PERSONAL PROPERTY SECURITY ACT Perfection

1. PERSONAL Property : Note that Aircrafts or ships

cannot be used as personal property under the PPSA 1. This become effective against third parties, but if the
security agreement is not registered it is likewise valid
Security INTEREST: A property right in collateral that secures between parties.
the payment or other performance of an obligation regardless of
whether the parties have denominated it as security interest and Requisite: Tangible Property
regardless of the type of asset the status of the grantor or secured
creditor or the nature of the secured obligation including the right 1. Created through a security agreement
of the buyer of accounts receivable and a lessor under an operating 2. Registration of notice with the LRO or possession of
lease not less than one year the property by the secured creditor.

The Security interest will follow the property even if there is a Requisite: INTANGIBLE property
transfer to another person
1. Registration of the notice with the LRA or competition
This security interest extends to the identifiable proceeds of the of a control agreement
personal property in case the personal property produces proceeds a. Control agreement : a written agreement
under oath to determine the date and time of
like funds and money. This security interest will continue in the
its perfection. Where the depositing institute
collateral even if the personal property is sold , leased and disposed agrees to follow the instruction of the
of. The security interest will follow the property after its transfer to creditor without the consent of the grantor.
transferee. Registration:
1. Electronic central registry: Where the notice of an
Unless: claims in personal property may be registered and
searched for. The information stated in the notice is a
1. Stipulation in contrary public record.
2. Buyer in good faith a. Notice:
a. Not a buyer in good faith if the security i. Multiple security agreement, this
interest is registered. is effective from the time that it
is indicated in the notice unless
Security interest in Account receivable there is a continuation notice
registered within six months
1. Accounts receivable of contract of supply of lease of before the expiration of the
goods or services which are not financial services, period indicated in the notice.
construction contract , account receivable or sale, lease ii. Indicate the identification
and sale of intellectual property number of the grantor, otherwise
a. If there is a limitation of the part of the it is seriously misleading notice
grantor the law expressly states that any iii. Identification of secured creditor
stipulation limiting the grantors right in and agent
creating a security interest is void. iv. Description of the collateral
v. Payment of any fees.
How is security interest created? vi. Address
vii. Duration of the effectivity
1. Through an agreement in writing which is signed by the Amendment of Notice:
parties the law allows the security agreement to be 1. The secured creditor assigns his right
made in one or more writings 2. Collateral is added
2. A description of the collateral, it is sufficient if it can 3. Continuation in case of partial release in case of secured
creditor
identify that those are the property referred to.
Extinguished
Security Agreement 1. All secured obligation are discharged and the grantor
may apply for termination
1. The security agreement can cover future property 2. In case there is no security agreement extend at all.
but this is subject to the qualification that the a. A demand by the grantor to the secured
creditor and the latter has 15 days upon
security interest will only start to exist when the
receipt of the demand within which where
grantor acquires the right over the property and he will register the amendment or
has the right to encumber it. termination notice. In case the secured
2. The security agreement can provide that security creditor fails to register the termination
interest in tangible extend to its product in case of notice, the remedy of the grantor is to go to
transformation or to its replacement in case it is court to amend or extinguish the demand as
replaced. In case of transformation the security the case may be.
interest is limited to the value of the asset before Perfection by Control
its replacement. 1. A security interest is perfected by control in the ff :
3. In case of commingling of goods it will be a. POSSESSION: The creation of security
extended to the mass but the security interest is interest in favor of depositing institution or
limited to the part of encumber mass refers to the intermediary
whole b. CONTROL: Created in favor of conclusion
of control agreement
 c. REGISTRATION: The donation of the
security interest in the book for the purpose
of recording the holder of security.
2. The grantor cannot compel the parties to enter into
control agreement. Likewise the later is not required to
confirm the existence of the control agreement except
as the request for the grantor.
A. Tangible : 1.Registration and possession
B. Intangible : 1. Registration and control
If the collateral produces money, account recoverable deposit
account
The security interest extends to produce money, accounts
receivable or deposit account. If the proceed are different from
money etc , the security interest can be perfected by the means
applicable there must be a new ( perfection, control etc)
If this is not perfected anew within fifteen days from the receipt of
the grantor of the proceeds then they will not be effective against
third persons.
If the security is over a fixture or if there is a commingling
The security interest in such fixture continues to exist provided that
the personal property is still traceable.
Final Rule: Any subsequent change in the perfection does not
affect the other perfection.
Preference of Credit : ( Movable property)
Priority: the right of the person in an encumbered asset in
accordance with the right of the competing claimant.
General Rule: The priority of security interest is determined at
the time of the registration of the notice of perfection by other
means without regard to the order of creation or mode of
perfection.
Deposit Accounts
1. SET OFFAny right which the bank may have to set of
against the grantor right to payment of funds credited to
deposit account they shall have priority over security
interest in the deposit account . The bank has a right to
set of any deposit in its hand.
2. In favor of the deposit taking institute or intermediary
3. Security interest perfected by a control agreement
a. Time of conclusion of control agreement :
( Time of writing and under oath)
Electronic Security
1. One held by intermediary
a. Perfected by control agreement the this
takes priority over the others.
2. Not held by intermediary
a. Those that are perfected by the notation of
the books of the entity
b. Those that are perfected by a control
agreement
c. Those by registration of notice
Competing security interest :
1. At the time of the conclusion of control agreement
Purchase Money SECURITY interest
1. Security interest in goods which is taken by the seller to
secure the payment by the price by the buyer.
a. Equipment / Consumer Goods
i. They will have priority over
conflicting security interest if the
notice is registered within three
business days from the moment
the grantor receives the goods or
equipment
Q: What if a third person acquires the right over the goods?
If perfected timely then the secured creditor shall have priority
over the rights of buyer lessee and lien holder arising from time
delivery of the goods and the time of registration of notice.
b. Inventory, intellectual property or livestock
Priority will exist if the PMSI is perfected
1. when the grantor either receives possession or the rights
to the intellectual property etc
2. The secured creditor must give a written notice of his
security interest over conflicting holder before the
grantor acquires the possession or right over the
inventory, intellectual property and livestock.
Q: What Is notice is not given? The priority is lost however
in
Livestock: If the secured creditor fails to give notice
then property is given to the security interest in the livestock
which secures an obligation that is incurred to and to enable
the grantor to obtain food or medicine for that livestock
obtains priority .( If secured creditor did not give notice to
holder)
Negotiable Instrument
This is perfected by the possession of the secured creditor of
those certificate, instrument etc this will have priority over
security interest registered in the LRA. ( prevails over those
registered)
Services who provides services and materials with respect to
Goods in the ordinary course of business and retains the
possession of such goods shall have priority until he his paid
Grantor Insolvent
1. The security interest prior to the commencement of
insolvency proceeding shall remain perfected as long
as it was perfected prior to commencement
proceeding and it will retain priority that it has before
the commencement of insolvency proceeding.
a. During the insolvency proceeding: The
perfected security interest is a lien over the
collateral that is included in insolvency
proceeding
Rights and REMEDIES OF SECURED CREDITOR
1. Extrajudicial
2. Judicial
A. Expedited repossession of collateral
a. The secured creditor can take possession of
the collateral extrajudicially
i. It must be stipulated that he has
right
ii. It can be done without breach of
the peace. ( If cannot be served
without breach : He must apply
for a court order upon which the
secured creditor is entitled to an
expeditated hearing and upon
hearing the court is the one who
issues the same)
Q: What if the collateral is a fixture?
A: The secured creditor has priority over other owners or
mortgagee of the real property and he may remove the fixture only
if he can do it with due care.
B. The right of the higher ranking secured creditor to
take over the enforcement
C. The right of the secured creditor to retain the
collateral
Retain the collateral Either in full or partial satisfaction of the
obligation by sending a proposal to the grantor, lien , other secured
lien holder who has perfected a registration five days before, any
other party who has interest over the collateral who gave notice to
the secured creditor.
Proposal: A statement amount required to satisfy the obligation,
and the amount of obligation proposed to be satisfied. That the
secured creditor proposed to acquire the same.
1.Full Satisfaction: Not granted if there is a written objection sent
within 20 days after the proposal is sent to any of the parties
required to be notified. These parties must object the objection
must be registered within 20 days after the proposal is sent to them
2. Partial satisfaction: If the secured creditor is able to acquire the
affirmative consent in writing of all the addressee within 20 days
sending of the proposal.
D. The right to sell the collateral through a public sale
Public auction
1. Present state or after the commercial processing to
make it appealing to prospective buyers
a. The secured creditor must act in a
commercially reasonable manner if it is in
conformity among dealers
Commercially reasonable manner : In conformity with the
commercial practice among dealers among buyers and the law says
that it will still be reasonable even if a better price is obtained by
the secured creditor.
SALE
1. The sale must be done in an auction whether private or
public
2. Satisfy the requirement of being commercially
reasonable
3. Disposition or sale done in good faith
a. The party or entity presiding over the
auction is a experienced dealer
b. The parties ( bidder)do not engage in elusive
practices preventing the free competition
over the collateral
c. Records of the auction which identify the
bidder as well as submission which is
document in writing which must be
maintained
d. The asset must be awarded to the highest
bidder. The highest bidder must pay in full
the bid price at the conclusion of the auction.
If he cannot pay the same is awarded to the
next highest bidder.
Notice
1. The seller gives notice ten days before disposition to the
ff
a. Grantor
b. Any secured lien holder five days to the
grantor
c. Any other secured creditor who was able to
send security interest before the secured
creditor sent disposition to the grantor.
2. The secured creditor must cause the posting in the
registry of the LRA of notice that describes the
collateral manner and the time and other details of the
sale it must be publicly available and searchable.
Entity which conduct the auction
1. Government agency
2. Private entity: They will submit rules and regulation
with the department of finance then the public auction
is conclusively presumed to be reasonable. The non
submission of the notice will mean that the conclusive
presumption of notice is lost.
Proceeds
1. The proceed are applies to the reasonable expenses for
the preparing , holding and disposition.
2. Proceed are applied to satisfaction of principal
obligation.
3. The satisfaction of claim subordinate interest the
proceed will only apply if a. Written demand and proof
is received before the proceeds are distributed.
EXCESS: : The grantor is entitled to receive the excess
DEFICIENCY: BUT if there is a deficiency the general rule is that
the grantor is still liable for the deficiency and the secured creditor
can claim the deficiency from the grantor however the only time
the secured creditor is not entitled to deficiency if there is a
stipulation to the contrary.
Proceeds : Answer to reasonable expenses for the preservation of
the thing
Q: What is the secured creditor caused damage over the thing?
A: The secured creditor is liable for the value of the loss and
deterioration due to failure to preserve and take care of the
collateral and encumbered asset.
E. The special right PPSA
The right of creditor : EXTRAJUDICALLY
a. Account receivable : The secured creditor
may instruct the debtor of the account
receivable to make payment straight to the
secured creditor instead of the grantor and
the secured creditor can apply the payment
to the satisfaction of the obligation after
deducting the reasonable expenses for
collection
b. If the collateral is a negotiable instrument
perfected by possession: The secured
creditor can claim satisfaction form the
instrument itself or goods covered by
negotiable document of title
c. If the collateral is a deposit account made in
favor of deposit making institute the secured
creditor can may instruct the depositing
taking institute or bank to pay the balance of
the deposit account to the secured creditor
account by :
i. Giving a copy of the security
agreement which created a
security interest
ii. Affidavit, saying that default
occurred and he is entitled to
enforce the security interest
extrajudicially.
Right to damage
d. IN case of any failure of the grantor in case
failure of grantor to comply with the PPSA
Right of the Grantor :
1. IN CASE the secured creditor did not comply with the
rules
a. Order or restrain collection or enforcement
of collateral of terms and condition
appropriate to circumstance
b. The right of redemption
Any party entitled to the notice are entitled to redeem the collateral
which is being sold. They are entitled to redeem by paying and
performing the obligation in full and reasonable cost of
enforcement.
No right to redeem in the ff:
1. If the grantor expressly waives the writing
 2. If the collateral has been disposed of or has been recover : unless
acquired or collected by the secured creditor Allowed otherwise
3. If the secured creditor made an agreement there is no agreed upon
right of redemption as the right has been transferred Lender right 1. The secured creditor may 1.Sell the
4. When the secured creditor has retained the collateral of cause of sell or otherwise dispose of property and
Right of a buyer : 3rd person highest bidder action in case the collateral publicly or apply the
1. If the secured creditor sell or dispose of the collateral the borrower privately in its present proceeds
then the buyer acquires the guarantor’s right free from default : condition following any
all the rights of other secured creditor or lien holder. 1.Foreclsore commercial reasonable
2. If the secured creditor leases or licenses the collateral the mortgage preparation or process
then the lessee is entitled to the lease and license as the 2.File an 2. The secured creditor may
case may be for the period of the term ordinary action buy the collateral at any
3. In case the secured creditor does not comply with the to collect the public disposition or at
rule of disposition the buyer , lessee etc acquire the debt. private disposition but only
rights only when he is in good faith. if the collateral is of a kind
Chattel PPSA Pledge that is customarily sold in
Mortgage Act the market and widely
Registration is Registration is NOT N/A distributed
required by law REQUIRED by law Right of Allowed None
Perfected by : Perfected by: Delivery redemption:
Registration 1.Registration of the notice none
with the registry Enforcement 1. Recovery Two auction
2.Possession of the of security : 2. Disposition sales if the thing
collateral by the secured The morgagee 3. Retention pledged is not
creditor his executor his *In all cases, there must sold after two
3.Contorl of the investment administrator first be repossession of the auction the
property and deposit may after 30 collateral which may be pledgee may
account days from the undertaken with a judicial appropriate the
To bind third Need not be in a public Description of time of process with or without thing pledged
parties : instrument the thing condition with the effect
Through pledged must broken cause of
registration not appear in a the mortgage extinguishment
only to bind public property or any
third parties instrument part thereof be
but also for sold at a public
validity auction at thep
The mortgagor The security debtor can use The mortgagor lace where the
cannot use future property as collateral cannot use mortgagor
future property provided that the condition future property reside or where
as collateral is complied with as collateral the property is
Requisite: 1. Registration of a The chattel located
1.The chattel notice with the mortgage must
mortgage must registry be constituted
be constituted 2. Possession of to secure the AntiChresis
to secure the collateral by the fulfillment of a Definition: The creditor acquires the right to receive the fruits of
fulfillment of a secured creditor principal an immovable of his debtor with the obligation to apply them to
principal 3. Control of obligation
the payment of the interest if owing and thereafter to the principal
obligation investment 2.The pledgor
of his credit.
2.The pledgor property and or mortgagor
or mortgagor deposit account must be the
Essence: There must be an agreement in the contract that the
must be the absolute owner
creditor has a right to receive the fruits of the immovable with the
absolute owner of the thing
obligation to apply it in the interest.
of the thing pledged
pledged 3.The person
Note: The delivery of the possession of the immovable is not
3.The person constituting the
essential to the perfection of the contract of antichresis.
constituting the pledge or
Although not essential BUT the creditor takes, retain or entitled
pledge or mortgage have
to take possession until the payment of debt.  The debtor
mortgage have the free disposal
cannot reacquire the enjoyment of the thing without totally
the free of the thing
paying what he owes to the creditor.
disposal of the pledged and in
thing pledged the absence
and in the thereof that they Distinguished from Real Estate Mortgage
absence thereof be legally Real Estate Mortgage Anti Chresis
that they be authorized for 1. The mortgagee is 2. The creditor
legally such entitled to lawful acquires rights
authorized for acquisition by the over the fruits if
such mortgage of the the property with
possession the obligation to
1. actually or apply them to the
Right to Right to recover ; Allowed Not allowed constructively of payment of
 the premises interest and property without first obtaining the consent
mortgage with the thereafter to the of the mortgagee can only be construed as
creditor standing principal directed against SUBUSEQENT
upon his rights mortgages or encumbrance and not to
merely as alienation of the immovable itself.
mortgagee and not
as the owner Effect of Subsequent Mortgage : The execution of the second
mortgage had the effect of subjecting the same property to the
Formality Required : payment of two obligation.  In effect both mortgage must be
1. The principal and interest is specified in writing
paid, in case onf non payment the unpaid mortgagee had a right to
otherwise the antichresis is void
look at the property for satisfaction.
a. BUT: The antichresis need not be in
writing : What is specified to be in writing is
The right of the first mortgage prevails over the second
only the principal and interest
1. If the first mortgagee foreclosed
Rights of the Creditor Obligation of the anti chretic
2. The second mortgagee has the right to redeem : Pay the
creditor
first mortgagees credit and acquire the property
1. Acquires the right 1. To apply the fruits
mortgaged subject to the right of redemption of the
to receive the of the payment of
fruits of the the interest and mortgagor.
immovable of the thereafter to the
anti chretic debtor principal of his Note: If the mortgagor pays the mortgage debt the original
2. Acquires the right credit ( Actual mortgage as well as the mortgage of the rights of mortgage by the
to take possession market value of mortgagee is extinguished ( Principal extinguish accessory)
of the immovable the fruits at the
and retain the time of application Properties that cannot be mortgaged
same until the to the interest)
obligation is paid. 2. Obliged to pay 1. Growing Crops: This cannot be mortgaged
taxes and charges SEPARATELY from the estate.
upon the estate, he a. Chattel mortgage act:The mortgage may
is bound to bear constitute an agreement stipulating that the
the expenses mortgagor binds himself to properly tend the
necessary for crops while growing.
preservation and 2. Servitude : Cannot be mortgage SEPRATELY from the
repair ( all sum dominant estate
spent is deducted a. Exception: Water which must be mortgaged
from the fruits) 3. Movable permanently placed: cannot e mortgaged
except with the said building.

In case of non-payment: Characteristics of A mortgage

1. The creditor cannot acquire ownership of the real
estate for nonpayment of the debt within a period
agreed upon.
a. Remedies
i. Petition for the court for
payment of debt
ii. Petition for sale of the
immovable property in
which case the procedure
for judicial foreclosure
applies
iii. Stipulate in the contract:
Extrajudicial foreclosure.
Real Estate Mortgage
Scope : 1. Immovable 2. Alienable real rights in accordance with
the laws imposed upon the immovable.
Limitations:
1. A stipulation that forbids the owner form alienating the
immovable mortgaged is void
a. 1ST MORTGAGE : Sps Litonjua: No similar
prohibition forbidding the owner of the
mortgaged property to subsequently
mortgage the immovable property
b. 2ND Mortgage VOID : The provision that the
mortgagor cannot sell the mortgaged
1. It is a real right that is inseparable from the property
mortgaged: A registered mortgage lien is a inseparable
from the property as it is a right in rem.
a. The recording follows the chattel whenever
he goes.
2. Registered mortgage : Real Property itself a recorded
mortgage is a real property in itself
3. Encumbrance : The mortgage is merely an
encumbrance over the property and does not extinguish
the title of the debtor who does not lose his principal
attribute a the owner
4. It is a lien: A debtor merely subjects it to a lien but the
ownership is not parted with
a. Therefore, since technically the
debtor( Mortgagor) is still the owner of the
property any stipulation forbidding the
mortgagor form alienating the same is null
and void.
5. The mortgagee is not entitled to possession unless the
mortgage could contain some special provision to that
effect.
a. Even if the mortgagee does not have
possession of the property he or she can
institute an action to foreclose the mortgage
whether judicially or extrajudicially
regardless of who possess the same
Kinds of Mortgage Prescriptive Period: Mortgage action prescribed after ten years.
An action to enforce a right arising from a mortgage must be
1. Voluntary : Those agreed upon between parties or enforced within ten years from the time the right of action accrues.
imposed at the violition of the property over which they
are constituted. Kinds of Foreclosure
2. Legal: Those which the law requires to be constituted.
In legal mortgage, the parties are not concerned over 2. Extrajudicial
the charge over the property nor a mortgage constituted 3. Judicial
but the right to constitute it in due form.
Extrajudicial SALE
Registration of REM
a. The extrajudicial foreclosure is made either
1.The registration of REM in the Registry of Property is an under the direction of
indispensable requirement. i. The sheriff and
ii. Notary public
a. Note despite non registration the mortgage is *This must be filed with the Executive judge , through the clerk of
nevertheless binding between the parties. Therefore, as court who is also the ex-officio sheriff.
between parties the mere fact that there is no
Manner of SALE :
compliance with the requirement is a not a bar to the
1. The sale is to be made in the place or in the municipal
foreclosure building of the municipality in which the property or
part thereof is situated
Effect if the mortgage is registered :
2. The sale is made at public auction between 9 in the
morning and four in the afternoon and under the
1.It is a right in rem a lien on the property whoever its owner may
direction of the sheriff .
be. He recordation of the mortgage puts the whole world on the Formal Requirement :
constructive notice of its existence.
Notice of Publication of Notice of Sale.
Extent of the PROPERTY covered 1. More than P400,000 : The notice is to be published
once a week for at least three consecutive weeks in a
1.The mortgage extends to all the natural accession, improvement,
newspaper of general circulation in a municipality or
growing fruits and the rent or income no yet received when the city .
obligation becomes due and to the amount of indemnity granted. Effect Failure to Publish: A jurisdictional defect that renders the
title void and not title passes and this requirement may not be
2. General Rule: The mortgage liability is limited to the amount waived.
mentioned in the contract POSTING of Notice of Sale
Exception If there is an intention that future an other indebtedness
can be gathered the stipulation is valid and binding between 1. Notice shall be given by the posting notice of the sale
parties. not less than 20 days at least three public places of the
municipality or city where the property is situated
Dragnet Clause: One that is specifically phase to subsume all
debts of future origin. This operates as a convenience and Effect if Failure to post: This does not invalidate the notice of sale
accommodation to borrowers as it makes available additional funds
provided that the notice thereof is published in a newspaper of
without their having to secure additional security document.
general circulation.
Note: If subsequent advancement are secured by other collateral:
No need for notice to third person
he security specified must first be exhausted before the resort to
dragnet clause may e had.
1. GENREAL Rule: The notice to the mortgagor is not
required what is required is merely the posting at least
REMEDIES AVAILABLE To Mortgagee Creditor three places + publication in a newspaper of general
1.Foreclose the mortgage : He enforces his lien by the sale on the circulation
foreclosure of the mortgage property. The proceed of the sale will
e applied to the satisfaction of the debt. Exception
Here, there is a prior lien in case of deficiency, the mortgagee
has the right to claim for the deficiency resulting from the price 1. If the parties stipulate that personal notice is
obtained in the sale of real property at public auction and the additionally required to be given to the mortgagor in
outstanding obligation at the time of the foreclosure of the which case the failure to abide by this exception renders
proceeding the foreclosure null and void.

No longer required two or more bidder: There is no longer a

2.File an ordinary action to collect the debt. requirement of at least two bidders for a valid auction sale
*the mere filing of the action for collection shall bar the
foreclosure
Redemption
Note: These remedies are alternative and not cumulative and an
If the mortgagee is a banking institution and
election of one precludes the other.
1. If the mortgagor is a natural person: 1 year from the
registration of deeds The redemption period is one
 year the redemption period is reckoned from the date of
the registration of the certificate of sale in the office of
register of deeds concerned and not from the date of the
auction
2. Mortgagor is a juridical person: 1. Until the
registration of the certificate of foreclosure sale 2.
Within three months after the foreclosure which
ever is earlier.
If the mortgagee creditor is other than a banking institution:
The redemption period is one year from the date of registration of
the certificate of sale and not form the date of public auction
regardless of whether the mortgagor is a natural or juridical person.
Redemption Price :
IF NOT A BANK:The amount due under the mortgage deed with
interest thereon at the rate specified in the mortgage and all the
cost and expenses incurred by the bank or institution from the sale
and custody of the said property less in the income derived
IF A BANK: Amount which the purchaser purchased plus 1%
interest upto the time of redemption plus any amount of assessment
when the purchaser paid after purchase.
Right of the purchaser and mortgagor after the foreclosure
1. Prior to the right of redemption period: They merely
have inchoate right and not the absolute right over the
property. This means that the land foreclosed remains in
the mortgagor or his grantee until the expiration of the
redemption period and conveyance of the master deed.
2. It is only after the failure to redeem during one yar after
the registration of the sale the mortgagor looses interest
over the property.
Right to recover deficiency :
1. The mortgagee has the right to claim for the deficiency
resulting from the price obtained in the sale of real
property auction and the outstanding obligation at the
time of the foreclosure proceeding.
Note: It is the principal obligor that is bound for the payment of
deficiency there is no provision which makes a third person who
secures the fulfillment of another by mortgaging his property to e
primarily bound with the principal obligor. The signatory of the
principal contract remains to the principally bound it is only upon
the default that creditors have recourse over the mortgagor.
Issuance of writ of possession
1. A writ of possession is employed to enforce a judgment
for the recovery of the possession of the land.
2. This is not an ordinary suit filed in court by which one
party sues another for the enforcement of the right and
the enforcement or protection or redress of a wrong. It
is a non litigious proceeding and summary nature as
well.
3. A writ of possession is understood as an order whereby
the sheriff is commanded to place a person in
possession of a real or personal property such as when
the property is extrajudicially foreclosed.
Ministerial Function : Issuance of writ of possession is mistrial
it is a mater or course upon the filing of the motion and
approval of the corresponding bond. ( The implementation of the
writ and the issuance of the same is ministerial)]
Exception: The ex parte writ of possession ceases to be ministerial
once it appears that there is a third party in possession of the
property who is claiming a right adverse to that of the debtor
mortgagor.
Any question regarding the validity of the mortgage cannot be a
legal ground in refusing the writ of possession. Hence the remedy
is as follows:
1. The mortgagor may file a petition with the trial court to
set aside the sale and cancellation of a writ of
possession within thirty days from the time the
purchaser given possession.
a. This presupposes that the purchaser is given
the possession of the mortgage property
pending proceeding assailing the issuance of
writ of possession. ( Prior to the writ of
possession it is the mortgagor who has a
possession over the same)
2. If the trial court finds merit in the petition it shall
dispose in favor of the mortgagor the bond furnished by
the purchaser.
Requirement of the Bond :
When is a writ of possession issued :
1. Within one year from the redemption period
a. The failure of the mortgagor to redeem the
property the writ of possession becomes a
matter of right.
2. After the lapse of redemption period without the need
of the bond.
Judicial Foreclosure
1. There is a right to recover deficiency my mere motion
a. Exception: If the mortgage was executed by
a third person to secure the obligation of the
debtor such third person not having assumed
personal liability for payment to the extent
of recovery is limited to the purchase price
at the foreclosure sale and no deficiency
judgment can be recovered against said
person
Redemption: a judicial foreclosure sale when confirmed by the
order of the court also upon motion of the court operates to divest
the rights int the property of all the parties to the action and vest
their rights in the purchaser subject to such rights of redemption as
may be allowed by law.
Equity of Redemption: The right of the defendant to extinguish the
mortgage and retain ownership over the property by the payment
of debt within 90 days but not more than 120 days from the
entry of judgment or even after the foreclosure sale provided that
it is prior to its confirmation.
Exception To the Rule :
1. A Right of redemption where the mortgagee is the
Philippine National Bank or Banking Institution and the
general banking act confer the mortgagor and his
successor in interest or any judgment creditor of the
mortgagor the right to redeem the property sold on the
foreclosure : After the confirmation by the court of the
 foreclosure sale . ( One year from the registry in case of 1.Within one year until but
natural and three months after the registration of the not after registration not more
certificate of sale in case of judicial) than three months after
foreclosure juridical person as
mortgagor.
1.Within one year until but
not after registration not more
than three months after
foreclosure juridical person as
mortgagor.

REAL ESTATE Anti Chresis

MORTGAGE
Mortgagor and mortgagee Anti cheretic or
antichretic debtor IX. CREDIT TRANSACTIONS
No form required and in In writing in order to be
order to be included must binding must e recorded in
be recorded with the the registry of deed A. Loan
registry of deds Two kinds of loan:
Immovable Fruits of the real property
General Rule : After Fruits are future property 1.Commodatum:This is a contract of loan by one to another of
acquired property are not non-consumable property to be temporarily be used by the latter
allowed and returned ( Dito ung same thing is marereturn)
Exception: Unless otherwise
provided Exception: Consumable thing but merely for exhibition.
Delivery of the Property : Required for the enjoyment
Not required in the mortgage The bailee receives ownership and the bailor retains the
in possession ownership or interest of the property. The interest of the bailee is
Security for future Yes superior than that of the bailor.
obligation: Dragnet clause Q: Can money be an object of the commodatum?
Sale of property with Yes A: As a general rule no, but if the money is deposit on the account
consent :yes with consent of the bailee to return to a certain time it is a commodatum .
Excess : Mortgagor Mortgagor Producers bank vs Vives : If consumable goods are loaned only
Pubic auction Public auction for purpose of exhibition or when the intention of the parties
Deficiency : May recover by Deficiency : by motion or is to lend consumable goods and to have the very same goods
motion or petition petition returned at the end of the period agreed upon the contract is
Possession after purchaser Anti Cheris remains until one of commodatum and not mutuum
Gen Rule : Matter of right payment of obligation -The money was only to show that the account has money
( purchaser ) enough for incorporation.. After a month the money is to be
Exception: returned.
1. 3rd party holding
the property
aversely to the Santiago vs Garcia: Santiago was enticed by his friend to invest
obligor money into a lending business with a promise of an interest of
2. Validity of the 5%=8% per month. The agreement is that the interest given to
sale Santiago. Interest were initially paid, but Garcia then
3. Sold to another sometime later failed to remit the interest. Santiago filed a
temporarily complaint Garcia argued that the amount is merely given as
4. Failure of the loan and not investments
mortgagor to SC : The SC ruled that this is not one of a loan. By a contract of
deliver the excess simple loan one of the parties deliver to another money upo
EXTRAJUDICIAL the condition that the same amount of the same king and
The mortgagor retains the
quality shall be paid. A person who receives the loan of money
property during the
acquires ownership thereof and is bound to pay the creditor
redemption period.
the equal amount of the same kind and quality. What is clear is
that they entered into an investment contract in a lending
Right of Redemption / Right of Redemption / business governed by stipulation
Equity of Redemption Equity of Redemption

Judicial: Judicial: 2.Mutuum : This is a contrct of loan by one of money or other

General Rule: No right of
redemption only equity of
redemption
Exception: Right Of
redemption exist within one
year after the sale
Extrajudicial
Gr: The right of redemption
within one year after the sale
or after the registration of the
certificate of sale
Exception
General Rule: No right of
redemption only equity of
redemption
Exception: Right Of
redemption exist within one
year after the sale
Extrajudicial
Gr: The right of redemption
within one year after the sale
or after the registration of the
certificate of sale
Exception
consumable thing to another for the consumption this other
becomes the owner of the thing with the obligation to repay the
same amount and of the same quality as he had received.
Commodatum Mutuum
Gratuitous Gratuitous or with the
stipulation to pay intrest
Ordinary non consumable Money or other consumable
`There is no transmission of There is a transmission of
ownership as the property ownership since there is an
needs to be returned obligation to return the thing
in the same quality of
 quantity, Kind
Real Contract :The contract of mutuum is not perfected until the
delivery of the object of the contract. A loan is a real contract and
not consensual and as such is perfected only upon the delivery of
the object of the contract.
*note : An accepted promise to deliver something is not a
commodatum or simple loan that is binding upon the parties. In
contract of commodatum or mutuum there must be a delivery of
the thing due-> This is merely a promise to deliver
-Mere promise to loan, contract of loan.
Naguiat vs QUEANO:
Mere issuance of a check id not result in the perfection of the
contract of loan it is only after the checks have ben produced
the effect of payment that the contract of loan may be
deemed perfected under Article 1934.A loan is a real contract
not consensual and as ush is perfected only upon the delivery
of the object of the contract. A loan is a real contract and is
perfected only upon the delivery of the object of the contract.
Spouses Palada vs Solidbank
The SC ruled that the loan contrct was perfected. A loan
contract is perfected only upon the delivery of the object of
the contract, Although the petitioner applied for a 3M loan
and only 1M was approved by the bank because the collateral
offered by the Paladas was found to be collaterally deficient.
When the petitioner received the 1 M the contract is
perfected.
*Hindi ibig sabihin na ng apply ka ng P3M automatic na un na
iapprove
Commodatum
Parties :
1.Bailor:The lender or the one who delivers something to another
in the contract
-There is no need for the bailor to be the owner of the property
because in the first place there is no transfer of ownership. The
law requires that it is sufficient that the bailor is invested with the
possessory interest In the subject matter.
2.Bailee: The borrower or the person to whom the thing is
delivered
Q: Greg leases a house in Tagaytay his best friend Johnny
borrowed the house for purpose of holding the despedida
party.
A: In a commodatum there is no transfer of ownership of
property therefore even if Greg is merely a lessee of the
property he can constitute a contrct of commodatum for the
property leased
Subject matter
Nature: Only non consumable property are subject to the
commodatum
Exception:
1.Consummable goods can be a part of the commodatum if the
purpose of the contrct is not the consumption of the object as
when it is merely for exhibition. When there is an intention of the
partis to lend the consumable goods and to have the very same
goods to be returned upon.
Rights of the bailee:
General : The bailee in commodatum acquires the use of the thing
loaned but not to its fruits.
-Fruits are not available because there is no transfer of ownership.
Exception: Fruits can be appropriated when there is a stipulation
to the contrary.
Gratuitous in character : Commodatum is essentially gratuitous in
character if any compensation is to be paid by him who acquires
the use the contract ceases to be a commodatum
Note: Pajuyo vs ca: Guevarra was under the obligation to maintain
the premises in good condition, This agreement was imposed o
the kasunduan. The court ruled that the contrct is not a
commodatum because the accommodation is not essentially
gratuitous.
PERSONAL IN CHARACTER :
General rule: The commodatum is personal in character. The
bailee has no right to delegate the use of the thing to third person
unless expressly authorized by the bailor.
Third person :
1. A member of the bailee’s household are not
considered as third person within the contemplation of
the rule therefore the members of the bailee’s action
are not considered as a part of the thing loaned except
when 1. There is a stipulation in the contrary 2.When
the nature of the thing forbids the use by members of
the bailee’s household .
Q: What happens if there is unauthorized delegation ? What if the
bailee delegates the thing to a third person
1.If the thing is lost: The bailee is liable for the loss even though it
is due to fortuitous event
The bailee is not entitled to return the thing if the loss is due to
fortuitous event
Exception
1.He can save his own thing and the thing borrowed he chose to
save his own thing. ( Act of ingratitude)
2.Devotes a thing for a different purpose to which it was intended
3. If the thing is delivered with the appraisal of the value
4.Delay in returning the thing
5.Keeps it longer than which is intended
5.Lends it to third person not a member of his household
OBLIGATION OF THE PARTIES ( BETWEEN THEM)
BAILEE’S Duty of care : The bailee can only use the property for
the purpose agreed upon whether such agreement be express or
implied. If the bailee developed the thing different from that
which it has been loaned the bailee shall be liable for the loss of
the thing even though it is through fortuitous event.
*General rule : if fortuitous event not liable but if the bailee
uses the property for a different purpose that that which is
agreed upon liable Right of the bailor to demand return: The bailor can demand the
BAILOR’S DUTY: return of the thing in the ff :
1.The bailor has the duty to inform the bailee of the flaws. If the
bailor does not inform the bailee of the flaws he bailor is liable to 1.DEFINITE PERIOD: if there is a period stipulated it is after the
the bailee_--> for the damage which the bailee suffers by reason expiration of the period stipulated or after the accomplishment of
thereof. the use for which the commodatum is instituted.
Except: The bailor is not liable when
1.If he or she is not aware of the flaws 2.The bailor can temporarily ask for the return of the thing if ther
2.If the flaws are patent and obvious the bailor is not liable . is an urgent need of the thing. In such case the contract of
commodatum is merely suspended
Responsibilities
1.For the deterioration of the thing 3.if the bailee commits an act of ingratitude the bailor can
The bailor shoulders the expenses it is due to the normal use of demand the return of the thing even prior to the stipulation of
the thing without fault on the part of the bailee period.
Exception:
1.If the deterioration results from excessive or abnormal use then Precarium
the bailee becomes answerable. if the use of the thing is not specified .The bailor may demand the
2.If the loss is due to fortuitous event thing at will and the contractual relation is called a precarium
General Rule: The bailee is not liable
Exception: Right of the bailee to retain the thing loaned
1.If the bailee devotes the thing loaned to any purpose different
from that which it has loaned General Rule: The bailor can demand the return of the thing
2.He keeps it longer that the period stated or after the loaned after the expiration of the period stipulated or after the
accomplishment of the comodatum accomplishment of the use for which the commodatum is
3.If the thing has become delivered with the appraisal of the value constituted.
unless there is a stipulation exempting the bailee from
responsibility On the part of the bailee he cannot retain the thing loaned on the
4.If he lends or lease the thing to someone who is not a member ground that the bailor owes him something even though it may be
of the household a reason of expenses.
5. If being able to save the thing borrowed or his own thing he
chose to save his own thing. Exception: When the bailee is entitled a right of retention
Expenses for the use and preservation
1.The bailee is entitled to retention if the bailor is liable to him by
1. Ordinary expense: The bailee is obliged to pay for the reason of damage he suffered from the flaws of the thing loaned
ordinary expenses for the use and preservation of the which were known to the bailor but were not made known to
thing loaned. him.The bailee can keep the thing until he is indemnified for
damages ( bailor did not communicate the loss to the bailee and
Note: If the bailee incurs other expense other than extraordinary
as a result the bailee suffers damage)
or ordinary he cannot exempt himself from the payment of the
expense. Commodatum Mutuum
Eg: Gasoline, ( These are expenses for use and preservation of the Purpose For use ( not fruits) For consumption
object of commodatum). AS TO No transfer of The ownership is
TRANSFER OF ownership transferred to the
*the bailee is not entitled to ordinary wear and tear OWNERSHIP bailee or borrower
Who may One who has judicial Lender must be the
2. Extraordinary expense constitute possession owner because he
transfers ownership
*More than those that pertain to the upkeep of the thing loaned. AS TO OBJECT The object is non Money is
Since the bailor retains ownership of the thing he lends he is consumable consumable
obliged to spent on extraordinary expense. Before incurring As to what to The very same thing Only an equivalent
extraordinary expense the bailee must notify the bailor except if return borrowed of the sum or thing
the repairs are so urgent to require the reply of the bailor the borrowed
thing would be prejudiced due to urgent repairs. As to nature Essentially gratuitous Only an equivalent
of the sum or thing
GENERAL RULE: this is for the account of the bailor if paid by the borrowed
bailee he or she is entitled reimbursement As to when the Only after the period Bailor must wait for
bailor may except in case of the expiration of
Exception: demand return urgent need precarium the period
or acts of ingratitude
1.If extraordinary expenses arise on occasion of actual use of the
thing by the bailee even though he acted without fault they are
liable . This is to be borne equally by both the bailor and the b. mutuum or simple loan
bailee unless there is a stipulation to the contrary,
General Rule:
Return of the thing loaned
 1. The purpose of the contract is consumption
2. The subject matter is money or other consumable
3. Ownership passes to the borrower
4. It is a real contract
5. It is gratuitous or with stipulation to pay the interest
6. Unilateral contrct
-If the subject matter is non-consummable with the obligation to
deliver the same kind or quantity: The obligation is considered as
a barter.
Q: Jalandoni borrowed money from Incomienda. Incomendia
advanced money in favor of Jalandoni . Incomendia later
demanded payment, Jalondoni failed to pay. Jalandoni claimed
that the money was not in the form of loans, as it was merely
given by Incomendia based on pure generosity
A: The existence of contract of loan cannot be denied merely
because it was not reduced in writing , Surely there can be a
verbal loan. The contention that there should have3 been a
promissory note or written acknowledgment the SC held this
would be particularly true if the loan obtained was a part of the
business dealing and not one extended to a close friend who
suddenly needed monetary aid. In fact in case of absence of
acknowledgment receipt or promissory note is more natural than
real. Jalandoni is obliged to pay
Pantaleon vs amex
Pantaleon is the owner of the AMEX card. He wanted to buy
jewelry pieces from his wife. The amount was so huge where the
credit card’s approval is delayed causing the whole tour to be
delayed. Pantaelon demanded for the apology of the humiliation
that he suffered due to delay. Issue : Whether AMEX is guilty of
legal delay to entitle Pantaleon for damage
Answer:
No. The use of the credit card is a mere offer to enter into loan
agreement and must be distinguished from creditor debtor
relationship which only arises after the credit card issuer has
approved the cardholder’s purchase request. Thus under this
view, each credit card transaction is sperate offer and
acceptance. Since AMEXCO has no obligation to approve the
purchase request of the credit card holder, it could not have guilty
of default.
Kinds of Diligence :
1.Extraordinary diligence: If there is a fiduciary relationship such
as the banker and the depositor: The diligence to be exerted is
one of extraordinary diligence
a.If there is no extraordinary diligence: To exert a diligence of a
good father and a family if the sale is not in relation to a fiduciary
relationship such as ( issuance of the foreign draft)
Borrower acquires ownership
The ownership passes to the borrower.
Example in
1. cash advances it is in nature of simp0le loan where the
ownership of the money passes to the employee no
fiduciary relationship is created.
2. The ownership of the amount deposited was
transmitted to the bank upon the perfection of the
contract and it can make use of the amount deposited
for its banking operation such as the payment of
interest on deposit and payment of withdrawals.
Obligations
1. Unilateral contract: The lender once he has delivered
the subject matter to the borrower no longer has any
obligation to the later the contract gives rise to
obligation only on the part of the borrower.
Obligation: The borrower is obliged to pay to the creditor an equal
amount of the same kind and quantity.
Resulting obligation: if what was loaned is a fungible thing other
than money the debtor owes another thing of the same kind and
quality even it changes in its value. If it is not possible to deliver
the same thing the value at the time of perfection of the loan is to
be paid
Payment of interest
Monetary Interest: no interest shall be due unless it has been
expressly been stipulated in writing.
Interest
1.Simple: that which is paid for principal at the certain rate fixed
or stipulated by the parties
2.Compound : That which is imposed upon the interest due and
unpaid ( Principal + accrued interest)
* Manner of interest: can also be filed If the interest is
compounded it must be expressly stipulated in writing
3.Legal interest : That which the law directs to be charged in the
absence of any agreement as to the rate between the parties
KINDS OF INTEREST
1.Monetary Interest: interest are paid only for the use of money,
this is required to be stipulated ( 1956)
Suspension of the usury law: The parties can stipulate as to
interest that can be applied however it must not be
unconscionable.There is nothing in the circular which grants
the lender carte blanche authority to increase interest, if the
interest is unconscionable it is to be reduced.
Toring vs Olan:
The SC held that it was error for the CA to uphold the stipulated
interest of 3% and 3.81% . The court will temper interest rate if
they are unconscionable. Even if the usury law has been
suspended by the CB circular, and parties to loan agreement have
been given wide latitude to agree on any interest rate the
stipulated interest rate are illegal if they are unconscionable. Thus
the sc reduced he stipulated interest rate to 1% per month
Bulatao vs Zeniaida
Given that the agreement on thee 5% monetary interest is void
for being unconscionable the interest rate prescribed by the BSP
for loans or forbearance of money , credit or goods will be the
surrogate or substitute rate not only for the one year interest
period agreed upon but for the entire period that the loan of
Zenaida remains unpaid.
Pua vs Tiong:
The collection of interest in loan or forbearance of money is
allowed only when these two condition concur 1. There is an
express stipulation for the payment of interest 2. The agreement
for the payment of interest was reduced in writing . Absent any of
these two condition the debtor cannot be made liable for the
interest. Thus Pua is entitled only to the principal amount of the
loan plus legal interest from the time of demand.
Alcaraz vs Equitable Credit
The court held that the standard application form presented by
Equitable does not bear the signature of Alcaraz and neither was
there evidence on record that he was shown a copy of the terms
and condition before the issuance of the credit card much less
that he has given his consent thereto . Thus he should not be
condemned to pay the interest and charges without any proof of
his conformity and acceptance of the stipulation contained
therein. ( Here the cardholder did not sign any application)
Sigaan vs Villanueva : Solutio Indebiti
Article 1960 if the borrower pays interest wen there has been no
stipulation thereto the provision of the code governing solutio
indebiti shall be applied. Article 2154 states that if something is
received when there is no right to demand it and it was unduly
delivered through mistake, the obligation to return in it arises
Castro vs Tan
The court ruled that while parties to a loan agreement have a
wide latitude to stipulate on any interest rate in view of the
Central Bank Circular No 905 interest rate whenever
unconscionable may still be declared illegal. The SC held that the
freedom of contract is not absolute the same is understood to be
subject to reasonable legislative regulation aimed at the
promotion of public health, morals safely and welfare beign a void
stipulation it is deemed inexistent from the beginning . The debt is
to be considered without the stipulation of the iniquitous and
unconscionable interest rate. ( The 60% per annum is contrary to
morals and the law and therefore it is void the legal rate to
impose 12% per annum is to be imposed)
Silos vs PNB
Even assuming that the loan agreement between PNB and the
private respondent gave the PNB a license to increase the interest
rate at will during the term of the loan that the license would have
been null and void for being violative of the principle of mutually
essential in contract. ( The interest here is increased without their
consent . No the unilateral action of the PNB is void)
Juico vs China Bank
The court ruled that the interest rate imposed by the bank based
on prevailing market rate which were not specified in the written
agreement are void. The verbal notice of the prevailing interest
rate for any particular month given by the bank on the provision
contained in the promissory note will not suffice. ( Contract +
mutually a contract heavily weighed in favor of one of the parties
is void)
Vasquez vs PNB
Vasquez was granted by PNB a loan. The amount of the initial
loan is P600,000. Vasquez obtained another loaned on the sum
of P800,000 the loan was secured by the REM over four parcels
of land. When Vasquez defaulted the bank initiated four
foreclosure proceeding but later Vasquez filed a complained for
specific performance alleging that the only interest agreed upon
between him and PNB is 17% but here PNB unliterally increased
the interest rate without his prior knowledge and consent.
A: It is crystal clear that PNB decided on its own to modify and
increase the rate of interest without notifying and informing
Vasquez before it modified the monetary interest rate. Therefore,
the interest rate scheme provided under the Cited agreement and
promissory notes is null and void for being violative of the
principle of mutually of contract. The obligation of making interest
payment in the instance case is illegal and thus non demandable
the payment of the principal loan obligation was likewise not yet
demandable on the part of the PNB with Vasquez not being in a
state of default the foreclosure of the subject property should not
have been proceeded. ( The interest is to be paid first before the
principal therefore since hindi valid ung interest the payment of
the principal obligation is likewise not demandable)
Legal Rate : If there is a stipulation of interest but it is not made in
writing the legal rate shall be applied. : interest may also be paid
as damages known as compensatory interest this interest need
not be stipulated in writing in the absence of such stipulation.
( delay or default)
Aballa vs Abella
The interest was stipulated in writing by the debtor and creditor in
a simple loan or mutuum but no exact interest rate was
mentioned the legal rate of interest shall apply. The interest in
this respect is used as a surrogate for the parties intent as
expressed as of the time of the execution of their contract, In this
sense the legal rate of interest is an affirmation of the contacting
parties intent that is by their contract silence on a specific rate
then the prevailing legal interest shall be the cost of borrowing
money.
Barrera vs Lorenzo :
If the term of the loan is for a specific period but the parties failed
to specify the interest after the said period.
The SC held that since the contract clearly states the term of the
loan shall only be for three months and no written agreement
exist as to the rate that shall apply thereafter the debtor cannot
be held liable for the same rate of 5% after the loan matured.
There is no written agreement between the parties that the loan
will continue to bear the 5% interest per month beyond the
agreed 3 month period. Hence pursuant to Article 1956 the 5%
interest cannot be applied.—The rate of 12% per annum is
imposed after default
First Fil vs padillo
The loan agreement signed specified that the loan shall earn
interest from the date of __ from the date of maturity. Padillo
later sued for the recovery of interest as the creditor applied the
4.5% interest monthly instead of applying it as per annum stated
under the promissory note .
A: The SC ruled that the checks issued by the respondent does not
show the real intent of the parties is to apply the 4.5% interest in
a monthly basis. Absent any vices of consent the promissory note
remained to be the best evidence to ascertain the intention of the
parties. The court held that the legal rate of interest which is 12%
per annum shall apply after maturity since the agreement
between the parties failed to state the applicable rate after such
date. The fact that the debtor issued post dated checks in the
payment of interest beyond the stipulated in the promissory note
will not give rise to the application of the principle of estoppel.
Legal interest may be imposed in mutuum if
1.The parties agreed in writing that the loan shall be subject to
interest but failed to specify the rate thereto
2.The parties enter into a verbal contract of loan and the debtor
incurs delay
3.There is a definite term or period for which the conventional
interest on the loan shall be applied and the parties failed to
specify the rate interest that would apply after maturity.
Legal Rate of Interest
Prior to the passage of Circular No 799 the legal interest rate for
loans of forbearance of money is 12% per annum. This circular
lowered the legal interest to 6% per annum beginning July 1 2013.
Nacar vs Gallery frame : An illegally dismissed employee is entitled
legal interest on his backwages from the time of illegal dismissal
upto the judgment become final at the rate of 6%. (Before July 1
2013 12% per annum, but after July 1 2013 until the full
satisfaction the monetary award by the employer is reduced to 6%
per annum)

NACAR VS GALLARY FRAMES
1.When the judgment of the court awarding the sum of money
becomes final and executory the rate of legal interest whether
loan for forbearance of money or not loan for forbearance of
money is 6% per annum until such finality until its satisfaction this
interim period is deemed as forbearance of credit.
Sameer vs Cabiles
Circular No 799 is applicable only in loans and forbearance of
money , goods or credits and judgment when there is no
applicable interest rate the circular does not apply to
1.Judgment that have been become final and executory before
July 1 2013
2.When there law states a different rate of interest
Eg: Placement fees the rate of interest is 12% as there is a law.
The salary is covered by CN 799 because the law is silent as to the
interest rate on the unpaid salary for the unexpired portion of the
contract
1.Extrajudicial deposit: Only movable things may be the object of
a deposit. The movable must be corporeal
a. Voluntary
b. Necessary
2.Judicial deposit: Movable as well as immovable things can be a
subject to a judicial deposit
Gratuitous : Deposit is a gratuitous contract
Exception:
1.There is an agreement to that effect
2.Even without an agreement if the depositary is engaged in the
business of storing the goods.
Eg: When you deposit in a warehouse ( It is presume to be
oneous)
Q: Can the depositary transfer the thing to another?
A: General rule no unless there is a stipulation to the contrary. In
case there is a stipulation allowing the same the depositary must
not transfer the property to another who is manifestly unfit
otherwise he is liable.

Proof of ownership
1.Loans and forbearance of money : Legal interest at the time of The depositary is not permitted to ask for proof of ownership. If
demand is 12% per annum at the time extrajudicial or judicial the depositary accepted the object of deposit but later finds out
demand. ( Prior to Circular no 799) that the thing was unlawfully acquired by the depositor then he is
2.Interest not on loans and forbearance of money: the interest obliged to inform the true owner . If the true owner fails to do
shall ne imposed at the rate of 6% per annum at the discretion of something as to the thing within a period of one month from the
the court from the time it is demanded judicially or extrajudicially. notice the depositary is relieved from the responsibility from the
If demand cannot be determined it is to be determined from the true owner even he subsequently returns it to the depositor
time of the judgment of the court.
Liability for loss
General RULE: The depositary is not liable in case of fortuitous
event except when
1.Uses it for purposes different from that which it is intended
General Rule: As a rule interest due and unpaid shall not earn 2.Stipulated
interest , otherwise the rule is that accrued interest or compound 3.Delays return
interest is not allowed to be computed on the principal ( Interest 4.Allow others to use it even if he is allowed to use the thing by
earns interest) the depositor
EXCEPTION
1. Interest due shall earn legal interest from the time it is Gratuitous:
judicially demanded although the obligation is silent up 1. Obliged to reimburse the depositary for the expenses
to this point for the preservation of the thing
2. The contracting parties may stipulate and capitalize the 2. He pays the depositary any loss arising from the
interest due and unpaid. character of the thing deposited unless from the time
of the constitution of the deposit the depositor is not
B. Deposit aware of the harm of the thing deposited.
Definition: This is constituted from the moment the person
receives the thing belonging to another with the obligation to Kinds of Deposit
safely keep it and of the returning of the same. Judicial Extrajudicial
Takes place when the Takes place at the will of the
Parties: attachment or seizure of parties that gives rise to this
property in litigation is kind of deposit
1.Depositor:e who delivers the thing to another under the ordered by the court.
circumstance coming within the definition of deposit To secure and to remove the Safekeeping of the thing
2.Depositrary: He to whom the thing is delivered thing from the dominion of
its actual possession in order
Test : If the principal purpose of the contract is safekeeping of the to guaranty the result of
thin to be delivered the contract is one of deposit. litigation or the efficacy of
The stipulation that David is free to convert the palay into rice the right
negatives the application of the contract of deposit. In a contract The object may either e Only movable things are
of deposit the depositor retains ownership over the thing due. In a movable or immovable object thereto
contract of deposit the depositary is not obliged to use the thing Always for compensation May be gratuitous or for
more so to even sell it . The SC held that this is a contract of SALE compensation
then it is David who must account it The sequester possess the The depositary holds the
thing in virtual thing by the will of the
Kinds of Deposit: representation of the person depositor
who by the decision of the
court should turn out to be
the owner of the proprietor
Extrajudicial deposit
This takes place when the will of the party gives rise to the said
obligation.
1.Voluntary : That wherein the delivery is made by the will of the
depositor
2.Necessary: That wherein the depositor’s will with respect to the
construction of the contract is controlled or restricted in certain
respects by some force.
a.When it is made in compliance with the legal obligation
b.When it takes place on occasion of any calamity, such as fire,
storm , flood, pillage shipwreck and other similar events.
Voluntary :
Depositor: It is not essential that the depositor be the owner of
the thing that is deposited. The deposit constituted by a non
owner of a thing is valid between the parties but the owner is not
precluded from exercising reinvindicatory action against the
depositary.
Effect of incapacity
1.Depositor: The nullity can only be invoked by the depositor or
his agent. Unless the nullity is invoked only by the depositor either
by himself or through his legal representative, the contract
continues to be full force and effect and one who accepts the
deposit is subject to all the obligation of the depositary.
2.Depositary:
a. Depositary: The depositary does not incur any responsibility to
the depositor except as to the extent by which he has benefited
from the thing or of the price
b. Depositor: The depositor exercises reinvindicatory action
against the depositary or third person if the thing can no longer be
delivered the depositor may have the right to demand payment of
the amount which the depositary may have enriched himself with
the thing or its price.
Vs Commodatum : The bailor cannot demand a thing prior to the
expiration of the period. In a contract of deposit the depositary is
obliged to return the thing to the depositor upon demand even if
there is a period specified by law. except 1. When the thing
judicially attached while the depositary possession 2. Notified of
the opposition of a third person.
Serfino vs Far East Bank : depositor bank ( Creditor and debtor)
Serfino filed a collection suit against Cortes they later entered into
a compromise agreement. The trial court approved the
compromise agreement that the money from the GSIS is to be
paid to the loan. Upon getting the money, Cortez deposit the
money to the bank account. The Serfino filed a letter against the
bank for the recovery of the money on the ground of assignment
of credit . Serfino alleged that the thing deposited must be
returned upon demand even though there is a specified period
which has been fixed.
The bank is under no obligation to a third party who claims a right
over the deposit because the bank’s contractual relation are with
its depositor and not with the third parties. In the absence of any
positive duty of the bank to an adverse claimant there could be
no breach that entitled the adverse claimant to claim damages
from the bank
Rights of the Parties with respect to the subject matter
1.On the part of the depositor
General Rule : The depositor retains ownership and possession
over the thing
Exception: The depositary can commingle the grain or other
articles of the same kind and quality. In such a case various
depositor shall own or have a proportional interest in the mass
*-Exception: Pede imix
2.on the part of the depositary
General Rule : The depositary only has naked ownership over the
property therefore, he cannot make use of the thing deposited
without the express permission of the depositor otherwise he is
liable
Exception:
1.When the preservation of the thing deposited requires its use it
must be used but only for that purpose.
Note: If use is allowed , safekeeping must still be the principal
purpose of the contract otherwise the contract becomes a loan or
a commodatum
Duties and Liabilities of Depositary
General Rule : The depositary is obliged to keep the thing safely
and return it , when required to the depositor or to the person
who may have been designated in the contract.
Care of the thing deposited
1. The depositary is obliged to take care of the thing with the
good father of the family unless a different degree has been
stipulated, however if the deposit is gratuitous this must be
taken into account in determining the degree of care that
depositary must observe.
2. The depositary is responsible for the negligence of his
employee
3. The depositary holding certificate ,bonds and securities or
instrument which earn interest shall be bound to collect the
latter when it becomes due.
Safety deposit Boxes
1. A contract for the rent of safety deposit box is not an
ordinary contract of lease of things but a special kind of
deposit hence it is not governed strictly by the
provision of deposit.
2. The rule is that the relationship here is one of bailor
and bailee
Ratio: In safety deposit boxes the full and absolute possession and
control of the safety deposit box remains to be with the bank
without this key neither of the renters can open the box. Liable to
exercise diligence of good father of family.
When the subject matter delivered is closed and sealed
1.When the thing delivered is closed and sealed the depositary
must return it with the same condition and he is liable for
damages in case the seal, or lock be broken due to his fault
-If the lock is broken : There is a presumption of fault in the part of
the depositary unless there is proof to the contrary
2.Value of the thing : The statement of the depositior shall be
accepted when the forcible opening is imputable to the
depositary should there be no proof to the contrary.
.Q: When is there an implied authority to open? ( Depositary)
1.When the key has been delivered to him
2.When the instruction of the depositor as regard to the deposit
cannot be executed without opening the box or receptacle.
Deposit with third persons:
General Rule: The depositary cannot deposit the thing to third
person
Exception: If the deposit with a third person is allowed, the
depositary is liable for the loss if he deposited the thing with a
person that is manifestly unfi
Change the way of deposit
The depositary may change the way of deposit if under the
circumstance he may presume that the depositor would consent
to the change if he knew the facts of the situation. Here, it is
required that the depositary must first notify the depositor
thereof and wait for his decision unless the thing is in danger.
As to the thing deposited
General Rule : The thing deposited shall be returned with al its
products, accessories and accessions.
Exception:
1. Money : He may deliver something of the same kind
and amount unless it is delivered in 1.Closed
receptacle 2. There is a stipulation that the money
deposited shall be returned identifically ( ung pera
mismo ibabalik)
2. Fungible : The depositor can commingle it with the
same kind and quality unless there is a stipulation to
the contrary in which case the depositary may
discharge himself by delivering the same kind of the
same quality
3. Force Majure: The deopositary may deliver the sum or
other thing to the depositor
4. In case the property was sold by the heir of the
depositor: The depositor is bound to return the price
paid, if the price is not yet paid the depositors heir
assings the right of action against the buyer.
5. Interest
a. General: The depositary must also return
with the thing deposited the product,
accession and accessories
Exception: If the subject matter of deposit consist of money the
depositary is not liable for interest . However the depositary is
liable for interest after the extinguishment of deposit.
To whom is delivery made?
General Rule :The delivery is made to the depositor, heirs or
successor or to the person who may be delegated in the contract
Rules:
1. If two or more person are not solidary and the thing is
joint: Each one cannot demand more than his share
2. If two or more person are solidary or the thing is
indivisible : The depositor by himself and on behalf of
others may ask the restitution of the thing deposited.
The depositary cannot use the defense that the deposit
is collective and delivery to the single depositor
suffices.
-If there is a demand by any one of the depositors the
delivery must be made to him
If in case there is incapacity of depositor
1.If incapacity existed at the time of the constitution of the
deposit
-The depositary may e compelled to return the thing by the
guardian or the administrator of the incapacitated or by the latter
himself if acquires capacity.
2.if incapacity happens after the constitution of the deposit.
-The thing cannot be returned except to those person who may
have the administration of his property and rights.
Time of Return
Gen Rule: The thing deposited must be returned to the depositor
upon the demand ( even before the specified period of time)
HOWEVER the depositary cannot return the thing deposited
before the expiration of the period agreed upon
EXCEPTION:
1. Prior to the period the depositary can return the thing
to the depositor when he has justifiable reason for not
keeping the thing deposited and the deposit is without
any consideration.
2. When the depositary has reasonable grounds to
believe that the thing has not been lawfully acquired y
the depositor the former may return the same
Notes:
1. The depositary cannot demand the depositor to prove
the ownership of the thing deposited
2. If the depositary discovers that the thing was stolen
and who its true owner is he must advise the latter of
the deposit.
HOWEVER: If within a period of one month , there is no claim by
the owner the depositary is relieved from its responsibility y
returning the thing deposited to the depositor
Place of Return
General Rule: At the place designated
Exception:
1. If there is no place designated for the return it shall be
made where the thing deposited might be even if it is
not place where the deposit was made.
Duties of the depositor
1.If gratuitous the depositor is obliged to reimburse the
depositary for the expenses he may have incurred for the
preservation of the thing deposited. ( only for the preservation of
the thing and not to any kind of expense)
2.For the loss suffered by the depositary arising from the
character of the thing deposited.
General rule ; The depositor shall reimburse the depositary for
any loss arising from the character of the thing deposited
Exception:The depositor is not liable
1. At the time of the constitution of the deposit he was
not aware of or was not expected o know the
dangerous caracter of the thing
2. He notified the depositary of the ame or the latter was
aware of it without advice from the depositor.
Depositary lien: The depositary may retain the thing in pledge
until full payment of what may be due to him by reason of the
deposit
Extinguishment of debts:
1.Upon the loss or destruction of the thing deposit
2. In case of gratuitous deposit upon the death of either the
depositor or the depositary .
Necessary Deposit
RATIO: Pressing necessity of the deposit
Kinds
1.Those that take place in compliance with the legal obligation
2.Those that take place in occasion of fire, storm flood , pillage
shipwreck or other similar event
- If the property is saved the thing of another , the owner requires
the person whose property is saved to pay the one who saved the
property ( Depositary) just compensation.
3.Deposit of effects made by travelers in hotels or inns.
Deposit made by the travels in hotels or inns
1.The keepers of the hotel or inns shall be responsible as
depositaries and such liabilities extends to vehicles animals and
articles which has been placed or introduced in the annexes of the
hotel. The liability of hotel keepers or innkeeper to the effect of
their guest extends to effects that are within the hotel or inns.
Common carrier: Even though it is not within our custody. The
rule extraordinary diligence shall apply.
Requisites:
1. Notice must be given to the hotel keepers or to their
employees as to the effects brought by the guest
2. The guest themselves must take necessary precaution
which the hotelkeepers or their substitute advised
relative to the care and vigilante of their effects
Exception:
1. Force majure: If the loss is due to force majure the
hotel keepers are not liable
Note: That theft by a third person is not considered as force
majure absent the use of arms or though an irresistible force
2.When the loss or injury is due to the acts of the guest, his
family or servant or visitor the hotel in keepers are not liable
if there is no concurrent negligence on their part.
3.When the loss or injury arises from the character of the
things brought
Eg: Perishable goods
Evading or limiting responsibility through notice
1.Posting notice : The hotel keeper cannot free himself by
posting notice to the effect that he is not liable for the
articles brought by the guest
2.By stipulation: any stipulation as to the liability of the hotel
keepers are void
-extraordinary diligence: Hotelkeepers are bound to provide
not only lodging for the hotel guest but also security to their
person and their belongings
YHT vs CA
Maclalin was befriended by Tan, she convinced Maclalin to stay in
the Tropicana. He rented a safety deposit box and deposited
$10,000 Australian Dollars and another envelope containing
$15,000. The safety deposit box can only be opened by two keys
one in possession of the guest and one in the possession of the
hotel. When Maclalin retrieved the safety deposit box it was
discovered that some of money were missing. Maclalin sued the
employee of the hotel and the hotel. YHT argued that they are not
liable for the loss as Maclalin signed an undertaking to release
Tropicana hotel from any liability for any loss. The hotel also
argued that they are exempt from the acts of the guest or his
family or the visitor. Since Tan is the guest of Maclalalin they are
not liable?
Answer: Yes. The SC ruled that the responsibility of the hotel
keeper shall extend to loss of or injury to the personal property of
the guest even if caused by the servant or employees of the
keepers of the hotel or ins as well as stranger except when it
proceed from force majure. Article 2002 is also applicable because
it presupposes that the hotel keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence
of the loss. ( Shared not only as to the guest but also the
management since there are two keys)
-The urdertaking is void:
Innkeeper’s lien
The hotel keeper has the right to retain the things brought
into the hotel y the guest as security for their credit on
account of lodging. Note that this lien does not extend to
the property brought by the guest which is a property of a
third person ( if there is a notice on the part of the innkeeper
that theproperty belongs to a third person)
Durban Apartment vs Pioneer Insurance
Jeffrey owns a car insured by pioneer insurance. Sometime in
2002 Sy arrived at City Garden hotel the parking attendant of the
hotel greeted him and get the car keys. The vehicle was parked n
the nearby parking area, but the vehicle was carnapped while it
was parked in the parking area and was not never recovered.
Pionner Insurance claimed that the vehicle was lost due to lack of
necessary precaution of City Garden. Is the hotel liable?
Ans: The record show that Sy gave notice to the hotel as to his car
and even gave the key to the valent boy to park the vehicle. The
City garden hotel become a depositary of the vehicle. ( This
extend to the annexes of the hotel)
JUDICIAL DEPOSIT
1.A judicial deposit or sequestration takes place when an
attachment or seizure of property in litigation is ordered
Duration: The depositary of the property or object sequestered
cannot be relieved of his responsibility until the controversy that
gave rise thereto has come to an end.
Judicial Extrajudicial
To secure the right of party Custody and safekeeping
litigant to recover ( litigation)
Movable or immovable Only movable
Onerous Gratuitous or compensation
depending on the stipulation of
parties
Benefit of the person whose Depositor or third person
judgment arrived designated
Bank Deposit: These are in the nature of simple loan, fixed savings
are governed by the provision that pertains to simple loan. As an
ordinary contractual relationship ( creditor -debtor) the
enforcement of depositor right should be made through an action
for specific performance.
Lucman vs Malawi:
The petitioner filed a case against Malawi to compel the bank to
open the account. The petitioner wanted to open an account in
the bank for the internal revenue allotment. Here the bank
allowed them to open the account but did not release the funds
to them as they were merely holding the position to a hold over
capacity. In the case at bar, the barangay released the funds to
the newly elected officer of the barangay. Is mandamus proper?
A: No, The court ruled that by virtue of the deposit there arise a
creditor debtor relationship. Fixed savings and current deposit of
money in banks and similar institution are governed by the
provision concerning simple loan. In other words, the barangays
are the lender while the bank is the borrower. Therefore, since
the relationship is contractual in nature mandamus is not an
available remedy since mandamus does not lie to enforce
performance of contractual obligation
or advances. The condition is that the principal stockholder will
bind themselves in continuing guaranty. A continuing guarantee
agreement was executed. Yujico offered his own property to give
the bank permission without any notice to sell the property in case
there is default. YMTC later failed to pay hence they go against
YUJICO.

Bank deposit are considered as loan, because they earn
interest.The failure of the bank to earn time deposit is the failure
of the bank to perform its obligation as a debtor and not a
depositor. If the depositor has obligation against a bank legal
compensation takes place
Here, the deposit of atty Gulias applied the deposit to the
obligation of the depositor. The SC has the right to set off the
relationship between the debtor and creditor therefore legal
compensation may set place.
C. Guaranty and Suretyship
REAL SECURITY credit transaction supported by a collateral or
encumbrance of property
PERSONAL PROPERTY: Credit transaction merely supported by a
promise to pay.
Guaranty : a person called the guarantor binds himself to the
debtor in case the debtor fails to do so
Ans: Surety. The undertaking states that in case there is no prior
demand the bank can directly proceed against Yujico and sell his
property. Where the liability of the guarantor is secondary to that
of the principal debtor because he cannot be compelled to pay the
creditor unless the latter has exhausted all the property of the
debtor and has resorted to all the legal remedies against the debtor
the surety is solidarily bound to the obligation of the principal
debtor (Check the undertaking)
Surety Solidary debtor
If the obligation secured by the surety is breached the creditor is
not obligated to proceed first against the principal debtor before
taking action against the surety.
If the surety pays the obligation If the solidary debtor pays a
he pays the debt of another debt which is from his own
obligation.
The surety liability is only Liable even if the other solidary
liable is only generally liable debtor defaults
when the principal debtor
defaults.

Kinds of guaranty Mercantile Insurance vs DMCI

1.Specific: A single debt or obligation
2. Continuing: Series of debt secured by the same person . The
guarantor agrees to secure not only one specific loan but all credit
transaction until the obligation is extinguished.
Guaranty Surety
The guarantor undertakes to A person binds itself solidarity
pay if the debt cannot be with the creditor . The surety
collected from the debtor. The binds himself to the creditor if
guarantor is only an insurer as the principal debtor does not
to the solvency of the debtor pay without regard to the
I will pay in case the principal ability to pay
debtor cannot do so. I will pay in case he does not
pay
Surety is solidarily bound with
the principal debtor. A surety
here is different from solidary
debtor the surety retains an
accessory promise where he
bind itself to a person already
bound.
The surety is bound for the
debt of the other even though
it possess no interest over the
obligation
Determination of surety or guarantor: If in the agreement the
person is designated as a guarantor but in the agreement he is to
be held immediately liable he is considered as a surety.
Mercantile obliged itself to pay DLCI immediately upon demand,
Thus it stands as a contract of surety contemplated under Article
2047 of the Civil Code. While the contract of surety stands
secondary to the principal obligation the surety’s liability is direct
, primary and absolute . This liability attaches the moment a
demand for payment is made by the creditor.
GUARANTY
There must be a valid contract it can secure a voidable or unforce
able or even a natural obligation. A guaranty creates a subsidiary
liability that render the guarantor in case the principal fails to do
so.
Future debts: A comprehensive or continuing surety agreement.
( 2053).
Eg: A bank may require a debtor to execute a continuing surety
agreement so that the creditor need not require a new agreement.
The surety agreement need not execute a separate contract as the
guaranty secures even the future debt.
Guarantor enters into an agreement even without the consent of the
debtor
1. YES. Even if the guarantor enters into knowledge of an
agreement without the consent of the primary debtor the
ff rules apply.
a. If the third person pays the obligation of the
debtor without knowledge and consent :
Only recover as to the payment benefited the
debtor. There is no subrogation of the rights.

Allied Bank vs Yujico Q:Is there a limit to the liability of the guarantor?

The BOD of Gen Bank , later succeeded by Allied bank approved a A: Yes not more than the amount of the principal debtor. You can
resolution an omnibus credit line to be made available by overdraft only bind itself for equal or less but not for more. Except in cases
when the demand is made by the creditor when default of the
debtor and the guarantor refuses to pay, in consequence his liability
is not limited to the amount guaranty but also to the interest due to
his default
Benefit of Excussion
Note: The surety is not entitled to benefit of excusion
Requirement: before the guarantor be able to pay the ff must is
required:
1.The creditor must have exhausted all the properties of the
principal debtor
2.has exercised all rights against legal remedies against the
principal debtor.
-No execution may lie unless a writ of execution against the debtor
remains to be unsatisfied.
Exception:
RENOUNCE-USELESS-SOLIDARILY - ABSCONDED
1.Guarantor renounces it
2.Binds itself solidary with the principal debtor
3.Insolvency of the principal debtor
4. If the principal debtor cannot be sued in the Philippines unless
he left a manager
5.Execution of property of the principal debtor will not result to the
satisfaction of the satisfaction of the obligation.
When is this set up?
When there is already a judgment against the principal debtor. The
guarantor cannot set up excussion if there is no decision against the
principal debtor yet.
Baylon vs Tomacruz
It is premature for this court to even determine whether or not
Baylon is liable as a guarantor and whether she is entitled to the
concomitant rights as such like the benefit of excussion since the
most basic prerequisite is wanting that is no judgment was first
obtained against the principal debtor Rosita Luanzon. It is useless
to speak of a guarantor when no debtor has been held liable for the
obligation which is allegedly secured by such guarantee. The
liability of the guarantor is merely subsidiary.
Q: May the creditor direct a suit against the principal debtor
and the guarantor together?
A: No.This is expressly prohibited under 2062 . In every action by
the creditor, except in cases when the benefit of excussion does not
take place the former may ask the court to notify the guarantor of
the action. This notice is not to the extent to make the guarantor a
party to the suit. Despite this, if the guarantor himself impleads
himself this is allowed.
Q: what is the effect of compromise?
A: The effect of compromise between the creditor and the debtor
benefits the guarantor,but does not prejudice him. And the
compromise entered into by the guarantor and the creditor benefits
also but not prejudice the principal debtor.
Right to protection : GUARANTOR and not surety
1.BEFORE PAYMENT
a. GENERAL RULE: The guarantor has no right of action unless
he has paid
Exception: Proceed against the principal debtor even before
payment
1. The guarantor ask from the debtor he be released from
guaranty or
2. the debtor execute a counter guaranty to indemnify the
guarantor ( Counter guarantor)
SIEDLIE
1.Sued for payment or is insolvent of principal debtor
2.The debtor bound to relieve the guaranty of his obligation within
a specified period and this period expired
3. when the debt has expired and the debt because due and
demandable
4.Lapse of ten years
5.Reasonable ground that the debtor is to abscond
6.Insolvent
Notice
The guarantor must notify the principal debtor before making
payment. The debtor is not aware and the debtor repeats the
payment the guarantor has no remedy against the debtor but only
against the creditor.
2.After payment
1.Indemnity from the principal debtor
a.Total amount
b.Interest
c.Expenses incurred
d. Damages
2.Subrogation: If it is with the knowledge and consent of the
debtor
Q: What if there are several guarantors of one debtor?
A: The liability of the guarantor is joint. The several guarantor is
entitled to the benefit of division. The creditor cannot claim from
the guarantor except the shares they are bound to pay except when
solidary is stipulated.
Extinguishment :
1.The moment of the extinguishment of the principal contract of
loan
2.If the creditor accepts immovable property of the debtor the
guarantee is likewise extinguished this is also equivalent to dacion
en pago if the creditor accepts payment from the debtor this
extinguishes the principal obligation.
3.The extension granted to the debtor to the creditor without the
knowledge and consent of the guarantor extinguish the guaranty.
The creditor deprives itself of the right to enforce the claim.
Mere laxity in a few dates in demoing payment is not covered. The
consent of the guarantor may be done expressly or impliedly
Ratio: An extension given to the principal debtor without the
guarantor consent deprives the later of his right to pay the creditor
to pay the obligation and subrogate the right of the creditor against
the principal debtor.
CCC vs Kawakaki Steel and FF Manakop
Kawasaki and FF Manakop executed a consortium agreement for
the construction of the Pangasinan fishing port. This project was
for the Philippine government. The contract between Kawasaki and
FF Manakop is a consortium agreement they entered into a
separate contract with the Philippine government for the
construction of the fishing port. The PH government made an
advance payment , in order to get is share, FF Manakop secured a
bond which was issued by CCI n favor of Kawasaki since
Kawasaki was the one holding the advance payment and to make
sure that FF Manakop will comply with its obligation hence a bond
was isused. The bond was issued to guaranty the faithful
compliance of FF Manakop. FF Manakop later ceased performing
its work due to financial problem. Kawasaki was forced to
continue with the work they executed a new agreement where
Kawasaki recognize the extent of the work already finished by FF
Manakop corresponding to the advance payment it received.
Kawasaki undertook to finish the project in turn FFF will waive
whatever additional benefit Kawasaki will receive from completing
the project.
Kawasaki demended indemnification. CCC refused to pay
Kawasaki on the ground that the obligation is extinguished when
the obligation was extended without the consent of CCI . Therefore
Kawaski filed against the petitioner to claim the bond posted by
CCI. The trial court ruled that 2079 extinguished the obligation of
CCI because the extension granted without the consent of CCI
without its consent .Issue : Whether the CCI is liable under
performance bond and whether the extension of the republic under
the consortium extinguishes the bond

Ruled:
1.There are two principal agreement
a.There are two agreement : The consortium agreement between
Kawasaki and Manakop
b.The RP awarded the construction agreement under the
consortium.

The liability of the surety is dependent upon the obligation of

Kawaaki and Manakop under the surety agreement. The SC said
that the surety and performance bond guaranteed the performance
of the obligation of FF Manacop to Kawasaki under the
Consortium agreement. The republic was not a party in either the
surety and the performance bond or the consortium agreement .
Under these circumstance there is no creditor debtor relation ship
between Republic and FF Manacop and Article 2079 of the Civil
Code does not apply.

Gilat vs United Coconut planter

The purchase agreement contain a arbitration the CA is on the

opinion that the case must first be claimed under arbitration before
the claim to surety may be had. The issue is whether the surety is
liable to Gilat without first proceeding via the arbitration clause in
the purchase agreement
Ans: Yes. The surety is joint and severally with the creditor. The
surety is not entitled to a new notice of default as to principalThe
creditor may proceed against the surety without first going against
the principal debtor. In suretyship the off repeated rule is that the
liability of the surety is joint and solidary with that of the principal
debtor. Thus a surety is not entitled to a separate notice of default
or to the benefit of excussion. It may in fact be sued separately or
together with the principal debtor.