University of Mindanao: Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

UNIVERSITY OF MINDANAO
College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACC 312 – Regulatory Framework and Legal Issues

in Business
Name of Instructor: Atty. Alnessa Thea V. Repollo - Uy
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS
INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF
THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
3rd Floor, BE Building, Matina, Davao City
Telefax: (082)300- 1496 I Phone No.: (082)227- 5456 local 103
Course Outline: ACC 312 – Regulatory Framework and Legal Issues in

Business
Course Coordinator: Atty. Alnessa Thea V. Repollo - Uy

Email: alnessauy@umindanao.edu.ph
Student Consultation: Through LMS Chatbox
Mobile: 0932-812-5775
Phone: (None)
Effectivity Date: June 2020
Mode of Delivery: Online Blended Delivery
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 3 units
Attendance Requirements: Attendance is only voluntary at all
scheduled virtual sessions; and 100% for face to
face
sessions (on campus)
Course Outline Policy
Areas of Concern Details

Contact and This 3-unit course self-instructional manual is designed for blended
Non-contact Hours learning mode of instructional delivery with scheduled face to face or virtual
sessions. The expected number of hours will be 54 including the face to
face or virtual sessions. The face to face sessions shall include the
summative assessment tasks (exams) since this course is crucial in the
licensure examination for certified public accountants.
Assessment Task Submission of assessment tasks shall be on 3rd, 5th, 7 and 9th week of the
th
Submission term. The assessment paper shall be attached with a cover page indicating
the title of the assessment task, the name of the course coordinator, date of
submission and name of the student. The document should be emailed to
the course coordinator. It is also expected that the student has already paid
tuition and other fees before the submission of the assessment task. If the
assessment task is done in real time through the features in the Blackboard
Learning Management System, the schedule shall be arranged ahead of
time by the course coordinator.
Since this course is included in the licensure examination for certified public
accountants, the students will be required to take the Multiple-Choice
Question exam inside the University. This should be scheduled ahead of
time by the course coordinator. This is non-negotiable for all
licensure-based programs.
Turnitin Submission To ensure honesty and authenticity, all assessment tasks are required to
(if necessary) be submitted through Turnitin with a maximum similarity index of 30%
allowed. This means that if your paper goes beyond 30%, the students will
either opt to redo his/her paper or explain in writing addressed to the
course coordinator the reasons for the similarity. In addition, if the paper
has reached more than 30% similarity index, the student may be called for
a disciplinary action in accordance with the University’s OPM on Intellectual
and Academic Honesty.
Please note that academic dishonesty such as cheating and

commissioning other students or people to complete the task have severe
punishments (reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after the designated time on
Assignments/Assessm the due date, without an approved extension of time, will be reduced by 5%
ents of the possible maximum score for that assessment item for each day or
part day that the assessment item is late. However, if the late submission of
assessment paper has a valid reason, a letter of explanation should be
submitted and approved by the course coordinator. If necessary, the
student will also be required to present/attach evidences.
Return of Assessment tasks will be returned to the students two (2) weeks after the
Assignments/Assessm submission. This will be returned by email or via Blackboard portal. For
ents group assessment tasks, the course coordinator will require some or few of
the students for online or virtual sessions to ask clarificatory questions to
validate the originality of the assessment task submitted and to ensure that
all the group members are involved.
Assignment The student should request in writing addressed to the course coordinator
Resubmission his/her intention to resubmit an assessment task. The resubmission is
premised on the student’s failure to comply with the similarity index and
other reasonable grounds such as academic literacy standards or other
reasonable circumstances e.g. illness, accidents financial constraints.
Re-marking of The student should request in writing addressed to the course coordinator
Assessment Papers the intention to appeal or contest the score given to an assessment task.
and Appeal The letter should explicitly explain the reasons/points to contest the grade.
The course coordinator shall communicate with the student on the approval
and disapproval of the request. If disapproved by the course coordinator,
the student can elevate the case to the program head or the dean with the
original letter of request. The final decision will come from the dean of the
college.
Grading System All culled from BlackBoard sessions and traditional contact:
Course discussions/exercises – 30%

1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 40%
Submission of the final grades shall follow the usual University system and
procedures.
Preferred Referencing Use the general practice of the APA 6th Edition.
Style
(if the tasks require)
Student The students are required to have a umindanao email account which is a
Communication requirement to access the BlackBoard portal. Then, the course
coordinator shall enroll the students to have access to the materials and
resources of the course. All communication formats: chat, submission of
assessment tasks, requests etc. shall be through the portal and other
university recognized platforms.
The students can also meet the course coordinator in person through the
scheduled face to face sessions to raise issues and concerns.
For students who do not have their student emails, please contact the
course coordinator or program head.
Contact Details of the Esterlina B. Gevera, CPA, MBA

Dean 0956-815-2738
esterlina_gevera@umindanao.edu.ph
Contact Details of the For BSA/BsMAc:

Program Head Mary Grace S. Sombilon, CPA, MSA
0956-816-2430
mgsombilon@yahoo.com
For BSAT/BSIA/BSAIS:
Devzon U. Porras, CPA, MSA
0915-210-2083
devzonp@gamil.com
Students with Special Students with special needs shall communicate with the course coordinator
Needs about the nature of his or her special needs. Depending on the nature of
the need, the course coordinator with the approval of the program
coordinator may provide alternative assessment tasks or extension of the
deadline of submission of
assessment tasks. However, the alternative
assessment tasks should still be in the service of
achieving the desired course learning outcomes.
Instructional Help College Dean:

Desk Contact Lord Eddie I. Aguilar, CPA, MBA
0949-668-2557
aguilar_lordeddie@umindanao.edu.ph
Library Contact Library Head:

Brigida E. Bacani
Email: library@umindanao.edu.ph
09513766681
for inquiries, you can email at umlic.eresources@gmail.com,

raphael_digal@umindanao.edu.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page:
https://www.facebook.com/UM-Learning-and-Information-Center-Davao-City-9623
31877193048/
Well-being Welfare GSTC Head:

Support Held Ronadora E. Deala
Desk Contact Details 09212122846
ronadora_deala@umindanao.edu.ph
GSTC CAE Facilitator:

Zerdsen P. Ranises
09058924090
09504665431
gstcmain@umindanao.edu.ph
Course Information – see/download course syllabus in the Black Board LMS
Course Facilitator’s (CF) Voice: Welcometo this course, ACC 312 – Regulatory
Framework and Legal Issues in Business. This is a self-instructional manual that will help
you in your self-directed learning. I will be your guide as you go through this module, and let
you work at your own pace. Of course, there will be deadlines and submissions to be made.
Feel free to ask questions and let us help one another so that everything will run smooth
according to your self-directed learning.
Big Picture
Week 6-7: Unit Learning Outcome (ULO) 3: At the end of this unit, you are expected to:
a. Differentiate and understand the nature of commodatum and mutuum as a

concept of loan.
b. Understand the concept of deposit and guaranty and its characteristics.
c. Analyze the nature and requisites of the contract of pledge, contract of real
mortgage, and contract of chattel mortgage.
d. Determine the requirements to bind the parties and third persons in a credit
transaction.
e. Identify the rights and obligations of the pledgor and pledgee.
f. Identify the rights and obligations of the mortgagor and mortgagee and
analyze the effect of pactum commissorium.
g. Understand the legal definition and characteristics of the contract of
antichresis.
Big Picture in Focus:

ULO 3a. Differentiate commodatum and mutuum as a concept of loan

ULO 3b. Understand the concept of deposit and guaranty and its
characteristics
Metalanguage
The following terms are operationally defined as your guide for understanding the topic.
1. Bailment - the delivery of property of one person to another in trust for a

specific purpose, with a contract, express or implied, that the trust shall be
faithfully executed and the property returned or duly accounted for when the
special purpose is accomplished or kept until the bailor reclaims it.
2. Credit transaction - all transactions involving the purchase or loan of goods,

services, or money in the present with a promise to pay or deliver in the future.
3. Security - something given, deposited, or serving as a means to ensure the

fulfillment or enforcement of an obligation or of protecting some interest in
property.
4. Commodatum – the loan of a non-consumable thing so that the party

receiving may use the thing for a certain period and return it
5. Mutuum – the loan of a consumable thing with a condition that the same
amount of the same kind and quality shall be paid
6. Deposit – when a person receives a thing from another with the obligation of
safekeeping it
7. Guaranty – when a person binds himself to fulfill the obligation of the principal
debtor to the creditor, in case the former defaults
8. Suretyship – an agreement wherein a debtor and a third person (surety) is

under a direct obligation to a creditor, who is entitled to one performance
Essential Knowledge
Definition of contract of loan (Art. 1933)

By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
The contract of loan is:

(1) a real contract because the delivery of the thing loaned is necessary for the
perfection of the contract; and
(2) a 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.
Kinds of loan
There are two kinds of loan, namely:
(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) Simple loan or mutuum — where the lender delivers to the borrower money
or other consumable thing upon the condition that the latter shall pay the
same amount of the same kind and quality.
Commodatum and mutuum (simple loan) distinguished

It is relatively simple to determine whether a given loan is commodatum or mutuum
by bearing in mind the following principal points of distinction:
(1) Commodatum ordinarily involves something not consumable while in mutuum,

the subject matter is money or other consumable thing;
(2) In commodatum, ownership of the thing loaned is retained by the lender, while in
mutuum, the ownership is transferred to the borrower;
(3) Commodatum is essentially gratuitous, while mutuum may be gratuitous or it

may be onerous, that is, with stipulation to pay interest;
(4) In commodatum, the borrower must return the same thing loaned, while in
mutuum, the borrower need only pay the same amount of the same kind and
quality;
(5) Commodatum may involve real or personal property, while mutuum refers only to
personal property;
(6) Commodatum is a loan for use or temporary possession, while mutuum is a loan
for consumption;
(7) In commodatum, the bailor may demand the return of the thing loaned before the
expiration of the term in case of urgent need, while in mutuum, the lender may
not demand its return before the lapse of the term agreed upon; and
(8) In commodatum, the loss of the subject matter is suffered by the bailor since he
is the owner, while in mutuum, the borrower suffers the loss even if caused
exclusively by a fortuitous event and he is not, therefore, discharged from his
duty to pay.
Nature of Commodatum
• Commodatum is essentially gratuitous. Hence, the contract ceases to be a

commodatum if any compensation is to be paid by the borrower who acquires the
use. In such a case, there arises a lease contract.
• The bailee’s right to use is limited to the thing loaned but not to its fruits unless
there is a stipulation to the contrary. As owner of the thing loaned, the bailor is
naturally entitled to its fruits.
• In commodatum, the bailor need not be the owner of the thing loaned since by the
loan, ownership does not pass to the borrower. Hence, a mere lessee of the thing
or the usufructuary (one entitled to the use and the fruits of property belonging to
another) may lend but the borrower or bailee himself may not lend nor lease the
thing loaned to him to a third person.
• Unlike mutuum, commodatum is a purely personal contract, the lender having in

view the character, credit, and conduct of the borrower. Hence, the death of either
party terminates the contract unless by stipulation, the commodatum is
transmitted to the heirs of either or both parties. If there are two or more
borrowers, the death of one does not extinguish the contract in the absence of
stipulation to the contrary.
Nature of Mutuum
• In simple loan or mutuum, as contrasted to commodatum, the borrower acquires
ownership of the money, goods, or personal property borrrowed. Being the owner, the
borrower can dispose of the thing borrowed and his act will not be considered
misappropriation thereof. No estafa is committed by a person who refuses to pay his
debt or denies its existence.
• If the thing loaned is money, payment must be made in the currency stipulated, if it is
possible to deliver such currency; otherwise, it is payable in the currency which is
legal tender in the Philippines.
• If what was loaned is a fungible thing other than money, the borrower is under
obligation to pay the lender another thing of the same kind, quality, and quantity. In
case it is impossible to do so, the borrower shall pay its value at the time of the
perfection of the loan.
• In order that interest may be chargeable, the payment must be expressly stipulated in
writing and it must be lawful.
Definition of contract of deposit (Art. 1962)

A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract.
Characteristics of contract of deposit

(1) It is a real contract like commodatum and mutuum because it is perfected by the
delivery of the subject matter.
(2) When the deposit is gratuitous, it is a unilateral contract because only the depositary
(depositorio) has an obligation. But when the deposit is for compensation, the
juridical relation created becomes bilateral because it gives rise to obligations on the
part of both the depositary and depositor (depositante).
Kinds of Deposit
Deposit is either:
(1) judicial or one which takes place when an attachment or seizure of property in
litigation is ordered (for movables and immovables); or
(2) extrajudicial which may be (for movables only);
(a) voluntary or one wherein the delivery is made by the will of the depositor or
by two or more persons each of whom believes himself entitled to the thing
deposited; or
(b) necessary or one made in compliance with a legal obligation, or on the
occasion of any calamity, or by travellers in hotels and inns or by travellers
with common carriers.
Generally, the depositor must be the owner of the thing deposited. But it may belong
to a person other than the depositor. Thus, a carrier, commission agent, a lessee, etc. may
deposit goods temporarily in his possession considering that the contract does not involve
the transfer of ownership. As a matter of fact, the depositary cannot dispute the title of the
depositor to the thing deposited.
Obligation to keep the thing deposited and return it

The safekeeping and the return of the thing when required, are the two primary
obligations of the depositary.
(1) Degree of care. — Ordinarily, the depositary must exercise over the thing
deposited the same diligence as he would exercise over his property.
(2) Rules applicable. — The liability of the depositary for the care and delivery of the
thing is governed by the rules on obligations.
(a) He is liable if the loss occurs through his fault or negligence even if the
thing was insured.
(b) The loss of the thing while in his possession, ordinarily raises a
presumption of fault on his part.
(c) The required degree of care is greater if the deposit is for compensation
than when it is gratuitous. This is similar to the rule in agency (Art. 1909.)
and common carriers. But even when it is gratuitous, due care must still
be exercised.
(3) Return before specified term. — The thing deposited must be returned to the
depositor whenever he claims it, even though a specified term or time for such
may have been stipulated in the contract.
The depositor is the owner or at least represents the owner of the thing deposited.
The depositary must, therefore, return not only the thing itself but also all its products,
accessions and accessories which are a consequence of ownership. Thus, the young of an
animal which was deposited shall be returned to the depositor.
The depositary who receives the thing in deposit cannot require that the depositor
prove his ownership over the thing. To constitute a deposit, it is not essential that the
depositor be the owner of the thing deposited. Furthermore, to acquire proof of ownership
may open the door to fraud and bad faith, for the depositary, on the pretense of requiring
proof of ownership, may be able to retain the thing.
The depositary is obliged to return the thing deposited, when required, to the
depositor, to his heirs and successors, or to the person who may have been designated in
the contract. If the depositor was incapacitated at the time of making the deposit, 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. Even if the depositor had
capacity at the time of making the deposit but he subsequently loses his capacity during the
deposit, the thing must be returned to his legal representative.
Guaranty (Art. 2047)

In a contract of guaranty, a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so. It is a
contract between the guarantor and creditor.
In its broad sense, guaranty includes pledge and mortgage because the purpose of
guaranty may be accomplished not only by securing the fulfillment of an obligation
contracted by the principal debtor through the personal guaranty of a third person but also
by furnishing to the creditor for his security, property with authority to collect the debt from
the proceeds of the same in case of default.
Characteristics of the contract

(1) It is accessory because it is dependent for its existence upon the principal obligation
guaranteed by it;
(2) It is subsidiary and conditional because it takes effect only when the principal debtor
fails in his obligation subject to limitations;
(3) It is unilateral because it gives rise only to a duty on the part of the guarantor in
relation to the creditor and not vice versa although after its fulfillment, the principal
debtor becomes liable to indemnify the guarantor but this is merely an incident of the
contract; and also because it may be entered into even without the intervention of the
principal debtor;
(4) It is a contract which requires that the guarantor must be a person distinct from the
debtor because a person cannot be the personal guarantor of himself.
Suretyship
Suretyship may be defined as a relation which exists where one person (principal or
obligor) has undertaken an obligation and another person (surety) is also under a direct and
primary obligation or other duty to a third person (obligee), who is entitled to but one
performance, and as between the two who are bound, the one rather than the other should
perform.
Nature of surety
(1) Liability is contractual and accessory but direct. — Suretyship is a contractual
relation. The surety’s obligation is not an original and direct one for the
performance of his act, but merely accessory or collateral to the obligation
contracted by the principal. Nevertheless, his liability to the creditor is said to be

direct, immediate, primary and absolute.
(2) Liability is limited by terms of contract. — It is basic that liability on a bond is

contractual in nature and is ordinarily restricted to the obligation expressly
assumed therein. A contract of surety is not presumed; it cannot extend to more
than what is stipulated. The extent of the surety’s liability is determined only by
the clause of the contract of suretyship as well as the conditions stated in the
bond. It cannot be extended by implication beyond the terms of the contract.
(3) Liability arises only if principal debtor is held liable. — A surety contract is made
principally for the benefit of the creditor oblige and this is ensured by the solidary
nature of the surety undertaking. The surety is “considered in law as being the
same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter,” or the liabilities of the two “are so interwoven and
dependent as to be inseparable.”
(4) Surety is not entitled to exhaustion. — A surety is not entitled to the exhaustion
of the properties of the principal debtor.
(5) Undertaking is to creditor, not to debtor. — The principal cannot claim that there
has been a breach of the surety’s obligation to him under the suretyship contract
when the surety fails or refuses to pay the debt for the principal’s account. And
such failure or refusal does not have the effect of relieving the principal of his
obligation to pay the premium on the bond furnished by the surety in
consideration of the premium, as long as the liability of the surety to the obligee
subsists.
(6) Surety is not entitled to notice of principal’s default. — Demand on the surety is
not necessary before bringing suit against them, since the commencement of the
suit is a sufficient demand. A surety is not even entitled, as a matter of right, to
be given notice of the principal’s default.
(7) Prior demand by the creditor upon principal not required. — A creditor’s right to
proceed against the surety alone exists independently of his right to proceed
against the principal where both principal and surety are equally bound. As soon
as the principal is in default, the surety likewise is in default. The proper remedy
of the surety is to pay the debt and pursue the principal for reimbursement.
Self-help: Below are the references that the CC used in making this
module. You may want to read more from these sources.
Domingo, A.D. (2017). Regulatory Framework for Business Transactions MCQ CPA Reviewer. Benguet,
Philippines: Coaching for Results Publishing
Soriano, F.R. (2016). Notes in Business Law (For Accountancy Students and CPA Reviewees). Manila,
Philippines: GIC Enterprises & Co.
De Leon, Hector S. (2013). The Law on Sales, Agency and Credit Transactions. Manila: Rex Book Store
Let’s Check
Activity 4. To help you assess yourself on the depth of your understanding of the lessons in
this unit, answer the following questions by choosing the letter that corresponds your
answer.
1. One of the parties delivers to another, either something not consumable so that the
latter may use the same for a certain time and return it.
a. Mutuum
b. Commodatum
c. Barter
d. Dacion en pago
2. One of the parties delivers to another money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid.
a. Mutuum
b. Commodatum
c. Barter
d. Dacion en pago
3. I. Commodatum is essentially onerous.

II. Simple loan may be gratuitous or with a stipulation to pay interest.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
4. I. In simple loan, the bailor retains the ownership of the thing loaned, while in
commodatum, ownership passes to the borrower.
II. Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
5. A movable property which cannot be used in a manner appropriate to their nature

without being consumed.
a. Consumable
b. Non-consumable
c. Fungible
d. Non-fungible
6. I. Loan is a real contract which means that it is perfected by delivery.

II. Sale is a consensual contract which means that it is perfected by mere consent.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
7. I. An accepted promise to deliver something by way of commodatum or simple loan is

binding upon parties.
II. The commodatum or simple loan shall be perfected upon the meeting of the minds.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
8. It is where the bailor may demand the thing at will.

a. Ordinary commodatum
b. Ordinary mutuum
c. Precarium
d. None of the above
9. I. Movable or immovable property may be the object of commodatum.

II. When the intention of the parties is to lend consumable goods and to have the very
same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
10. I. In simple loan (mutuum), the borrower acquires ownership of the money, goods or
personal property borrowed.
II. A contract whereby one person transfers the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same kind,
quantity, and quality shall be considered a commodatum.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
11. I. Guaranty exists for the benefit of the creditor and not for the benefit of the principal
debtor as he is not a party to the contract of guaranty.
II. Guaranty may be constituted to guarantee the performance of a voidable or
unenforceable contract.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
12. I. Although a surety contract is secondary to the principal obligation, the liability of the
surety is direct, primary and absolute; or equivalent to that of a regular party to the
undertaking.
II. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency
of the debtor.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
13. I. Generally, it is necessary for the creditor to proceed against a principal in order to
hold the surety liable.
II. The contract of guaranty and suretyship must be in writing to be valid.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
14. I. A guaranty is onerous, unless there is a stipulation to the contrary.

II. A guaranty may also be constituted, not only in favor of the principal debtor, but
also in favor of the other guarantor, with the latter’s consent, or without his
knowledge, or even over his objection.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
15. I. A guaranty can exist without a valid obligation.

II. A guaranty may be constituted to guarantee the performance of a voidable or an
unenforceable contract. It may also guarantee a natural obligation.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
16. I. An agreement to constitute a deposit is binding, but the deposit itself is not
perfected until the delivery of the thing.
II. A contract of deposit is perfected by meeting of the minds.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
17. I. A deposit is an onerous contract.

II. The depositor need not be the owner of the thing deposited because the purpose
of the contract is safekeeping and not transfer of ownership.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
18. I. In extrajudicial deposit, only movable things may be the object of a deposit.
II. In the case of judicial deposit, the objects can either be movable or immovable
things.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
19. I. A contract of deposit may be entered into orally or in writing.

II. If a person having capacity to contract accepts a deposit made by one who is
incapacitated, the former shall be subject to all the obligations of a depositary.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
20. I. The depositary is obliged to keep the thing safely and to return it, when required, to
the depositor, or to his heirs and successors, or to the person who may have been
designated in the contract.
II. Unless there is a stipulation to the contrary, the depositary can deposit the thing
with a third person.
a. Ony I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
Let’s Analyze
Activity 4. Answer the following questions by choosing the letter of your answer.
1. A movable property which cannot be used in a manner appropriate to their

nature without their being consumed.
a. Consumable
b. Non-consumable
c. Fungible
d. Non-fungible
2. A movable property which can be used in a manner appropriate to their nature

without their being consumed.
a. Consumable
b. Non-consumable
c. Fungible
d. Non-fungible
3. It is where the bailor may demand the thing at will.

a. Ordinary commodatum
b. Ordinary mutuum
c. Precarium
d. None of the above
4. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event, except:
a. If he devotes the thing to any purpose different from that for which it has
been loaned.
b. If he keeps it longer than the stipulated, or after the accomplishment of
the use for which the commodatum has been constituted
c. If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event.
d. If he lends or leases the thing to a third person, who is a member of his
household.
5. If the use of the thing is merely tolerated by the bailor, he can demand the
return of the thing at will, in which case the contractual relation is
a. Precarium
b. Ordinary commodatum
c. Ordinary mutuum
d. Deposit
6. Is a compensation fixed by the parties for the use or forbearance of money.

a. Compensatory interest
b. Monetary interest
c. Penalty
d. Damages
7. Was defined as a “contractual obligation of lender or creditor to refrain during a

given period of time, from requiring the borrower or debtor to repay a loan or
debt then due and payable.”
a. Interest
b. Forbearance
c. Damages
d. Penalty
8. A person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
a. Pledge
b. Guaranty
c. Mortgage
d. Suretyship
9. Refers to an agreement whereunder one person, the surety, engages to be

answerable for the debt, default, or miscarriage of another
known as the principal.
a. Pledge
b. Guaranty
c. Mortgage
d. Suretyship
10. Is constituted from the moment a person receives a thing belonging to

another, with the obligation of safely keeping it and of returning the same.
a. Guaranty
b. Deposit
c. Pledge
d. Loan
In a Nutshell
Activity 4. In this task, for you to get the gist of the lessons in this unit, you are to
differentiate the following essential terms.
Commodatum Mutuum
Deposit Guaranty
Q&A LIST
Do you have any questions for clarification?
Questions/Issues Answers
2. 1.
3. 2.
4. 3.
5. 4.
6. 5.
Keyword Index
Bailment Mutuum Loan

Credit transaction Deposit Depositary
Security Guaranty Judicial deposit
Commodatum Suretyship Extrajudicial deposit
Big Picture in Focus:

ULO 3c. Analyze the nature and requisites of the contract of pledge,
contract of real mortgage, and contract of chattel mortgage
ULO 3d. Determine the requirements to bind the parties and third
persons in a credit transaction
ULO 3e. Identify the rights and obligations of the pledgor and pledgee
ULO 3f. Identify the rights and obligations of the mortgagor and
mortgagee and analyze the effect of pactum commissorium.
ULO 3g. Understand the legal definition and characteristics of the
contract of antichresis.
Metalanguage
The following terms are initially defined for you to understand further the lessons in this
unit.
1. Pledge – a contract in which the debtor (pledgor) delivers a personal property as
security for the fulfillment of his obligation to the creditor (pledgee)
2. Pledgor – a person who makes a pledge of goods or personal property as security
3. Pledgee – a person to whom something is pledged
4. Legal Pledge – a right by a person to hold a thing for the fulfillment of his claim; a
pledge made by operation of law
5. Mortgage – a contract in which the debtor (mortgagor) delivers a real property as

security for the fulfillment of his obligation to the creditor (mortgagee)
6. Mortgagor – the person who has borrowed money and mortgaged his/her real
property as security for the mortgagee
7. Mortgagee – a person or business making a loan that is secured by the real property
of the mortgagor
8. Pactum Commissorium – a stipulation which provides that the thing pledged or

mortgaged will automatically become the property of the creditor in case the debtor
defaults on the payment of his obligation
9. Equitable Mortgage – a mortgage as intended by the parties, but lacks the

formalities required by law
10. Chattel Mortgage – a contract of mortgage which includes personal property that
must be recorded in the Chattel Mortgage Register as a security for a loan
11. Affidavit of good faith – a document attesting that the mortgage is not entered for
the purpose of fraud
12. Antichresis – the creditor acquires the right for the fruits of the debtor’s immovable
property to be applied to the accruing interest, and thereafter to the principal
obligation
Essential Knowledge
Pledge
Pledge is a contract by virtue of which the debtor delivers to the creditor or to a third
person a movable or document evidencing incorporeal rights for the purpose of securing the
fulfillment of a principal obligation with the understanding that when the obligation is fulfilled,
the thing delivered shall be returned with all its fruits and accessions.
Pledge may be either:
(1) Voluntary or conventional or one which is created by agreement of the parties;
or
(2) Legal or one which is created by operation of law.

Pledge is:
(1) 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 called the pledgee, or to a
third person by common agreement;
(2) an accessory contract because it has no independent existence of its own;
(3) 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; and
(4) a subsidiary contract because the obligation incurred does not arise until the
fulfillment of the principal obligation which is secured.
It is essential that the contract be constituted only by the absolute owner of the thing
pledged or mortgaged or at least by the pledgor or mortgagor with the authority or consent of
the owner of the property pledged or mortgaged. A pledge or mortgage constituted by an
impostor is void and the pledgee or mortgagee in such a case acquires no right whatsoever
in the property.
The pledgee or mortgagee is not obligated to file an independent action for the
enforcement of his credit. To do so would be a nullification of his lien and would defeat the
purpose of the pledge or mortgage which is to give him preference over the property given
as security for the satisfaction of his credit.
Right of creditor where debtor fails to comply with his obligation

The property given in pledge or mortgage stands as security for the fulfillment of the
principal obligation.
(1) Sale of subject properly with formalities required by law. — If the debtor fails to
comply with the obligation at the time it falls due, the creditor is merely entitled to
move for the sale of the thing pledged or mortgaged with the formalities required
by law in order to collect the amount of his claim from the proceeds. Upon failure
of the mortgagor to pay his obligation within the required period, the remedy of
the mortgagee is to foreclose the mortgage and if he wishes to secure a title to
the mortgaged property, he can buy it in the foreclosure sale.
(2) Prohibition against appropriation of property. — The pledgor’s or mortgagor’s
default does not operate to vest in the pledgee or mortgagee the ownership of
the property for any such effect is against public policy. The creditor in a contract
of real security like pledge and mortgage, cannot appropriate to himself without
foreclosure the thing held as pledge or under mortgage, nor can he dispose of
the same as owner.
Prohibition against pactum commissorium

(1) Stipulation null and void. — A stipulation whereby the thing pledged or
mortgaged or under antichresis shall automatically become the property of the
creditor in the event of nonpayment of the debt within the term fixed is known as
pactum commissorium or pacto commisorio which is forbidden by law and
declared null and void. By such a stipulation, the creditor would be able to
acquire ownership of the property given as security without need of public sale or
foreclosure required by law.
(2) Requisites. — There are two requisites or elements for pactum commissorium to
exist, namely:
(a) There should be a pledge, mortgage, or antichresis of property by way of
security for the payment of the principal obligation; and
(b) There should be a stipulation for an automatic appropriation by the
creditor of the property in the event of nonpayment of the obligation
within the stipulated period.
(3) Effect on security contract. — The vice of nullity which vitiates such a stipulation
does not affect substantially the principal contract of pledge, mortgage, or
antichresis with regard to its validity and efficacy for the reason that the contract,
having been perfected, can subsist although the contracting parties have not
agreed as to manner the creditor can recover his credit in as much as the law
has expressly established the procedure in order that he may recover the same,
in case the debtor does not comply with his obligation.
Risk of loss of property pledged or mortgaged

As the pledgee or mortgagee does not become the owner of the property
pledged or mortgaged and the ownership thereof remains with the debtor, therefore, under
the maxim, res perit domino suo, the debtor-owner bears the loss of the property. The
principal obligation is not extinguished by the loss of the pledged or mortgaged property.
Criminal responsibility of pledgor or mortgagor

Under the Revised Penal Code, estafa is committed by a person who, pretending to
be the owner of any real property, shall convey, sell, encumber or mortgage the same or
knowing that the real property is encumbered shall dispose of the same as unencumbered. It
is essential that fraud or deceit be practised upon the vendee at the time of the sale.
Public instrument necessary to bind third persons (Art. 2096)

(1) Contents of public instrument. — the contract of pledge is not effective against
third persons unless in addition to delivery of the thing pledged, it is embodied in
a public instrument (i.e., one attested and certified by a public officer authorized
by law to administer oath, such as a notary public) wherein it shall appear the
description of the thing pledged; and the date of the pledge.
(2) Object of the requirement. — The object is to forestall fraud, because a debtor
may attempt to conceal his property from his creditors when he sees it in danger
of execution by simulating a pledge thereof with an accomplice.
Rights of the debtor/pledgor

1. To alienate, with the consent of the pledgee, the thing pledged.
2. To ask that the thing pledged be judicially or extrajudicially deposited if its is used
without authority or for a purpose other than for its preservation.
3. To continue to be the owner of the thing pledged unless it is expropriated.
4. To ask for the return of the thing pledged after he has paid the debt and its interests,
with expenses in a proper case.
5. To require that the thing pledged be deposited with a third person if it is in danger of
being lost or impaired through the negligence or willful act of the pledgee.
6. To demand the return of the thing pledged, upon offering another thing in pledge,
provided the latter is of the same kind and quality, if there are reasonable grounds to
fear the destruction or impairment of the thing pledged without the fault of the
pledgee.
Obligations of the debtor/pledgor

1. To pay the debt and its interest, with expenses in a proper case, when they are due.
2. To pay damages that the pledgee may suffer by reason of the flaws of the thing
pledged, if he was aware of such flaws but did not advise the pledgee of the same.
Rights of the creditor/pledgee

1. To retain in his possession the thing pledged until the debt is paid.
2. To demand reimbursement of the expenses made for the preservation of the thing
pledged.
3. To bring actions which pertain to the owner of the thing pledged in order to recover it
from, or defend it against, third persons.
4. To use the thing pledged if he is authorized to do so, or when its use is necessary for
the preservation of the thing.
5. If he is deceived of the substance of the thing pledged, he may either:

a. Claim that another thing be given to him in place of the thing pledged, or
b. Demand immediate payment of the principal obligation.
6. To cause the sale of the thing pledged at a public sale (auction), if there is a danger of
destruction, impairment or diminution in value of the thing pledged without his fault.
7. To collect and receive the amount due if the thing pledged is a credit which becomes
due before it is redeemed, and to apply the same to the payment of his claim. He shall
apply what he has collected to the payment of his claim, and deliver the surplus,
should there be any, to the pledgor.
8. To sell the thing pledged upon default of the debtor.
Obligations of the creditor/pledgee

1. To take care of the thing pledged with the diligence of a good father of a family.
2. To be liable for the loss or deterioration of the thing pledged unless it is due to
fortuitous event.
3. Not to deposit the thing pledged with a third person, unless authorized.
4. To be responsible for the acts of his agents or employees with respect to the thing
pledged.
5. Not to use the thing pledged, except when:

a. He is authorized by the owner, or
b. The use of the thing is necessary for its preservation.
6. To deliver to the debtor the surplus after paying his claim from what he has collected
on a credit that was pledged and which has become due before it is redeemed.
Extinguishment of pledge
1. Indirect cause – when the principal obligation secured by the pledge is extinguished,
the pledge, being merely an accessory contract, is likewise extinguished.
Any third person who has any right in or to the thing pledged may satisfy
the principal obligation as soon as the latter becomes due and demandable.
2. Direct causes:
a. Return by the pledgee of the thing pledged to the pledgor or owner.
b. Renunciation or abandonment in writing by the pledgee of the pledge (the

pledgee becomes a depositary upon renunciation if in the meantime, the
thing pledged is not yet returned to the owner).
c. Sale of the thing pledged thru public auction.

The principal obligation shall be extinguished whether or not the
proceeds of the sale are equal to the amount of the principal obligation,
interest and expenses in a proper case.
Ø If the proceeds is more than the amount of the obligation, the
debtor/pledgor shall not be entitled to the excess, unless there is an
agreement to that effect.
Ø If the proceeds is less than the amount of the obligation, the creditor
cannot recover the deficiency even if stipulated.
If the thing pledged is not sold in the first and second public
auctions, the creditor may appropriate the thing pledged. In this case, he shall
be obliged to give an acquaintance for his entire claim.
Rules applicable to legal pledge.

Legal pledge or pledge by operation of law refers to the right of a person to retain a
thing until he receives payment of his claim.
The provisions on conventional pledge on the possession, care and sale of the thing
as well as on the termination of pledge shall be applicable to legal pledge except with
respect to the sale of the thing as follows:
1. The thing may be sold only after demand of the amount for which the thing is
retained.
2. The public auction shall take place within one month after such demand.
3. If without just grounds, the creditor does not cause the public sale to be held within
such period, the debtor may require the return of the thing.
4. After the payment of debt and expenses, the remainder of the price of sale shall be
delivered to the obligor.
Conventional vs. Legal Pledge (as to excess and deficiency)
Conventional Pledge Legal Pledge
The excess belongs to the creditor, unless The excess shall be delivered to the debtor.
there is a stipulation that it shall be turned
over to the debtor.
The creditor is not entitled to recover the The creditor is entitled to recover the
deficiency. Any agreement to the contrary is deficiency from the debtor.
void.
Real Mortgage (Art. 2124)

Mortgage (otherwise known as “real estate mortgage” or “real mortgage’’) is a
contract whereby the debtor secures to the creditor the fulfillment of a principal obligation,
specially subjecting to such security immovable property or real rights over immovable
property which obligation shall be satisfied with the proceeds of the sale of said property or
rights in case the said obligation is not complied with at the time stipulated.
Characteristics of Mortgage
1. Real – it is a real right over immovable property.
2. Accessory – it cannot exist without a principal obligation
3. Indivisible – it creates a lien on the whole or all of the properties mortgaged, which
lien continues until the obligation it secures has been fully paid.
4. Inseparable – it subjects the property upon which it is imposed, whoever the

possessor may be, to the fulfillment of the obligation for whose security it was
constituted.
5. Unilateral – it creates only an obligation on the part of the creditor who must free the
property from the encumbrance once the obligation is fulfilled.
Requisites of Real Mortgage

1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally authorized for the purpose.
4. That the document in which the mortgage appears be recorded in the Registry of
Property. (This requirement is necessary to bind third persons but not for the validity
of the real mortgage which may be entered into in any form.)
Kinds of real mortgage

1. Conventional or voluntary mortgage - one which is created by the agreement of
the parties.
2. Legal mortgage – one executed pursuant to an express requirement of a provision

of law.
3. Equitable mortgage – one which lacks certain formality, form or words or other
requisites prescribed by statute, but shows the intention of the parties to charge a
real property as a security for a debt and contains nothing contrary to law.
Form of real mortgage

1. Between the parties.

The real mortgage may be in any form since it is a consensual contract. The
contract is binding between the parties even if not registered in the Registry of
Property. However, since a real mortgage creates a real right, the same must be in a
public instrument for the convenience of the parties.
2. As regards third persons.

The real mortgage must be recorded in the Registry of Property. However, the
real mortgage is nevertheless binding against third persons who have knowledge of
the same.
Extent of real mortgage

A contract of real mortgage shall cover the following:
a. The property mortgaged.
b. Natural accessions
c. Improvements
d. Growing fruits
e. Rents and income not yet received when the obligation becomes due.
f. Indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriations for public use.
Alienation and second mortgage

Ø A stipulation forbidding the owner from alienating the immovable mortgaged shall
be void. (Art. 2130)
Ø The mortgagor, being the absolute owner of the property mortgaged, may
execute a second mortgage thereon, even without the consent of the mortgagee.
This is an incident of ownership.
Foreclosure of real mortgage

Foreclosure is the remedy available to the mortgagee by which he subjects the
property mortgaged to the satisfaction of the obligation secured.
Kinds of foreclosure
a. Judicial foreclosure – by filing a petition in court
b. Extra-judicial foreclosure – made in compliance with the provisions of Act No.
3135 in the following cases:
ü Where there is a stipulation that the mortgage may be foreclosed
extra-judicially
ü Where it is made under a special power of attorney
Distribution of proceeds (judicial & extra-judicial)

a. The cost of sale
b. Claim of the person foreclosing the mortgage
c. Claims of junior encumbrances in the order of their priority
d. Balance, after all the above are paid, shall be paid to the mortgagor or his agent
Recovery of deficiency
In case of deficiency in the foreclosure sale, the creditor may recover the same from
the principal debtor by filing a court action. (applies to both judicial & extra-judicial)
Redemptions (buy back)

1. Equity of redemption – right of the mortgagor to redeem the mortgaged property after
his default in the performance of his obligation but before the property is sold, which
is usually not less than 90 days in judicial foreclosure.
2. Right of redemption – repurchase the property within a certain period after it was
foreclosed.
Ø Judicial foreclosure – after the sale and before the confirmation by the
court of the sale
Ø Extra-judicial – one year from the date of registration of the sale
Chattel Mortgage (Art. 2140)
Chattel mortgage is that contract by virtue of which personal property is recorded

in the Chattel Mortgage Register as a security for the performance of an obligation.
Characteristics of chattel mortgage
(1) an accessory contract because it is for the purpose of securing the performance
of a principal obligation;
(2) a formal contract because of its validity, registration in the Chattel Mortgage
Register is indispensable; and
(3) a unilateral contract because it produces only obligations on the part of the
creditor to free the thing from the encumbrance on fulfillment of the obligation.
Requisites of chattel mortgage

1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally authorized for the
purpose.
4. That the document in which the mortgage appears be recorded in the Chattel
Mortgage Register.
Form of chattel mortgage

1. Between the parties
It must be recorded in the Chattel Mortgage Register of the province
where the mortgagor resides and also of the province where the property is
located, if it is different from the residence of the mortgagor.
2. As regards third persons

An affidavit of good faith must be appended to the Deed of Chattel

Mortgage and recorded therewith in the Chattel Mortgage Register.
Affidavit of good faith – a sworn statement attesting to the fact that the mortgage
is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purpose, and that obligation is a just and valid
obligation, and one not entered into for the purpose of fraud.
Foreclosure of chattel mortgage

1. Judicial foreclosure – made by instituting a court action, following the
provisions of the Chattel Mortgage Law as far as applicable.
2. Extra-judicial foreclosure – following the provisions of the Chattel Mortgage

Law
Distribution of proceeds of foreclosure sale

a. The costs of sale
b. Claim of the person foreclosing the mortgage
c. Claims of persons holding subsequent mortgages in their order
d. Balance, if any, shall be paid to the mortgagor.
Deficiency judgement
If the proceeds of sale are not sufficient to satisfy the claim of the creditor, the
creditor may institute a court action to recover the deficiency, except for a
foreclosure of a chattel mortgage payable in installments.
Antichresis (Art. 2132)

By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit.
(1) an accessory contract because it secures the performance of a principal obligation.
(2) a formal contract because it must be in a specified form to be valid, i.e., “in writing.”
Delivery of property
Antichresis requires the delivery by the debtor of the property given as security to the
creditor. But such delivery is required only in order that the creditor may receive the fruits.
The contract does not cover the immovable but only its fruits. 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.
Obligations of the antichretic creditor

(1) Payment of taxes and charges upon the estate. — The creditor is obliged, unless
there is a stipulation to the contrary, to pay the taxes and charges upon the estate. If
he does not pay the taxes, he is by law required to pay indemnity for damages to the
debtor.
(2) Application of the fruits of the estate. — Another obligation of the creditor is to apply
the fruits, after receiving them, to the interest, if owing, and thereafter to the principal.
Remedy of creditor in case of nonpayment of debt

If the debt is not paid, it is clear enough that the creditor does not acquire ownership
of the real estate since what was transferred is not the ownership but merely the right to
receive its fruits. A stipulation authorizing the antichretic creditor to appropriate the property
upon the nonpayment of the debt within the period agreed upon is void.
The remedy of the creditor is (1) to bring an action for specific performance; or (2) to
petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the
Rules of Court. The parties, however, may agree on an extrajudicial foreclosure in the same
manner as they are allowed in contracts of mortgage and pledge.
Self-help: Below are the references that the CC used in making this
module. You may want to read more from these sources.
Domingo, A.D. (2017). Regulatory Framework for Business Transactions MCQ CPA Reviewer. Benguet,
Philippines: Coaching for Results Publishing
Soriano, F.R. (2016). Notes in Business Law (For Accountancy Students and CPA Reviewees). Manila,
Philippines: GIC Enterprises & Co.
De Leon, Hector S. (2013). The Law on Sales, Agency and Credit Transactions. Manila: Rex Book Store
Let’s Check
Activity 5. In this section, we will be assessing your understanding of the topics in the law of
credit transactions (ULO d – ULO g). Please choose the letter of your answer.
1. A borrowed P50,000 from B with A’s cellphone given to B by way of pledge. It was
stipulated that in case of non-payment on due date, the cellphone would belong to B.
This forfeiture is:
a. Right of redemption
b. Conventional redemption
c. Pactum commissorium
d. Legal redemption
2. I. Pledges and mortgages are accessory contracts.

II. A principal obligation may still be valid even if the pledge or mortgage is void.
a. Only I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
3. Is an accessory, real and unilateral contact by virtue of which the debtor or a third
person delivers to the creditor or to a third person movable property as security for the
performance of the principal obligation.
a. Chattel mortgage
b. Pledge
c. Real mortgage
d. Antichresis
4. Is a contract embodied in a public instrument recorded in the Registry of Property, by

which the owner of an immovable directly and immediately subjects it, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted.
a. Chattel mortgage
b. Pledge
c. Real mortgage
d. Antichresis
5. I. A mortgage is regarded as nothing more than a mere lien, encumbrance, or security

for a debt, and passes no title or estate to the mortgage and gives him no right or
claim to the possession of the property.
II. The mortgagee only owns the mortgage credit, not the property itself.
a. Only I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
6. I. Settled is the rule that a contract of mortgage must be constituted only by the
absolute owner on the property mortgaged; a mortgage, constituted by an impostor is
voidable.
II. Where a mortgage is not valid, as where it is executed by one who is not the owner
of the property, or the consideration of the contract is simulated or false, the principal
obligation which it guarantees is thereby rendered null and void.
a. Only I is true.
b. Only II is true.
c. Both are true.
d. Both are false.
7. Where, despite the fact that the mortgagor is not the owner of the mortgaged
property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy.
a. Doctrine of mortgagee in good faith
b. Doctrine of mortgagor in good faith
c. Doctrine of highest bidder in good faith
d. Doctrine of lowest bidder in good faith
8. There are at least two contractual modes under the Civil Code by which personal
property can be used to secure a principal obligation:
I. The first is through a contract of pledge
II. The second is through a real mortgage

a. Only I is true.
b. Only II is true
c. Both are true
d. Both are false
9. I. The law recognizes instances when persons not directly parties to a loan
agreement may give as security their own properties for the principal transaction.
II. When the property of a third person which has been expressly mortgaged to
guarantee an obligation to which the said person is a stranger, said property is
directly and solidarily liable for the fulfillment thereof.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
10. I. In a contract of mortgage, the debtor retains beneficial interest over the property
notwithstanding the encumbrance, since the mortgage only serves to secure the
fulfillment of the principal obligation.
II. Even if the debtor defaults, this fact does not operate to vest in the creditor the
ownership of the real property, subject of mortgage. The creditor must still resort to
foreclosure proceedings.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
11. I. The subsequent declaration of a title as null and void is not a ground for nullifying
the mortgage right of a mortgagee in good faith.
II. Where innocent third persons relying on the correctness of the certificate thus
issued, acquire rights over the property, the court cannot disregard such rights.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
12. I. A mortgage who files a suit for collection abandons the remedy of foreclosure of
the chattel mortgage constituted over the personal property as security for the debt or
value of the promissory note which he seeks to recover in the said collection suit
II. In the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
13. I. When the principal obligation becomes due and the debtor fails to perform his
obligation, the creditor may foreclose on the pledge or mortgage for the purpose of
alienating the property to satisfy his credit.
II. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is unenforceable.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
14. Appropriation of the mortgaged properties by the mortgagee even if stipulated by the
parties would be null and void for being what is known as:
a. Pactum commissorium
b. Pacta sunt servanda
c. Pactum commissioner
d. Pacto de retro
15. I. The prohibition against a pacto commissorio is intended to protect the obligor,
pledgor, or mortgagor against being overreached by his creditor who holds a pledge
or mortgage over property whose value is much more than the debt.
II. The essence of pactum commissorium is that ownership of the security will pass to
the creditor by the mere default of the debtor. Such arrangements as contrary to
morals and public policy.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
16. I. A stipulation allowing the mortgagee to take actual or constructive possession of a

mortgaged property upon foreclosure is not valid.
II. A pledge or mortgage is divisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
17. I. The contract of pledge or mortgage may secure few kinds of obligations, which
excludes pure or subject to a suspensive or resolutory condition.
II. A promise to constitute a pledge or mortgage gives rise only to a personal action
between the contracting parties, without prejudice to the criminal responsibility
incurred by him who defrauds another, by offering in pledge or mortgage as
unencumbered, things which he knew were subject to some burden, or by
misrepresenting himself to be the owner of the same.
a. Only I is true
b. Only II is true
c. Both are true

d. Both are false
18. I. In order to constitute the contract of pledge, that the thing pledged be placed in the
possession of the creditor, or of a third person by common agreement.
II. A pledge contract is an accessory contract, however it is not discharged if the
principal obligation is extinguished.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
19. For the contract of pledge to be valid, it is not necessary that:

a. The pledge is constituted to secure the fulfillment of a principal obligation
b. The pledgor can appropriate the object of pledge upon default if there is
stipulation
c. The pledgor be the absolute owner of the thing pledged
d. The person constituting the pledge has the free disposal of his property, and
in the absence thereof, that he be legally authorized for the purpose.
20. I. A pledge is a formal contract, hence, it is necessary in order to constitute the

contract of pledge, that the thing pledged be placed in the possession of the creditor,
or of a third person by common agreement.
II. All movables which are within commerce may be pledged, provided they are
susceptible of possession.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
21. I. For the contract of pledge to affect third persons, apart from being in a private
instrument, possession of the thing pledged must in addition be delivered to the
pledgee.
II. With the consent of the pledgee, the thing pledged may be alienated by the pledgor
or owner, subject to the pledge.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
22. I. The contract of pledge gives a right to the creditor to retain the thing in his
possession or in that of a third person to whom it has been delivered, until the debt is
paid.
II. The creditor shall take care of the thing pledged with the extra-ordinary diligence;
he has a right to the reimbursement of the expenses made for its preservation, and is
liable for its loss or deterioration.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
23. I. The pledgee can deposit the thing pledged with a third person, only if there is a
stipulation authorizing him to do so.
II. The pledgee is not responsible for the acts of his agents or employees with respect
to the thing pledged.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
24. I. In case of a pledge of animals, their offspring shall pertain to the pledgee.
II. The creditor cannot use the thing pledged, without the authority of the owner, and if
he should do so, or should misuse the thing in any other way, the owner may ask that
it be judicially or extrajudicially deposited. When the preservation of the thing pledged
requires its use, it must be used by the creditor only for that purpose.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
25. I. The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
proper case.
II. In pledge, the prescriptive period within which to demand the return of the thing
pledged should begin to run only after the payment of the loan and a demand for the
thing has been made.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
26. I. If through the negligence or willful act of the pledgee, the thing pledged is in
danger of being lost or impaired, the pledgor may require that it be deposited with a
third person.
II. The pledgee is bound to advise the pledgor, without delay, of any danger to the
thing pledged.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
27. I. If the creditor is deceived on the substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand immediate payment of the principal
obligation.
II. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge
is extinguished. Any stipulation to the contrary shall be valid.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
28. I. If subsequent to the perfection of the pledge, the thing is in the possession of the
pledgor or owner, there is a conclusive presumption that the same has been returned
by the pledgee.
II. A verbal statement by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
29. I. The creditor to whom the credit has not been satisfied in due time, may proceed
before a judge to the sale of the thing pledged.
II. If at the first auction the thing is not sold, a second one with the same formalities
shall be held; and if at the second auction there is no sale either, the creditor may
appropriate the thing pledged.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
30. I. At the public auction, the pledgor or owner cannot bid.

II. The pledgee may also bid, and his offer shall be valid if he is the only bidder.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
31. In a sale of the thing pledge:

I. If the price of the sale is more than said amount, the debtor shall be entitled to the
excess, unless it is otherwise agreed.
II. If the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency, unless otherwise stipulated.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
32. Only the following property may be the object of a contract of mortgage:
I. Immovables
II. Alienable real rights in accordance with the laws, imposed upon immovables
III. Movables may be the object of a chattel mortgage
a. Only I is true
b. Only I and II are true
c. I, II and III are true
d. Only III is true
33. One which reveals an intent to make the property a security, even if the contract
lacks the proper formalities of a real estate mortgage.
a. Voluntary mortgage
b. Conventional mortgage
c. Legal mortgage
d. Equitable mortgage
34. The creditor acquires the right to receive the fruits of an immovable of his debtor, with
the obligation to apply them to the payment of the interest, if owing, and thereafter to
the principal of his credit.
a. Chattel mortgage
b. Real mortgage
c. Antichresis
35. I. Antichresis is an accessory contract as it secures the performance of a principal

obligation.
II. It is also a real contract as the amount of the principal and of the interest shall be
specified in writing.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
36. The following are the rights of antichretic creditor, except:

a. The right to the fruits of the thing
b. The right to retain the thing until the debt is paid
c. The right to have the thing sold upon non-payment at maturity
d. The right to own the thing upon default
37. The following are the obligations of the antichretic creditor, except:
a. To pay the taxes and charges upon the estate, unless there is a stipulation to
the contrary.
b. To bear the expenses necessary for preservation and repair.
c. To apply all the fruits, after receiving them, to the payment of interest, if
owing, and thereafter to the principal.
d. To make a judicial or extrajudicial deposit with a third person if necessary.
38. A contract where a personal property is recorded as a security for the performance of
an obligation.
a. Pledge
b. Chattel mortgage
c. Real mortgage
39. I. The chattel mortgage must be registered in two chattel mortgage registers when
the mortgagor resides in one province, but the property is located in another province.
II. 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. The registration gives the mortgagee symbolical
possession.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
40. It 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 purposes and that the same is a just and valid
obligation and one not entered into for the purpose of fraud.”
a. Affidavit of chattel mortgage
b. Affidavit of good faith
c. Affidavit of bad faith
d. Affidavit of just and valid obligation
Let’s Analyze
Activity 5. Kindly provide your legal basis as you go through the following short cases.
Case 1
Ben pledged his watch to VY Domingo Agencia, a pawnshop, for P5,000. On due date,
Ben failed to redeem his watch. The pawnshop sold the watch at a public auction to the
highest bidder at P4,000. In this case, can the creditor recover the deficiency?
Case 2
D borrowed P30,000 from C. To secure the debt, D pledged his ring, wristwatch, and
necklace. Before the debt could be paid, C died leaving X, Y and Z as heirs. By agreement
among the heirs who inherited the credit, the ring would secure the share of X of the credit,
the wristwatch for the share of Y, and the necklace for the share of Z. Later, D pays X
P10,000. Can D demand the extinguishment of the pledge of the ring?
Case 3
D borrowed P100,000 from C. To secure the debt, D mortgaged his land and building in
favor of C. The mortgage is registered with the Register of Deeds. Sometime later, D sold
the land to X who was not aware of the mortgage of the land and building. Is the sale of the
land binding to X?
Case 4
Consider the following situations:
(1) D owes C P10,000. To secure the debt, D pledged his cell phone. D defaults. The cell
phone is sold for P9,000 at the public auction.
(2) D bought a car for P360,000 from C. The price, which is payable in 12 equal monthly
installments of P30,000, is secured by a chattel mortgage on the car. After paying 2
installments, D defaults in the payment of the 3rd installment and the subsequent
ones. C forecloses the chattel mortgage and the car is sold at the public auction for
P280,000.
Which of the situations above is deficiency recoverable?
Case 5
D pledged his 100 shares of stock of San Miguel Corporation to C to secure his debt of
P5,000. On due date, D was not able to pay the debt, so C caused the sale of the shares to
sell at auction. The shares of stock were sold at P4,500. Is the principal obligation
extinguished even if there is deficiency?
In a Nutshell
Activity 5. In this task, you are expected to distinguish the following concepts from one
another using the table provided below. Cite at least 5 differences for each item.
1) Pledge vs. Real Mortgage
Pledge Real Mortgage
2) Pledge vs. Chattel Mortgage

Pledge Chattel Mortgage
3) Real Mortgage vs. Chattel Mortgage

Real Mortgage Chattel Mortgage
4) Real Mortgage vs. Antichresis
Real Mortgage Antichresis
Q&A LIST
Do you have any questions for clarification?
Questions/Issues Answers
7. 6.
8. 7.
9. 8.
10. 9.
11. 10.
Keyword Index
Pledge Mortgagor Affidavit of good faith
Pledgor Mortgagee Antichresis
Pledgee Pactum Commissorium Second mortgage
Legal Pledge Equitable Mortgage Foreclosure
Mortgage Chattel Mortgage Legal Mortgage
Let’s Check – A4 December 2, 2020 Blackboard LMS

Let’s Analyze – A4 December 3, 2020 Blackboard LMS
In a Nutshell – A4 December 4, 2020 Blackboard LMS
Q&A – ULO 3 (a-b) Any day Blackboard LMS – Forum
Let’s Check – A5 December 7, 2020 Blackboard LMS
Let’s Analyze – A5 December 9, 2020 Blackboard LMS
In a Nutshell – A5 December 11. 2020 Blackboard LMS
Q&A – ULO 3 (c-g) Any day Blackboard LMS - Forum
3rd Formative Assessment To be announced Blackboard LMS
Note: Schedule for virtual meetings will be announced ahead of time by the teacher.
Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone and
all are exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line
Blended Delivery (OBD) course. Any breach and violation shall be dealt with properly under
existing guidelines, specifically in Section 7 (Student Discipline) in the Student Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core
Values, specifically in the adherence to intellectual honesty and integrity; academic
excellence by giving due diligence in virtual class participation in all lectures and activities,
as well as fidelity in doing and submitting performance tasks and assignments; personal
discipline in complying with all deadlines; and observance of data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The
University shall institute monitoring mechanisms online to detect and penalize plagiarism.
5. Students shall independently and honestly take examinations and do assignments,
unless collaboration is clearly required or permitted. Students shall not resort to dishonesty
to improve the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students
shall not post or share their answers, assignment or examinations to others to further
academic fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the Online
Code of Conduct, as well as all the requirements and protocols in handling online courses.

University of Mindanao: Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

University of Mindanao: Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

Uploaded by

Copyright:

Available Formats

UNIVERSITY OF MINDANAO

College of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACC 312 – Regulatory Framework and Legal Issues

Name of Instructor: Atty. Alnessa Thea V. Repollo - Uy

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

Course Outline: ACC 312 – Regulatory Framework and Legal Issues in

Course Coordinator: Atty. Alnessa Thea V. Repollo - Uy

Course Outline Policy

Areas of Concern Details

Please note that academic dishonesty such as cheating and

Course discussions/exercises – 30%

All culled from on-campus/onsite sessions (TBA):

Contact Details of the Esterlina B. Gevera, CPA, MBA

Contact Details of the For BSA/BsMAc:

Instructional Help College Dean:

Library Contact Library Head:

for inquiries, you can email at umlic.eresources@gmail.com,

Well-being Welfare GSTC Head:

GSTC CAE Facilitator:

Course Information – see/download course syllabus in the Black Board LMS

a. Differentiate and understand the nature of commodatum and mutuum as a

Big Picture in Focus:

ULO 3a. Differentiate commodatum and mutuum as a concept of loan

1. Bailment - the delivery of property of one person to another in trust for a

2. Credit transaction - all transactions involving the purchase or loan of goods,

3. Security - something given, deposited, or serving as a means to ensure the

4. Commodatum – the loan of a non-consumable thing so that the party

8. Suretyship – an agreement wherein a debtor and a third person (surety) is

Definition of contract of loan (Art. 1933)

The contract of loan is:

Commodatum and mutuum (simple loan) distinguished

(1) Commodatum ordinarily involves something not consumable while in mutuum,

(3) Commodatum is essentially gratuitous, while mutuum may be gratuitous or it

• Commodatum is essentially gratuitous. Hence, the contract ceases to be a

• Unlike mutuum, commodatum is a purely personal contract, the lender having in

Definition of contract of deposit (Art. 1962)

Characteristics of contract of deposit

Obligation to keep the thing deposited and return it

Guaranty (Art. 2047)

Characteristics of the contract

contracted by the principal. Nevertheless, his liability to the creditor is said to be

(2) Liability is limited by terms of contract. — It is basic that liability on a bond is

3. I. Commodatum is essentially onerous.

5. A movable property which cannot be used in a manner appropriate to their nature

6. I. Loan is a real contract which means that it is perfected by delivery.

7. I. An accepted promise to deliver something by way of commodatum or simple loan is

8. It is where the bailor may demand the thing at will.

9. I. Movable or immovable property may be the object of commodatum.

14. I. A guaranty is onerous, unless there is a stipulation to the contrary.

15. I. A guaranty can exist without a valid obligation.

17. I. A deposit is an onerous contract.

d. Both are false.

19. I. A contract of deposit may be entered into orally or in writing.

1. A movable property which cannot be used in a manner appropriate to their

2. A movable property which can be used in a manner appropriate to their nature

3. It is where the bailor may demand the thing at will.

6. Is a compensation fixed by the parties for the use or forbearance of money.

7. Was defined as a “contractual obligation of lender or creditor to refrain during a

9. Refers to an agreement whereunder one person, the surety, engages to be

10. Is constituted from the moment a person receives a thing belonging to