Credit Transactions 2003

 CIVIL LAW REVIEWER 
1 SAINT LOUIS UNIVERSITY BAR OPERATIONS
(Art. 1940); if any compensation is to be paid by him who

acquires t he use, the contract ceases to be a commodatum.
LOAN
Art. 1936 –
Art. 1933 Art. 1937 –
2 Kinds of Loan: Subject matter of the contract:
1. Commodatum – where the bailor delivers to the bailed In commodatum, the subject matter is
or non-consumable thing so that the latter may use it generally non- consumable things, whether real
for a certain time and return the identical thing. or personal. However, if he purpose of the
2 Kinds of Commodatum: contract is not the consumption of the object as
1. Ordinary Commodatum (Art.1933); and when it is merely for exhibition, consumable
2. Precarium – one where the bailor may foods may be the subject of commodatum.
demand the thing at will.
2. Simple loan or mutuum – where the sender delivers to Art.1938
the borrower money or other consumable thing upon Bailor need not be owner:
the condition that the latter shall pay the same amount The bailor need not be the owner of the thing loaned
of the same kind and quality. since by the loan, ownership does not pass to the borrower.
Commodatum and Mutuum distinguished: Hence, a mere lessee of the thing, or the usufractuary may lend
1. Commodatum ordinarily involves something but the borrower or bailed himself may not lend nor lease the
not consumable (Art.1936), while in thing loaned to him to a third person.
mutuum, the subject matter is money or
other consumable thing. Art. 1939 – See Article (An exception to the general rule that all
2. In commodatum, ownership of the thing rights acquired in virtue of an obligation are transmissible
loaned is retained by the lender (Art. 1933), Art.1178)
while in mutuum, the ownership is
transferred to pay interest. Art. 1939 – Exception to Art. 1935
3. Commodatum is essentially gratuitous
(Art.1933), while mutuum may be gratuitous
or it may be onerous, that is, with stipulation Obligation of the Bailee
to pay interest.
4. In commodatum, the borrower must return Art. 1943 – The bailed does not answer for the deterioration
the some thing loaned (Art.1933), while in of the thing loaned due only to the use thereof and without his
mutuum the borrower much only pay the fault. But the bailee is liable if he is guilty of fault or negligence
same amount of the same kind and quality. (Art. 1170) or if he devotes the thing to any purpose different
5. Commodatum may involve real or personal from that for which it has been loaned.
property (Art. 1935), while mutuum refers
only to personal property. Art.1944. See Article
6. Commodatum is a loan for else or Art. 1945. See Article
temporary possession (Art. 1935), while
mutuum is for loan for consumption. Art. 1945 is an exception to the general rule that the
7. In commodatum, the bailor may demand concerned of two or more parties in the same obligation gives
the return of the thing loaned before the rise only to a joint obligation (Arts. 1207,1208).
expiration of the term in case of urgent
need (Art.1946), while in mutuum, the lender
may not demand its return before the lapse Obligations of the Bailor
of the term agreed upon, and
8. In commodatum, the lose of the subject Articles 1946 – 1952. See Articles
matter is suffered by the bailor since he is Art. 1946. See Articles
the owner (Art. 1942; Art.1147), while in
mutuum, the borrower suffers the loss ever *The bailor cannot demand the return of the thing
if caused exclusively by fortuitous event loaned till after the expiration of the period stipulation, or after
and he is not, therefore, discharged from his the accomplishment of the use for which the commodatum
duty to pay. has been constituted, Except:
1. If he should have an urgent need of the thing, or

Art.1934 – An accepted promise to deliver something by way 2. If the borrower commits an act of ingratitude (Art.1943)
of commodatum or simple loan is binding upon the parties, but (Sec. Art.765)
the commodatum or simple loan itself shall not be perfected
until the delivery of the object of the contract. Art. 1947. See Article
*Precarium is a kind of commodatum where the bailor may

COMMODATUM demand the thing at will.
Art. 1935 – The bailees in commodatum acquires the eye of Art. 1948. Exception to Art. 1946
the thing loaned but not is fruits, unless there is stipulation Art. 1949. See Articles
that the bailed may make use of the fruits of the things loaned
 Prepared by the CIVIL LAW SECTION  Chief NORBERT OBEDOZA Assistant Chief JOHN PAUL MARTIN Members LIWLIWA AGBAYANI,
ELMER PEDROZO, ALLAN ANCHETA, JONATHAN FERNANDEZ, GARY DE GUZMAN, EIGEE GALACGAC and YVALLONE LAMATON.
All Rights Reserved by the SAINT LOUIS UNIVERSITY COLLEGE OF LAW BAR OPERATIONS  2003.
1. Extraordinary expenses for the preservation of the borrower shall pay its value at the time of the
thing loaned. perfection of the loan.
Such expenses shall be borne by the bailor
(e.g., expenses for repairing borrowed house Art. 1955
damaged by a typhoon). * Requisites for recovery of interest:
1. The payment of interest must be
2. Extraordinary expenses arising from actual use of expressly stipulated.
the thing loaned. 2. The agreement must be in writing
Such expenses shall be borne by the bailor and 3. The interest must be lawful
bailee alike on a 50-50 basis (e.g., expenses for
repairing a borrowed jeep damaged in a * Liability for interest even in the absence of stipulation:
collision.) 1. Indemnity for damages
The debtor in delay is liable to
Art. 1950. See Article pay legal interest (6%/12%) as an indemnity
for damages even in the absence of
Art. 1951. See Article. On exception to Art. 1944 stipulation for the payment of interest.
* The following are the requisites which must 2. Interest Accruing from unpaid interest
concern for the application of the above article. Interest due shall earn interest
1. There is flaw or defect in the thing from the time it is judicially demanded
loaned. although the obligation may be silent upon
2. The flaw or defect is hidden. this point.
3. The bailor is aware thereof.
4. He does not advise the bailee of the Art. 1957. See Article
same. Art. 1958. See Article
5. The bailee suffers damages by reason
of said flaw or defect. Art. 1959 –
* When unpaid interest earns interest.
Art. 1952.See Article As a general rule, accrued interest shall not earn
interest except in two instances.
1. When judicially demanded as provided
Simple Loan or Mutuum for in Art. 2212, and
2. When there is an express stipulation
Art. 1953. See Articles made by the parties to witness that the
interest due and unpaid shall be added
* Simple loan, or mutuum – is a contract whereby one of the to the principal obligation and the
parties delivers to another many or other consumable thing resulting total amount shall earn
with the understanding that the same amount of the same interest.
kind and quality shall be said.
Art. 1960. See Article in relation to Art. 2154 and Art. 1423.
* Tangible things – are those which are usually dealt with by Art. 1961. See Article
number, weight or measure such as rise, oil, sugar etc. so that
any given unit or portion is treated as the equivalent of any xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
other unit or portion.
Art. 1954 –
*Barter or Exchange – one of the parties finds himself to give DEPOSIT
one thing in consideration of the other’s promise to give (Arts. 1962 - 2009)
another thing.
Art. 1955
* Form of Payment Deposit in General and is Different Kinds:
1. Loan of Money
If the thing loaned is money, payment must Art. 1962. –
be made in the currency stipulated, if it is * Definition of deposit – first
possible to deliver such currency; sentence
otherwise, it is payable in the currency * When there is no deposit –
which is legal tender in the Philippines (Art. second sentence
1249) and in case of extraordinary inflation Art. 1963. See Article
or deflation, the basis of payment shall be Art. 1964. –
the value of the currency at the time of the * Kinds of Deposit
creation of the obligation (Art.1250). Deposit is either:
1. Judicial or one which takes place
Loan of Tangible Thing when an attachment or seizure of
If what was loaned is a fungible thing other property in litigation is ordered. (Arts.
than money, the borrower is under obligation to pay 2005 - 2008)
the lender another thing of the same kind, quality, 2. Extrajudicial (Art.1967) which maybe;
and quantity. It case it is impossible to do so, the
a. Voluntary or one wherein the 1. To return the thing deposited

delivery is made by the will of while still in his possession,
the depositor or by two or and
more persons each of whom 2. To pay the depositor the
believes himself entitled to amount by which he may
the thing deposited (Arts. have benefited himself with
1968 - 1995); or the thing or its price subject
b. Necessary or one made in to the right of any third
compliance with a legal person who acquired the
obligation, or on the occasion thing in good faith.
of any calamity, or by Sec. 2.- Obligations of the
travelers in hotels and inns Depositary
(Arts.1996 - 2004) or by * Obligations of the depositary:
travelers with common 1. To keep the thing safely and
carriers. ( Arts. 1734 - 1735) return it (Art. 1972).
Art. 1965. – 2. Obligation not to transfer
* A contract of deposit is generally gratuitous; deposit (Art.1973).
except: 1. When there is an 3. Obligation not to change
agreement to the contrary way of deposit (Art. 1974)
2. When the depository 4. Obligations to collect interest
is engaged in the business of as it becomes due and to
storing goods. take such steps as maybe
Art. 196. - necessary to pressure its
* Subject Matter of Deposit: value and the rights
Only movable or personal property maybe corresponding to it. (Art.
the object of extrajudicial deposit, whether voluntary 1975).
(Art. 1968) or necessary (Art. 1995). Judicial deposits 5. Obligation not to commingle
(Art. 2005 - 2006), however, may cover movable as things deposited is so
well as immovable property its purpose being to stipulated.
protect the rights of parties to a suit. 6. Obligation not to make use
of thing deposited unless
Art. 1967. Discussed above authorized.
Voluntary Deposit 7. Obligation to return products,
Sec. 1. – General Provisions accessories, and accessories
Art. 1968. – (Art.1983).
* Voluntary deposit – is one wherein the delivery is * Rules applicable care and delivery of the
made by the will of the depositor. thing:
Art. 1969. – a. He is liable if the
* Form of Contract of Deposit: loss occurs
The above article follows the general rule through his fault or
that contracts shall be obligatory in whatever from negligence (Art.
they may have been entered into provided all the 1170), even if the
essential requisites for their validity are present, (Art. thing was insured
1356). Thus, except for the delivery of the thing, (Art. 2207).
there are no formalities required for the existence of b. The loss of the
the contract. thing while in his
Art. 1970. – possession raises
* Where depositary capacitated a presumption of
and depositor incapacitated. fault on his part
If the depository is (Art. 1265).
capacitated, he is subject to all c. The required
the obligations of a depository degree of care is
whether or not the depositor is greater if the
capacitated. In the latter case, the deposit is for
depository must return the compensation than
property to the legal when it is
representative of the incapacitated gratuitous. Similar
or to the depositor himself if he to agency (Art.
should acquire capacity (Art. 1909) and
1986). common carriers
Art. 1971. – (Art. 1733).
* Where depository incapacitates Art. 1973. –
and depositor capacitated. * The depositor is liable
The incapacitated for the loss of the thing
depository does not incur the deposited if;
obligation of a depository. a. He transfers the
However, he is liable; deposit with a third
person without b. To pay for damages should the seal or lock be

authority although broken through his fault, which is presumed
there is no unless proved otherwise.
negligence on his c. To keep the secret of the deposit when the seal
part and the third or lock is broken, with or without his fault.
person. Art. 1982. –
b. He deposits the * When depository justified to open the thing
thing with a third deposited which is closed and sealed?
person who is a. When there is presumed authority, or
manifestly careless b. When necessary
or unfit although Art. 1983. See Article
authorized, even in Art. 1984
the absence of * What is the obligation of the depository where third
negligence. person appears to be owner and how be may be
c. The thing is lost relieved from responsibility?
through the See paragraph 2, 3, 4 of the above article.
negligence of his Art. 1985. –
employers whether * Right of two or more depositors:
the latter are 1. Thing deposited divisible and depositors not
manifestly careless solidary.
or unfit. Each one can demand only his share
Art. 1974. – proportionate thereto.
* When may the 2. Obligation solidary or thing deposited not
depositary change the divisible.
way of the deposit? Each one of the solidary depositors may do
If under the whatever may be useful to the others but
circumstances he may not anything which may be prejudicial to the
reasonably presume latter (Art 1212), and the depository may
that the depositor return the thing to any one of the solidary
would consent to the depositors unless a demand, judicial or
change if he knew of extrajudicial, for its return has been made by
the facts of the situation. one of them in which case delivery should
Art. 1978. be made to him.
* What are the obligations of the depository if the 3. Return to one of depositors stipulated
thing deposited should earn interest? The depository is found to return it only to
1. To collect not only the person designated although he has not
the interest, but made any demand for its return.
also the capital
itself when due. Art. 1986 See Article in relation to Article 1970
2. To take such steps
as may be Art. 1987
necessary to
preserve its value  Where must the depository return the thing deposited?
and the right
corresponding to - The thing must be returned;
it. 1. At the place agreed upon by the parties, and
Art. 1976. See Article 2. In the absence of stipulation, at the place where the
Art. 1977. See Article in relation to Art. 1978 thing deposited might be even if it should not be the
Art. 1979. same place where the original deposit was made
* Generally, the depository is not liable for the loss provided the transfer was accomplished without
through a fortuitous event without his fault (Art. 1174). However, malice on the part of the depository.
the depository is liable for the loss of the thing through a
fortuitous event; Art. 1988
a. If it is so stipulated  When must the depository return the thing deposited?
b. If he uses the thing without the depositor’s - The thing deposited must be returned to the depositor upon
permission. demand, even though a specified period or time for such return
c. If he delays its return. may have been fixed, except when the thing is judicially
d. If he allows others to use it, even though he attached, or should he have been notified of the opposition of a
himself may have been authorized to use the third person to the return or the removal of the thing deposited.
same. In these cases, the depository must immediately inform the
Art. 1980. See Article depositor of the attachment or opposition.
Art. 1981. –
* What are the obligations of the depository where Art. 1989 See Article in relation to Art. 1258 par. 1
thing deposited delivered closed and sealed?
a. To return the thing deposited when delivered Art. 1991
closed and sealed, in the same condition.  Obligation of an heir in good faith who sold the thing
deposited.
- The depository shall only be found to return the price he may 2. The loss is due to the acts of the guests, his family
received or to assign his right of action against the buyer in case servants, or visitors (Art. 2002), and
the price has not been paid him. 3. The loss arises from the character of the things
 If the heir acts in bad faith, he is liable for damages. brought into the hotel. (Ibid).
The sale or appropriation of the thing deposited
constitutes estafa. (Art. 315, par. 1[b], RPC). Art. 2003. See Article
Sec. 3 – Obligation of the Depositor Art. 2004.See Article
Obligation of the Depositor:

SEQUESTRATION OF JUDICIAL DEPOSIT
1. The obligation to pay expenses of preservation if the
deposit is gratuitous. (Art. 1992).  When judicial deposit takes place
*If the deposit is for compensation, the expenses of Judicial deposit or sequestration takes place when an
preservation are borne by the depository because they are attachment or seizure of property in litigation is ordered by
seemed included in the compensation. a court. (Act. 2005).
2. The obligation to pay losses incurred due to character  Obligation of depository of sequestrated property.
of thing deposited, unless at the time of the The depository of sequestrated property is the person
constitution of the deposit; appointed by the court. (Art. 2007). He has the obligation to
a. the depositor was not aware of or take care of the property with the diligence of a good father
b. the depositor was not expected to know the of a family (Art. 2008) and he may not be relieved of his
dangerous character of the thing, or responsibility until the litigation is ended or the court so
c. he notified the depository of the same, or orders (Art. 2007).
d. the depository was aware of it without
advice from the depositor. (Art. 1993).
Guaranty and Suretyship
Art. 1994. See Article (Arts. 2047-2084)
Art. 1995. – See Article Chapter I
 These causes of extinguishments of deposit are not Nature and Extent of Guaranty
exclusive (See Art. 1231).
Art. 2047
NECESSARY DEPOSIT  Guaranty is a contract whereby a person binds himself
to the creditor to fulfill the obligation of the principal debtor
 When deposit necessary? in case the latter should fail to do so.
1. When it is made in compliance with a legal obligation,  Classification of guaranty
(Art. 1996) 1. As to its origin:
2. When it takes place on the occasion of any calamity, a. Conventional – one constituted by
(Art. 1996) agreement of the parties, (Art. 2051 par.1)
3. When it is made by travelers in hotels or inns, (art. b. Legal – one imposed by virtue of a provision
1998) of law. (Ibid)
4. When it is made by passengers with common carriers, c. Judicial – one required by a court to
(Art.1754) guarantee the eventual right of one of the
parties in a case. (Ibid)
Art. 1997. See Article 2. As to Consideration:
a. Gratuitous – one where the guarantor does
Art. 1999. See Article not receive any price or remuneration for
acting as such, (Art. 2048), or
b. Onerous – one where the guarantor
Art. 2000 – Art. 2001 – Art. 2002 receives valuables consideration for his
guaranty. (Ibid)
 When hotel keeper liable? 3. As to the person guaranteed:
1. The loss or injury is caused by his servants or a. Single – one constituted solely to guarantee
employees as well as by strangers (AR. 2000) or secure performance by the debtor of the
provided that notice has been given and proper principal obligation (Art. 2051,par. 2)
precautions taken (Art. 1998); and b. Double or sub-guaranty – one constituted to
2. the loss is cause by the act of a thief or robber done secure the fulfillment by the guarantor of a
without the use of arms and irresistible force. (Art. prior guaranty. (Ibid)
2001) 4. As to its scope and extent:
a. Definite –one where the guaranty is limited
 When hotel keeper not liable? to the principal obligation only, or to a
1. The loss or injury is caused by force majeure, unless specific portion thereof. (Art. 2055, par. 2)
he is guilty of fault or negligence in failing to provide b. Indefinite or Simple – one where the
against loss or injury from his cause. (Art 1170, 1174). guaranty includes not only the principal but
also it accessories.
 Suretyship defined  Effect of subsequent loss of required qualifications

Is a relation which exists where one person (principal) has The qualifications need only be present at the time of the
undertaken an obligation and another person (surety) is perfection of the contract. So, the subsequent loss of
also under a direct and primary obligation or other duty to integrity or property or supervening incapacity of the
the oblique, who is entitled to out one performance, and as guarantor (Art. 2057) would not operate to exonerate the
between the two who are found, the second rather than the guarantor of the eventual liability he has contracted, and
first should perform. the contract of guaranty continues. However, the creditor
may demand another guarantor with the proper
 Guaranty Distinguished from Suretyship: qualifications. But he may waive it if he chooses to hold the
1. A surety and a guarantor are alike in that each guarantor to his bargain.
promises to answer for the debt, default or
miscarriage of another.
2. a surety and a regular party to the undertaking, while EFFECTS OF GUARANTY
the liability of the guarantor depends upon on
independent agreement to say the obligation if the Sec. 1 – Effects of guaranty between the guarantor and
primary debtor fails to do so. the creditor
3. a surety is charged as an original promissor, while the
engagement of the guarantor is a collateral
undertaking.
4. the guarantor is secondarily liable, while al surety is Art. 2058
primarily liable.
 Right of guarantor to benefit of excussion or
Art. 2048. See Article exhaustion
See article
Art. 2049 Art. 2059. See article is relation to Art. 2060 and Art. 2084.
 Married woman as guarantor:

A married woman who acts as a guarantor ordinarily binds Exceptions to benefit of excussions
only her separate property (Art. 145, Family Code).
However, she may also bind the community or conjugal In the following cases the guarantor is not entitled to
partnership property with her husbands consent, and even the benefit of excussion;
without the consent of her husband, “in cases provided by 1. As provided in Article 2059
law”, such as the guaranty has redounded to the benefit of 2. If he does not comply with Article 2060
the family. (see Arts. 70,7, 94(3),121(3),122,Fam.Code) 3. If he is a judicial bondsman and subsurety (Art.
2084)
Art. 2050. See Article 4. Where a pledge or mortgage has been given by
him as a special security
Art. 2051. Discussed Above 5. If he fails to interpose it as a defense before
judgment is rendered against him.
Art. 2002 Art. 2060
 A guaranty may secure the performance of;  Requirements before a guarantor may make sure of
a. Voidable contract inasmuch as such the benefit of excussion.
contract is binding, unless it is annulled by a 1. He must set it up against the creditor upon the latter’s
proper action is court. demand for payment from him, and
b. An unenforceable contract 2. point out to the creditor available property of the
c. A natural obligation debtor within Philippine Territory, sufficient to cover the
amount of the debt.
Art. 2003.See Article
Art. 2054. See Article Art. 2061. See Article
Art. 2055. See Article, discussed above. Art. 2062. See Article
Art. 2056  Joinder of guarantor and principal as parties

defendant
Art. 2007
1. General Rule – The guarantor, not being a joint
 Qualification of guarantor: contractor with his principal, cannot as a general rule,
1. He possesses integrity be sued with his principal
2. He has capacity to bind himself 2. Exception – Yet adherence to this rule is not required
3. He has sufficient property to answer for the obligation where it would serve merely to delay the ultimate
which he guarantees accounting of the guarantor.
2. The debtor (see Art. 2050)
Art. 2063
Sec. 3 – Effects of Guaranty as between co-guarantors
 Compromise defined
Is a contract whereby the parties, by making Art. 2073. See Article
reciprocal concessions, avoid litigation or put an end to one Art. 2074. See Article
already commenced. (Art. 2028) Art. 2075. See Article
Art. 2064. See Article

EXTINGUISHMENTS OF GUARANTY
 Who may enjoy the benefit of excussion
1. The guarantor Art. 2076
2. the guarantor of a guarantor
 Causes of extinguishments of guaranty
1. Guaranty being accessory and subsidiary, it is also
Art. 2065
terminated when the principal obligation is
extinguished.
 Extent of liability is only joint, that is, the obligation to 2. Art. 1231
answer for the debt is divided among all of them. 3. The guaranty itself may be directly extinguished
Therefore, the guarantors are not liable to the creditor although the principal obligation still remains such as
beyond the shares which they are respectively found to in the case of the release of the guarantor made by
pay. the creditor. (see Art. 2078)
 Exceptions:
The exception to this rule is when solidarity has been  Guaranty is extinguished;
expressly stipulated. The benefit of division also ceases is 1. When the principal obligation has been extinguished
any of the circumstances enumerated in Art. 2054 should (Art. 2076)
take place, as would the benefit of exhaustion of the 2. If the creditor voluntarily accepts immovable or other
debtor’s property. property in payment of the debt. (Art. 2077)
3. When the creditor granted an extension to the debtor
Sec. 2 – Effects of guaranty between the debtor without the consent of the guarantor. (Art. 2079)
and the guarantor 4. If there can be no subrogation because of the fault of
the creditor. (Art. 2080)
 Exceptions to right to indemnity or reimbursement.
See Art. 2081. In relation Art. 2066. an exception to the right to
1. Art. 2068 indemnity or reimbursement.
2. Art. 2069
3. Art. 2070
4. Art. 2081 LEGAL AND JUDICIAL BONDS
a. Where the guaranty is constituted without Art. 2082

the knowledge or against the will of the
principal debtor, the guarantor can recover  Meaning and form of bond
only insofar as the payment had been A bond, when required by law, is commonly understood to
beneficial to the debtor (Art. 2050) mean an undertaking that is sufficiently secured, and not
b. Payment of a third person who does not cash or currency.
intend to be reimbursed by the debtor is
seemed to be a donation. (Art. 1238)  Qualifications of personal bonds man
c. The right to demand reimbursement is A bondsman must have the qualifications required of a
subject to waiver guarantor (Art. 2056) and in special laws like the Rules of
Court (Sec. 12,13, Rule 114)
Art. 2067. Guarantor’s right to subrogation. See Article
Art. 2070. See Article Art. 2084. In relation to Art. 2059. an exception to benefit of
Art. 2071. See Article excussion.
Art. 2072. See Article Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 The guarantor who guarantees the debt of an
absentee at the request of another has a right to claim
reimbursement, after satisfying the debt either from;
1. The person who requested him to be a guarantor PLEDGE
1. All movable which are within commerce and

susceptible of possession.
Art. 2085 2. Incorporeal rights evidenced by documents whether
negotiable or not.
 Essential requisites of pledge
1. That they be constituted to secure the fulfillment of a Art. 2096. See Article
principal obligation Art. 2097. See Article
2. that the pledgor be the absolute owner of the thing Art. 2098. See Article
pledged.
3. that the persons constituting the pledge have the free Art. 2099
disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose.  Obligation of the pledges to take due care of thing
pledged.
 In addition, it is necessary that the thing pledged be Having possession of the property, he has the obligation to
placed in the possession of the creditor, or of a third person take care of the same with the diligence of a good father of
by agreement. (Art. 2093) the family(Art. 1163). He is, however, entitled to
reimbursement of the expenses incurred for its
 Pledge; defined preservation. (See Arts. 1170, 1174)
Is a contract by virtue of which the debtor delivery to the
creditor or to a third person a movable (Art. 2094) on
document evidencing incorporeal rights (Art. 2095) for the Art. 2100
purpose of securing the fulfillment of a principal obligation
with the understanding that when the obligation is fulfilled,  Obligation of pledges not to deposit thing pledged with
the thing delivered shall be returned with all its fruits and another.
accessions. While the pledges is entitled to retain the possession of the
thing pledged until the debt is paid (Art. 2098), he is not
authorized to transfer possession to a third person.
Art. 2101
 Kinds of Pledge
Pledge may be either;
1. Voluntary or conventional or one which is created by  Responsibility of pledge for flaws of thing pledged.
agreement of the parties. Please see Art. 1951
2. Legal or one which is created by operation of law.
Art. 2102
Art. 2088 The pledges has no right to use the thing pledged or
to appropriate the fruits thereof without the authority of the
 Pactum Commissorium; defined owner (Art. 2104). But the pledges can apply the fruits, income,
A stipulation whereby the thing pledged or mortgaged or dividends, or interests earned or produced by the thing pledged
under antichresis shall automatically become the property to the payment of interest, if owing and thereafter to the principal
of the creditor in the event of non-payment of the debt of his credit.
within the term fixed. However, the pledge may appropriate
the thing pledged if after the first and second auctions, the Art. 2103. See Article
thing is not sold. (Art. 2112)
Art. 2104
Art. 2089  Right of pledger to ask that thing pledged be

deposited
In the following cases, the owner may ask that the thing
 Exceptions to Rule of Indivisibility pledged be deposited judicially or extrajudicially;
A pledge is indivisible (par. 1) except where there are 1. If the creditor uses the thing without authority
several things given in pledge and each one of them 2. If he misuses the thing in any other way
guarantees only a determinate portion of the credit. (pars. 3 3. If the thing is in danger of being lost or impaired
& 4) because of the negligence or willful act of the pledgee.
(Art 2106)
Art. 2093. See Article in relation to Art. 2085 above
Art. 2106. See Article in relation to Art. 2104
Art. 2094
Art. 2095 Art. 2107
 Subject Matter of Pledge:  Right of pledgor to substitute thing pledged.

Requisites:
1. The pledgor has reasonable grounds to fear the The sale of the thing pledged extinguishes the principal
destruction or impairment of the thing pledged. obligation whether the price of the sale is more or less than
2. There is no fault on the part of the pledges. the amount.
3. The pledgor is offering in place of the thing, another 1. If the price of the sale is more than the amount due
thing in pledge which is of the same kind and quality the creditor, the debtor is not entitled to the excess
as the former. unless the contrary is provided.
4. The pledges does not choose to exercise his right to 2. If the price of the sale is less, neither is the creditor
cause the thing pledged to be sold at public auction. entitled to recover the deficiency a contrary stipulation
is void.
Art. 2108 – See Article in Relation to Article 2112
Art. 2109 Art. 2117
 Two remedies available to the pledges in case he is  Right of third person to satisfy obligation
deceived as to the substance or quality of the thing As a general rule, the creditor is not found to accept
pledged. payment or performance by a third person who has no
1. To claim another thing in pledged. interest in the fulfillment of the obligation (Art. 1236). Under
2. To demand immediate payment of the principal this Article, a third person who has any right in or to the
obligation thing pledged may pay the debt as soon as it becomes due
The remedies are alternative, that is, he is privileged and demandable and the creditor cannot refuse to accept
to choose only one and not both. payment.
Art. 2110 Art. 2118. See Article (Right of pledgee to collect and receive
 Pledge may be extinguished by; amount due on credit pledged)
1. The return of the thing pledged by the pledges to the
pledgor or owner (Art. 2110)
2. The payment of the debt. (Art. 2105) Art. 2119. See Article (Right of pledgee to choose which of
3. The renunciation or abandonment of the pledged (Art. several things pledged shall be sold)
2111)
4. The sale of the thing pledged at public auction (Art.
2115) Art. 2120. See Article
 Presumption of extinguishments of pledged
The possession of the debtor or owner of the thing pledged Art. 2122. See Article
subsequent to the perfection of the pledge gives rise to a Art. 2123. See Article
prima facie presumption that the thing has been returned
and, therefore, that the pledge has been extinguished. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Art. 2111. See Article in relation to Article 2110 above on

extinguishments of pledge.
REAL MORTGAGE
Requisites:
 Read also Arts. 2085 – 2092
1. The debt is due and unpaid (Art. 2112)
2. The sale must be at a public auction (Ibid)  Mortgage; defined
3. There must be noticed to the pledgor and owner, Is a contract whereby the debtor secures to the creditor the
stating the amount due. (Ibid) fulfillment of a principal obligation, specially subjecting to
4. The sale must be made with the intervention of a security immovable property or real rights over immovable
notary public. (Ibid) property which obligation shall be satisfied with the
5. There is danger of destruction, improvement, or proceeds of the sale of said property or rights in case the
diminution in value of the thing pledged without the said obligation is not complied with at the time stipulated.
fault of the pledge. (Art. 2108)
 Essential Requisites of Mortgage (Art. 2085)

Art. 2113. See Article (Right of pledgor and pledgee to bid at 1. That they be constituted to secure the fulfillment of a
public sale) principal obligation.
Art. 2114. See Article (Rid must be for cash) 2. That the mortgagor be the absolute owner of the thing
mortgaged.
Art. 2115. 3. That the persons constituting the mortgage have the
free disposal of their property, and in the absence
thereof, that they be legally authorized for the
 Effect of sale of thing pledged purpose.
 In addition, the document in which it appears be

recorded in the Registry of Property. If not recorded, the Art. 2131. See Article
mortgage is nevertheless finding between the parties.
 Foreclosure; defined
Is the remedy avoidable to the mortgagee by which he
Art. 2124 subject the mortgaged property to the satisfaction of the
obligation to secure which the mortgage was given.
 Object of a contract of mortgage
1. Immovables (Art. 415)  Kinds of foreclosure
2. Alienable real rights in accordance with the laws, 1. Judicial Foreclosure (Rule 68, Rules of Court)
imposed upon immovables. a. Judicial action for the purpose
A mortgaged may be foreclosed judicially by
 Kinds of Mortgage bringing an action for that purpose, in the
A mortgage may be; proper court which has jurisdiction over the
1. Voluntary – one which is agreed to between the area wherein the real property involved or a
parties or constituted by the will of the owner of the portion thereof, is situated.
property on which it is created. b. Order to mortgagor to pay mortgage debt.
2. Legal – one required by law to be executed in If the court finds the complaint to be well-
favor of certain persons. founded, it shall order the mortgagor to pay
3. Equitable – one which, although it lacks the proper the amount due upon the mortgage debt or
formalities of a mortgage, shows the intention of obligation with interest and other charges
the parties to make the property as a security for a within a period of not less than 90 days nor
debt. more than 120 days from the entry of
The provisions in the Civil code governing equitable judgment.
mortgages are found in Arts. 1365, 1450, 1454, 1602, c. Sale to highest bidder at public auction.
1603, 1604, and 1607. If the mortgagor fails to pay at the time directed in the
order, the court, upon motion, shall order the property to be
Art. 2125. See Article in relation to Art. 2085 sold to the highest bidder at public auction.
d. Confirmation of sale
 Effect of invalidity of mortgage on principal obligation The sale when confirmed by an order of the
Where a mortgage is not valid, e.g., it is executed by one court, also upon motion, shall operate to
who is not the owner of the property (Art. 2085(2)), or the divest the rights of all parties to the action
consideration of the contract is simulated (Arts. 1345, and to vest their rights in the purchaser
1352), or false (Art. 1353), the principal obligation which it subject to such right of redemption as may
guarantees is not rendered rule and void. be allowed by law.
e. Execution of judgment
No judgment rendered in an action for
What is lost is the right to foreclose the mortgage as a
foreclosure of mortgage can be executed
special remedy for satisfying or settling the indebtedness
otherwise than in the manner prescribed by
which is the principal obligation.
the law on mortgages, because parties to an
action are not authorized to change the
procedure which it prescribed.
f. Application of proceeds of sale
The proceeds of the sale be applied to the
Art. 2127
payment of the;
1. cost of the sale
 Extent of Mortgage 2. the amount due the mortgagee
A real estate mortgage constituted on immovable property 3. claims of junior encumbrance’s
is not limited to the property itself but also extends to all its or persons holding subsequent
accessions, improvements, growing fruits and rents or mortgages in the order of their
income (Art. 2102) as well as to the proceeds of insurance priority, and
should the property be destroyed, or the expropriation 4. the balance, if any, shall be paid
value of the property should it be expropriated. to the mortgagor or his duly
authorized agent, or to the
Art. 2128. See Article person entitled to it.
Art. 2129. See Article g. Execution of Sheriff’s certificate
The foreclosure is not complete until the
 Right of creditor against transferee of mortgaged sheriff’s certificate is executed,
property. acknowledged and recorded.
The fact that the mortgagor has transferred the mortgaged
property to a third person does not relieve him from his 2. Extra judicial foreclosure (act. No. 3135)
obligation to pay the debt to the mortgage creditor in the a. Express authority to sell given to mortgage.
absence of novation. b. Authority not extinguished by death of
mortgagor or mortgagee.
Art. 2130. A stipulation forbidding the owner from alienating the A mortgage may be foreclosed extrajudicially where there
immovable mortgaged shall be void. is inserted in the contract a clause giving the mortgagee
the power, upon default of the debtor, to foreclose the deficiency may be filed even during the period of
mortgage by an extrajudicial sale of the mortgaged redemption.
property.
3. Prescriptive period of action
c. Public sale after proper notice
The action to recover a deficiency after foreclosure
The sale, which cannot be made legally outside of the
prescribes after ten (10) years from the time the right
province in which the property is situated shall be made at
of action accrues as provided in Art. 1144 (2) of the
public auction after the giving of proper notice which
Civil Code)
consists in the posting of the notice of the sale in at least
three (3) public places at the municipality or city where the
 Effect of inadequacy of price in foreclosure sale
property is situated and the publication thereof in a
1. General Rule; exception
newspaper of general circulation in said municipality or city.
Where there is a right to redeem,
d. Payment of cash by highest bidder inadequacy of price is not material because the
Where the highest bidder is the mortgagee judgment debtor may reacquire the property or else
and the amount of his bid represented the sell his right to redeem and thus recover any loss he
total mortgage debt, it is not necessary for claims to have suffered by reason of the price
him to pay cash. It would serve no purpose obtained at the auction sale.
for the sheriff to go through the ceremony of Mere inadequacy of the price obtained at
receiving the money and paying it back to the sheriff’s sale will not be sufficient to set aside the
the creditor. sale unless “the price is so inadequate as to shock the
e. Nature of surplus proceeds from foreclosure conscience of the court” taking into consideration the
sale peculiar circumstances attendant thereto.
Surplus money arising from a sale of real
property like land under foreclosure stands  Options in case of death of debtor
in the same place of the land itself with The rule is that a secured creditor holding a real estate
respect to liens thereon or vested right mortgage has three (3) district, independent, and mutually
therein. exclusive remedies in case of death of the debtor.
f. Redemption of property sold
The debtor has the right to redeem the property sold within They are;
the term of one year from and after the date of the sale. 1. to waive the mortgage and claim the entire death from
The reckoning date in cases of registered land is from the the estate of the mortgage as an ordinary claim.
registration of the certificate of sale since it is only from the 2. to foreclose the mortgage judicially and prove any
date that the sale takes effect as a conveyance. In case of deficiency as an ordinary claim, and
juridical persons, they have the right to redeem the 3. to rely on the mortgage exclusively, foreclosing the
property until, but not after the registration of the certificate same at any time before it is barred by prescription
of foreclosure sale which in no case shall be more than without right to file a claim for any deficiency.
three (3) months after foreclosure, which ever is earlier.
g. Remedy of party aggrieved by foreclosure  Redemption; defined
The debtor may, the proceedings in which possession was Is a transaction by which the mortgagor requires or
requested, petition that the sale be set aside and the writ of busy back the property which may have passed under the
possession cancelled, because the mortgage was not mortgage or divests the property of the lien which the
violated or the sale was not made in accordance with the mortgage may have created.
provisions thereof. It is allowed in case of foreclosure in favor of banking
and credit institutions and in extrajudicial foreclosures.
 Right of mortgage to recover deficiency
1. Mortgage merely security, not a satisfaction of an
obligation Kinds of Redemption:
If there be a balance due to the mortgagee 1. Equity of Redemption
after applying the proceeds of the sale, the mortgagee The right of the mortgagor in case of judicial
is entitled to recover the deficiency. (Development foreclosure to redeem the mortgaged after his default
Bank of the Phils. Vs. Mirang, 55SCRA 141). in the performance of the conditions of the mortgage
In judicial foreclosure, the Rules of Court but before the confirmation of the sale of the
specifically gives the mortgagee the right to claim for mortgaged property.
deficiency in case deficiency exists, while Act. No.
3135 governing extrajudicial foreclosures of mortgage
does not give a mortgagee the right to recover 2. Right of Redemption
deficiency after the public auction sale, neither does it The right of the mortgagor in case of extrajudicial
expressly or implied by prohibit such recovery. foreclosure to redeem the mortgaged property within a
certain period after it was sold for the satisfaction of
2. Action for recovery of deficiency the mortgage debt.
If the deficiency is embodied in a judgment, it is
referred to as deficiency judgment. It is the settled rule
that a mortgagee may recover any deficiency in the  Period within which to exercise right
mortgage account which is not realized in a In all cases of extrajudicial sale, the mortgagor may
foreclosure sale and that the action for the recovery of redeem the property at any time within the term of one year
from and after the date of registration of the certificate of from the date of registration of the sale, up to the time
sale with the appropriate Registry of Deeds. of redemption, and
3. written notice of the redemption must be served on the
 Effect of failure to exercise right officer who made the sale and a duplicate filed with
If no redemption is made within the prescribed period, the the proper Register of Deeds.
purchaser has the absolute right to a writ of possession
which is the final process to carry out or consummate the  Payment of redemption money
extrajudicial foreclosure. Henceforth, the mortgagor loses The payment of he redemption money “may be made to
his right over the property. the purchaser or redemption, or for him to the officer who
made the sale. “(Sec. 39, Rules of Court). It may be made
 Effect of exercise of right to the sheriff. (Reyes vs. De los Santos, 50 SCRA 431).
What actually is effected is not the recovery of the property
which ownership is never lost, but the elimination from his  Amount payable
title thereto of the lien created by the levy or attachment or In the redemption of mortgaged property, the rule is that the
judgment or registration of the mortgage thereon. The amount payable is no longer the judgment debt but the
redemption defeats the inchoate right of the purchase and purchase price at the auction sale. Similarly, attorney’s fees
restores the property to the same condition as if no sale awarded by the trial court shall not be added to the
had been made. redemption price because the amount payable is no longer
the judgment but that which is stated in Sec. 30, Rule 39,
Rules of Court.
 Where mortgaged property sold to a third party.
A sale by the mortgagor to a third party of the mortgaged
 Persons entitled to exercise right of redemption
property during the period for redemption transfers only the
1. Mortgagor or one in privity of title with mortgagor
right to redeem the property and the right to passes, use
2. successor in interest
and enjoy the same during said period. Under Rule 39,
Sec. 31 of the Rules of Court, the judgment debtor remains
 Equity of Redemption in judicial foreclosure
in possession of the property foreclosed and sold, during
1. Period for exercise
the period of redemption, but he cannot make a
In a judicial foreclosure of mortgages under Rule 68 of
conveyance of the ownership of the property as said
the Rules of Court, there is no right of redemption
ownership belongs to the purchaser at the foreclosure sale.
after the judicial sale is confirmed. There is only the
(Dizon vs. Gabarro, 83SCRA 688 [1978])
equity of redemption in favor of the mortgagor
consisting in the right to redeem the mortgaged
 Where sale not registered and made without consent property within the 90-day period from the order of
of mortgagee. foreclosure, or even thereafter but before confirmation
The buyer was not validly substituted as debtor, and hence, of the sale.
had no right to redeem (Bonnevie vs. CA., 125 SCRA 122
[1983]) 2. Reckoning of the 90-day period
The 90-day period granted the mortgage debtor within
which to pay the amount of the mortgage in Sec. 2,
 Where extrajudicial foreclosure effected with fraud Rule 68 of the Rules of Court, is counted “from the
An extrajudicial foreclosure effected with fraud is null and date of the service of such order”. The order referred
void to in the Rule is the order requiring the debtor to pay
the judgment within 90 days.
 Nature of mortgagor’s right of redemption
1. An absolute privilege xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
This right of redemption is an absolute privilege, the
exercise of which it entirely dependent upon the will
and discretion of the redemptioner.
2. A mere statutory privilege
It must be exercised in the made and within the period ANTICHRESIS
prescribed by the statute.
3. Involves title to foreclose property Art. 2132
An action to redeem by the mortgage debtor affects  Antichresis; defined
his title to the foreclosed property. If the action is Is a contract whereby the creditor acquires the right to
seasonably made, it seeks to erase from the title of receive the fruits of an immovable of his debtor, with the
the judgment or mortgage debtor the lien created by obligation to apply them to the payment of the interest, if
registration of the mortgage and sale. owing, and thereafter to the principal of his credit.
 Requisites for valid redemption

1. Redemption must be made within one (1) year from  Antichresis and pledge compared
the date of the registration of the certificate of sale. 1. Antichresis refers to real property, while pledge, to
2. Payment of the purchase price of the property plus 1% personal property.
interest per month together with the taxes thereon, if 2. antichresis is perfected by mere consent, while pledge
any, paid by the purchaser and the amount of his prior is perfected by the delivery of the thing pledged, and
her, if any, with the same rate of interest computed 3. Antichresis is a consensual contract, while pledge is a
real contract.
 Antichresis and real mortgage compared CHATTEL MORTGAGE

1. In antichresis, the property is delivered to the creditor,
while in mortgage, the debtor usually retains
possession of the property. Art. 2140
2. In antichresis, the creditor acquires only the right of  Chattel mortgage; defined
receive the fruits of the property; hence, it does not Is that contract by virtue of which personal property is
produce a real right, while in mortgage, the creditor recorded in the Chattel Mortgage Register as a security for
does not have any right to receive the fruits, but the performance of an obligation.
mortgage creates a real right over the property which  Chattel mortgage and pledge; distinguished
is enforceable against the whole world. 1. In chattel mortgage, the delivery of the personal
3. In antichresis the creditor unless there is stipulation to property to the mortgage is not necessary, while in
the contrary, is obliged to pay the taxes and charges pledge, such delivery is necessary.
upon the estate (Art. 2135), while in mortgage, there is 2. In chattel mortgage, the registration of the same in the
no such obligation on the part of the mortgagee. Chattel Mortgage Registry is not necessary.
3. In chattel mortgage, if the property is foreclosed, the
Art. 2133 excess over the amount due goes to the debtor, while
in pledge, if the property is sold, the debtor is not
 Measure of application of fruits to interest and entitled to the excess unless it is otherwise agreed.
principal. 4. In chattel mortgage, if the property is foreclosed and
The fruits of the immovable which is the object of the there is a deficiency, the creditor is entitled to recover
antichresis must be appraised at their actual market value the deficiency from the debtor, except if the chattel
at the time of the application (see Art. 2138). mortgage is a security for the purchase of personal
property in installments. In pledge, if the property is
Art. 2134. See Article sold, and there is a deficiency, the creditor is not
entitled to recover the deficiency not withstanding any
stipulation to the contrary (Art. 2115).
Art. 2135
 Obligation of the antichretic creditors Art. 2141. See Article

1. Payment of taxes and charges upon the estate (Art.
2135)  Offenses involving chattel mortgage
2. Application of the fruits of the estate (Art. 2132) Under the Revised Penal Code, the following acts are
3. Bear the expenses necessary for its preservation and punishable.
repair 1. Knowingly removing any personal property mortgaged
under the Chattel Mortgage Law to any province or
city other than the one in which it was located at the
Art. 2136 time of execution of the mortgage without the written
consent of the mortgagee.
2. Selling or pledging personal property already
 Exemption from the obligation imposed by the
mortgaged, or any part thereof, under the terms of the
preceding Article.
Chattel Mortgage Law without the consent of the
The creditor, in order to exempt himself from the
mortgage written on the back of the mortgage and
obligations imposed upon him by the preceding article, may
duly recorded in the Chattel Mortgage Register.
always compel the debtor to enter again upon the
An essential element common to the two
enjoyment of the property, except when there is stipulation
acts punished under Art. 319 of the RPC is that the
to the contrary.
property removed or repledged, as the case may be,
should be the same or identical property that was
Article. 2137. See Article mortgaged or pledged before such removal or
pledging.
 Remedy of creditor in case of non-payment of debt.
1. Bring an action for specific performance, or  Subject matter of Chattel Mortgage
2. petition for the sale of the real property as in a 1. Shares of stock in a corporation (Chua Geran vs
foreclosure of mortgages under Rule 68 of the Rules Samahan 62 Phil. 472)
of Court. 2. An interest in business
The parties, however, may agree on an extrajudicial 3. Machinery treated by the parties as personal property.
foreclosure in the same manner as they are allowed in 4. Vessels
contracts of mortgage and pledge (see Art. 1307). 5. Motor
6. House of mixed materials
Art. 2138. See Article 7. House intended to be demolished
Art. 2139. See Articles 8. House built on rented land
 Period within which registration should be made

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The law is substantially and sufficiently complied with
where the registration is made by the mortgage before the
mortgagor has complied with his principal obligation and no
right of third persons is prejudiced.
 Effect of registration CONCURRENCE AND PREFERENCE

The registration of the chattel mortgage is an effective and
finding notice to other creditors of its existence and creates OF CREDITS
a real right or a lien which, being recorded, follows the
chattel whenever it goes. The registration gives the
mortgages symbolical possession.  Concurrence of credits; defined
It implies the possession by two or more creditors of equal
 Registration adds nothing to the instrument, rights or privileges over the same property or all of the
considered as a source of title and affects nobody’s rights property of a debtor.
except as a species of notice.
 Reference of credit; defined
 Duty of Register of Deeds Is the right held by a creditor to be preferred in the payment
Ministerial of his claim above others out of the debtor’s assets.
 Affidavit of good faith required Art. 2236

The affidavit of good faith is an oath in a contract of
chattel mortgage wherein the parties severally swear that  As a rule, the debtor is liable with all his property,
the mortgage is made for the purpose of securing the present and future, for the fulfillment of his obligations.
obligation specified in the conditions thereof and for no To this rule, the law provides for property which are
other purposes and that the same is a just and valid exempt from such fulfillment.
obligation and one not entered into for the purposed of 1. The judgment obligors family home as provided by law
fraud. or the homestead in which he resides, and land
necessarily used in connection therewith.
 Effect of absence of the affidavit of good faith 2. Ordinary tools and implements personally used by him
The absence of the affidavit vitiates a mortgage only in his trade, employment, or livelihood.
as against third persons without notice like creditors and 3. Three horses, or three cows, or three carabaos, or
subsequent encumbrance’s. other beast of burden, such as the judgment obligor
The affidavit is required only for the purpose of may select, necessarily used by him in his ordinary
transforming and already valid mortgage into “preferred occupation.
mortgage.” Thus, it is not necessary for the validity of the 4. His necessary clothing, and articles for ordinary
Chattel Mortgage itself but only to give it a preferred status. personal use, excluding jewelry
5. Household furniture and utensils necessary for
 Period to foreclose mortgage housekeeping.
1. Chattel Mortgage 6. Provisions for individual or family use sufficient for four
The mortgage may, after 30 days from the months.
time of the condition broken, cause the mortgaged 7. The professional libraries of judges, lawyers,
property to be sold at public auction by a public officer. physicians, pharmacists, dentists, engineers,
The 30 day period to foreclose a chattel surveyors, clergyman, teachers, and other
mortgage is the minimum period after violation of the professionals, not exceeding three hundred thousand
mortgage condition for the mortgage creditor to cause pesos in value.
the sale at public auction of the mortgaged chattel with 8. One fishing boat and accessories, not exceeding the
at least ten (10) days notice to the mortgagor and total value of one hundred thousand pesos, owned by
posting of public notice of time, place, and purpose of a fisherman and by the lawful use of which he earns
suck sale, and is a period of grace for the mortgagor, his livelihood.
to discharge the mortgage obligation. 9. Salaries, wages, or earnings of the judgment debtor
2. Real Estate Mortgage for his personal services within the four months
In case of judicial foreclosure, the grace period for the preceding the levy as are necessary for the support of
mortgagor to pay the amount due is not less than 90 his family.
days nor more than 120 days from the entry of 10. Lettered gravestones
judgment on foreclosure. In default of suck payment 11. Moneys, benefits, privileges, or annuities accruing out
the property shall be sold at public auction to satisfy of any life insurance.
the judgment. 12. The right to receive legal support, or money or
property obtained as such support, or any pension or
 Application of proceeds of sale gratuity from the government.
The proceeds of the sale are to be applied to the payment 13. Properties especially exempted by law.
of the following.
1. Cost and expenses of keeping and sale Art. 2237. See Article
2. Payment of the obligation secured by the mortgage
3. Claims of persons holding subsequent mortgages in Art. 2238
their order
4. The balance, if any, shall be paid to the mortgagor, or  Exemption of conjugal partnership or absolute
person holding under him community property.
The assets of the conjugal partnership or the absolute
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx community do not pass to the assignee in insolvency
elected by the creditors or appointed by the court as they
do not belong to the individual spouses, but a distinct entity
the partnership or the community. The exemption applies 1. Taxes.

provided that: 2. Claims arising from malversation.
3. Vendor’s lien
1. The partnership or community subsists; and
4. Claims secured by pledge on
2. The obligations of the insolvent spouse have not
chattel mortgage.
redounded to the benefit of the family.
5. Mechanic’s lien
6. Lien of laborers for wages over
Art. 2239
goods manufactured.
7. Salvage
 Rule involving undivided share or interest of a co- 8. Tenancy
owner 9. Carrier’s lien
If there is co-ownership and one of the co-owners is 10. Innkeeper’s lien
the insolvent debtor, his undivided share or interest in the 11. Crop loan
property shall be possessed by the assignee in insolvency 12. Rentals for one year
proceedings because it is part of his assets. 13. Property on deposit that has been
The share of the other co-owners cannot of course, be wrongfully sold.
taken possession of by the assignee.
B. Art. 2242
Art. 2240 With respect to specific real property,
the following claims shall be
 Rule involving property held in trust preferred
The trustee is not, strictly speaking the owner of the trust 1. Taxes
property although he has the legal little thereto. Hence, 2. Unpaid price realty
property held in trust by the insolvent debtor should be 3. Contractor’s lien
excluded from the insolvency proceedings. 4. Lien of supplier’s of materials
5. Mortgage credits upon registered
Concurrence and Preference of Credits real estate mortgages.
6. Reimbursable expenses for
 Order of Payment improvement and prevention of
After the debtor’s assets have been liquidated unless a real estate.
composition has been agreed upon by the creditors 7. Credits or property upon which
obligations of the debtor shall be paid in the following attachments or executions have
order. been made.
8. Claims of co-heirs for warranty in
1. Equitable claims enumerated in Sec.48 of the the partition of an immovable
insolvency Law. among them.
2. Preferred claims under arts.2241 and 2242 of 9. Claims of donor’s for pecuniary or
the civil code. other charges on the immovable
3. Preferred claims under art.2244 of the civil donated; and
code and 10. Claims of insurers upon insured
4. Ordinary claims under Sec.49 of the property, for premiums not
insolvency Law. exceeding two years.
 Equitable claims
The equitable claims enumerated in Sec.48 of the C. Art. 2244
Insolvency law which are entitled to first With respect to property other than
priority in payment are those enumerated in arts 2241 and
1. Paraphernal property of the debtor’s wife 2242, in the order named;
2. Property held by under lease or usufruct or
on deposit or for administration. 1. Funeral expenses of debtor and his children.
3. Merchandise held by debtor on commission, 2. Credits for services rendered by employees
for forwarding or on consignment and and household help.
purchase price from sales on consignment. 3. Expenses incurred during last illness of debtor,
4. Negotiate instrument sent to debtor for his spouse and children.
collection and the money collect thereby. 4. Compensation due laborers in cases of labor
5. Money in debtor’s possession for remittance accident or illness resulting from nature of
to others. employment.
6. Merchandize bought on credit; if no delivery 5. Debts incurred by debtor for support of his
has been made. family during the year proceeding insolvency.
7. Goods wrongfully taken by the debtor. 6. Support during insolvency proceedings and for
 Preferred claims under the civil code: three months thereafter.
Arts. 2241, 2242 and 2244 of the civil code lays over the 7. Fines and civil indemnifications a5rising from
rules with respect to preference and concurrence of crime.
credits. 8. Legal and other expenses for administration of
A. Art. 2241 insolvent’s estate.
With respect to specific movable 9. Taxes due national government.
property of debtor, the following 10. Taxes due provincial government
claims are preferred. 11. Taxes due city or municipal government.
12. Damage arising from a quasi-delict or tort.

13. Gifts due to charitable institutions, and
14. Credits without special privilege appearing in
a public document or resulting from a final
judgment.

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 CIVIL LAW REVIEWER 

1 SAINT LOUIS UNIVERSITY BAR OPERATIONS

(Art. 1940); if any compensation is to be paid by him who

1. If he should have an urgent need of the thing, or

*Precarium is a kind of commodatum where the bailor may

a. Voluntary or one wherein the 1. To return the thing deposited

person without b. To pay for damages should the seal or lock be

Sec. 3 – Obligation of the Depositor Art. 2004.See Article

Obligation of the Depositor:

 Suretyship defined  Effect of subsequent loss of required qualifications

 Married woman as guarantor:

Art. 2002 Art. 2060

Art. 2054. See Article Art. 2061. See Article

Art. 2056  Joinder of guarantor and principal as parties

2. The debtor (see Art. 2050)

Art. 2064. See Article

a. Where the guaranty is constituted without Art. 2082

1. All movable which are within commerce and

Art. 2089  Right of pledger to ask that thing pledged be

 Subject Matter of Pledge:  Right of pledgor to substitute thing pledged.

Art. 2109 Art. 2117

Art. 2111. See Article in relation to Article 2110 above on

 Essential Requisites of Mortgage (Art. 2085)

 In addition, the document in which it appears be

 Requisites for valid redemption

 Antichresis and real mortgage compared CHATTEL MORTGAGE

 Obligation of the antichretic creditors Art. 2141. See Article

 Period within which registration should be made

 Effect of registration CONCURRENCE AND PREFERENCE

 Affidavit of good faith required Art. 2236

the partnership or the community. The exemption applies 1. Taxes.

12. Damage arising from a quasi-delict or tort.

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