credit transactions (final)

8/10/2019 Credit Transactions (Final)

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1CIVIL LAW MEMORY AID COMMITTEE: Chairperson: OLIVIA B. CORNEJO; EDP: JUDITH Y. RAMOSMembers:Malou Ababa, Jinky Mangantulao, Ana Liza Pural, Roderick Reyes, Ma. Janice Tejano, Anna Leah Y. Tiongson, Alwin ryan !illa"lor

MEMORY AID IN CIVIL LAWSAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS

Reproduction in any form of this copy is strictly prohibited!!!

CREDIT TRANSACTIONS

CREDIT TRANSACTIONSAll transactions or loan of goods, services, ormoney in the present with a promise to pay ordeliver in the future.Types:1. Secured transactions or contracts of real

security supported by a collateral or anencumbrance of property

. "nsecured transactions or contracts ofpersonal security supported only by apromise

Se!"#$% something given, deposited, or serving as a

means to ensure fulfilment or enforcements ofan obligation or of protecting some interest inproperty.

B'(e)$ The delivery of property of one person toanother in trust for a specific purpose, with acontract, e#press or implied, that the trust shallbe faithfully e#ecuted and the property returnedor duly accounted for when the special purposeis accomplished or $ept until the bailor claims it.%arties:1. bailor the giver& one who delivers property. bailee the recipient& one who receives the

custody or possession of the thing thusdelivered

LOANA contract wherein one of the parties deliversto another, either something not consumable sothat the latter may use the same for a certaintime and return it or money or other consumablething, upon the condition that the same amountof the same $ind and 'uality shall be paid.(haracteristics:1. Real (ontract ) delivery of the thing loaned

is necessary for the perfection of the

contract An accepted promise to ma$e afuture loan is a consensual contract, andtherefore binding upon the parties but itis only after delivery, will the realcontract of loan arise.

. "nilateral (ontract once the sub*ect matterhas been delivered, it creates obligations onthe part of only one of the parties +i.e.borrower.

-inds:1. #o$$odatu$ ) when the bailor +lender

delivers to the bailee +borrower a nonconsumable thing so that the latter may use

it for a certain time and return the identicalthing.-inds of commodatum:

a. rdinary (ommodatum ) use by theborrower of the thing is for a certainperiod of time

b. %recarium one whereby the bailormay demand the thing loaned at willand it e#ists in the following cases:

i. neither the duration or purposeof the (( is stipulatedii. the use of the thing is merely

tolerated by the owner. %i$&le loan or $utuu$) where the lender

delivers to the borrower money or otherconsumable thing upon the condition thatthe latter shall pay the same amount of thesame $ind and 'uality.

L*&) C"e+#$/elivery by oneparty and the receiptof other party of a

given sum of moneyor other consumablething upon anagreement, e#pressor implied, to repaythe same.

Ability of a personto borrow money orthings by virtue of

the trust or confidence reposedby the lender thathe will pay what hepromised.

L*&) D#,*!)$#)-&e"

1. 0nterest ta$en atthe e#piration of thecredit

0nterest is ta$en inadvance

. Always on a

double name paper+two signatureappear with bothparties held liable

Always on a single

name paper +i.e.%romissory otewith no indorsement other than thema$er

C*((*+&$!( M!$!!(

1. Object

onconsumable (onsumable

2. Cause

2ratuitous 3ay or may not begratuitous

3. Purpose

"se or temporarypossession (onsumption

4. Subject Matter

Real or personalproperty

nly personalproperty

5. Onership o! the thin"

Retained by thebailor

%asses to thedebtor

#. $hin" to be returne%

4#act thing loaned 4'ual amount of the same $ind and'uality

&. 'ho bears ris( o! )oss

5ailor /ebtor*. 'hen to return

in case of urgentneed, even beforethe e#piration ofthe term

nly after thee#piration of theterm

COMMODATUM


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ature:1. 5ailee in commodatum ac'uires the use ofthe thing but not its fruits +unless stipulated as

an incidental part of the contract.. 4ssentially gratuitous& it ceases to be acommodatum if any compensation is to be paidby the borrower who ac'uires the use.6. Similar to a donation in that it confers abenefit to the recipient.7. "se of the thing loaned must be temporary,otherwise the contract may be a deposit.8. Sub*ect matter is generally nonconsumablewhether real or personal but if the consumablegoods are not for consumption as when they aremerely for e#hibition, consumable goods maybe the sub*ect of the commodatum.9. 5ailor need not be the owner of the thing

owned.. /eath of either party terminates the contractunless by stipulation, the commodatum istransmitted to the heirs of either or both parties.;. 5ailee can neither lend nor lease the ob*ectof the contract.e does not advise the bailee of the

same

e. The bailee suffers damages by reasonof said flaw or defect

0f the above re'uisites concur, the baileehas the right of retention for damages.

SIMPLE LOAN OR MUTUUM A contract whereby one party delivers toanother money or other consumable thing withthe understanding that the same amount of thesame $ind and 'uality shall be paid.The obligation is ?to pay@ and not to returnbecause the consumption of the thing loaned isthe distinguishing character of the contract ofmutuum from that of commodatum. o estafa is committed by a person whorefuses to pay his debt or denies its e#istence.

S#('e L*&)M!$!!( Re)$1. /elivery of moneyor some consumablething with a promise topay an e'uivalent ofthe same $ind and'uality

/elivery of some nonconsumable thing inorder that the othermay use it during acertain period andreturn it to the former.

. There is a transferof ownership of thething delivered

There is no transfer ofownership of the thingdelivered

6. Relationshipbetween the parties isthat of obligorobligee

Relationship is that ofa landlord and tenant

7. (reditor receivespayment for his loan

wner of the propertyrented receivescompensation or priceeither in money,provisions, chattels, orlabor from theoccupant thereof inreturn for its use+Tolentino vs2onales, 8B phil 88;

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the bailee is bound toreturn the identicalthing borrowed when

the time has e#piredor purpose served

given in return for whathas been received

6. 3utuum may begratuitous andcommodatum isalways gratuitous

nerous, actually amutual sale

Corm of %ayment:1. 0f the thing loaned is $oney, payment must

be made in the currency stipulated, if it ispossible& otherwise it is payable in thecurrency which is legal tender in the%hilippines.

. 0f what was loaned is a "ungible thing other

than $oney, the borrower is underobligation to pay the lender another thing ofthe same $ind, 'uality and 'uantity. 0n caseis impossible to do so, the borrower shallpay its value at the time of the perfection ofthe loan.

I)$e"e,$ the compensation allowed by law or fi#ed bythe parties for the loan or forbearance of money,goods or creditsRe'uisites for recovery: +4D0

1. must be e#pressly stipulated

. must be lawful6. must be in writing

C*(*!)+ I)$e"e,$'()(RAL R*L(+ "npaid interest shall notearn interest.(#(PT-)%+

1. when *udicially demanded. when there is an e#press stipulation

G!#+e'#)e, *" $1e &'#&$#*) * "*e"#)$e"e,$ "&$e,1. 0f there is stipulation: that rate shall be

applied

. The following are the rules of thumb for theapplicationEimposition of interest rates:a Fhen an obligation, regardless of its

source, i.e., law, contracts, 'uasicontracts, delicts or 'uasidelicts isbreached, the contravenor can be heldliable for damages.

b Fith regard particularly to an award ofinterest in the concept of actual andcompensatory damages, the rate ofinterest, as well as the accrual thereof,is imposed, as follows:i. Fhen the obligation breached

consists of payment of a sum ofmoney /loan or "orbearance o"$oney0, the interest shall be thatwhich is stipulated or agreed uponby the parties. 0n absence of anagreement, the rate shall be twelvepercent +1G per annum computedfrom default.

The interest due shall itselfearn legal interest from the timeit is *udicially demanded

ii. 0n other cases, the rate of interestshall be si# percent +9G perannum.

o interest, however, shall bead*udged on unli'uidated claimsor damages e#cept when oruntil the demand can beestablished with reasonablecertainty.Fhen the demand cannot beestablished, the interest shallbegin to run only from the dateof the *udgment of the court ismade.

iii. Fhen the *udgment of the courtawarding a sum of money becomes"inal and e1ecutory, the rate of legalinterest, whether the case fallsunder paragraph i or ii above, shallbe 1G per annum from suchfinality until its satisfaction, thisinterim period being deemed to beby then an e'uivalent to aforbearance of credit. +4asternShipping Dines vs. (A, Huly 1,1


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immovable property fungible thing

De*,#$ C*((*+&$!(

1. %urpose isSafe$eeping 1. %urpose is thetransfer of the use. 3ay be gratuitous . 4ssentially and

always gratuitous6.3ovableEcorporealthings only in caseof e#tra*udicialdeposit

6. 5oth movable andimmovable may bethe ob*ect

-inds of /eposit:1. Hudicial +Se'uestration )ta$es place when

an attachment or seiure of property inlitigation is ordered.

. 4#tra*udiciala. Ioluntary ) one wherein the delivery is

made by the will of the depositor or bytwo or more persons each of whombelieves himself entitled to the thingdeposited.

b. ecessary ) one made in compliancewith a legal obligation, or on theoccasion of any calamity, or bytravellers in hotels and inns, or bytravellers with common carriers.

The chief difference between a voluntarydeposit and a necessary deposit is that in

the former, the depositor has a completefreedom in choosing the depositary,whereas in the latter, there is lac$ of freechoice in the depositor.

J!+##&' E$"&45!+##&'

1. Creation

Fill of the court Fill of the partiesor contract

2. Purpose

Security or to insurethe right of a party

to property or torecover in case offavorable *udgment

(ustody andsafe$eeping

3. Subject Matter

3ovables or immovables,but generallyimmovables

3ovables only

4. Cause

Always onerous 3ay be compensated or not, butgenerally gratuitous

5. 'hen must the thin" be returne%

"pon order of thecourt or whenlitigation is ended

"pon demand ofdepositor

#. +n hose beha)! it is he)%

%erson who has aright

/epositor or thirdperson designated

A contract for the rent o! sa!et, %epositbo-es is not an ordinary contract of lease ofthings but a s&ecial kind o" de&osit& hence, it is

not to be strictly governed by the provisions ondeposit. The relation between a ban$ and itscustomer is that of a bailor and bailee. +(A Agrovs (A, 1< S(RA 79

0f the depositary is capacitated, he is sub*ectto all the obligations of a depositary whether ornot the depositor is capacitated. 0f the depositoris incapacitated, the depositary must return theproperty to the legal representative of theincapacitated or to the depositor himself if heshould ac'uire capacity.The incapacitated depositary does not incurthe obligation of a depositary but he is liable:

1. to return the thing deposited while stillin his possession

. to pay the depositor the amount whichhe may have benefited himself with thething or its price sub*ect to the right ofany third person who ac'uired the thingin good faith

O/'#-&$#*), * $1e De*,#$&"%:1. To $eep the thing safely. To return of the thing when re'uired6. 4#ercise over the thing deposited the same

diligence as he would e#ercise over hisproperty

7. ot to deposit the thing with a third personunless authoried by e#press stipulation

8. 0f the thing deposited should earn interest:a. to collect interest as it fall dueb. to ta$e steps to preserve its value and

rights corresponding to it9. ot to commingle things deposited if so

stipulated. ot to ma$e use of the thing deposited

unless authoried;. Fhen the thing deposited is delivered

sealed and closed:a. to return the thing deposited when

delivered closed and sealed, in thesame condition

b. to pay for damages should the seal orloc$ be bro$en through his fault, whichis presumed unless proved otherwise

c. to $eep the secret of the deposit whenthe seal or loc$ is bro$en with or withouthis fault.The depositary is authoried to openthe thing deposited which is closed andsealed when:i. there is presumed authority +i.e. when

the $ey has been delivered to himor the instructions of the depositorcannot be done without opening it

ii. necessity


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'()(RAL R*L(+/eposit is for safe$eepingof the sub*ect matter and not for use. The

unauthoried use by the depositary would ma$ehim liable for damages.(#(PT-)%+

1. Fhen the preservation of the thingdeposited re'uires its use

. Fhen authoried by the depositor

Ee$ # e"(#,,#*) $* !,e #, -#6e):1. 0f thing deposited is nonconsumable, the contract loses the character ofa deposit and ac'uires that of a commodatumdespite the fact that the parties may havedenominated it as a deposit, unless safe$eepingis still the principal purpose.

. 0f thing deposited consists of moneyEconsumable things, the contract isconverted into a simple loan or mutuum unlesssafe$eeping is still the principal purpose inwhich case it is called an irregular deposit.4#ample: ban$ deposits are irregular deposits innature but governed by law on loans.

I""e-!'&" +e*,#$ M!$!!(1. The thing depositedmay be demanded atwill by the depositor

1. Dender is bound bythe provisions of thecontract

. The only benefit is

that which accrues tothe depositor

. 4ssential cause for

the transaction is thenecessity of theborrower

6. The irregular depositor has apreference over othercreditors with respectto the thing deposited

6. o preference in thedistribution of thedebtor=s property

The permission to use is T presumede#cept when such use is necessary for thepreservation of the thing deposited.

L#&/#'#$% *" '*,, $1"*!-1 *"$!#$*!, e6e)$

The depositary is liable for loss of the thingthrough fortuitous event: +S"/A1. if ,tipulated. if he !ses the thing without the depositorJs

permission6. if he +elays its return7. if he &llows others to use it, even though he

himself may have been authoried to usethe same

R!'e 71e) $1e"e &"e $7* *" (*"e +e*,#$*",:1. -" thing de&osited is di5isible and de&ositors

are not solidary: 4ach depositor can

demand only his proportionate sharethereto.. -" obligation is solidary or i" thing is not

di5isible: Rules on active solidarity shallapply, i.e. each one of the solidarydepositors may do whatever may be usefulto the others but not anything which may bepre*udicial to the latter, and the depositary

may return the thing to anyone of thesolidary depositors unless a demand,

*udicial or e#tra*udicial, for its return has

been made by one of them in which case,delivery should be made to him.

The depositary may retain the thing in pledgeuntil full payment of what may be due him byreason of the deposit.

The depositor=s heir who in good faith mayhave sold the thing which he did not $now wasdeposited, shall only be bound to return theprice he may have received or to assign hisright of action against the buyer in case theprice has not been paid him.

O/'#-&$#*), * $1e De*,#$*":1. To pay e#penses for preservation

a 0f the deposit is gratuitous, the depositor isobliged to reimburse the depositary fore#penses incurred for the preservation ofthe thing deposited

b 0f the deposit is for valuable consideration,e#penses for preservation are borne bythe depositary

. To pay loses incurred by the depositary due tothe character of the thing deposited'()(RAL R*L(+ The depositor shallreimburse the depositary for any loss arisingfrom the character of the thing deposited.(#(PT-)%+

1. at the time of the deposit, the depositorwas not aware of the dangerous characterof the thing

. when depositor was not e#pected to $nowthe dangerous character of the thing

6. when the depositor notified the depositoryof the same

7. the depositary was aware of it withoutadvice from the depositor

E$#)-!#,1(e)$ * V*'!)$&"% De*,#$1. Doss or destruction of the thing deposited

. 0n case of gratuitous deposit, upon the deathof either the depositor or the depositary

6. ther causes, such as return of the thing,novation, e#piration of the term fulfilment ofthe resolutory condition, etc

Nee,,&"% De*,#$,1. made in compliance with a legal obligation. it ta$es place on the occasion of any

calamity such as fire, storm, flood, pillage,shipwrec$ or other similar events

De*,#$ /% T"&6e''e", #) 1*$e', &)+ #)),: The $eepers of hotels or inns shall beresponsible as depositaries for the deposit ofeffects made by travellers&ro5ided:1. otice was given to them or to their

employees of the effects brought by theguest& and

. The guests ta$e the precautions which saidhotel$eepers or their substitutes advised


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relative to the care and vigilance of theireffects.

Diability shall 4K(D"/4 losses which

proceed from force ma*eure. The act of a thiefor robber is not deemed force ma*eure unlessdone with the use of arms or irresistible force.The hotel$eeper cannot free himself from theresponsibility by posting notices to the effectthat he is not liable for the articles brought bythe guest. Any stipulation to such effect shall bevoid.

GUARANTYA contract whereby a person +guarantor bindshimself to the creditor to fulfil the obligation ofthe principal debtor in case the latter "ail to doso.

(lassification of 2uaranty:1. 0n a broad sense:

a. %ersonal the guaranty is the creditgiven by the person who guarantees thefulfilment of the principal obligation.

b. Real the guaranty is the property,movable or immovable.

. As to its rigina. (onventional agreed upon by the

parties.b. Degal one imposed by virtue of a

provision of a law.c. Hudicial one which is re'uired by a

court to guarantee the eventual right ofone of the parties in a case.

6. As to #onsiderationa. 2ratuitous the guarantor does not

receive any price or remuneration foracting as such.

b. nerous the guarantor receivesvaluable consideration.

7. As to the Person guaranteeda. Single one constituted solely to

guarantee or secure performance of theprincipal obligation.

b. /ouble or subguaranty oneconstituted to secure the fulfilment of a

prior guaranty.8. As to %co&e and (1tent

a. /efinite the guaranty is limited to theprincipal obligation or to a specificportion thereof.

b. 0ndefinite or simple one which not onlyincludes the principal obligation but theaccessories.

SURETYSHIP A contract whereby a person binds himselfsolidarilywith the principal debtor. The reference in Art. B7 to solidaryobligations does not mean that suretyship iswithdrawn from the applicable provisionsgoverning guaranty. A surety is almost the sameas a solidary debtor, e#cept that he himself is aprincipal debtor.

C1&"&$e"#,$#, * G!&"&)$% &)+ S!"e$%,1#:

1. Accessory 0t is indispensable condition forits e#istence that there must be a principalobligation.

The guarantor cannot bind himself formore than the principal debtor and evenif he does, his liability shall be reducedto the limits of that of the debtor

. Subsidiary and (onditional ta$es effectonly in case the principal debtor fails in hisobligation.

6. "nilateral may be entered even wEo theintervention of the principal debtor and itgives rise only to a duty on the part of theguarantor in relation to the creditor and notvice versa.

7. ominate8. (onsensual

9. 0t is a contract between the guarantorEsuretyand creditor.

Fith respect to the creditor, no suchre'uirement is needed because hebinds himself to nothing. >owever, whenthere is merely an o""er o" a guaranty, ormerely a conditional guaranty, in thesense that it re'uires action by thecreditor before the obligation becomesfi#ed, it does not become binding until itis accepted and notice of suchacceptance by the creditor is given tothe guarantor. 5ut in any case, thecreditor is not precluded from waivingthe re'uirement of notice.The consideration of the guaranty isthe same as the consideration of theprincipal obligation.

. ot presumed. 0t must be e#pressed andreduced in writing.

;. Calls under the Statute of Crauds since it isa ?special promise to answer for the debt,default or miscarriage of another@.


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. Dimited by the terms of the contract.6. Arises only if principal debtor is held liable.

The creditor may sue separately or

together the principal debtor and thesurety.7. Surety is not entitled to the benefit of

e#haustion>e assumes a solidary liability for thefulfilment of the principal obligation.

8. "nderta$ing is to creditor and not to debtor.

G!&"&)$% S!"e$%,1#

1. Diability dependsupon an independentagreement to pay theobligation if primarydebtor fails to do so

1. Surety assumesliability as regularparty to theunderta$ing

. (ollateral underta$ing

. Surety is an originalpromisor

6. 2uarantor issecondarily liable

6. Surety is primarilyliable

. 2uarantor bindshimself to pay if theprincipal (AT%AL

7. Surety underta$esto pay if the principal/4S T %AL

8. 0nsurer of solvencyof debtor

8. 0nsurer of the debt

9. 2uarantor canavail of the benefit ofe#cussion and divisionin case creditor proceeds against him

9. Surety cannot availof the benefit of e#cussion and division

I)+*",e(e)$ G!&"&)$%1. %rimarily of transfer 1. (ontract of security. "nless the note ispromptly presented forpayment at maturityand due notice of dishonor given to theindorser within areasonable time he willbe discharged absolutely from all liabilitythereon

. 0n either or both ofthese particulars doesnot generally wor$ asan absolute dischargeof a guarantor=sliability

6. 0ndorser does notwarrant the solvency.>e is answerable on astrict compliance withthe law by the holder,whether the promisoris solvent or not

6. 2uarantor warrantsthe solvency of thepromisor

7. 0ndorser can besued

7. 2uarantor cannotbe sued as promisor

A guaranty or suretyship may secure the

performance of a:1. Ioidable contract. "nenforceable contract6. atural obligation

The creditor may proceed against theguarantor although he has no right ofaction against the principal debtor.

C*)$#)!#)- -!&"&)$%ne which is not limited to a single transactionbut which contemplates a future course of

dealings, covering a series of transactionsgenerally for an indefinite time or until revo$ed.Cuture debts, even if the amount is not yet$nown, may be guaranteed, but there can be noclaim against the guarantor until the amount ofthe debt is ascertained or fi#ed anddemandable.

E$e)$ * G!&"&)$*"8, '#&/#'#$%:1. Fhere the guaranty de"inite: 0t is limitedin whole or in part to the principal debt, to thee#clusion of accessories.. Fhere guaranty inde"inite or si$&le: 0tshall comprise not only the principal obligation,

but also all its accessories, including the *udicialcosts, provided with respect to the latter, that theguarantor shall only be liable for those costsincurred after he has been *udicially re'uired topay.

!&'##&$#*), * & -!&"&)$*":1. possesses integrity. capacity to bind himself6. has sufficient property to answer for the

obligation which he guarantees

Be)e#$ * E!,,#*)The right by which the guarantor cannot becompelled to pay the creditor unless the latterhas e#hausted all the properties of the principaldebtor, and has resorted to all of the legalremedies against such debtor.

W1e) G!&"&)$*" #, )*$ e)$#$'e+ $* $1e /e)e#$* e!,,#*):1. 0f the guarantor has e#pressly renounced it. 0f he has bound himself solidarily with the

debtor6. 0n case of insolvency of the debtor7. Fhen he has absconded, or cannot be sued

within the %hilippines unless he has left a

manager or representative8. 0f it may be presumed that an e#ecution on

the property of the principal debtor wouldnot result in the satisfaction of the obligation

9. 0f the guarantor does not set up the benefitagainst the creditor upon demand forpayment from him, and point out to thecreditor available property to the debtorwithin %hilippine territory, sufficient to coverthe amount of the debt

. 0f he is a *udicial bondsman or subsurety;. Fhere the pledge or mortgage has been

given by him as special security


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The creditor can claim from the guarantorsonly the shares they are respectively bound to

pay e1ce&t when solidarity is sti&ulated.

0f any of the guarantors should be insolvent,his share shall be borne by the others includingthe paying guarantor in the same *ointproportion following the rule in solidaryobligations.

The right to contribution or reimbursementfrom his coguarantors is ac'uired i&so jure byvirtue of said payment without the need ofobtaining from the creditor any prior cession ofrights to such guarantor.

P"*e+!"e 71e) "e+#$*" ,!e,: +Art. B9 The guarantor cannot be sued with hisprincipal, much less alone e#cept in Art. B8is voluntaryappearance does not constitute a renunciationof his right to e#cussion +see Art. B8


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. Cor the same causes as all other obligations&

6. 0f the creditor voluntarily accepts immovable

or other properties in payment of the debt,even if he should afterwards lose the samethrough eviction or conveyance of property&

7. Release in favor of one of the guarantors,without the consent of the others, benefitsall to the e#tent of the share of theguarantor to whom it has been granted&

8. 4#tension granted to the debtor by thecreditor without the consent of theguarantor& and

9. Fhenever by some act of the creditor, theguarantors even though they are solidarilyliable cannot be subrogated to the rights,mortgages and preferences of the former.

BONDAn underta$ing that is sufficiently secured, andnot cash or currency.

B*)+,(&)A surety offered in virtue of a provision of lawor a *udicial order. >e must have the'ualifications re'uired of a guarantor.

Hudicial bonds constitute merely a specialclass of contracts of guaranty by the fact thatthey are given ?in virtueM of a *udicial order.@A *udicial bondsman and the subsurety areT entitled to the benefit of e#cussionbecause they are not mere guarantors, butsureties whose liability is primary and solidary.

PLEDGE> MORTGAGE AND ANTICHRESIS

I. C*((*) E'e(e)$, * P'e+-e> M*"$-&-e>&)+ A)$#1"e,#,

. Essentia) /e0uisites1. Secures the fulf il lment of a principal

obligation&. %ledgor, mortgagor, antichretic debtor must

be the absolute owner of the thing pledgedor mortgaged& and

6. %ledgor, mortgagor, antichretic debtor musthave free disposal of their property, or belegally authoried for such purpose.

Third persons can pledge or mortgage theirown property to secure the principal obligation.

. Prohibition a"ainst PactumCommissorium

P&$!( C*((#,,*"#!( Stipulation whereby the thing &ledged or$ortgaged, or under antichresis shallautomatically become the property of thecreditor in the event of nonpayment of the debtwithin the term fi#ed.'()(RAL R*L(+ %actum (ommissorium isforbidden by law and is declared null and void.

(#(PT-)+ The pledgee may appropriatethe thing pledged if after the first and secondauctions, the thing is not sold.

C. Capabi)it, to secure a)) (in%s o!ob)i"ations i.e. pure or con%itiona)

D. +n%iisibi)it,'()(RAL R*L(+ A pledge, mortgage, orantichresis is indivisible.(#(PT-)%+

1. Fhere each one of several thingsguarantees a determinate portion ofthe credit

. Fhere only a portion of the loan wasreleased

6. Fhere there was failure of

consideration.

E. 'hen the principa) ob)i"ation becomes%ue the thin"s in hich the p)e%"emort"a"e or antichresis consists ma, bea)ienate% !or the pa,ment to the cre%itor.

. P)e%"or mort"a"or antichretic %ebtorretains onership o! the thin" "ien as asecurit,

PLEDGEA contract wherein the debtor delivers to thecreditor or to a third person a movable ordocument evidencing incorporeal rights for thepurpose of securing fulfilment of a principalobligation with the understanding that when theobligation is fulfilled, the thing delivered shall bereturned with all its fruits and accessions.Special Re'uisites /in addition to the co$$onessential re6uisites0:1. %ossession of the thing pledged must be

transfered to the creditor or a third personby agreement&

. 0t can only cover movable property andincorporeal rights evidenced by documentsof title& and

6. The descri&tionof the thing pledged and thedatemust appear in a public instrument tobind third persons, but not for the validity ofthe contract.

-inds:1. (onventional ) created by contract. Degal ) created by operation of law

+e#amples: Art. 879, 161 and 1


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P'e+-eeR#-1$, O/'#-&$#*),

1. To bring actionspertaining to an owner

. To sell at public auction incase of reasonable groundsto fear destruction orimpairment of the thingwithout his fault6. ption to demandreplacement or immediatepayment of the debt in caseof deception as to substanceor 'uality7. To sell at public auction incase of nonpayment of debtat maturity8. To bid at the publicauction9. To appropriate the thing incase of failure of the nd

public auction. To retain e#cess valuereceived in the public sale;. To possess the thing


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1. Hudicial ) ordinary action for foreclosureunder Rule 9; of the Rules of (ourt

. 4#tra*udicial ) when mortgagee is given a

special power of attorney to sell themortgaged property by public auction, underAct o. 6168

Should there remain a balance due to themortgagee after applying the proceeds of thesale, the mortgagee is entitled to recover thedeficiency.S$#!'&$#*) * !,e$ "#e *" @$#*0t is a stipulation of minimum price at which theproperty shall be sold, to become operative inthe event of a foreclosure sale at public auction.0t is null and void.

Re+e($#*) 0t is the transaction by which the mortgagorreac'uires or buys bac$ the property which mayhave passed under the mortgage, or divests theproperty of the lien which the mortgage mayhave created.-inds:1. 4'uity of Redemption ) right of mortgagor

to redeem the mortgaged property after hisdefault in the performance of the conditionsof the mortgage but before the sale of themortgaged property or confirmation of thesale. Applies to *udicial foreclosure of realmortgage and chattel mortgage foreclosure.

. Right of Redemption ) right of mortgagor toredeem the mortgaged property within oneyear from the date of registration of thecertif icate of sale. Applies only toe#tra*udicial foreclosure of real mortgage.

ANTICHRESISA contract whereby the creditor ac'uires theright to receive the fruits of an immovable of thedebtor, with the obligation to apply them to thepayment of the interest, if owing, and thereafterto the principal of his credit.

Special Re'uisites /in addition to the co$$onessential re6uisites0:1. 0t can cover only the fruits of an immovable

property&. /elivery of the immovable is necessary for

the creditor to receive the fruits&6. Amount of principal and interest must be

specified in writing& and7. 4#press agreement that debtor will give

possession of the property to creditor andthat the latter will apply the fruits to theinterest, if any, then to the principal of hiscredit.

A)$#1"e,#, P'e+-e1. Refers to realproperty

1. Refers to personalproperty

. %erfected by mereconsent

. %erfected bydelivery of the thingpledged

A)$#1"e,#, Re&' M*"$-&-e1. %roperty isdelivered to creditor

1. /ebtor usuallyretains possession of

the property. (reditor ac'uiresonly the right toreceive the fruits ofthe property, hence, itdoes not produce areal right

. (reates a real overthe property

6. The creditor, unlessthere is stipulation tothe contrary, is obligedto pay the ta#es andcharges upon theestate

6. The creditor has nosuch obligation

7. 0t is e#pressly

stipulated that thecreditor givenpossession of theproperty shall apply allthe fruits thereof to thepayment of interest, ifowing, and thereafterto the principal

7. There is no such

obligation on part ofmortgagee

O/'#-&$#*), * &)$#1"e$# "e+#$*":1 To pay ta#es and charges on the estate,

including necessary e#penses (reditor may avoid said

obligation by:a. compelling debtor to reac'uireen*oyment of the property or

b. by stipulation to the contrary. To apply all the fruits, after receiving them,

to the payment of interest, if owing, andthereafter to the principal

6 To render an account of the fruits to thedebtor

CHATTEL MORTGAGEA contract by virtue of which personal propertyis recorded in the (hattel 3ortgage Register asa security for the performance of an obligation.

Special Re'uisites /in addition to the co$$onessential re6uisites0:1. 0t can cover only personal or movable

property in general& however, the partiesmay treat as personal property that which byits nature would be real property&

. Registration of the mortgage with the(hattel 3ortgage Register where themortgagor resides& if property is located in adifferent province, registration in bothprovinces re'uired&

6. /escription of the property as would enablethe parties or other persons to identify the

same after reasonable investigation andin'uiry& and7. Accompanied by an a""ida5it o" good "aithto

bind third persons, but not for the validity ofthe contract.

C1&$$e' M*"$-&-e P'e+-e1. /elivery of the 1. /elivery of the thing


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personal property tothe mortgage is notnecessary

pledged is necessary

. registration in the(hattel 3ortgageRegistry is necessaryfor its validity

. registration notnecessary to be valid

6. 0f property isforeclosed, e1cessover the amount duegoes to the debtor

6. /ebtor is notentitled to e1cessunless otherwiseagreed or e#cept incase of legal pledge

7. 0f there is de"iciencyafter foreclosure,creditor is entitled todeficiency from thedebtor, e#cept under

Art. 17;7

7. 0f there isde"iciency, creditor isnot entitled to recovernotwithstanding anystipulation to the

contrary

A#+&6#$ * G**+ F$1ath in a contract of chattel mortgage whereinthe parties Nseverally swear that the mortgage ismade for the purpose of securing the obligationspecified in the conditions thereof and for noother purposes and that the same is a *ust andvalid obligation and one not entered into for thepurpose of fraud.

Coreclosure sale in chattel mortgage is bypublic auction under Act o. 18B;, but the

parties may stipulate that it be by private sale.

The creditor may maintain an action for thedeficiency, e#cept if the chattel mortgage isconstituted as security for the purchase ofpersonal property payable in instalments.

nly e'uity of redemption is available to themortgagor& the latter can no longer redeem afterthe confirmation of the foreclosure sale.

CONCURRENCE AND PREFERENCE OFCREDITS

CONCURRENCE OF CREDITS%ossession by two or more creditors of e'ualrights or privileges over the same property or allof the property of the debtor.

PREFERENCE OF CREDITSRight held by a creditor to be preferred in thepayment of his claim above others out of thedebtor=s assets.

The rules apply when two or more creditorshave separate and distinct claims against thesa$edebtor who has insufficient property.

P"*e"$% ee($ "*( '#&/#'#$% *" !'#'(e)$* */'#-&$#*):

1. %resent property ) those provided underArts. 188 and B8 of the Camily (ode,Sec. 16, Rule 6< of the Rules of (ourt,and Sec. 11; of the %ublic Dand Act

. Cuture property

6. %roperty under legal custody and thoseowned by municipal corporationsnecessary for governmental purposes

Ge)e"&' C&$e-*"#e, * C"e+#$:1. %&ecial Pre"erred #redits those listed in

Arts. 71 and 7 shall be considered asmortgages and pledges of real or personalproperty or liens +Art. 76. >ence, theyare not included in the insolvent debtorJsassets.

. rdinary Pre"erred #redits those listed inArt. 77 as amended by Art. 11B of theDabor (ode.

6. #o$$on #redits) those listed under Art.78, which shall be paid pro rataregardless of dates.

rdinary %referred and (ommon (reditscover only ?free property@ of the debtor, or thosenot sub*ected to Special %referred (redit.

Re'e$#*)&"% C"e+#$ 0ndebtedness incurred in the repair orreconstruction of something previously made,such repair or reconstruction being madenecessary by the deterioration or destruction ofthe thing as it formerly e#isted.

ORDER OF PREFERENCE OF CREDITS Arts. 71 and 7, *ointly with Arts. 79and 7< establish a two7tier order o"

&re"erence:1. Cirst tier ) includes ta#es, duties and fees

due on specific movable or immovableproperty&

. Second tier ) all other special preferred+nonta# credits shall be satisfied prorata,out of any residual value of the specificproperty to which such credits relate.

The prorata rule does not apply to creditsannotated in the Registry of %roperty by virtueof a *udicial order, by attachments ande#ecutions, which are preferred as to later

credits. (redits which do not en*oy any preferencewith respect to specific property because theyare not among those mentioned in Arts. 71and 7 and those while included in saidarticles are unpaid because the value of theproperty to which the preference refers is lessthan the preferred credit or credits, shall besatisfied in the order established in Art. 77with reference to other real andEor personalproperty. (ommon credits or those which do not fallunder Arts. 71, 7, and 77 do not en*oyany preference and shall be paid pro rataregardless of dates.


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credit transactions (final)

Documents