116 (Usury Law) raised the legal rate of interest from six (6%) percent to twelve (12%) percent. Interest due shall earn interest (compounding interest) from the time it is judicially demanded although the obligation may be silent upon this point (Article 2212) or when there is express stipulation (Article 1959). Gonzales. 1974 pursuant to Presidential Decree No. In order that interest may be charged. Recent Jurisprudence on Mutuum (Loan) Francisco vs. G. the thing loaned becomes the property of the debtor. not use or forbearance of money. whereas in lease. 1986. State Investment House vs. the owner does not lose his right of ownership. the relationship which is created is that of creditor and debtor. Court of Appeals (202 SCRA 119) Circular No. No. 558). and in the absence of a stipulation of a particular rate of penalty interest. No. In the same vein. E. Exceptions: 1. Debtor in delay is liable to pay legal interest as indemnity for damages even in the absence of stipulation for the payment of interest (Article 2209) 2. 143 SCRA 158.
Olympic Sawmill Co.) Obligation not based on a loan or forbearance of money is not covered by CB Circular No. Court of Appeals (218 SCRA 233) loans. Insular Bank of Asia and America Vs. 905 did not authorize either party to unilaterally raise the interest rate without the other’s consent.compensation for the use or forbearance of money. Sangrador vs. interest on the amount of damages may be imposed at the court’s discretion at the rate of 6% per annum. GSIS VS. a. no interest may be awarded. Villarama (168 SCRA 215) That there is no longer any ceiling on interest or interest rates on loans (Liam Law vs. the interest due should be that stipulated in writing and in the absence thereof. the rate shall be 12% per annum. vs.) b. 129 SCRA 439 ) applies only where the parties openly and expressly agree on a specific rate of interest to accrue on the loan. Enterprises. 416. 416 applies only to interest on 3. A. In a loan. 2. CA (234 SCRA 78) 1. C. Central Bank Circular No. the loan shall earn 12% interest per annum. When the money judgment becomes final and executory. Legal interest of 12% p.. Caneba (191 SCRA 865) Where the court’s judgment which did not provide for the payment of interest has already become final. the rate of legal interest shall be 12% per annum from such finality until its satisfaction. Spouses Salazar (159 SCRA 133) 6 . shall only be adjudged in cases involving loan or forbearance under CB Circular No. Where the interest rate is not expressly stipulated. 1684 and CB Circular No. Inc. interest by way of damages is governed by Article 2209 of the Civil Code. CA (236 SCRA 20) Presidential Decree No. Inc. In case of other obligations. Ruiz vs. Eastern Shipping Lines. vs. 416. Construction Industry Arbitration Commission (CIAC) (244 SCRA 55) a. the interim period being an equivalent to a forbearance of credit. PNB vs.
Navarro (152 SCRA 346) and PNB vs. Llorin vs. or any lending institution for that matter. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative. 905. not only (are) the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable. however. (as are stipulations in other contract) are nonetheless still subject to laws and provisions governing agreements between parties. while the Usury Law ceiling on interest rates was lifted by C. Here. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties is likewise invalid.It is the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money on long term contracts. which agreement while they may be the law between the contracting parties-implicitly incorporate provisions of existing law. escalation clauses in credit agreements are perfectly valid and do not contravene public policy. Almeda vs. respondent bank’s reliance on C. 905. Circular No. Such clauses. as clearly demonstrated above. and (2) that there must be mutuality between the parties based on their essential equality. B. Series of 1982 did not authorize the bank. True. Court of Appeals (218 SCRA 436) An escalation clause must be bilateral hence it must provide for reduction or de-esclation of interest for said clause to be valid. to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. PNB vs. Circular No. B. Court of Appeals (258 SCRA 549) 7 . nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Court of Appeals (256 SCRA 292) The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties. Moreover. the enforcement of such stipulations are subject to certain conditions. Consequently. but also there are no valid and reasonable standards upon which the increases are anchored. Intermediate Appellate Court (183 SCRA 133) An escalation clause can be valid only if it also includes a de-escalation clause or a stipulation that the rate of interest agreed upon shall be reduced in the event that the maximum rate of interest is reduced by law or by Monetary Board. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. but based on reasonable and valid grounds. However. Banco Filipino vs.
It does not apply to the present case where the creditor is the plaintiff seeking the recovery of a loan together with interest and the debtor sets up the defense that the transaction is usurious. A. Liam Lao vs. It is in line with our decision in Banco Filipino Savings & Mortgage Bank vs. does the failure of the creditor to file a reply denying under oath the defense or usury amount to an admission thereof? Held: No. That ruling is correct.a. informing them of the increases.D. The Court of Appeals nullified the interest rate increases not because the promissory note did not comply with P. It is the failure of the creditor to deny under oath in his answer to a complaint filed by the debtor against him for the recovery of usurious interest he has collected that is contemplated by Section 9 of the Usury Law as an admission of usury. being procedural in nature.To begin with. Interest can be charged as lender and borrower may agree upon. CA. Indeed because of concern for the unequal status of borrowers vis-à-vis the banks. D. our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest made pursuant to an escalation clause must be the result of agreement between the parties. no one receiving a proposal to change a contract is obliged to answer the proposal. Navarro (152 SCRA 340) that although P. PNB’s argument rests on a misapprehension of the import of the appellate court’s ruling. IV. on the amount of damages in favor of a litigant should commence from rendition of judgment of the trial court instead of the date of filing of the complaint. DEPOSIT Definition 8 . In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in the interest rate. Issue: If the debtor is sued by the creditor for the recovery of loan together with interest. 1684 is not to be retroactively applied to loans granted before its effectivity there must nevertheless be a de-escalation clause to mitigate the onesidedness of the escalation clause. 238 SCRA 20) ). should be considered repealed with retroactive effect. No. Court of Appeals (234 SCRA 717) Legal interest of 6% p. Private respondents assent to the increases can not be implied from their lack of response to the letters sent by PNB. Korean Airlines vs. The Rules of Court in regard to allegations of usury. but because the absence of such provision made the clause so one-sided as to make it unreasonable. Olympic Sawmill (129 SCRA 439) Usury is now legally non-existent. No. 1684 by providing for a de-escalation. For as stated in one case (PNB vs.
1. 4. Distinctions between Deposit and Commodatum Deposit Commodatum Transfer of use Always gratuitous 1. Real Contract because it is perfected by the delivery of the subject matter. Safekeeping May be gratuitous Kinds of Deposit Judicial Extrajudicial a. just compensation should be given the depository. with the obligation of safety keeping it and of returning the same. Exception: a) contrary stipulation b) depository is in the business of storing goods c) property saved from destruction during calamity without owner’s knowledge. Principal Purpose 2. Necessary Distinctions between Extrajudicial and Judicial Deposits 3. 2. Nature E. the object may be either movable or immovable property. If gratuitous. Contract of deposit is generally gratuitous. Principal purpose of the contract of deposit is the safekeeping of the thing delivered. 2. 1. Distinctions between Deposit and Mutuum Deposit Mutuum mere Consumption of the subject matter Lender must wait for the expiration of the stipulated period Money or fungible thing 1. Characteristics 1. whereas in the second. 3. while the second is constituted by virtue of a court order. If onerous. 9 . it is unilateral because only the depository has an obligation. Object Movable (extrajudicial) and immovable property (judicial) D. C. The first is constituted by will of the contracting parties. Principal Purpose 2. Voluntary b. B. Return Safekeeping custody Depositor can return at will or demand 3. it is bilateral.A deposit is constituted from the moment a person receives a thing belonging to another. the object must be movable property. In the first. 2.
3. whereas the second. 2. Exception: delay will cause danger 6. Depositary is liable if the loss occurs through his fault or negligence. even in the absence of negligence. or the thing is lost through the negligence of his employees whether the latter are manifestly careless or not. Obligations of the Depositary 1. 5. the depositor need not be the owner of the thing deposited. contrary stipulation Depositary is liable for the loss of the thing deposited if: 4. G. Exception: 4.3 Note: Depositary is not responsible for loss of thing without negligence of the third person with whom he was allowed to deposit the thing if such third person is not manifestly careless or unfit 5. May be oral or in writing. Loss of thing while in the depositary’s possession raises a presumption of fault. even though a specified term may have been stipulated in the contract. the depository is obliged to return the thing deposited upon demand made by the depositor. Voluntary Deposit Defined as one wherein the delivery is made by the will of the depositor.2 he deposits the thing with a third person who is manifestly careless or unfit although authorized. F. the thing shall be delivered only upon order of the court. whereas the main purposes of the second is to secure or protect the owner’s right.1 he transfers the deposit with a third person without authority although there is no negligence on his part and the third person. gratuitous. Depositary is obliged to keep the thing safely and to return it when required. 3. If thing deposited should earn interest. the depositary is under obligation (1) to collect the interest as it becomes due and (2) to take such steps as may be necessary to preserve its value and the rights corresponding to it. 4. 2. The first is. 4. In the first. Although generally the owner. 4. Depositary is not allowed to deposit the thing with a third person. Required degree of care is greater if the deposit is for compensation than when it is gratuitous. The purpose of the first is the safekeeping of the thing deposited. whereas the second is always onerous. as a general rule. 1. The depositary is bound to collect not only the interest but also the capital itself when due. Depositary is obliged to first notify the depositor and wait for the latter’s decision if he will change the way or manner of the deposit. 10 . 3.
Note: Depositary is authorized to open the thing deposited which is closed and sealed when there is: (a) (b) presumed authority (keys having been delivered to depositary). and keep the secret of the deposit when the seal or lock is broken. 8. the property must be returned to his guardian or administrator or the person who made the deposit or to the depositor himself should he acquire capacity (Article 1970). when required. pay for damages should the seal or lock be broken through his fault which is presumed unless proven otherwise. accessions and accessories which are a consequence of ownership. If the thing deposited is money or other consumable thing. if he delays its return. the contract is converted into a simple loan or mutuum. fault. otherwise he shall be liable for damages. even though he himself may have been authorized to use the same (article 1979) 4. even if they are of the same kind and quality (Article 1976). Exception: Where safekeeping is still the principal purpose of the contract. or to the person who may have been designated in the contract (Article 1972). if he allows others to use it. Persons to whom Return of Thing Deposited Must be Made The depositary is obliged to return the thing deposited. to the depositor. 11 . or in case of necessity. Exceptions: a) b) express permission of the depositor preservation of the thing deposited required its use (article 1977) Note: 1. to his heirs and successors. If the depositor was incapacitated at the time of making the deposit. with or without his fault. 5. the same shall be considered an irregular deposit. Depositary has the obligation to return not only the thing but also all its products. Depositary is liable for loss through a fortuitous event even without his (a) (b) (c) (d) if it is so stipulated. in the same condition. the contract becomes one of commodatum. 2. 2. 1.7. H. If the thing deposited is non-consumable and the depositary has permission to use the thing. Depositary is under obligation not to make use of the thing deposited (because deposit is for safekeeping of the subject matter and not for its use). is he uses the thing without the depositor’s permission. 3. Depositary has the obligation not to commingle things deposited if so stipulated. Depositary has the obligation to: (a) (b) (c) return the thing deposited when delivered closed and sealed.
the thing must be returned to his legal representative (Article 1988). Note: Depositor shoulders the expenses for transportation J. and I. Overseas Bank of Manila vs. Relation between Bank and Depositor Deposits of money in banks. it has. in the absence of stipulation. heir is liable for damages and may be sued for estafa. 1. Even if the depositor had capacity at the time of making the deposit but he subsequently loses his capacity during the deposit.3. Court of Appeals (172 SCRA 521) 12 . If in bad faith. are governed by the provisions on mutuum and the relation between a depositor and a bank is that of a creditor and a debtor. if deposit is gratuitous. Serrano vs. whether or not a period has been stipulated. L. If in good faith. 2. and justifiable reasons exist for its return Note: Otherwise. 2. Exceptions: a) thing is judicially attached while in the depositary’s possession b) depositary was notified of the opposition of a third person to the return or the removal of the thing deposited (Article 1986) K. Guingona vs. at the place where the thing deposited might be even if it should not be the same place where the original deposit was made provided the transfer was accomplished without malice on the part of the depositary. no obligation to return or deliver the same money that was deposited. 2. savings and current. M. City Fiscal of Manila (126 SCRA 577) While the bank has the obligation to return the amount deposited. however. Right of Depositary to Return Thing Deposited 1. heir may either return the price he received or assign his right of action against the buyer in case the price has not been paid. Place of Return of Thing Deposited at the place agreed upon by the parties. Alteration of Depositary’s Heir 1. Time of Return of Thing Deposited General Rule: Upon demand or at will. depositary may avail of consignation therefore there is no right to return before expiration of the term designated if deposit is for valuable consideration (Article 1989). Central Bank (96 SCRA 96) A bank’s failure to honor a deposit is failure to pay its obligation as debtor and not a breach of trust arising from a depositary’s failure to return the subject matter of the deposit. whether fixed.
the deposit arises from an obligation of public or administrative character. In this last case. Obligations of Depositor 1. Necessary Deposit Necessary deposit in compliance with a legal obligation 1.5 Those constituted to guarantee contracts with the government.1 They have been previously informed about the effects brought by the guests. National Bank (174 SCRA 295) and Fidelity Savings vs.4 and Those required in suits as provided in the Rules of Court. 3. O. and 13 . Deposit by travelers in hotels and inns 3. 1. 2.1 The judicial deposit of a thing. 1. Cenzon (184 SCRA 141) The obligation of a bank to pay interest on a deposit ceases the moment the operations the bank is completely suspended by the Central Bank. Exceptions: a) b) c) d) unless depositor was not aware thereof depositor was not expected to know the dangerous character of the thing unless he notified the depositary of the same. the possession of which is being disputed in a litigation by two or more persons (Article 538). or depositary was aware of it without depositor’s advice (Article 1993) Note: Depositary has the right to retain the thing deposited in pledge until full payment of what may be due him by reason of the deposit (Article 1994). Phil.2 The deposit with a bank or public institution of public bonds or instruments if credit payable to order or bearer given in usufruct when the usufructuary does not give proper security for their conservation (Article 586). Integrated Realty Corp.It has been held that suspension of a bank which had fallen into a “distressed financial situation” by order of the Central Bank cannot excuse it from its obligations to depositors who had nothing whatever to do with the Central Bank actuations or the events leading to the bank’s distressed state. 1. vs.3 The deposit of a thing pledged when the creditor uses the same without the authority of the owner or misuses it in any other way (Article 2104). 2. He is obliged to pay for losses incurred due to the character of the thing deposited. 1. if deposit is gratuitous. The deposit is not entitled to interest during the period the bank is not allowed to operate. He is obliged to pay expenses for the preservation of the thing deposited. N. Necessary deposit made on the occasion of a calamity. 1.
A. and b) The loss is cause by the act of a thief or robber done without the use of arms and irresistible force (Article 2001) for in this cause. Judicial deposit or Sequestration Distinction between Judicial and Extrajudicial Deposits Judicial Cause Purpose by will or court to secure the right of a party to recover in case of a favorable judgment Extrajudicial by will of the parties custody safekeeping thing only property of and the movable Subject Matter movable and immovable property Remuneration onerous Beneficiary person with favorable judgment generally gratuitous depositor V. Stipulations on exemption or diminution of liability is void (Article 2003). GUARANTY Definition 14 . 4. c) The loss arises from the character of the things brought into the hotel (Article 2002). theft or robbery by a stranger (not by hotelkeeper’s servant or employee) with the use of arms or irresistible force (Article 2001). Hotelkeeper is not liable in the following cases: a) The loss or injury is caused by force majeure like flood.2 The latter have taken the precautions prescribed regarding their safekeeping. 1174). 1. P.3. 2. his family. Hotelkeeper has a right to retain the things of guests as security for unpaid lodging expenses and supplies. 3. the hotelkeeper is apparently negligent.. unless he is guilty of fault or negligence in failing to provide against the loss or injury from said cause (see Article 1170. Hotelkeeper is liable regardless of the amount in the following cases: a) The loss or injury is caused by his servants or employees as well as by strangers provided that notice has been given and proper precautions taken. fire (Article 2000). b) The loss is due to the acts of the guests. Note: 1. (Article 1998). etc. servants or visitors (Article 2002).
4. his co-member. Book IV of the Civil Code states the law on joint and several obligations. 2 3 Guarantor is an insurer of the debtor’s solvency. when there are two or more debtors in one and the same obligation. Held: Section 4. Jr. 2 Guarantor binds himself to pay only when the principal cannot pay. Recent Jurisprudence on Suretyship Inciong. when the law so provides or when the nature of the obligation so requires. Under Article 1297 thereof. Court of Appeals (257 SCRA 578) Issue: Petitioner argues that the dismissal of the complaint against Naybe. and against Pantanosas. the dismissal of the case against Judge 15 . constituted a release of his obligation especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. There is a solidary liability only when the obligation expressly so states. the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. 1 Suretyship Surety is primarily liable and is therefore not entitled to the exhaustion of the properties of the principal debtor Surety assumes liability as a regular party to the undertaking and undertakes to pay if the principal does not pay. accessory subsidiary and conditional unilateral requires that the guarantor must be a person distinct from the debtor C. Characteristics 1. Distinction between Guaranty and Suretyship Guaranty 1 Guarantor is secondarily liable. citing Article 2080 as basis for his argument. Petitioner signed the promissory note as a solidary co-maker and not as a guarantor therefore Article 2080 is not applicable. the principal debtor. B. 2.Guaranty is a contract whereby a person binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. Title 1. some or all of them may be proceeded against for the entire obligation. 3. vs. any one. Consequently. Chapter 3. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable. 3 D. Surety is an insurer of the debt. The choice is left to the solidary creditor to determine against whom he will enforce collection.
16 . like any other contract. suffice it to say that the court never acquired jurisdiction over him.R. Pineda (197 SCRA 1) If the principal debtor and the surety are held liable. therefore. therefore. The nature of its undertaking makes it privy to all proceedings against its principal. Salik (188 SCRA 740) In the absence of collusion. natural. Petitioner. Jr. 1. Finman General Assurance Corp. Rules Governing the Nature and Extent of Guaranty G. In other words. Guarantor may secure the performance of voidable. 2. primarily and equally bound with the principal as original promissor although he possesses no direct or personal interest over the latter’s obligations nor does he receive any benefits therefrom. Philippine National Bank vs. their liability to pay the creditor would be solidary but the nature of the surety’s undertaking is such that it does not incur liability unless and until the principal debtor is held liable. must generally be supported by a sufficient consideration. he is directly. E. unenforceable. conditional.Pantanosas may not be deemed as having discharged petitioner from liability as well. Guaranty is an accessory contract therefore there must be a valid principal obligation for guaranty to be valid. Philippine National Bank vs. primary and absolute. As regards Naybe. a consideration moving to the principal alone will suffice. and future obligations (Article 2052). may only have recourse against his co-makers. vs. Court of Appeals (191 SCRA 493) The peculiar nature of a guaranty or surety agreement is that it is regarded as valid despite the absence of any direct consideration received by the guarantor or surety either from the principal debtor or from the creditor. While a contract of guaranty or surety. becomes liable for the debt or duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. The guarantor or surety. Court of Appeals (198 SCRA 767) A surety’s liability to the creditor or promisee of the principal is said to be direct. 3. Guarantor’s liability cannot exceed the principal obligation (Article 2054). vs. as provided by law. such consideration need not pass directly to the guarantor or surety. the surety is bound by a judgment against the principal even though he was not a party to the proceedings.-Guaranty is generally gratuitous Exception: contrary stipulation Garcia.
bound thereby (see Articles 1159. 68 Phil. 5. If there is any doubt on the terms and conditions of the guaranty or surety agreements. Guaranty cannot be presumed. Effects of Guaranty between the Guarantor and the Creditor 1.2 5. The qualifications of a guarantor are: 5.R.3 He possesses integrity. 1306). Court of Appeals. Where the creditor has required and stipulated that a specified person should be a guarantor. and He has sufficient property to answer for the obligation which he guarantees 6. the rule of strictissimi juris commonly refers to an accommodation surety and is not applied in case of compensated sureties. Exceptions: a) b) c) d) if guarantor has expressly renounced excussion if guarantor has bound himself solidarily with the debtor (suretyship) in case of debtor’s insolvency when guarantor has absconded or cannot be sued within the Philippines unless he left a manager or representative if it may be presumed that an execution on the debtor’s property will not satisfy the obligation if guarantor does not set up the benefit of excussion and fails to point out to the creditor available property of the debtor within the Philippines if he is a judicial bondsman and sub-surety where a pledge or mortgage has been given by the guarantor as a special security if guarantor fails to interpose it as a defense before judgment is rendered against him (Saavedra vs. Price. G. 3. However. Its contention is based 17 . A compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him. Exceptions: a) solidarity B) if any of the circumstances in Article 2057 should take place. Being an accessory contract. is therefore. Court of Appeals (256 SCRA 478) Willex Plastic argues that the “Continuing Guaranty”. 669) e) f) g) h) i) 2. Willex Plastic Industries Corporation vs. A compromise which is entered into between the guarantor and the creditor benefits but does not prejudice the principal debtor (Article 2063). 198 SCRA 767). the creditor. Guarantor’s liability is only joint therefore.4. Guarantor is likewise entitled to the benefit of division where there are several guarantors of only one debtor and for the same debt.-Guarantor has the right to the benefit of excussion or exhaustion of the debtor’s property before he can be compelled to pay. cannot legally exist because of the absence of a valid principal obligation. He has capacity to bind himself. the doubt should be resolved in favor of the guarantor or surety (Philippine National Bank vs.1 5. F. they are not liable beyond the shares which they are respectively bound to pay (Article 2065). the substitution of guarantor may not be demanded (Article 2057) because in such a case the selection of the guarantor is a term of the agreement and as a party.
Canlas (44 Phil. Foerster (49 Phil. Guaranty is a contract of indemnity.” By no means. although a contract of suretyship is ordinarily not to be construed as retrospective. On the other hand. is this a valid guaranty? Held: Yes. accruing to his principal. Court of Appeals (216 SCRA 9). the parties to the “Continuing Guaranty” clearly provided that the guaranty would cover “sums obtained and/or to be obtained” by InterResin Industrial from Interbank. Court of Appeals (216 SCRA 91) Issue: If the contract of guaranty states that the same is to secure advances to be made “from time to time”. in the end the intention of the parties as revealed by the evidence is controlling. as we also held in Bank of the Philippine Islands vs. if such there be. In El Vencedor vs. The guarantor who pays for a debtor must be indemnified by the latter.on the fact that it is not a party either to the “Continuing Surety Agreement” or to the loan agreement between Manila Bank and Inter-Resin Industrial. the consideration necessary to support a surety obligation need not pass directly to the surety.” There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debt contracted previous to the execution of the bonds. the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. Effects of Guaranty between the Debtor and the Guarantor 1. 699). we held that a contract of suretyship “ is not retroactive and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. covering a series of transactions generally for an indefinite period of time or until revoked. a consideration moving to the principal alone being sufficient. In contrast.” xxx Willex Plastic contends that the “Continuing Guaranty” cannot be retroactively applied so as to secure the payments made by Interbank under the two “Continuing Surety Agreements” and invokes the El Vencedor and Diño rulings to support its contention that a contract if suretyship or guaranty should be applied prospectively. G. Indeed. For a “guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto …. Diño vs. this will be construed as a continuing guaranty/surety given to secure future debts and is not limited to a single transaction but which contemplates a future course of dealing. in this case. however. “It is prospective in its operation and is generally intended to provide security with respect to future transactions. The indemnity comprises: 18 . Put in another way. in Diño vs. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. It is never necessary that a guarantor or surety should receive any part or benefit. 843).
When the debt has become demandable by reason of the expiration of the period for payment.4 the total amount of the debt.2 3. The obligation of several guarantors of the same debtor and for the same debt is joint and each is bound only to pay his proportionate share. when the principal obligation has no fixed period for its maturity.1 1. loss of the thing due 19 . But the payment is in any case valid as to the creditor who has accepted it (Article 1238) The right to demand reimbursement is subject to waiver. Guarantor has the right to proceed against the debtor even before payment in the following instances: 3. Guarantor has the right of subrogation against the debtor to enable him to enforce the indemnity granted in Article 2066 and he cannot demand more than what he actually paid (Article 2067).6 3. one who has paid the entire debt may seek reimbursement from each of his co-guarantors the share which is proportionately owing him. unless it be of such nature that it cannot be extinguished except within a period longer than ten years. guaranty is terminated when the principal obligation is extinguished by: a) b) payment or performance. a) b) I. H. Therefore.3 1. requires the debtor’s consent. Requisites: payment must have been made by virtue of a judicial demand or because the principal debtor is insolvent Extinguishment of Guaranty 1.1. 3. and this period has expired. 3. If the principal debtor is in imminent danger of becoming insolvent (Article 2071). b) c) 2. the legal interest thereon from the time the payment was made known to the debtor. however. Effects of Guaranty as Between Co-guarantors 1. In case of insolvency of the principal debtor.2 1. the guarantor can recover only insofar as the payment had been beneficial to the debtor (Article 2050) Payment by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation. Damages. If there are reasonable grounds to fear that the principal debtor intends to abscond. even though it did not earn interest for the creditor. if they are due (Article 2066) Exceptions: a) Where the guaranty is constituted without the knowledge or against the will of the principal debtor.3 3.7 Guarantor may either obtain release from the guaranty or demand a security that shall protect him from any proceedings by the creditor and from danger of debtor’s insolvency (Article 2071). Being accessory and subsidiary.5 3. which. After the lapse of ten years. When the debtor has bound himself to relieve him from the guaranty within a specified period.4 When he is sued for the payment.1 3. The expenses incurred by the guarantor after having notified the debtor that payment had been demanded of him.
the thing delivered shall be returned with all its fruits and accessions. The same rules applies even though the guarantors be solidarily (Article 2080). as when the creditor releases or fails to register a mortgage. 20 . changing the legal effect of the original contract and not merely the form thereof. A subsidiary contract because the obligation incurred does not arise until the fulfillment of the principal obligation to which it is secured. Characteristics 1. A.c) d) e) f) condonation or remission of the debt confussion or merger of the rights of the creditor and debtor compensation novation Guaranty may also be extinguished if the creditor has released the guarantor although the principal obligation remains (Article 2078) or in case of material alteration which imposes a new obligation or added burden on the party promising or which takes away some obligation already imposed. 3. The guarantor who pays is entitled to be subrogated to all the rights of the creditor (Article 2067). The pledge is constituted to secure the fulfillment of a principal obligation. 2. An extension of the term granted by the creditor to the debtor without guarantor’s consent extinguishes the guaranty (Article 2029). Legal and Judicial Bonds 1. the guarantors are thereby released. An accessory contract because it has no independent existence of its 3. but sureties whose liability is primary and solidary. If there can be no subrogation because of the fault of the creditor. 2. Release of one guarantor by the creditor without the consent of the other guarantors benefits all to the extent of the share of the guarantor released (Article 2078). B. 2. VI. A judicial bondsman and the sub-surety are not entitled to the benefit of excussion because they are not mere guarantors. C. or to a third person by common agreement. Torrento. A unilateral contract because it creates an obligation solely on the part of the creditor to return the thing subject thereof upon the fulfillment of the principal obligation. The pledgor or mortgagor is the absolute owner of the thing pledged or mortgaged. (NASCO vs. own. 4. 20 SCRA 427 ). Essential Requirements 1. J. A real contract because it is perfected by the delivery of the thing pledged by the debtor who is called the pledgor to the creditor who is the pledge. PLEDGE Definition Pledge is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable (Article 2094) or document evidencing incorporeal rights (Article 2095) for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled. 4.
F. such as that constituted by an impostor. (see De Lara vs. ( Duran vs. 96 Phil. that the thing sold may be alienated to satisfy the obligation (Article 2112) and that the pledgee must continue in possession during the existence of the pledge. ( Philippine National Bank vs. that they be legally authorized for the purpose. 138 SCRA 491 ) 4. D.3. 2. The pledgor retains his ownership of the thing pledged. Disctinctions between Pledge and Real MOrtgage 1. Parqui vs. 2. 196 SCRA 107 ) But the right of retention is limited only to the fulfillment of the principal obligation for which the pledge was created. 3. Philippine National Bank. the ownership of the thing pledged is transferred to the vendee subject to the rights of the pledgee. 185 . Pledgee has the obligation to take care of the thing pledged with the diligence of a good father of the family. Stated differently. namely. 4. Hence. Court of Appeals. The thing pledged must be delivered to the creditor or to a third person by common agreement. Serrano vs. Intermediate Appellate Court. Ayroso. the pledge or mortgage is void. 3. Pledge Movable property Delivery of the object pledged to the pledgee or a third person Pledge is not valid against third persons unless a description of the thing pledged and the date of the pledge appear in a public instrument. 95 Phil. therefore. 98 SCRA 207 ). and in the absence thereof. He is entitled to reimbursement of the expenses incurred for its preservation and he is liable for loss or deterioration 1. (See Article 2105. A mortgage of conjugal property by one of the spouses is valid only as to one-half (1/2) of the entire property. (Article 2093. Common Provisions Governing Pledge or Mortgage 1. a mortgagee has the right to rely upon what appears in the certificate of title and does not have to inquire further. sell the same provided the pledgee consents to the sale. He may. Court of Appeals. 21 . 2. A stipulation whereby the thing pledged or mortgaged or under antichresis (Article 2137) shall automatically become the property of the creditor in the event of non-payment of the debt within the term fixed is known as pactum commisorium or pacto commissorio which is forbidden by law and declared null and void (article 2088) E. (Article 2098). 157 ) 2. The possession of the pledgee constitutes his security. While it is true that under Article 2085 it is essential that the mortgagor be the absolute owner of the property mortgaged. 3. the debtor cannot demand for its return until the debt secured by it is paid. Contract may be constituted only by the absolute owner of the thing pledged or mortgaged otherwise. Provisions Applicable only to Pledge 1. an innocent purchaser for value (like a mortgagee) relying on a torrens title issued is protected. Real Mortgage Immovable property Delivery of the thing mortgaged is not necessary Mortgage is not valid against third persons if not registered. 2098). As soon as the pledgee gives his consent. The persons constituting the pledge or mortgage have the free disposal of their property. 3.
When the thing pledged is later found in the hands of the pledgor or the owner. therefore. 9. (Articles 1174.3 if the creditor uses the thing without authority. see Article 1977). 7. A contrary stipulation is void (Article 2115). Exception: a.2 6. The pledgee has no right to use the thing pledged or to appropriate the fruits thereof without the authority of the owner (Article 2104. if the price of the sale is less. If the price of the sale is more than the amount due the creditor. REAL MORTGAGE Definition Real Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation. In the same way. only the accessory obligation of pledge is presumed remitted. The possession of the thing pledged by the debtor or owner subsequent to the perfection of the pledge gives rise to a prima facie presumption that the thing has been returned and. B. that the pledge has been extinguished. (see Article 2132). The sale of the thing pledged extinguishes the principal obligation whether the price of the sale is more or less than the amount due. not the principal obligation itself (Article 1274).by reason of fraud. Pledgor cannot ask for the return of the thing pledged until said obligation is fully paid including interest due thereon and expenses incurred for its preservation (Article 2099).1 6. if owing and thereafter to the principal of his credit. income. dividends. if the thing is in danger of being lost or impaired because of the negligence or willful act of the pledge. Exception: contrary stipulation 6. the debtor is not entitled to the excess unless the contrary is provided. A. specially subjecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated. b. Pledgee is not authorized to transfer possession of the thing pledged to a third person. or interest. delay or violation of the terms of the contract. Pledgor is allowed to substitute the thing pledged which is in danger of destruction or impairment with another thing of the same kind and quality (Article 2107). if he misuses the thing in any other way (Article 2104). 4. VII. But the pledgee can apply the fruits. 10. 1170). 6. negligence. Exception: stipulation authorizing pledgee to transfer possession. neither is the creditor entitled to recover the deficiency. 8. (Article 2100) 5. Characteristics It is an accessory and subsidiary contract. The pledgor may ask that the thing pledged be deposited judicially or extrajudicially. 22 . 1.
Adlawan vs. 153 SCRA 390 ). 125 SCRA 122 ) All subsequent purchasers of the property must respect the mortgage.) The right or lien of an innocent mortgagee for value upon the mortgaged property must be respected and protected. The remedy of the persons prejudiced is to bring an action for damages against the person who caused the fraud and if the latter is insolvent. it must appear in a public document duly recorded in the Registry of Property (see Gaotian vs. Possessory rights over said property before title is vested on the grantee may be validly transferred or conveyed as in a deed of mortgage. as a general rule. It is also unilateral because it creates only an obligation on the part of the creditor who must free the property from the encumbrance once the obligation is fulfilled. the buyer must know of its existence. b. 6. Court of Appeals. 156 SCRA 205 ). The mortgagor’s default does not operate to vest in the mortgagee the ownership of the encumbered property. Sierra. 4. His failure to redeem the property does not automatically vest ownership of the property to the mortgagee which would grant the latter the right to appropriate the property or dispose of it for such effect is against public policy as enunciated by Article 2088. (prudential Bank vs. (Reyes vs. Court of Appeals. retains possession of the property mortgaged as security for the payment of the sum borrowed from the mortgagee. Torres 23 . 596 ).). 93 SCRA 472 ). the mortgage is nevertheless binding between the parties. 33 SCRA 474 ) 2. even if the mortgagor obtained his title through fraud. Gaffud. GSIS. National Bank & Trust Corp. Until discharged. The objects of a real mortgage are immovable (Article 415) and alienable real rights imposed upon immovables. 5. But the mortgage must be registered (Article 2125) or. in order to give them to the mortgagor. 193 SCRA 158 ) The mortgagor may not be the principal debtor (Article 2085. (see Phil. the improvements thereon. In order that a mortgage may be validly constituted. whether the transfer to them be with or without the consent of the mortgagee. A mortgage creates a real right (see Tuazon vs. the property remains subject to the fulfillment of the obligation secured by it. if not registered.2. (see Bonnevie vs. vs. Court of Appeals. 24 SCRA 706 ) Note: If the instrument of mortgage is not recorded. Grosco.) If the mortgagor sells the mortgaged property. 5 Phil. which is enforceable against the whole world. 3. it follows the property wherever it goes and subsists notwithstanding changes of ownership. a building by itself may be mortgaged apart from the land on which it is built. Panis. Effect of Mortgage 1. in the absence of stipulation. and pays the latter a certain percent thereof as interest on his principal by way of compensation for his sacrifice in depriving himself of the use of said money and the enjoyment of its fruits. a lien inseparable from the property mortgaged. an action against the Treasurer of the Philippines may be filed for the recovery of damages against the Assurance Fund (Philippine National Bank vs. The mortgagor. Nartales vs. Note: a. 187 SCRA 735 ) C. The only right of a mortgagee in case of non-payment of a debt secured by real mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness (Guanzon vs. Argel. 2nd par. Note: While a mortgage of land necessarily includes.
d. that prior demand for payment must have been made on the debtor and the latter failed to pay. the property remains subject to the fulfillment of the obligation for whose guaranty it was constituted (Article 2126). It is necessary. Extrajudicial Foreclosure governed by Act. Court of Appeals. Sierra. a. 24 . 3. F. Posting of notice of sale in at least 3 public places therein Publication in a newspaper of general circulation Personal notice to mortgagor is not required (Bonnevie vs. 157 SCRA 100 ). The mortgage credit being a real right which follows the property. e. Pioneer Savings and Loan Bank. Extent of Mortgage General Rule: A mortgage constituted on immovable property is not limited to the property itself but also extends to all its accessions. growing fruits and rents or income (see Article 2102) as well as to the proceeds of insurance should the property be destroyed of the expropriation value of the property should it be expropriated. 53 Phil.. Debtor has the right to redeem the property sold within the term of one year from and after the date of the sale (Section 6).(233 SCRA 645) By mortgaging a piece of property. Foreclosure of Mortgages Judicial foreclosure governed by Rule 68 of the Rules of Court. Such a stipulation is void. if the mortgagor alienates the property. improvements. a debtor merely subjects it to a lien but ownership thereof is not parted with. Exception: E. Said assignment is valid and assignee may foreclose the mortgage in case of nonpayment of the mortgage indebtedness. Stipulation Forbidding Alienation of Mortgaged Property 1. the creditor may demand from any possessor the payment of the credit secured by said property. however. The fact that the mortgagor has transferred the mortgaged property to a third person does not relieve him from his obligation to pay the debt to the mortgage creditor in the absence of novation (McCallough & Co. 2. Island vs. if and when the mortgagee is given a specific power or express authority to do so. b. Court of Appeals. (Santiago vs. Public auction must be conducted in the province where the property is situated. No. 3135 as amended. However. (Bank of the Phil. contrary stipulation Alienation or Assignment of Mortgage 1. c. 906 ) 4. 1 ). Blue. Court of Appeals. 1. GSIS vs. 41 Phil. An assignee cannot acquire greater rights than those pertaining to an assignor (Koa vs. G. Concepcion & Hijos. 2. vs. (Jose vs. The reckoning date in case of registered land is from the registration of the certificate of sale since it is only from such date that the sale takes effect as a conveyance. D. Inc. 219 SCRA 541). the transferee is bound to respect the encumbrance because being a real right. 125 SCRA 122 . 170 SCRA 533 ).
132 SCRA 593 ). If there be a balance due to the mortgagee after applying the proceeds of the sale. 176 SRCA 741 ). Waiver of Security by Creditor 1. While Act No. he cannot split up his cause of action by filing a complaint for payment of the debt and another complaint for foreclosure. Santos.A. Damasco. 142 SRCA 467 ). Tomeldan. Sajo. Vs. 66 SCRA 141 . 3135 governing extrajudicial foreclosures of mortgage does not give a mortgagee the right to recover deficiency after the public auction sale. Inc. Barrameda. Solomon and Lachica vs.. Rule 70). 60 SCRA 162 . Court of Appeals (217 SCRA 32 ). vs. (Caltex Phils. Kinds of Redemption 1. C. Ergo. There is no statutory provision in our jurisdiction prohibiting a personal action to recover a sum of money even though a mortgage has been given as security for the payment of the same. the mortgagee is entitled to recover the deficiency. hence. J. 45 Phil. The mortgagee cannot have both remedies. within a period of five years from the date of the conveyance. Equity of redemption or the right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgagee but before the sale of the mortgaged property or confirmation of the sale (see Top-Rate International Services. the mortgagee is entitled to recover the deficiency in case the sale proceeds are not sufficient to cover the debt in extrajudicial foreclosures. H.42 SCRA 351. 2. The mortgagee may waive the right to foreclose his mortgage and maintain a personal action for recovery of the indebtedness. Intermediate Appellate Court. Mirang.” (Section 119. 166 SCRA 87 ). Gorospe vs. 63 Phil. in accordance with Section 2. Rule 68 of the Rules of Court or even after the foreclosure sale but prior to its confirmation. Right of Mortgagee to Recover Deficiency 1. The mortgagor’s equity of redemption is simply the right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final. Intermediate Appellate Court. the Rules of Court specifically gives the mortgagee the right to claim for deficiency in case a deficiency exists (Section 6. his widow or legal heirs. e. 703 . Note: This right to recover deficiency had been categorically resolved in State Investment vs. . He has only one cause of action. i. (Hijos de I. 69 SCRA 191 . non-payment of the mortgage debt. In judicial foreclosure. neither does it expressly or impliedly prohibit such recovery. CA (220 SCRA 517): The filing of a collection suit bars the foreclosure of mortgage. 141 [Public Land Law]. as amended) or foreclosure sale (Tupas vs. (Limpin vs. Dantes. I. 25 . General vs. 2. The action to recover a deficiency after foreclosures prescribes after ten (10) years from the time the right of action accrues as provided in Article 1144(2) of the Civil Code (Development Bank of the Philippines vs. shall be subject to repurchase by the applicant. No. Note: Cerna vs. when proper. 101 SCRA 171 . ( Development Bank of the Philippines vs. Right of redemption or the right of the mortgagor to redeem the mortgaged property within a certain period(1 yr) after it was sold for the satisfaction of the mortgaged debt. Intermediate Appellate Court. “Every conveyance of lands acquired under the free patent or homestead provisions. 522 ). 2. de la Rama vs.
76 Phil. if the property has been mortgaged in favor of the DBP (CA 459) Philippine National Bank (RA 1300). Mercado vs. there is a right of redemption which he can exercise at any time after service of judgment of foreclosure and within the 90-day period and even thereafter provided he does so before the foreclosure sale is confirmed by the court. banking or credit institution (Section 78. The redemption must be made within 12 months from the time of the registration of the sale. Cayanog. Recent Jurisprudence on Real Mortgages Noel vs. (Anderson vs. 3135. Confirmation retroacts to the date of the sale. 2. R. Binalbagan Estate. Payment of the purchase price of the property plus 1% interest per month together with the taxes thereon. The redemption must be made within one year after the sale if the mortgagee is a bank. In all cases of extrajudicial sale. Ramirez vs. Requisites for Valid Redemption 1. Phil. banks. 20 SRCA 1136 . (Ocampo vs. Javier. Domalanta. 48 Phil. Act No. redemption is allowed within one year from the registration of the sale. Tolentino 42 SCRA 365 ). Court of Appeals (219 SCRA 598) Acceptance of redemption price after the expiration of the statutory period for redemption is deemed a waiver of the one-year period to redeem foreclosed property. 134 SCRA 380 . the fact that the sale was made with what might appear as an inadequate consideration does not make the contract one of mortgage. Amores. Court of Appeals (240 SCRA 78) In the absence of proof of gross inadequacy of the price. 54 Phil 944). vs. Villar vs.K. L. 337. 824 ). and 3. supra). if any. banking and credit institutions (RA 337. Court of Appeals (240 SCRA 616) 26 . the period is one year from the registration of the foreclosure sale. not interlocutory. In judicial foreclosure of real estate mortgage. M. Exception: However. the mortgagor may redeem the property at any time within the term of one year from and after the date of registration of the sale (see Section 6. Reyes. (Conzales vs. Yboa. Inc. (Rosales vs. National Bank. Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the proper Register of Deeds. Piano vs. 97 Phil 604 . A. Confirmation of the sale of mortgaged real property cuts off all the rights or interests of the mortgagor and of the mortgage and persons holding under him. Under the Revised charter of the PNB. Right of Redemption 1. Lonzome vs. 2. It is a final order. 120 SCRA 869 ). 128 . Gatuslao. paid by the purchaser with the same rate of interest computed from the date of registration of the sale. Reyes vs. No. or the General Banking Act) or rural banks (RA 2670). and with them the equity of redemption in the property and vests them in the purchaser.
Court of Appeals (248 SCRA 222) 27 . Olea vs.) A stipulation that the ownership of the property would automatically pass to the vendee in case no redemption is effected within a stipulated period is void for being a pactum commissorium which enables the mortgagee to acquire ownership of the mortgaged property without need of foreclosure. Court of Appeals (247 SCRA 274) a. That obligation matures and becomes demandable in accordance with the stipulations pertaining to it. or the consideration of the contract is simulated or false.) e. as where it is executed by one who is not the owner of the property.A co-owner does not lose his part ownership of a coowned property where his share is mortgaged by another coowner without the former’s knowledge and consent. Court of Appeals (241 SCRA 254) It is a settled rule that a mortgagee may recover any deficiency in the mortgage account which is not realized in a foreclosure sale and that the action for recovery of that deficiency may be filed even during the redemption period. Tarnate vs. Where in a contract of sale with pacto de retro.) d. Court of Appeals (246 SCRA 472) The application for foreclosure of mortgage is premature where the debtors have not yet defaulted on the payment of either the principal or the interest on their loans. Ajax Marketing & Development Corporation Vs. DBP vs. the principal obligation which it guaranteed is not thereby rendered null and void. the vendor remains in physical possession of the land sold as lessee or otherwise. Where a mortgaged is not valid. a contract purporting to be sale with the right of purchase shall be considered an equitable mortgage. the contract should be considered an equitable mortgage.) The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation. for even an obligation that is unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where the contract contains a stipulation that upon payment by the vendor of the purchase price within a certain period the document shall become null and void and have no legal force and effect. Gabonseng vs. Court of Appeals (249 SCRA 331) b. In case of doubt. A mortgage action prescribes after 10 years. the purported sale should be considered a mortgage contract.) c.
” 2. drafts. the inapplicability of the ruling in Lim Julian vs. Construing this silence strictly against the petitioner. what applies here is the general rule that “an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. Lutero (49 Phil. overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred ….An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage but where the intent of the contracting parties is manifest that the mortgaged property shall also answer for future loans or advancements then the same in not improper as it is valid and binding between the parties.) 28 . of all promissory notes. bills of exchange. This explains the finding by the trial court. which is specifically phrased to subsume all debts of past or future origin. it must bring a civil action either to recover such possession as a preliminary step to the sale or to obtain judicial foreclosure. not only of the earlier quoted provision.) If the mortgagee cannot obtain possession of a mortgaged property for its sale on foreclosure.” b. the party which prepared the agreement. Replevin is the appropriate action to recover possession preliminary to the extrajudicial foreclosure of a chattel mortgage. A reading. The mortgage provision relied upon by the petitioner is known in American Jurisprudence as a “dragnet” clause. Court of Appeals (253 SCRA 241) Issue: The mortgage contract provides: “This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity.” Can the bank charge penalty based on said provision? Held: 1. Court of Appeals (248 SCRA 549) a. as the case may be. The obligation in this case was not a series of indeterminate sums incurred over a period of time.” 3. letters of credit. Filinvest Credit Corporation Vs. The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or “adhesion” thereto. Thus. but of the entire mortgage contract yields no mention of penalty charges. the “penalties and charges are not due for want of stipulation in the mortgage contract. 703) which pertains only to mortgages securing future advancements. it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. as affirmed by the Court of Appeals. the mortgage is to be strictly construed against the petitioner. 4. trust receipts. Instead. Such clauses are carefully scrutinized and strictly construed. but two specific amounts procured in a single instance. Philippine Bank of Communications Vs. Being a contract of adhesion.
and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. 2. it follows that no penalty was intended to be covered by the mortgage. an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not Construing the ambiguity against the petitioner. Art. thus. Marcos. 6. In Visayan Realty. which description must not be such as to mislead or deceive. Lot No. the generic words will usually be limited to things of a kindred nature with those particularly enumerated…. 2029 (Pls-61) are null and void. adverse and public possession thereof for more than thirty (30) years. hence. With regard to the validity of the mortgage contracts entered into by the parties. Meanwhile the government still remained the owner thereof. the contracts of mortgage and all their subsequent legal consequences as regards Lot No. Indeed. We cannot accept petitioner’s contention that the lot in dispute was no longer public land when mortgaged to it since the Olidiana spouses had been in open. we ruled that the approval of a sales application merely authorized the applicant to take possession of the land so that he could comply with the requirements prescribed by law before a final patent could be issued in his favor. In this case. What divests the government of title to the land is the issuance of the sales patent and its subsequent registration with the Register of Deeds. where a description of things of a particular class or kind is “accompanied by words of a generic character. It is the registration and issuance of the certificate of title that segregate public lands from the mass of public domain and convert it into private property. since the disputed property was not owned by the Olidiana spouses when they mortgaged it to petitioner. Meer (86 Phil. Since the disputed lot in the case before us was still the subject of a Free Patent Application when mortgaged to petitioner and no patent was granted to the Olidiana spouses. as in fact the application could still be canceled and the land awarded to another applicant should it be shown that the legal requirements had not been complied with. Court of Appeals (253 SCRA 414) Issue: Whether the land in dispute could have been validly mortgaged while still the subject of a Free Patent Application with the government.” A penalty charge does not belong to the species of obligations enumerated in the mortgage. continuous. the mortgage contract provides that it secures notes and other evidences of indebtedness. 3 SCRA 434). Under the rule of ejusdem generis. a mortgage must sufficiently describe the debt sought to be secured. 2029 (Pls-61) remained part of the public domain. 2 of the New Civil Code specifically requires that the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. 2085. and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor. Petitioner bank did not acquire valid title over the land in dispute because it was public land when mortgaged to the bank. De Bautista vs. Thus. the said contract cannot be understood to secure the penalty. 1. par. A mortgage and a note secured by it are deemed parts of one transaction and are construed together. vs.5. the mortgage in 29 . we held that it was an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of a property mortgaged. DBP vs. Inc. 515). In a much earlier case (Vda.
As a general rule. Court of Appeals (254 SCRA 368) 1. For the law explicitly requires an imperative for the validity of a mortgage that the mortgagor be the absolute owner of what is mortgaged. Respondent court thus correctly ruled that petitioner was not a purchaser or mortgagee in good faith hence. and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property. noting petitioner therein to be a financing corporation. or lack of such knowledge due to its negligence. 2. a business entity engaged in the business of selling subdivision lots. ANTICHRESIS Definition 30 . vs. the OAALA found that “at the time the lot was mortgaged. The above-enunciated rule should apply in this case as petitioner admits of being a financing institution. M. in this case) had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing so as to be able to mortgage it again. or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. This rule. (now petitioner) has been aware of the lot’s location and that said lot formed part of Capital Parks/Homes Subdivision. or any encumbrance thereon. Petitioner’s constructive knowledge of the defect in the title of the subject property. the subject property is a subdivision lot located at Quezon City.question must of necessity be void and ineffective. vs. the Court. petitioner was well aware that it was dealing with SOLID. The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner (SOLID. Inc. State Investment House. as in this case. respondent State Investment House. 3. petitioner can not solely rely on what merely appears on the face of the Torrens Title. the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. In this case. STATE’s registered mortgage right over the property is inferior to that of respondent-spouses’ unregistered right. 1. In fact. Intermediate Appellate Court (203 SCRA 210). deviated from the general rule that a purchaser or mortgagee of a land is not required to look further than what appears on the face of the Torrens Title. Registration of the mortgage is of no moment since it is understood to be without prejudice to the better right of third parties. Inc.. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts which should put a reasonable man upon his guard. VII. We take judicial notice of the uniform practice of financing institutions to investigate. however. In Sunshine Finance and Investment Corp. takes the place of registration of the rights of respondent’s spouses. admits of an exception as where the purchaser or mortgagee has knowledge of a defect or lack of title in his vendor. examine and assess the real property offered as security for any loan application especially where. M.
It is not essential that the loan should earn interest in order that it can be guaranteed with a contract of antichresis. the debtor cannot demand its return until the debt is totally paid.Antichresis is a contract whereby the creditor acquires the right to receive the fruits of an immovable of his debtor. A stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt within the period agreed upon is void. pure or conditional. 27241). (see Article 2038). 2. Valliser. April 29. Distinctions between Antichresis and Pledge Antichresis 1. Debtor usually retains possession of the property the 1. ( Javier vs. 2. 3. Characteristics 1. but mortgage creates a real right over the property which is enforceable against the whole world Creditor has no such obligation 4. Creditor does not have any right to receive the fruits. if owing and thereafter to the principal of his credit. Pledge Refers to personal property Perfected by delivery Real contract D. hence it does not produce a real right Creditor. Note: 1. (see Article 2138) 4. with the obligation to apply them to the payment of the interest. 2. 5. The fruits of the immovable which is the object of the antichresis must be appraised at their actual market value at the time of the application. Antichresis is susceptible of guaranteeing all kinds of obligations. is obliged to pay the taxes and charges upon the estate (Article 2135) 3. It is a formal contract because the amount of the principal and of the interest must both be in writing. 35 O. 31 . Property is delivered to the creditor Creditor requires only the right to receive the fruits of the property. otherwise the contract of antichresis is void. 2.G. 3. Rosa vs. The property delivered stands as a security for the payment of the obligation of the debtor in antichresis. C. Noble. 1950. 2. 3. (CA) N. Refers to real property Perfected by mere consent Consensual contract 1. Delivery of the property to the creditor is required only in order that the creditor may receive the fruits and not for the validity of the contract. 2. Distinctions between Antichresis and Real Mortgage Antichresis Real Mortgage 1. 2648-R. 3 . Hence. unless there is stipulation to the contrary. It is an accessory contract because it secures the performance of a principal obligation. B. Sta.
Tavera vs. 770 ). (Barretto vs. he is. Inc. 1. 666 . Intermediate Appellate Court (142 SCRA 180) A mortgage is a mere accessory contract and thus. The creditor is obliged. by law (Article 1170). to pay the taxes and charges upon the estate. To petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the Rules of Court. after receiving them to the interest. Gimenez. Filipinas Marble Corporation vs. The parties. F. in order that a mortgage may be validly 32 . 68 Phil. If he does not pay the taxes. the duty of the creditor to render an account of said fruits to the debtor and the corresponding right of the latter that the said fruits be applied to the debt. 54 Phil. Gutierrez Recipe 43 Phil. Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. however. El Hogar Filipino. and thereafter to the principal (Article 2132) in accordance with the provisions of Article 2133 or 2138. 459 ). 3. a formal contract because for its validity. if owing. In addition to the requisites in Article 2085. reject the petitioner’s argument that since the chattel mortgage involved was not registered. may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge (see Article 1307. 4 . and thereafter to the principal of the credit E. unless there is a stipulation to the contrary. if owing. CHATTEL MORTGAGE Definition A chattel mortgage is 1. its validity would depend on the validity of the loan secured by it. IX. Remedy of Creditor in Case of Default To bring an action for specific performance 2. Hence. It states: “Article 2125. De Mendezona. (Pando vs. Another obligation of the creditor is to apply the fruits. 48 Phil. registration in the Chattel Mortgage Register is indispensable.Creditor given possession of the property shall supply the fruits thereof to the payment of interest. Barretto. Mortgagee has no such obligation Obligations of Antichretic Creditor 1. 712 ). 2. 2. Diaz and Rubillos vs. required to pay indemnity for damages to the debtor. Macapilac vs. it is indispensable. the same is null and void. an accessory contract because it is for the purpose of securing the performance of a principal obligation. a unilateral contract because it produces only obligations on the part of the creditor to free the thing from the encumbrance upon fulfillment of the obligation. We however. 37 Phil. 234 . A.
vs. 472 ). Alvares. or any part thereof. creditor is entitled to recover the deficiency from the debtor Exception: if chattel mortgage is a security for the purchase of personal property in installments (Article 1484) 5 If property is sold. Kilayko. D. Offenses Involving Chattel Mortgage 1. Revised Penal Code). If the instrument is not recorded. 45 Phil. the debtor is not entitled to the excess Exceptions: a. as amended If property is foreclosed. Selling or pledging personal property already mortgaged.) contrary stipulation (Article 2125) b. Note: The mortgagor is not relieved of criminal liability even if the mortgage indebtedness is thereafter paid in full (U. the excess over the amount due goes to the debtor 1 Pledge Delivery is necessary 2 2 Registration in the Registry of Property is not necessary for its validity Procedure for sale of pledged thing is found in Article 2112 of the Civil Code If property is sold. creditor is not entitled to recover the deficiency notwithstanding any stipulation to the contrary (Article 2115). xxx xxx xxx The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in favor of respondent DBP. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province or city other than the one in which it was located at the time of the execution of the mortgage without the written consent of the mortgagee. and 2. under the terms of the Chattel Mortgage Law without the consent of the mortgagee written on the bank of the mortgage and duly recorded in the Chattel Mortgage Register (Article 319.) legal pledge (Article 2121) 3 3 4 4 5 If property is foreclosed. Distinction between Chattel Mortgage and Pledge Chattel Mortgage 1 Delivery of personal property to the mortgagee is not necessary Registration in the Chattel Mortgage Register is necessary for its validity Procedure for sale of the mortgaged property is found in Section 14 of RA 1508.constituted that the document in which it appears be recorded in the Registry of Property. or the mortgagor-seller informed the purchaser that the thing sold had been mortgaged. But the sale is valid although no written consent was obtained from the mortgagee but the mortgagor lays himself open to 33 . C.S. 61 ). (People vs. the mortgage is nevertheless binding between the parties. 32 Phil.
There is no law expressly requiring the recording of the assignment of a mortgage. F. (Filipinas Marble Corporation vs. Inc. 122 SCRA 296 . Dy. Jr. if the property as situated in a different province from that in which the mortgagor resides. the chattel mortgage is void. Act No. 68 SCRA 374 ).. i. but only requires that the description of the mortgaged property be such as to enable the parties to the mortgage or any other person to identify the same after a reasonable investigation and inquiry (Saldana vs. Consequently. 1508) 3. H. While such assignment may be recorded. 2. 5. Under the Chattel Mortgage Law. Article 2125). see Article 2085). Act No. the registration must be in both registers (Section 4. E. paragraphs 2 and 3. Guaranty Co. otherwise. vs. Registration of Assignment and Mortgage Optional 1. Vessels. Inc. (Servicewide Specialists. Court of Appeals. the mortgage is invalid. 198 SCRA 826 ). 7. 174 SCRA 80 . 2. (Article 2140. 4. 106 Phil. the mortgage of which have been recorded with the Philippine Coast Guard in order to be effective as to third persons Motor vehicles. The registration gives the mortgagee the symbolical possession. Intermediate Appellate Court. Inc. Subject Matter of Chattel Mortgage 1.criminal prosecution. Weaver Textile Mills. The law as it now stands provides for only one way for executing a valid chattel mortgage. Creation of Chattel Mortgage 1.. 142 SCRA 180 . the law is permissive and not mandatory. 1508). G. Intermediate Appellate Court. Shares of stock in a corporation Interest in business Machinery and house of mixed materials treated by parties as personal property and no innocent third person will be prejudiced thereby (Makati Leasing and Finance Corporation vs. The assignee is subrogated to the rights and obligations of the assignor-mortgagee with respect to the chattel mortgage constituted in favor of the latter. vs. Inc. It has been ruled however that if the chattel mortgage is not recorded. Note: Section 7 of the Chattel Mortgage Law does not demand a minute and specific description of every chattel mortgaged in the deed of mortgage. otherwise. Effect of Registration The registration of the chattel mortgage is an effective and binding notice to other creditors of its existence and creates a real right or a lien which being recorded follows the chattel wherever it goes. 919 ). 6. vs. Coquia. the assignee is bound by the terms 34 .e. Phil. 2. (Northern Motors. it is nevertheless binding between the parties. the mortgage of which had been registered both with the Land Transportation Commission and the Chattel Mortgage Registry is order to affect third persons House which is intended to be demolished Growing crops and large cattle (section 7... the registration of the personal property in the Chattel Mortgage Register as security for the performance of an obligation.
44 Phil. Manila Investment & Construction. A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage. 28 SCRA 1000 ) K. 1508) 2. The affidavit of good faith is an oath in a contract of chattel mortgage wherein the parties “severally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purpose and that the same is just and valid obligation and one not entered into for the purpose of fraud. 24 SCRA 727 ’ Phil. after thirty (30) days from the time of the condition broken. (Lilius vs. includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith.and conditions of the chattel mortgage executed between the mortgagor and the mortgagee. Jarque. 229 . 3. the creditor has no right to appropriate to himself the personal property (Article 2141. 951 ). Affidavit of Good Faith 1. 50 . N. The 30-day period to foreclose a chattel mortgage is the minimum period after violation of the mortgage condition for the mortgage creditor with at least ten (10) days notice to the mortgagor and posting of public notice of time. (unrep) 103 Phil. Giberson vs.. 20 35 . Olutanga Lumber Co . Ignacio.. Manila Railroad Co. Court of Appeals. place and purpose of such sale. Evangelista. Inc. 216 ). Refining Co. 2. J. The mortgagee may.. After the sale of the chattel at public auction.. Jurreidini Bros. A. 173 SCRA 1 ). Court of Appeals. (Jaca vs. 1151 . The creditor may maintain an action for the deficiency although the Chattel Mortgage Law is silent on this point ( Ablaza vs. 39 Phil. Act No. 201 SCRA 157 ). Bank of the Philippine Isalnd vs. and is a period of grace for the mortgagor. cause the mortgaged property to be sold at public auction by a public officer (Section 14. 113 SCRA 107 ). 1508. (Mahoney vs. A deed of chattel mortgage is void where it provides that the security stated therein “is for the payment of any and all obligations hereinbefore contracted and which may hereafter be contracted by the mortgagor in favor of the mortgagee”. vs. Exception: fraud or duress Note: 1. the right of redemption is no longer available to the mortgagor.. supra. Under Section 5 of the Chattel Mortgage Law. 47 Phil. Garrido vs. Private Sale – if there is an express stipulation in the contract. Phil. Esguerra vs. to discharge the mortgage obligation. 2088) because he is permitted only to recover his credit from the proceeds of the sale of the property at public auction through a public officer in the manner prescribed in Section 14 of Act No. But the absence of the affidavit vitiates a mortgage only as against third persons without notice like creditors and subsequent encumbrances. Right of Mortgagee to Recover Deficiency 1. in describing what shall be deemed sufficient to constitute a good chattel mortgage. Davao Lumber Co. Foreclosure of Chattel Mortgage 1. (BA Finance Corporation vs. Tuason. 62 Phil. Tuason. 61 Phil. Public Sale – if the mortgagor defaults in the payment of the secured debt or otherwise fails to comply with the conditions of the mortgage. ( Cabral vs. I. 2. National Bank vs.
Ramirez. Two horses.) for non-payment of taxes. subject to the exemptions provided by law.). the property of any fisherman. Household furniture and utensils necessary for housekeeping and used for that purpose by the debtor. Tools and implements necessarily used by him in his trade or employment. not exceeding one thousand pesos in value and necessarily used by him in his ordinary occupation. 36 . no deficiency judgment can be asked and any agreement to the contrary shall be void (Article 1484). Exempt Property 1. material men and others who have rendered service or furnished material for the construction of the building 2. by the lawful use of which he earns a livelihood. Right to receive support as well as any money or property obtained as such support. such as the debtor may select. not exceeding the total value of one thousand pesos. teachers and other professionals. B. The execution sale in such case is not a foreclosure sale. 2. The action may be sought within ten (10) years from the time the cause of action accrues. Family Code).) d. (Article 205. architects.) b. 77 SCRA 152 ). surveyors. X. whether by the debtorvendee or a third person. clergymen. such as the debtor may select. 8. 5. 6. 7. If the chattel mortgage is constituted. His necessary clothing and that of all his family. CONCURRENCE AND PREFERENCE OF CREDITS Liability for Obligations The debtor is liable with all his property. (Industrial Finance Corporation vs. The professional libraries of attorney’s. physicians. mechanics. Family home constituted jointly by husband and wife or by unmarried head of a family (Article 152. and for debts due to laborers. or two carabaos or other beasts of burden. not exceeding three thousand pesos in value.) c. for debts incurred prior to the constitution of the family home. One fishing boat and net. present and future. builders. dentist. Family Code) 3. The chattel mortgagee is entitled to deficiency judgment in an action for specific performance (Article 1484 ) where the mortgaged property is subsequently attached and sold. as security for the purchase of personal property payable in installments. for debts secured by mortgages on the premises before or after such constitution. judges. A. or two cows. 9. Provisions for individual or family use insufficient for three months. of a value not exceeding one thousand pesos. engineers. 3. pharmacists. Exceptions: a. 4. for the fulfillment of his obligations.
Credits for making repairs. Rule 39) 15. on the movables belonging to the guest as long as such movables are in the hotel. upon the fruits harvested. 2. or those guaranteed by a chattel mortgage upon the things mortgaged. Preferred Credits with Respect to Specific Movable Property 1. but not for money loaned to the guests. when the price thereof can be determined proportionally. for the price of the contract and incidental expenses. 13. Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor. Credits between the landlord and the tenant arising from the contract of tenancy on shares. this right is not lost by the immobilization of the thing by destination. on the goods manufactured or the work done. Claims arising from misappropriation. on the share of each in the fruits or harvest. So much of the earnings of the debtor for his personal services within the month preceding the levy as are necessary for the support of his family. benefits privileges and annuities so accruing or growing out of such insurance that said five hundred pesos bears to the whole premiums paid. 14. 3. or malfeasance by public officials committed in the performance of their duties. Credits for lodging and supplies usually furnished to travelers by hotelkeepers. All moneys. 10. so long as they are in the possession of the debtor. and if the movable has been resold by the debtor and the price is still unpaid. until their delivery and for thirty days thereafter. substance and identity. money or securities obtained by them. safekeeping or preservation or personal property on the movable thus made. breach of trust. The right to receive legal support. 37 . 9. Copyrights and other properties especially exempted by law (Section 12. or money or property obtained as such support. up to the value of the same. 11. 12. Lettered gravestones. benefits. For expenses of salvage. 7. repaired. C. up to the value thereof. Credits for seeds and expenses for cultivation and harvest advanced to the debtor. Claims for laborers wages. a like exemption shall exist which shall bear the same proportion to the moneys. or any pension or gratuity from the government. provided it has not lost its form.10. 5. on said movables. if the annual premiums paid do not exceed five hundred pesos. 6. Credits for transportation. Duties. the lien may be enforced on the price. taxes and fees due thereon to the state or any subdivision thereof. on the movables. 4. Claims for the unpaid price of movable sold. 8. neither is the right lost by the sale of the thing together with other property for a lump sum. upon the goods salvaged. kept or possessed. Property under legal custody and of the public dominion. and if they exceed the sum. upon the goods carried. privileges or annuities accruing or in any manner growing out of any life insurance. 11.
Summary: a. Mortgage credits recorded in the Registry of Property. and only as to later credits.) malversation by public officials c. 7.) laborer’s wages g. 2. Claims of furnishers of materials used in the construction.) upon the property insured. Expenses for the preservation or improvement of real property when the law authorizes reimbursement. In the foregoing cases.) d. reconstruction or repair of buildings. 5. for the insurance taxes vendor’s lien contractor’s lien lien of materialmen mortgage 38 . 10. canals or other works.) vendor’s lien d. upon said buildings. mechanics and other workmen. For the unpaid price of real property sold upon the immovable sold. Claims in favor of the depositor if the depository has wrongfully sold the thing deposited. as well as of architects. by virtue of a judicial order. canals or other works. Claims of laborers. Claims of co-heirs for warranty in the partition of an immovable among them. upon the immovable preserved or improved.) taxes b. engineers and contractors. Credits for rent for one year.) carrier’s lien J. Credits annotated in the Registry of Property. Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee. upon said buildings.) b. upon the real estate mortgage. Credits of insurers. 1. 3. by attachments or executions.) crop loan l.) hotel’s lien k. Preferred Credits with Respect to Specific Immovable Property Taxes due upon the land or building. premium for two years.) pledge.) mechanic’s lien f. engaged in the construction. 9. upon the personal property of the lessee existing on the immovable leased on the fruits of the same. but not on money or instruments of credit. 8. the creditor may demand them from any possessor within thirty (30) days from the unlawful seizures.12.one year m. upon the property affected. Masons. upon the price of the sale. upon the real property thus divided. if the movables to which the lien or preference attaches have been wrongfully taken.) salvage h. canals. chattel mortgage e. 4. canals or other works.) e. or repair of buildings. 13.) rentals . upon the immovable donated. 6. and other works.) c. Summary: a. reconstruction.) deposit Note: The foregoing enumeration is not an order to preference (Articles 2248 – 2249) D.) tenancy i.
other than those mentioned in Articles 2241. E. Fines and civil indemnification arising from a criminal offense. during the last preceding insolvency. or (b) in the final judgment. 4. respectively (Article 2244) Summary: a) b) c) d) e) f) g) funeral expenses wages of employees – one year expenses of last illness workmen’s compensation support for one year support during insolvency fines in crimes 39 . No. when properly authorized and approved by the court. ACCFA. when approved by the court. and family. Compensation due to the laborers of their dependents under laws providing for indemnity for damages in cases of labor accident or illness resulting from the nature of the employment. 2. Gifts due to public and private institutions of charity or beneficence. 1. 83 SCRA 411 ). 10. Credits which without special privilege. Credits and advancements made to the debtor for support of himself or herself.) h. Proper funeral expenses for the debtor. No. Damages fro death or personal injuries caused by a quasi-delict.) g. 14. 9. and for three months thereafter. Order of Preference with Respect to Other Properties of the Debtor 1. if they have no property of their own. No. laborers. Credits for services rendered the insolvent by employees. 11. appear in (a) a public instrument. or children under his or her parental authority who have no property of their own. 1. 7.) j. 1.) expenses of preservation recorded attachments warranty in partition conditional donations premiums for 2 year – insurers Note: The foregoing enumeration is not an order of preference (Carried Lumber Co. 3. 1. 5. 8. Taxes and assessments due any city or municipality other than those mentioned in Articles 2241. vs. Support during the insolvency proceedings. Taxes and assessments due the national government. Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority. if they have been the subject of litigation. 6. No. Taxes and assessments due any province. and 2242.1 and 2242. Legal expenses. other those mentioned in Articles 2241. 12.) i. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments. or household helpers for one year preceding the commencement of the proceedings in insolvency. 1 and 2242. No. and expenses incurred in the administration of the insolvent’s estate for the common interest of the creditors. No. 13.f.
What Article 2244 creates are simply rights in favor or certain creditors to have the cash and other assets of the insolvent applied in a certain sequence or order of priority (Republic vs. 2. The right of first preference as regards unpaid wages recognized by Article 110 of the Labor Code does not constitute a lien on the property of the insolvent debtor in favor or workers. In contrast with Articles 2241 and 2242. Article 110 of the Labor Code as amended must be viewed and read in conjunction with the provisions of the Civil Code on concurrence and preference of credits. 150 SCRA 37 ). b) From the provisions of Article 110 of the Labor Code and Section 10. To the extent that claims for unpaid wages fall outside the scope of Articles 2241(6) and 2242(3). Recent Jurisprudence on Concurrence and Preference of Credits a) A foreclosing bank creditor cannot be held liable for unpaid wages and the like of the employees of the mortgagor. Court of Appeals (229 SCRA 223) Whenever a distressed corporation asks SEC for rehabilitation and suspension of payments. National Labor Relations Commissions. preferred creditor may no longer assert such preference. NLRC (229 SCRA 350) 1. Article 2244 creates no liens on determinate property which follow such property. NLRC (236 SCRA 117) 1. Book III of the Revised Rules and Regulations Implementing the Labor Code. The employees should file their claims in a proceeding in bankruptcy on their employer. DBP vs. Rule VIII. a declaration of bankruptcy or a judicial liquidation must be present before the worker’s preference may enforced.h) i) j) k) l) legal expenses . Article 2244 relates to the property of the insolvent that is not burdened with the liens or encumbrances created or recognized by Article 2241 and 2242. This rule will enable the rehabilitation receiver to effectively exercise his powers free from judicial and extrajudicial interference that might unduly hinder rescue of the company. DBP vs. 3. It is a right to a first preference in the discharge of the funds of the judgment debtor. (Development Bank of the Philippines vs. but shall stand on equal footing with other creditors. Santos. Peralta. BPI vs. 186 SCRA 841 ). 171 SCRA 138 ). they would come within the ambit of the category of ordinary preferred credits under Article 2242.administration taxes tort donations appearing in public instrument or final judgment Note: 1. 40 . 3. ( Development Bank of the Philippines vs.
if any. real or personal. The Civil Code and Labor Code provisions require judicial proceedings in rem in adjudication of creditor’s claims against the debtor’s assets to become operative. If there are two or more credits with respect to the same specific real property or real rights. after the payment of duties. Those credits which do not enjoy any preference with respect to specific property and those which enjoy preference. 4. they shall be satisfied pro rata. Common credits referred to in Article 2245 shall enjoy no preference and shall be paid pro rata regardless of dated (Article 2251). If there are two or more credits with respect to the same specific movable property. 4. In the order established in Article 2244. taxes. F. Those credits which enjoy preference with respect to specific movable. 6. RA 6715 expanded “worker preference” to cover not only unpaid wages but also other monetary claims of laborers. excluded all others to the extent of the value of the personal property to which the preference refers (Article 2246). Those credits which enjoy preference in relation to specific real property or real rights. after the payment of the credits which enjoy preference with respect to specific property. and fees due the State or any subdivision thereof (Article 2247). 41 . 2. for the payment of the other credits (Article 2250). as to the amount not paid.2. 3. Amendatory provisions of RA 5715 which became effective on 21 March 1989 should only be given prospective application. after the payment of the taxes and assessments upon the immovable property or real right (Article 2249). b. they shall be satisfied pro-rata. exclude all others to the extent of the value of the immovable or real right to which the preference refers (Article 8). shall be added to the free property which the debtor may have. 5. The excess. 3. Order of Preference of Credits 1. to which even claims of the Government must be deemed subordinate. shall be satisfied according to the following rules: a.
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