(Jen Laygo) Sectrans Reviewer - San Pedro

SECURITY TRANSACTIONS THE WOMEN OF ALEITHEIA JP SAN PEDRO
COMMODATUM v MUTUUM / SIMPLE LOAN

INTRODUCTION
Commodatum Mutuum / Simple Loan
Is gratuitous. Default rule is that simple loan is
Any stipulation for compensation, Gratuitous. But there may also be a
CREDIT TRANSACTIONS contract ceases to be stipulation for interest – remember
Include all transactions involving the purchase or loan of goods, services or commodatum. that this must be in writing.
money in the present and the promise to pay or deliver in the future. Generally involves non-consumable SM is money or other consumable
May be secured or unsecured. things [because you have to return thing
it]. But consumable things may be
SECURITY subject of commodatum – when the
Something given, deposited or serving as a means to ensure fulfillment or purpose is not to consume it, but
enforcement of an obligation or of protecting some interest in property. only to display it.
May be personal or real. Bailor retains ownership of the SM. Ownership passes to borrower.
Borrower has obligation to return Borrower need only pay the same
BAILMENT
the same thing loaned – the actual amount of the same kind & quality.
Delivery of property to another in trust for a specific purpose with a contract that
thing. Payment only of the equivalent.
the trust shall be faithfully executed and the property returned or dully accounted
Real or personal property may be Involves only personal property.
for when the special purpose is accomplished or kept until the bailor reclaims it.
subject of commodatum.
May be for the sole benefit of the bailor, for the sole benefit of the bailee, and for
the benefit of both parties. Purpose is only for temporary use The purpose of the contract is to
Bailment for hire arises when goods are left with bailee for some use or service, or possession. consume the thing. [Consumption]
always for some compensation. Loss of the thing is suffered by Loss is suffered by borrower – even
lender – because he still owns the if by fortuitous event [Res Perit
SM. [Res Perit Domino] Domino]
If thing is not returned – liable for Borrower not criminally liable – but
estafa. only civil liability for breach of
I. LOAN obligation to pay.
Ordinary – with term but lender may Lender may not demand return of
demand if urgent need the thing before lapse of the term.
Precarium – may demand return at
GENERAL PROVISIONS bailor’s will.
Loans are Real Contracts – Require DELIVERY for perfection. But an accepted Consideration is pure liberality Consideration is the promise of the
promise to deliver is binding, although there is no contract of loan until thing is borrower to pay
delivered. There is no required form – only that stipulation for INTEREST must
be in WRITING.
Loans are unilateral contracts – once the SM is delivered, it creates obligations
on the part only of the borrower. COMMODATUM
2 kinds of Contracts of Loan – Commodatum and Mutuum / Simple Loan. 2 kinds of commodatum:
1. Ordinary – with term but lender may demand return before expiration only if
CREDIT v LOAN v DEBT there is urgent need.
Credit – ability of an individual to borrow. 2. Precarium – bailor may demand the thing loaned at will.
Loan – delivery and receipt of money or consumable thing with agreement to
repay same amount of same kind and quality.
Debt – credit considered from creditor’s standpoint.
JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 1

Bailee acquires use of thing but NOT ITS FRUITS. OBLIGATIONS OF LENDER [DREF]
But parties may stipulate that borrower may use fruits – only incidental to 1. RESPECT DURATION
contract of commodatum. • cannot demand return unless period expires or purpose is accomplished
If bailee is not entitled to use the thing – contract of deposit. • E: Return / temporary use if in Urgent Need – contract of commodatum is
Lender need not be the owner of the thing, enough that he has possessory deemed suspended
interest or right to use it. • PRECARIUM exists when:
Is Purely Personal in character: a. No stipulation for duration or use of thing
1. GR: DEATH of either party extinguishes contract b. Use is merely tolerated by the owner
E: Contrary stipulation that commodatum subsists until purpose is - BUT lender may not whimsically, arbitrarily or capriciously demand,
accomplished. otherwise liable for Art19, 20 and 21 for abuse of right
2. GR: Borrower CANNOT LEND to someone else
E: Use by members of borrower’s household 2. DEMAND RETURN FOR ACTS OF INGRATITUDE
E to E: There is stipulation to the contrary A. Borrower commits offense against lender’s person, honor or property, his
Nature of thing forbids it [example accdg to JP is a dildo] wife or children under parental authority
B. Borrower imputes to lender any criminal offense or act involving moral
OBLIGATIONS OF BORROWER [2LORD] turpitude, even if he proves it.
1. ORDINARY EXPENSES - Except: If crime is against borrower, wife or children
• for use and preservation C. Borrower is legally and morally required to support the lender but he
• If, for the purpose of making use of the thing, the bailee incurs refuses to.
expenses other than OP for use or EP for preservation and actual use,
he is not entitled to reimbursement. 3. REFUND EXTRAORDINARY EXPENSES
A. EP From Preservation of thing - Lender should refund borrower
2. LOSS OF THE THING - GR: borrower not liable if fortuitous event - Notice must be given to lender before
Exceptions: when borrower liable for fortuitous event: incurring the expense
a. Bad Faith – used for different purpose [also a breach] - E: need is urgent that lender cannot
b. Delay - keeps it for longer period than stipulated be notified without danger
c. Assumption of Risk – thing delivered with appraisal of value B. EP From Actual Use of thing - borne by both on a 50-50 basis
- E: Stipulation exempting bailee - E: Contrary stipulation
rd
d. Breach - Lend to 3 person not in borrower’s household
e. Ingratitude - being able to save either thing borrowed or his 4. FOR DAMAGES FOR KNOWN HIDDEN FLAWS
own thing, he chose to save his own. - Requisites for Liability:
A. Flaw or defect
3. DETERIORATION - borrower not liable for ordinary deterioration or B. Hidden
wear & tear as natural consequence of its use. C. Lender is Aware
- must be without his fault D. Lender does not Advise borrower
E. Borrower suffers damages
4. RETURN OF THE THING - as soon as term expires or purpose is - Exception: When Buyer should have known
accomplished - Borrower has RIGHT OF RETENTION
- GR: cannot keep thing as security for anything
lender may owe him NOTE: Remember that Borrower is liable for ORDINARY expenses for use and
- E: Damages for hidden defects preservation & half of the EXTRAORDINARY expenses for actual use. Lender
is liable only for EXTRAORDINARY expenses.
5. 2 OR MORE BORROWERS – in the same contract, liability is SOLIDARY Also, according to Art1952, Lender cannot exempt himself from payment of
such expenses or damages by abandoning the thing to the borrower.

SIMPLE LOAN / MUTUUM Mistake in payment of interest – SOLUTION INDEBITI or undue payment
May include fungible [may be substituted – depends on intent of parties] or - But if debtor pays out of a moral obligation,
consumable things [depends on nature of thing]. he cannot later recover.
FORM OF PAYMENT MUTUUM v COMMODATUM v BARTER

1. Object is MONEY - Payment in currency stipulated, otherwise
in legal tender in Phils. MUTUUM COMMODATUM BARTER
- GR: Value AT TIME OF PAYMENT 1 party delivers to 1 party delivers to Contract where one of
- E: Extraordinary Inflation – AT TIME OF another money or other another something not the parties binds
ESTABLISHMENT consumable thing with consumable so that the himself to give 1 thing
2. Object is FUNGIBLE THING - Pay same kind, quality and quantity, even if understanding that the latter may use the in consideration of the
Other than Money it changes in value. same amount/ kind/ same for a certain time other’s promise to give
- In case it is impossible to do so, VALUE AT quality or its equivalent and return it. another thing.
TIME OF PERFECTION OF LOAN shall be paid.
- Opt Out: Stipulate that in case of Money or other fungible Non-fungible things Non-fungible things
impossibility, pay market value at time of things
payment Return the equivalent Return identical thing Return equivalent
Gratuitous or Onerous Always Gratuitous Onerous
INTEREST
Requisites: 1. Expressly stipulated
2. Must be in writing
3. Must not be unconscionable
Rules: II. GUARANTY
1. Stipulated interest governs
2. No stipulation – 12% for loans, 6% for other obligations
3. Increases in interest must also be stipulated
4. Only in contracts of loan can interest be stipulated
5. Stipulation must be mutually agreed upon, not unilaterally increased. But Definition
parties can agree on a FORMULA. A contract whereby the guarantor binds himself to the creditor to fulfill the
6. Escalation clause [automatic increase in interest] must be accompanied by obligation of the principal debtor in case the latter shall fail to do so.
De-Escalation clause [automatic decrease]
Characteristics
When still liable for interest even if none stipulated: 1. ACCESSORY - depends on existence of principal obli’n
A. As Damages for delay – rate is based on: 2. SUBSIDIARY & CONDITIONAL - takes effect only upon principal’s default
a. Penalty clause stipulated 3. UNILATERAL - May be entered w/o intervention of
b. Regular interest rate stipulated principal debtor
c. Legal interest rate of 12% - Obligation of guarantor only as to
B. Interest from unpaid Interest creditor and not vice-verse.
GR: Accrued interest shall not ear interest 4. DISTINCT PERSON - Guarantor must be distinct from
E: JUDICIALLY DEMANDED or principal debtor. But in real guaranty,
COMPOUNDED INTEREST – must be in WRITING person may guaranty his own obligation
with his own properties.
Payable in KIND - At the CURRENT PRICE of the products AT TIME and PLACE OF
PAYMENT

Classifications 7. Guarantor may bind himself FOR LESS but not for more than the principal obli
In General: Personal and Real - Both as to amount and the onerous nature of the conditions
Origin: Conventional, Legal, Judicial - If he bound himself for more, shall be reduced to the limits of the
Consideration: Gratuitous and Onerous principal debtor’s liability.
Principal Debt: Single [principal obli] and Double / Sub-Guaranty [guaranty] - Opt Out: Separate Contract where lender would render service to
Scope: Definite [principal obli only] and guarantor in exchange for the additional amount.
Indefinite / Simple [no stipulation that guaranty is on principal debt - However, if creditor sues guarantor, latter may be liable for costs,
only, liability includes accessory oblis] attorney’s fees & penalties.
RULES ON GUARANTY 8. Guaranty is NOT PRESUMED - must be express and limited to terms
- Strictly construed against creditor, in
1. Guaranty is GRATUITOUS - E: Onerous only if stipulated favor of guarantor if gratuitous
2. Same Cause as principal obligation. - Guarantor need not have a direct - must be in WRITING [SOF]
interest in the obligation nor receive - Prospective application [not past debt]
any benefit from it. 9. No need for Creditor to Accept - E: if guarantor merely offers to guaranty
3. Married woman may guarantee - GR: But if w/o the husband’s - E to E: unconditional promise
consent, she only binds her
separate properties. She can’t bind 10. Qualifications of a Guarantor - Creditor CAN WAIVE requirements
the ACP A. Integrity - Guarantor subject to jurisdiction of the
- E: When it redounds to the benefit B. Capacity to Bind Himself court where obli is to be complied w/
of the family. C. Sufficient property - Qualifications need only be present
upon perfection of contract.
4. With principal debtor’s consent - SUBROGATED in Rights of Creditor st
11. Creditor may Demand Another 1. Conviction in 1 instance of a crime
- If entered w/o knowledge/consent or against the will of the debtor:
rd *Except when creditor involving dishonesty/ moral turpitude
- Effect is like payment by a 3 person:
required specified person 2. Guarantor becomes insolvent – no
1. Guarantor can only recover insofar as payment benefited
as Guarantor need for judicial dec. of insolvency
the principal debtor
2. Guarantor cannot compel the creditor to subrogate him in 12. Guaranty SURVIVES death of Guarantor
the creditor’s rights such as those arising from a
13. Property of Guarantor IS NOT Subjected to a LIEN by virtue of the guaranty
mortgage, guaranty or penalty.
5. May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL OBLI.
- In natural obligations, even if the principal obligation is not civilly EFFECTS OF GUARANTY
enforceable, creditor may still go after the guarantor I. TO COMPEL GUARANTOR TO PAY, CREDITOR MUST EXHAUST ALL
- A conditional obligation may also be subject of guaranty
PROPERTIES OF DEBTOR AND MUST HAVE RESORTED TO ALL LEGAL
6. May be given to secure FUTURE DEBTS, amount of which is not yet known. REMEDIES AGAINST THE DEBTOR [EXCUSSION].
But there can be no claim against the guarantor until the debt is liquidated. Benefit of Exhaustion Shall NOT take place:
- Continuing Guaranty 1. When Excussion shall not take place
- Remember that there must be an existing principal obli. What is 2. If guarantor waives or fails to set-up the benefit and point
allowed is the guaranty for a principal obli in existence PLUS properties of the debtor to the creditor
future debt. Guaranty cannot be constituted on a future debt only. 3. If guarantor is a judicial bondsman and sub-surety
- Conditional Obligations – If principal obli is subject to a suspensive 4. Where pledge or mortgage has been given by him as special
condition, guarantor liable only upon happening of the condition. security
5. Fails to interpose it as a defense before judgment is rendered
against him.

Benefit of Excussion Shall NOT take place: VI. THE SUB-GUARANTOR ENJOYS THE BENEFIT OF EXCUSSION WITH RESPECT
1. Guarantor expressly RENOUNCED it TO THE GUARANTOR AND THE PRINCIPAL DEBTOR
2. He has bound himself SOLIDARILY
3. In case of INSOLVENCY of debtor [Practical Insolvency] VII. BENEFIT OF DIVISION: SEVERAL CO-GUARANTORS, 1 DEBTOR, 1 DEBT –
4. Debtor has ABSCONDED, or cannot be sued w/in Philippines, OBLIGATION DIVIDED AMONG ALL. CREDITOR CAN ONLY CLAIM
unless he has left a manager or representative RESPECTIVE SHARE OF EACH GUARANTOR.
5. USELESS – when it may be presumed that execution on - GR: joint liability
property of principal debtor would not satisfy whole obligation - E: In cases where no benefit of excussion [RUSIA] and when
solidarity has been stipulated
Opt Out – Get guarantor to sign a WAIVER of the benefit or make him
SOLIDARILY liable. Payment by Guarantor constitutes Waiver of benefit. VIII. DEBTOR MUST INDEMNIFY GUARANTOR IF THE LATTER PAYS. INDEMNITY
INCLUDES:
II. GUARANTOR MUST SET-UP THE BENEFIT AGAINST THE CREDITOR AND 1. Total amount of debt – only what he has actually paid. Unless stipulation
POINT TO PROPERTIES OF THE DEBTOR IN THE PHILS SUFFICIENT TO of right to demand reimbursement as soon as liable, even
ANSWER THE DEBT without having paid.
- To collect from guarantor, creditor must make prior demand for 2. Interest – interest from the time notice of payment of the debt by G is
payment from guarantor: Made after judgment on the debt and made known to debtor. Guarantor can collect interest on
must be actual demand, not merely joining G in the suit. amount paid even if principal obli has no stipulation for
- Once guarantor sets-up and points to properties, creditor who is interest. Basis of the right is delay of debtor in reimbursing.
negligent in exhausting the property pointed out suffers the loss to 3. Expenses – those that guarantor must satisfy in accordance with law.
the extent of the value of the property. Limited to those incurred after notifying debtor that payment
has been demanded from guarantor.
III. EVERY ACTION BY CREDITOR MUST BE AGAINST THE PRINCIPAL DEBTOR 4. Damages – only if they are due
ALONE. CREDITOR MUST ASK COURT TO NOTIFY THE GUARANTOR.
IX. EXCEPTIONS: WHERE G HAS NO RIGHT TO BE REIMBURSED
- Creditor can only sue the guarantor together with the principal
1. Guaranty constituted w/o knowledge or against will of debtor
debtor in the instances when the benefit of excussion does not
- can only claim beneficial reimbursement
take place. rd
2. Payment by 3 person w/o intention to be reimbursed is Donation,
- Guarantor must be notified so that he can set-up his defenses
requiring consent of donee. But payment is valid as to creditor.
IV. THE BENEFIT OF EXCUSSION SHALL ALWAYS BE UNIMPAIRED, EVEN IF 3. Waiver by guarantor of right to be reimbursed.
JUDGMENT IS RENDERED AGAINST THE PRINCIPAL DEBTOR AND THE
X. GUARANTOR WHO PAYS IS SUBROGATED TO ALL RIGHTS OF CREDITOR
GUARANTOR.
AGAINST DEBTOR
- If guarantor appears in the action, he is still given the benefit of
- Right of subrogation only given to guarantor if he has a right to be
Exhaustion even after judgment is rendered against the principal
reimbursed. No right – no subrogation.
debtor.
- If guarantor does not appear, judgment is not binding on him. XI. IF G PAYS W/O NOTIFYING DEBTOR, DEBTOR MAY ENFORCE AGAINST HIM
Lender must separately sue guarantor to claim from him. ALL DEFENSES HE COULD HAVE SET UP AGAINST THE CREDITOR AT TIME OF
- Problem: Time lag between judgment against debtor & against G. PAYMENT.
- Opt Out: Bank guaranty or LC where only need to inform the bank
XII. IF DEBT WAS FOR A PERIOD AND G PAID BEFORE PERIOD ENDED, HE
V. IF A COMPROMISE IS MADE, WHOEVER IS NOT PARTY TO THE CANNOT DEMAND REIMBURSEMENT FROM DEBTOR UNTIL PERIOD ENDS.
COMPROMISE BENEFITS BUT IS NOT PREJUDICED. - Exception: if debtor ratified/consents to such payment b4 due date.
- If guarantor compromises with creditor – he cannot demand more
from the debtor than what he really paid XIII. IF G PAID W/O NOTIFYING DEBTOR, THEN DEBTOR ALSO PAYS – G CAN’T
GO AFTER THE DEBTOR BUT MUST GO AFTER THE CREDITOR.
- Exception: G may claim from clueless debtor if:

1. gratuitous guaranty EXTINGUISHMENT OF GUARANTY

2. G prevented from informing debtor of payment by 1. Extinguishment of Contracts - payment or performance; loss of the thing due;
fortuitous event condonation or remission; confusion or
3. Creditor becomes insolvent merger; compensation; novation; annulment;
rescission; fulfillment of resolutory condition;
XIV. INSTANCES WHEN GUARANTOR MAY PROCEED AGAINST PRINCIPAL
and prescription
DEBTOR EVEN BEFORE PAYMENT - any agreement between creditor and principal
1. When G is SUED for payment debtor which varies terms of principal contract
2. If principal debtor is INSOLVENT w/o consent of surety extinguishes surety’s
3. If guaranty is for a PERIOD and period has expired liability. Alteration must impose new obligation
4. Debt become DEMANDABLE by lapse of period 4 or added burden to extinguish G.
payment 2. Creditor accepts other Prop’y - even if creditor should afterwards lose the same
5. After lapse of 10YRS if no fixed due date [accdg to through eviction, G is released DACION
nature] 3. Release by Creditor of 1 of the co-guarantors w/o their consent benefits all to
6. Reasonable ground to Fear principal debtor will extent of share of released co-guarantor.
ABSCOND 4. Extension granted by Creditor to Debtor w/o G’s consent extinguishes G
7. Principal debtor in imminent danger of being INSOLVENT - Mere failure of creditor to demand payment after debt has become
- Under these 7 instances, G has ff rights before he makes payment due does not constitute extension
A. Right to be released if creditor/lender agrees - Exception: If G consents to extension or waives extinguishment
B. Right to demand security 5. Gs, even if solidary, are released when by some act of CREDITOR, they cannot
XV. IF G GUARANTEES DEBT OF 3RD PERSON NOT PRESENT, AT THE REQUEST be SUBROGATED to the rights, mortgages and preference of the latter.
OF ANOTHER, HE MAY SUE EITHER THE PERSON REQUESTING OR THE 6. Guarantor may set up against creditor all defenses pertaining to principal debtor
DEBTOR. and inherent in the debt, but not those personal to the debtor.
XVI. JOINT LIABILITY BETWEEN SEVERAL CO-GUARANTORS –

- GR: Creditor cannot collect whole amount from 1 co-guarantor *Judicial and Legal Bonds are sureties. No benefit of excussion.
- E: In cases of JUDICIAL DEMAND and
When principal debtor is INSOLVENT
- If 1 pays for the whole obligation, he can demand shares of SURETY
others. Person binds himself SOLIDARILY with the principal debtor
- Instance when joint obligation has effect of solidary obligation: Dispenses with all legal requirements or conditions for proceeding against a
If any of co-guarantors are insolvent, his share shall be borne guarantor.
by the others, including the one who paid. SOLIDARITY AMONG DEBTORS v SURETYSHIP
- In case 1 co-guarantor pays whole obligation – co-guarantors may o Both stand for some other person
set up against the paying G the same defenses of principal o Both may demand reimbursement
debtor against the creditor and are not purely personal to the o Difference is that in solidarity among debtors, the reimbursement
debtor. involves only the amount of the share of the other debtors. In
suretyship, the surety is reimbursed for the whole amount.
XVII. A SUB-GUARANTOR IS RESPONSIBLE TO THE CO-GUARANTORS IN THE o Lender cannot go after surety right away, there must be default by
SAME TERMS AS THE GUARANTOR, IF THE LATTER BECOMES INSOLVENT. the principal debtor first. In solidarity of debtors, creditor can go after
any solidary debtor on due date.

NATURE OF SURETY’S UNDERTAKING

1. CONTRACTUAL & ACCESSORY - liability is merely collateral to principal III. PLEDGE
BUT DIRECT obligation but direct, primary and
absolute obligation to creditor
2. LIABILITY LIMITED TO TERMS - liability is determined by terms of K
OF THE CONTRACT
3. LIABILITY ARISES ONLY IF - Effects: ESSENTIAL REQUISITES OF PLEDGE
PRINCIPAL DEBTOR IS LIABLE 1. Surety is bound by a judgment 1. Purpose - to Secure the fulfillment of a Principal Obligation
against the principal even if he is 2. Real - Requires delivery of the thing
not party to the proceedings - Agreement to pledge, when breached, gives rise to damages
2. Creditor may sue, separately or 3. Alienation - when PO becomes due and debtor defaults, thing pledged may
together, the principal debtor and be alienated to satisfy the principal obli
the surety - A direct lien on the property, no need for litigation to alienate.
3. Generally, a demand or notice of 4. Disposal - Free Disposal of property or legal authority to do so
rd
default is not required to fix the - not subject to any claim by a 3 person
surety’s liability [?] 5. Ownership - Pledgor be the Absolute Owner of thing, bears the loss
4. An accommodation party is a - Loss: Must replace thing or lose benefit of the period
surety - Future property CANNOT be pledged.
5. A Promise to pay signed by 2 - Must have both BENEFICIAL & LEGAL TITLE
debtors is solidary [not surety] - In suspensive condition – ownership retroacts
6. Surety bond where there is no 6. Third persons not parties to principal obli may be pledgor
principal debtor is VOID
4. NOT ENTITLED TO EXHAUSTION - of properties of principal debtor, since
he assumes solidary liability Definition of Pledge Contract
rd
5. UNDERTAKING IS TO CREDITOR - debtor cannot claim that surety Debtor delivers to creditor or 3 person a movable or document involving
breached its obligation to pay incorporeal rights for the purpose of securing the fulfillment of a principal
because there is no obligation obligation with the understanding that when the obligation is fulfilled, the thing
between surety and debtor. delivered shall be returned with all its fruits and accessions.
GUARANTY SURETYSHIP KINDS: Voluntary / Conventional and Legal

Guarantor promises to answer for debt, Surety promises to answer for debt,
default or miscarriage of the principal default or miscarriage of principal
Liability of guarantor depends upon Surety assumes liability as a regular party CHARACTERISTICS
independent agreement to pay the to the undertaking 1. Real - by delivery, MUST B IN PUBLIC INSTRUMENT
obligation if debtor fails to do so 2. Accessory - no independent existence
Engagement of guarantor is a Surety is charged as an original promisor 3. Unilateral - obli of creditor to return thing
collateral/accessory undertaking 4. Subsidiary - obli of creditor arises only upon fulfillment of PO
Guarantor is secondarily liable. Benefit A surety is primarily liable *May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL obligation.
of Exhaustion, Excussion & Division No benefit of Excussion
GUARANTOR BINDS HIMSELF TO SURETY UNDERTAKES TO PAY IF
PAY IF THE PRINCIPAL DEBTOR THE PRINCIPAL DOES NOT PAY
CANNOT PAY [INSURER OF THE [INSURER OF DEBT]
SOLVENCY OF THE DEBTOR] - More onerous

RULES ON PLEDGE PROVISIONS APPLICABLE ONLY TO PLEDGE

rd
1. CREDITOR CANNOT APPROPRIATE THING PLEDGED OR DISPOSE OF 1. Delivery must be to CREDITOR or 3 person agreed upon
THEM 2. SM - All movables within the commerce of man which are susceptible of
- contrary stipulation is VOID possession, and
- Stipulation of Pactum Commissorium is VOID - Incorporeal rights evidenced by documents – must be indorsed if
A. When there is a pledge or mortgage negotiable
B. A Stipulation for AUTOMATIC appropriation of
3. Must be in a PUBLIC INSTRUMENT, with a description of the thing pledged
the thing in case of default by the debtor rd
and the date of the pledge, in order to affect 3 persons
- Exception to Pactum Commissorium: When thing is not sold after 2
public auctions, creditor may appropriate for himself. 4. ALIENATION – Thing pledged may be alienated by the owner but must be
- Upon default, creditor moves for sale of the pledged thing with consent of pledgee. Ownership is transferred only
- If he wants to acquire it for himself, creditor may bid in public auction upon consent of pledgee, but latter continues to possess.
- How to Opt Out of Pactum Commissorium Prohibition: rd
5. RIGHT OF CREDITOR TO RETAIN – in his possession or in 3 person until
A. Enter into another contract outside the pledge Principal Obligation is paid.
B. Debtor can voluntarily cede property to creditor – Novation.
6. Creditor shall take care with Diligence of a Good Father of the Family
C. Stipulation where debtor merely promises to sell, non-
- Creditor has a right to be reimbursed for expenses due to
compliance will give rise to damages
preservation
D. Stipulation granting creditor authority to take possession and
- Creditor also liable for LOSS or Deterioration
not ownership of property upon foreclosure. rd
7. Pledgee cannot deposit thing to a 3 person
2. PLEDGE IS INDIVISIBLE - Exception: contrary stipulation
- Heirs of either debtor or creditor cannot ask for proportionate - Pledgee responsible for acts of his employees/agents
extinguishment or return of the thing pledged. - Remedy of Pledgor: Extrajudicial deposit or deposit with a
- EXCEPTIONS: rd
3 person [Arts 2104 & 2106] or Resolution for Breach
1. Several things given in pledge, each one answering for a
determinate portion of the credit 8. Pledgor who knows of hidden defects and does not disclose them to pledge,
2. Only partial release of the loan [Central Bank v CA] the latter suffering damages, is liable.
3. Failure of Consideration – creditor took over management 9. If Thing earns Fruits, Income, Dividends or Interests, creditor shall
but the business failed. compensate what he receives with those which are owing to him.
- Indivisibility of Pledge is NOT AFFECTED by the fact that the - If none are owing to him, or if amount exceeds what is due
debtors are NOT SOLIDARILY LIABLE. to him, apply excess to principal
- Unless contrary stipulation, pledge extends to interest and
3. CONTRACT OF PLEDGE MAY SECURE ALL KINDS OF OBLIGATIONS
earnings of right pledged
- Pure or Subject to a Suspensive or Resolutory Condition
- Pledge of Animals – offspring owned by pledgor/owner but
- Valid, Voidable or Unenforceable Contracts
subject to the pledge.
4. PROMISE TO CONSTITUTE A PLEDGE GIVES RISE ONLY TO A PERSONAL - If period is for benefit of pledge, even if obli is not due, he
ACTION BETWEEN PARTIES. may compensate against the interest or principal
- W/o prejudice to criminal liability of party who defrauds another by 10. Unless expropriated by State, pledgor retains ownership of thing.
offering a thing in pledge as unencumbered, knowing it was subject - But creditor may bring actions pertaining to owner, in order
to some burden or representing himself to be the owner. rd
to recover it from or defend it against a 3 person
11. Creditor cannot USE the thing without authority of the Pledgor
- If he uses it or misuses it in any way, owner may ask that it
be judicially or extra-judicially deposited

- When preservation requires use, creditor must use but FORECLOSURE OF PLEDGE
only for that purpose.
FORMALITIES REQUIRED
12. Pledgor can only ask for return of thing if he has paid principal and interest 1. Debt is due and unpaid
of the obligation – as well as expenses 2. Sale must be at public auction
13. In DANGER OF LOSS OR IMPAIRMENT 3. Notice to pledgor and owner, stating the amount due
A. Due to negligence or willful act of pledgee, 4. Must be with intervention of Notary Public
rd
- PLEDGOR may require thing to be deposited to 3
person PROCESS
B. W/o fault of pledgee: 2 options of PLEDGEE 1. Debt becomes due and debtor defaults
i. Pledgee may demand return of thing upon offering 2. Creditor proceeds to Notary Public and asks to conduct a Notarial Sale
another thing in pledge, provided that same kind as 3. Sale shall be a public auction supervised by Notary
former and not of inferior quality but in class, JP said creditor has control and determines details of the
ii. Pledgee may cause thing to be sold at a Public Sale. sale
When there is danger of loss, destruction or 4. Notice of sale must be given to pledgor and owner
dimunition of value No specified period for notification
Proceeds of sale shall be security for principal 5. If not sold on 2 public auctions, creditor may appropriate for himself by giving an
obligation in same manner as the thing originally acquittance for his entire claim.
pledged. 6. After auction, pledge shall advise owner or pledgor of result
Upon due date, if cash value acquired in Public
Sale is less than principal obligation, creditor RULES
CAN STILL recover deficiency. 1. At auction, pledgor or owner may bid and shall have a better right if same terms
But pledgor can question sale, alleging he could as highest bidder.
have obtained a better price.
2. Pledgee may also bid but invalid if he is only bidder.
- Pledgee’s right takes precedence over pledgor’s right
3. All bids must offer to pay price at once. If other bid is accepted, pledgee is
14. If Creditor DECEIVED on SUBSTANCE or QUALITY
deemed to have received purchase price.
- Pledgee may either:
A. Claim another thing 4. SALE EXTINGUISHES WHOLE OBLIGATION
B. Demand immediate payment of the principal obligation - principal, interest, and expenses
- Instance when debtor loses benefit of the period
5. DEBTOR NOT ENTITLED TO EXCESS, MAY STIPULATE
15. THING PLEDGED IS RETURNED
6. DEBTOR NOT LIABLE FOR DEFICIENCY
- If thing pledged is retuned to owner or pledgor, pledge is
- contrary stipulation is VOID
EXTINGUISHED. Contrary Stipulation is VOID.
- opt out: set a minimum bid, or just file collection suit instead of foreclosing,
- If after to perfection of pledge, the thing pledged is possessed by the
or stipulate that if pledge goes under certain amount, debtor must pledge
pledgor, there is PRIMA FACIE presumption that the same has been
additional securities.
returned by the pledge.
rd
- Same presumption if 3 person possesses thing, receiving it from 7. Any person who has a right to thing pledged may satisfy PO as soon as it
the pledgor or owner. becomes due and demandable
rd
- EXCEPTION: pledgor acts as agent of pledgee - creditor cannot refuse payment by interested 3 person
- can be a buyer of the thing, or someone with a junior lien
16. Statement in writing by pledge that he RENOUNCES or ABANDONS pledge
is sufficient to extinguish pledge. 8. If credit pledged becomes due before it is redeemed, PLEDGEE may collect
- No need for acceptance of pledgor or owner and receive the amount due.
- Also no need for delivery of thing pledged to pledgor or owner. - pledge shall apply the proceeds to payment of the principal obligation

- SURPLUS should be delivered to PLEDGOR

9. If 2 or more things are pledged, Pledgee may choose which to sell, unless IV. REAL MORTGAGE
contrary stipulation.
rd
10. If a 3 party pledges his own movable property, he has same rights as
guarantor.
rd
- 3 party pledgor is entitled to: DEFINITION
a. Indemnity A real estate mortgage is a contract whereby the debtor secures to the
b. Subrogation creditor the fulfillment of a principal obligation, specially subjecting to such
c. Pledgor released if creditor accepts property in payment of debt security immovable property or real rights over immovable property in case
DACION the principal obligation is not complied with at the time stipulated.
d. Release of 1 pledgor w/o consent benefits all
e. Extension granted to debtor extinguished pledge
f. Pledgors are released from obli if no subrogation by act of creditor CHARACTERISTICS
g. Pledgor may set up defenses inherent in the debt Real - by delivery, MUST be REGISTERED
Accessory - no independent existence
Subsidiary - obli of creditor arises only upon fulfillment of PO
CONVENTIONAL PLEDGE LEGAL PLEDGE
Debtor/Owner/Pledgor is not Excess/Remainder of the price of May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL obligation.
entitled to excess but may stipulate. the sale shall be delivered to the
Debtor is also not liable for debtor KINDS: Voluntary / Legal and Equitable Mortgage
deficiency and cannot stipulate.
Debtor need only default and May only be sold after DEMAND of As a General Rule, the MORTGAGOR RETAINS POSSESSION, however
notarial intervention for sale to be the AMOUNT for which the thing is this is not essential and mortgagee may have possession and it would still be
held. retained a mortgage and some other contract.
No required period to hold auction Public Auction shall be held ONE
sale MONTH after such demand. SM: Immovables and Alienable Rights over Immovables
If w/o just grounds, creditor does
not cause public sale to be held FUTURE PROPERTY CANNOT BE OBJECT OF K o MORTGAGE. Must be
w/in such period, debtor may absolute owner. But future improvements are valid.
require return of the thing.
REQUISITES
RULES FOR LEGAL PLEDGE Purpose - to secure a Principal Obligation
Possesor in GF may retain thing on qwhich he spent for necessary expenses Real - must be registered in Registry of Property to prejudice
rd
until reimbursed. 3 persons
He who works on a movable may retain the same until paid for the work Alienation - When PO becomes due, may be alienated for payment
Depositary may retain the thing until paid for the deposit Disposal - Free Disposal or Legally Authorized to do so
Agent may retain objects of agency until reimbursed by principal Ownership - Absolute ownership of thing mortgaged
Laborer’s wages are considered a lien on goods manufactured or work done
*Even w/o registration, there is already a valid mortgage between parties.

HOW TO ENTER
Stipulation forbidding the owner from alienating immovable mortgaged
Execute document of mortgage
Go to a notary public who will notarize document shall be void.
Pay documentary stamp tax - But the mortgage can stipulate that property will not be further
Go to RD to register, must be updated in tax payments encumbered – valid stipulation as mere regulation
- Stipulation that mortgagor must notify m’ee before alienating is valid
RULES/EFFECTS
The mortgage Directly and Immediately subjects the property upon FORECLOSURE OF REAL MORTGAGE
which it is imposed, whoever the possessor may be, to the fulfillment Default rule: Judicial Foreclosure
E: Extrajudicial foreclosure only if SPOA stipulated
of the obligation for whose security it was constituted.
E: Parties may also stipulate a private sale
- Ownership is retained by mortgagor, may even mortgage it again Foreigner can be mortgagee, governed by RA133
- The portion of the mortgage registered creates a preference in favor
of creditor over the land RA133
- Opt Out: do a credit line arrangement with a ceiling price or execute Applies when mortgagee or his successor in interest is disqualified to acquire
a new document everytime funds are released. or hold lands of the public domain:
He shall not take possession of the mortgaged property during the
Mortgage extends to:
existence of the mortgage
a. natural accessions
Except after default and only for the purpose of foreclosure,
b. Improvements
receivership, enforcement or other proceedings and
c. growing fruits,
In no case exceeding 5years from actual possession
d. rents or income not yet received when obli is due
Shall not bid or take part in any sale of such real property in
e. Insurance indemnity
foreclosure.
f. Compensation for expropriation
Foreigner mortgagee, JUDICIAL FORECLOSURE under Act133.
SPOA, EXTRAJUDICIAL FORECLOSURE according to Act3135.
- Mortgage over future property invalid but future improvements, valid.
No stipulation, JUDICIAL FORECLOSURE under Rule68 of the RoC.
- To exclude these things, there must be an express stipulation.
Mortgagee BANK, Act3135 applies & Sec47 of the General Banking Act.
- When expropriated, the cash given by the gov’t as indemnity
becomes the security. Upon default, M’ee can apply cash to
obligation.
JUDICIAL FORECLOSURE UNDER
The Mortgage credit may be ALIENATED / ASSIGNED by the creditor to a RULE 68 OF RULES OF COURT
3rd person
PROCESS
- Assignee may also foreclose mortgage in case of default
1. M’ee files petition for judicial foreclosure in court where prop’y situated
- Alienation or assignment is valid even if not registered.
2. Court will conduct trial.
When the property is alienated to a 3rd person, the creditor can claim 3. EQUITY OF REDEMPTION PERIOD. Court will promulgate judgment & order
from such 3rd person the part of the credit secured by the property in mortgagor to pay debt w/in 90-120 days from NOTICE of Judgment. [Book
the latter’s possession says From entry of judgment]
4. If mortgagor fails to pay within period, property shall be auctioned
- There must be prior demand to debtor and the latter failed to pay, 5. Judicial Confirmation of Sale [Registration of certified copy of final order of the
rd
before going after the property possessed 3 person [must be court confirming the sale]. Even after 90-120 day period, Equity of redemption
possession in concept of an owner] period actually extends to before the sale is confirmed.
rd
- But 3 person is not liable for deficiency unless contrary is 6. After confirmation of sale, purchaser shall be entitled to possession and all
stipulated. He cannot be liable for more than value of property rights of mortgagor are severed. Mortgagor cannot redeem anymore. General
alienated to him. Rule is that there is no redemption after confirmation in Judicial Sales.

a. Exception is when it comes to BANKS registration of the certificate of sale but not
7. Proceeds of Sale will be Disposed: exceeding 90days from foreclosure.
a. Costs/Expenses of Sale - Debtor, Successor in interest or any judgment
b. Principal Obligation and Interests creditor of debtor, or any person having junior
c. Junior Encumbrances encumbrance on property may redeem.
d. Excess = mortgagor [Sec28 Rule39 ROC]
e. Deficiency = MOTION for deficiency judgment, may be on other 7. REDEMPTION PRICE- Purchase price plus interest of 1% per month
properties, no need for another court action. - Except: if foreclosing bank, ORIGINAL OBLI plus
INETERST at ORIGINAL RATE plus COSTS.
rd
EXTRA-JUDICIAL FORECLOSURE - if M’or sells property to 3 person w/in
rd
UNDER ACT 3135 redemption period, 3 person only bought the
right to redeem the property and the right to
PROCESS
possess w/in the redemption period.
1. COMPLAINT - w/ executive judge in prov. where prop’y
Right of redemption may be waived only if there is fair exchange of value and
situated
information between parties.
2. NOTICE OF SALE – description, date, time, place and principal obli.
Mortgagor can exercise right of redemption in same terms even if property is
a. Posting in at least 3 public places rd
subsequently sold to a 3 party.
20 days before sale
b. Publication in Newspaper of
general circulation ONCE a WEEK
EXCEPTIONS UNDER SEC47
for ark east 3 CONSECUTIVE
OF GENERAL BANKING LAW
WEEKS if value exceeds P400.
3. PUBLIC AUCTION - Time: 9-4pm Applies when foreclosing mortgagee is a BANK. Same procedures as judicial
- Under Sheriff/justice of peace’s direction or NP or extra-judicial but with ff exceptions:
- Anyone may bid unless exceptions stipulated
- Even if M’ee only bidder, valid, may still redeem RIGHT TO REDEEM
- Must be at least 2 bidders GR: No right to redeem in Judicial Foreclosures
- Highest bidder, but if ceiling price stipulated and E: For Banks, there is still a right to redeem w/in 1 year from
creditor highest bidder, estopped. registration of the sale.
4. PROCEEDS - Inadequacy of price is immaterial, right to REDEMPTION PRICE
redeem GR: In extra-judicial foreclosure, the Redemption price is the
- Excess goes to Mortgagor purchase price plus 1% monthly interest
- Deficiency must be collected via court action E: In banks, redemption price consists of:
5. POSSESSION - if M’or in possession, will retain possession during principal obligation
redemption period of 1year from date of sale. interest on loan at the rate stipulated in mortgage
- if purchaser wants immediate possession, must Costs of Sale
file bond equal to 12months rent.
- Exception: in Banks, purchaser may immediately AUTOMATIC RIGHT OF POSSESSION
posses upon confirmation of sale. In this GR: mortgagor retains possession w/in redemption period
case, M’or petition the sale to be set aside E: in banks, purchaser automatically has right of possession
and writ of possession be cancelled. INJUNCTION
6. REDEMPTION - M’or may redeem within 1YEAR from date of Anyone who wants to enjoin foreclosure instituted by a bank
execution of Certificate of Sale may file a bond to satisfy damage may be suffered by
- Exception: Foreclosing Bank and Mortgagor is a injunction
juridical person, right to redeem before

PERIOD OF REDMEPTION FOR JURIDICAL PERSONS REQUISITES

GR: in extra-judicial foreclosure, mortgagor may redeem after 1. PRINCIPAL OBLIGATION
1 year from execution of certificate of sale. No distinction 2. ABSOLUTE OWNER
between juridical and natural persons. 3. FREE DISPOSAL or AUTHORITY
E: bank, same rule applies to natural persons. But juridical 4. ALIENATION WHEN PO DUE
persons must redeem: 5. RECORDED IN CHATTEL MORTGAGE REGISTRY
i. Before Registration of Sale a. RD where mortgagor resides at the time of making
ii. Not later than 90DAYS from date of sale b. Resides outside Phils – where prop’y situated
c. If prop’y situated in different province different from where M’or
RIGHTS OF JUNIOR MORTGAGEE resides, RD of BOTH province where resides and where
st
1. Before 1 M’ee sells, JM may exercise equity of redemption vested in property is situated. – Must be signed by 2 witnesses.
Mortgagor. Effect: 2 laws govern
a. Sec28 Rule39 ROC – M’or/Debtor has 60dayts to reimburse JM. If CHATTEL MORTGAGE PLEDGE
he fails to do so, JM owns property. SM Personal or movable prop’y Personal or movable prop’y
rd
b. Oblicon – rules on payment by 3 person, JM only subrogated in Delivery Not necessary Necessary for validity
right of first mortgagee. Registration
rd
Necessary to bind 3 persons, Public Document is enough
2. When extra-judicial sale is made, JM may redeem w/in 1 year from sale. JP in all proper RDs
rd
to bind 3 persons
says JM should pay price at which property was sold. Procedure for Sec14 of Chattel Mortgage Art2112 [intervention of NP
st
3. Proceeds in excess of PO of 1 M shall be applied to JM. But if there is no Sale Law & public auction]
nd
excess, the 2 Mortgage is Extinguished.
4. JM may foreclose on the right of redemption so that he will be the only one Excess Goes to debtor/mortgagor Goes to pledge/creditor
to exercise the right when the time comes. unless stipulated
Deficiency Cab recover except if covered Cannot recover even if with
by Recto Law stipulation
CHATTEL MORTGAGE LAW

V. CHATTEL MORTGAGE 1. Even if not registered in CM Registry, still binding between parties
2. Registration creates a real right or lien, wherever property goes. It gives
mortgagee symbolic possession
DEFINITION
Chattel Mortgage is the contract by virtue of which personal property is FORM OF OATH / AFFIDAVIT OF GOOD FAITH
recorded in the Chattel Mortgage Registry as a security for the performance
of an obligation. We severally swear that the foregoing mortgage is made for the
rd
If the movable, instead of being recorded, is delivered to the creditor or a 3 purpose of securing the obligation specified in the conditions thereof,
person, the contract is a PLEDGE. and for no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of fraud.
CHARACTERISTICS - If w/o affidavit of GF, still binding between parties but not to 3
rd
1. Accessory - secures performance of a principal obligation persons because of lack of formality. But mortgage will not be
2. Formal - requires registration in CM Register for validity rd
preferred against 3 persons.
3. Unilateral - produces only obligations on creditor to free thing from - Purpose of AGF is to hold parties criminally liable for perjury in case
encumbrance on fulfillment of PO of misrepresentation.
3. CM cannot be constituted on future obligations. Must be existing principal
obligation. AGF says “for no other purpose.”

rd
- JP says binding between parties but not to 3 persons. ii. Excess: junior liens and encumbrances then M’or
- They should execute a new CM Contract. iii. Deficiency: File separate Action for Deficiency
4. General rule is you can’t mortgage future property. Exception is 5. POSSESSION
inventory of retail stores bec SC treats it as actually renewal or i. Possession retained by M’or during redemption
replenishment of goods on hand at constitution of CM. ii. If purchaser wants possession, writ of possession plus
bond for 12months rent
5. When mortgagor pays principal obligation, he gets a DISCHARGE from
mortgagee and can cancel lien on movable. 6. REDEMPTION Equity of Redemption
i. 1YEAR from date of registration of certificate of sale
ii. Who may redeem? Mortgagor, Subsequent Mortgagee
UPON DEFAULT
and Subsequent Attaching Creditor
1. RIGHT OF REDEMPTION
- In case of default, the ff may redeem:
Implied Trust – when deed of assignment made over shares of stock and
i. Mortgagor
lender will reconvey upon payment of loan. JP says implied trust
ii. Subsequent Mortgagee [Junior Encumbrances]
because Art1454 says conveyance of property made to secure
iii. Subsequent Attaching Creditor
obligation is a trust. If there’s default, JP says ownership passes to
- If attaching creditor redeems, he is SUBROGATED to rights of
lender/trustee.
the mortgagor, he can foreclose mortgage.
- PO + COSTS & Expenses = subrogated
- No redemption once property is sold, must redeem before sale. As between a pledge with a deficiency and a guaranty, creditor should collect
on the debt, not as a pledgor. Then he should attach the properties
2. RIGHT OF MORTGAGEE TO POSSESSION pledged. The shares can be sold at an ordinary execution sale, not a
- M’ee has implied right to foreclose. foreclosure sale. In this way, deficiency can be recovered by kinder.
- If M’or refuses to give possession, creditor may file action for After execution, lender can go after guarantor for deficiency.
REPLEVIN or action for JUDICIAL FORECLOSURE.
3. FORECLOSURE
1. FILE COMPLAINT FOR FORECLOSURE
2. NOTICE OF SALE
i. Posting at 2 or more public places in municipality VI. ANTICHRESIS
ii. Personal Notice to M’or and Junior M’ees at least 10
days before the sale
3. PUBLIC AUCTION
i. Must be 30 days after default DEFINITION
ii. No max time for holding sale By the contract of antichresis, the creditor acquires the right to receive the
iii. If M’or sells w/in 30days w/o consent of M’ee, he is FRUITS of an immovable of his debtor, with the obligation to apply them to
liable for deceits, akin to estafa. the payment of the INTEREST, if owing, then to the PRINCIPAL.
iv. Anyone may bid, unless stipulated
v. Even if M’ee is sole bidder – bec of redemption CHARACTERISTICS
1. Accessory - secures performance of a principal obligation
4. PROCEEDS 2. Formal - must be in WRITING
i. Applied to: - Delivery is not required for validity. But is required in order
1. Costs that creditor may receive the fruits.
2. Obligation
3. Subsequent mortgages
4. Balance given to mortgagor

NOTES 5. Creditor DOES NOT ACQUIRE OWNERSHIP of the real estate for non-
Law does not require possession payment of the debt within the period agreed upon.
Only on IMMOVABLE property - Every stipulation to the contrary is VOID
Both interest and principal must be in WRITING - In case of default, creditor has the ff remedies:
GR: antichresis covers ALL FRUITS of the encumbered property A. specific performance / collection
E: Stipulate. B. sale of property in judicial foreclosure - ROC
It is not essential that interest must be stipulated in the principal contract. - GR: Creditor cannot acquire property by antichresis – not held in
There must be an express stipulation that the creditor is to APPLY THE concept of an owner. Exception: if creditor repudiates antichresis
FRUITS to the payment of interest then principal. Mere giving of possession 6. Parties may stipulate that interest be compensated with fruits of property
is not indicative of antichresis object of antichresis.
a. Actual market value of the fruits at time of application
b. Form of interest in kind value at date of payment
RULES:
7. Other characteristics of Antichresis
1. Actual Market Value of the fruits at TIME OF APPLICATION to interest rd
a. A 3 person, not party to the PO, may offer his immovable
and principal shall be the measure of such application.
under the contract of antichresis for the debt of another
- Can stipulate between market value at time of application or
b. Contract is INDIVISIBLE
value at time of constitution – no more Usury Law.
c. Indivisibility is not affected by joint liability of debtors
2. Amount of Principal and of Interest shall be specified in WRITING, d. May secure all kinds of obligations – pure or conditional
otherwise the K of A is VOID [resolutory or suspensive]
rd
- Req’t is necessary for validity, not merely to bind 3 persons
- If antichresis void, principal obligation still valid.
ANTICHRESIS REAL MORTGAGE
3. Creditor is obliged to pay: Same SM Same SM
a. Taxes and charges Property is delivered to creditor Debtor usually retains possession
b. Expenses necessary for preservation and repair Creditor only has right to receive Creditor has no right to receive fruits
c. Sums spent for such expenses shall be deducted from fruits, not a real right but has real right over the property
FRUITS [But may be a real right if registered]
- if creditor does not pay taxes, he has to pay Indemnity for GR: creditor must pay for taxes and Creditor has no obligation to pay
Damages to debtor charges upon the estate taxes and charges
- If debtor pays taxes which creditor must pay, the amount is to E: contrary stipulation
be applied to the payment of the debt. If the amount paid Expressly stipulated that creditor No obligation on part of mortgagee
exceeds the principal obli, both the loan and antichresis are shall apply fruits to payment of to apply fruits to interest then
extinguished and creditor has to return property to debtor. interest, if owing, then to principal principal
4. Debtor CANNOT reacquire property w/o first having TOTALLY PAID

what he owes creditor.
- If creditor does not want to pay the taxes and charges:
A. Stipulate
B. He may Compel debtor to enter again upon enjoyment
of property. Except when: contrary stipulation.
has effect of EXTINGUISHING
ANTICHRESIS

4. Property held by insolvent debtor as a trustee of an express or implied

TRUST shall be excluded from insolvency proceedings.
VII. CONCURRENCE AND PREFERENCE OF CREDITS
CLASSIFICATION OF CREDITS
DEFINITION I. SPECIAL PREFERRED CREDITS

Concurrence implies possession by 2 or more creditors of equal rights or A. Specific Movable Property
privileges over the same property or all of the properties of debtor. 1. DUTIES, TAXES on the property itself, and FEES DUE TO THE STATE
Preference is the right held by a creditor to be preferred in the payment of
his claim out of the debtor’s assets above others. MISAPPROPRIATION, BREACH OF TRUST or MALFEASANCE by
PUBLIC OFFICIALS committed in the performance of their duties, on
NATURE & EFFECT movables, money or securities obtained by them
1. An exception to GR of payment so strictly construed UNPAID PRICE OF MOVABLES SOLD, on said movables, so long as
2. Does not create an interest in property – preference of app of proceeds they are in the possession of the debtor, up to the value of the same;
3. Creditor doesn’t have right to take property or sell it – applies after sale and if the movable has been resold by the debtor and the price is still
4. Must be asserted unpaid, the lien may be enforced on the price; this right is not lost by the
5. Must be maintained immobilization of the thing by destination, provided it has not lost its
form, substance and identity; neither is the right lost by the sale of the
REQUISITES thing together with other property for a lump sum, when the price thereof
1. 2 or MORE CREDITORS can be determined proportionally;
2. SEPARATE AND DISTINCT CLAIMS
3. ALL CLAIMS/DEBTS ARE DUE Credits guaranteed with a PLEDGE so long as the things pledged are in
4. SAME DEBTOR the hands of the creditor, or those guaranteed by a CHATTEL
- Except if natural person gets a discharge under insolvency laws MORTGAGE, upon the things pledged or mortgaged, up to the value
5. INSUFFICIENT PROPERTY thereof;
- but must be absolute owner of properties
6. PROCEEDING WHEREIN CREDITOR CAN FILE CLAIMS - In the foregoing cases, if the movables to which the lien or preference
- Like insolvency proceedings attaches have been wrongfully taken, the creditor may demand them from
- Right becomes significant only if properties of debtor already any possessor, within 30DAYS from the unlawful seizure.
liquidated and inventoried and claims of creditors have been - Except for taxes, no preference among those enumerated.
established - For taxes to be preferred, must be on movable itself.
- For misappropriation, must still be with the PO and not innocent purchaser
RULES - PLEDGE – public instrument; CHATTEL M – CM registry
1. A debtor is liable with ALL his property, present and future, for the
fulfillment of his obligations B. Specific Immovables and Real Rights
E: Subject to exemptions provided by law [future support, home] 1. TAXES DUE upon the land or building;
2. As long as ACP or CPG subsists, its property shall not be among UNPAID PRICE OF REAL PROPERTY SOLD, upon the immovable sold;
assets taken by assignee for payment of insolvent debtor’s obligations MORTGAGE CREDITS recorded in the Registry of Property, upon the real
E: Redounded to the benefit of the family estate mortgaged;
3. When insolvent debtor is a co-owner with an undivided share in any
property, his undivided share shall be among the assets taken for
payment of his obligations.

CREDITS ANNOTATED IN THE REGISTRY OF PROPERTY, in virtue of then be used to answer for claims under ordinary credits. 2244
a judicial order, by ATTACHMENTS or EXECUTIONS, upon the property established a preference, unlike 2241 and 2242.
affected, and only as to later credits; - Also, in 2241 and 2242, the preference is only as to THAT SPECIFIC
PROPERTY. In 2244, the preference is with respect to the mass of
- Except for real property tax, does not create preference, merely enumerates. properties of debtor remaining after the special preferred claims are
- Unpaid price for prop’y sold cannot be enforced v IPFV, governed by satisfied.
PD1529
- Credits annotated by judicial order are preferred over credits of the same III. COMMON CREDITS
nature which are registered later. Unlike other special preferred credits, Credits of any other kind or class, or by any other right or title not comprised
these credits do not share proportionately in the property upon which they in the preceding articles shall enjoy NO PREFERENCE.
are imposed. To determine priority among several credits of this kind,
their DATES should be the basis. The first one to be registered is
prioritized.
RULES
*The claims or credits enumerated in the 2 preceding articles shall be 1. Those under special preferred credits are preferred as to the specific property
considered as mortgages or pledges of real or personal property or liens they pertain to.
within the purview of legal provisions governing insolvency. 2. If there are 2 or more credits with respect to the same specific property, they
shall be satisfied pro rata, after payment of duties, taxes and fees to the State
3. Common credits shall be paid pro rata regardless of dates.
II. ORDINARY PREFERRED CREDITS
(1) Credits for services rendered the insolvent by employees, laborers, or

household helpers for one year preceding the commencement of the
proceedings in insolvency;
(9) Taxes and assessments due the national government, other than those VIII. INSOLVENCY LAW
mentioned in Articles 2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any province, other than those referred to in
Articles 2241, No. 1, and 2242, No. 1; 3 REMEDIES:
(11) Taxes and assessments due any city or municipality, other than those 1. Suspension of Payments
indicated in Articles 2241, No. 1, and 2242, No. 1; 2. Voluntary Insolvency - discharge
3. Involuntary Insolvency - discharge
(14) Credits which, without special privilege, appear in (a) a public instrument;
or (b) in a final judgment, if they have been the subject of litigation. These *Security creditors / secured claims are not covered by Insolvency law, they
credits shall have preference among themselves in the order of priority of have option of foreclosing securities instead.
the dates of the instruments and of the judgments, respectively. (1924a)
SUSPENSION OF PAYMENTS
- Establishes a PREFERENCE Postponement, by court order, of the payment of debts of one who, while
- If there are deficiencies in special preferred credits, must find a heading possessing sufficient property to cover his debts, foresees the impossibility of
under Art2244 where applicable. Otherwise, it will not be preferred and meeting them when they respectively fall due.
will be treated as a common credit. Solvent but not Liquid.
- Once the special preferred claims under Art2241 and 2242 are satisfied,
property remaining constitute debtor’s FREE PROPERTY. This will

b. The 2/3 must represent at least 60% of the

UNDER 902-A UNDER INSOLVENCY LAW total liabilities
WHO MAY A corporation Natural or Juridical Person 6. OBJECTIONS must be made within 10 days after the meeting
REQ’TS 1. Solvent but not liquid; or SOLVENT – sufficient prop’y 7. Court issues order directing agreement to be CARRIED OUT.
2. Insolvent & under NOT LIQUID – foresee impossibility of
receivership meeting all when they fall due
Petitioning he be declared in state of
suspension of payment CREDITORS NOT AFFECTED
WHERE RTC RTC where debtor resided for 6months Those who did not appear shall not be bound.
prior
Incidents 1. Debtor has continued 1. No disposition of property may be Persons with claims for personal labor, maintenance, expense of last illness
access to properties made by the debtor except in ordinary and funeral of the wife or children of the debtor incurred in the 60days
2. Gives debtor leverage or course of business immediately preceding to filing
framework for negotiation 2. No payments may be made by debtor
except in ordinary course of business Persons having legal or contractual mortgages. They can foreclose upon
3. Upon request to the court, all pending default.
executions against debtor shall be
suspended except execution against
prop’y especially mortgaged. GROUNDS FOR QUESTIONING MEETING
Advantages 1. More lenient. Even if 1. Debtor must be solvent but not liquid. 1. Procedural Defects
under receivership only, 2. Creditors have a say
may file. 3. Secured creditors are not suspended 2. Fraudulent Connivance – legal to give incentives but not bribes
2. Only the court decides. and may foreclose
3. Even secured creditors 3. Fraudulent Conveyance
are suspended.
PROCEDURE FOR SUSPENSION OF VOLUNTARY INSOLVENCY

PAYMENT UNDER INSOLVENCY LAW An insolvent debtor whose liabilities exceed P1000 may apply to be
1. File PETITION in RTC where debtor resides 6months prior. Petition discharged from his debts and liabilities by filing a petition for voluntary
shall be accompanied by: insolvency in the RTC where he has resided for the last 6months prior to
a. VERIFIED LIST OF ALL CREDITORS filing. In involuntary insolvency, the debtor himself is the petitioner.
b. DEBTS AND LIABILITIES
c. STATEMENT OF ASSETS & LIABILITIES INSOLVENCY SUSPENSION OF
d. PROPOSED AGREEMENT PAYMENTS
Purpose To discharge the debtor from the To suspend or delay
2. Court will issue ORDER calling for the meeting of all creditors. Meeting payment of debts payment of debts
shall take place 2-8 weeks from date of order. Solvency of Debtor does not have sufficient Debtor has sufficient
Debtor property to pay his debts property to pay his debts
3. Order will be PUBLISHED and NOTICE sent to all creditors of debtor
Effect on Amount is affected. The amount of
4. MEETING of Creditors Amount of Creditors receive less than their indebtedness is not
- QUORUM REQUIREMENT – to have a valid meeting, Indebtedness credits; and where there are affected
creditors present must represent at least 60% of the preferences, some creditors may
total liabilities of debtor. not receive anything at all.
Number of There must be 3 or more creditors The number of creditors
5. Creditors will APPROVE the proposition Creditors if it is involuntary insolvency is immaterial
- MAJORITY REQUIRED FOR APPROVAL
- A DOUBLE MAJORITY consisting of:
a. 2/3 of the numbers of creditors voting

PROCEDURE VOLUNTARY INVOLUNTARY

1. Filing of PETITION, containing: Number of 1 creditor is sufficient 3 or more creditors
a. Debtor’s place of residence and period of residence Creditors
b. His inability to pay all his debts in full Petitioner Insolvent debtor 3 or more creditors who
c. Willingness to surrender all his property, estate and effects not possess qualifications
exempt from execution for the benefit of his creditors Acts of Insolvency Debtor must not be guilty of Debtor must have
d. An application to be adjudged insolvent any act of insolvency committed 1 or more of 13
2. Petition shall be accompanied by: acts
a. A verified SCHEDULE containing: Amount of Must be greater than P1000 Must be P1000 or more
Indebtedness
i. Full and true statement of all debts and liabilities
Bond Not required Petition must be
ii. Facts which give rise or which may give rise to cause of
accompanied by a bond
action against insolvent debtor
Hearing Not necessary, may be Petition granted only after
b. A verified INVENTORY containing: granted ex parte hearing
i. Description of all personal and real properties, whether Residency Filed with RTC where debtor RTC where debtor resides
exempt or not, value, location and encumbrance Requirement resided 6months prior or his place of business, no
ii. Facts which give rise to action in favor of insolvent debtor residency requirement
3. Court issues and ORDER OF ADJUDICATION – no hearing, voluntary Issuance of Order Upon the filing of the Upon hearing of the case
4. PUBLICATION AND SERVICE of order to creditors of Adjudication voluntary petition
5. MEETING of Creditors to elect ASSIGNEE declaring Debtor
6. CONVEYANCE of debtor’s property by Clerk of Court to Assignee Insolvent
7. LIQUIDATION of debtor’s assets and payment of hid debts
8. COMPOSITION
9. DISCHARGE, except if debtor is a corporation REQUIREMENTS
10. OBJECTION PETITIONERS
11. APPEAL to SC 1. At least 3 creditors of 1 debtor
2. Creditors are residents of the PHILS
Effects of Order: 3. Credits accrued in the Phils
Sheriff takes possession of all assets not exempt 4. Aggregate amount is at least P1000
Prohibited acts: 5. Should not have accrued w/in 30 days prior to filing of petition
Payment to debtor of debts due to him PETITION
Delivery to debtor or to any person for him, any property belonging 1. Verified by the petitioners
to him 2. Sets forth 1 or more acts of insolvency
Transfer of any property by him 3. Accompanied by a BOND approved by court with at least 2 sureties.
All civil proceedings against debtor are stayed
Mortgages, pledges, attachments or executions on property of debtor duly 3 Kinds of Acts of Insolvency
recorded and not dissolved are not affected by order. 1. By debtor to ensure that debtor will not be able to pay
2. By debtor in fraud of creditors
3. By debtor, giving preference to 1 creditor against other creditors
INVOLUNTARY INSOLVENCY
Purpose is to impound all of the non-exempt properties of the debtor, to

distribute it equitably among his creditors and to release him from further
liability.

PROCEDURE Effects of Assignment

1. Assignee takes property in same conditions as insolvent held it
1. File petition by 3 or more creditors in RTC where debtor resides or
2. Upon appointment, legal title to all property is vested in the assignee, and
place of business
the control of the property is vested in court. But title of assignee
2. Issuance of order requiring debtor to show cause
retroacts to the date of filing for insolvency.
3. Service to debtor of order
3. All actions shall be brought assignee an not by creditors
4. Filing of debtor’s answer or motion to dismiss
4. Attachment or judgment against debtor 30days before filing of insolvency
5. Hearing
shall be set aside.
6. Issuance of order or decision adjudging debtor as insolvent
- So that pending judgment, debtor cannot dissipate his assets,
NOTES:
creditors should ask the court for an injunction or for a receiver
If any person knowing the pending insolvency proceedings, embezzles or
who will hold the properties.
disposes of any of the insolvent’s property is liable for equal to double the
7. Publication and Service of Order – must attach/garnish assets
value of the property embezzled/
8. Meeting of creditors for ELECTION of assignee
- elected within 2-8 weeks from date of order
9. Conveyance of debtor’s property
PARTNERSHIPS AND CORPORATIONS
10. Liquidation of assets and payment of debts
11. Composition
PROPERTIES COVERED:
12. Discharge
1. All properties of partnership
13. Objection
2. Separate properties of each of the general partners, EXCEPT:
14. Appeal to SC
a. Separate properties of limited partners
ASSIGNEES b. Properties which are exempt by law
Person elected by creditors or appointed by the court to whom an insolvent
NOTES
debtor makes an assignment of all his property for the benefit of the
Partnership may be declared insolvent even if individual partners are solvent.
creditors. The assignment vests title to all the assets of the debtor in favor of
Creditors, after first exhausting its assets, may proceed against the solvent
assignee.
general partners who are proportionally liable with heir separate property.
Who can participate in Election Partnership is automatically dissolved by insolvency of 1 partner
Partners get a discharge, corporations don’t.
Creditors who have filed their claims in the Clerk of Court at least 2 days
prior to scheduled election. General rule: secured creditors cannot, except if
Distribution of Net Proceeds of Properties of Partnership
they: 1. Ask for the fixing of the value of the security
1. Partnership property - Debts of partnership
2. Surrender the security to the sheriff or the receiver
2. Individual property - Individual debts
3. Surplus in property of general partner, a proportionate share of
Creditors meet and a MAJORITY of BOTH IN NUMBER AND IN THE
such shall be added to partnership assets and used to pay
AMOUNT OF CREDIT they represent should vote for the same assignee. If
partnership debts.
this fails, court will appoint.
4. Surplus in partnership assets shall be added to assets of
What Assignee should do individual partners in proportion to their interest in the
partnership.
Within 5days from election, assignee should file BOND w/ 2 or more
st
sureties. Assignee gets 7% for 1 P1000, 5% for greater than P1000 but
PROOF OF DEBTS
less than P10,000, 4% for sums exceeding P10,000.
DEBTS WHICH MAY BE PROVED/COLELCTED
All debts due and payable at time of adjudication
All debts existing at time but not payable until a future time

Any debt of insolvent arising from his liability as indorser, surety, bailor or Only those debts set forth in schedule and those which were or might have
guarantor where such liability became absolute after the adjudication of been proved against estate in proceedings are released by discharge.
insolvency but before the final dividend shall have been declared Petition for discharge can be denied if he is in bad faith or does acts to
Other contingent debts & liabilities contracted by the insolvent if the prejudice creditors.
contingency shall happen before the order of final dividend Discharge can be revoked if creditor can prove it was fraudulently obtained.
Any claim for reimbursement of a person who has answered, in whole or in Creditor must file action within 1year from date of discharge.
part, for the insolvent’s debt as bail, surety or guarantor or otherwise.
CONTINGENT CLAIM FRAUDULENT PREFERENCES & TRANSFERS

A liability which depends on a future and uncertain event. A claim base don
a contingency which has not happened at time of the proceedings cannot be A parting with the property of insolvent for benefit of a creditor with result that
proved since there is no real claim yet. estate of insolvent is diminished, to prejudice of other creditors.
But if it happens after the proceedings, creditor can still claim fro debtor.
Fraudulent Preference: disposition by debtor under conditions:
DEBTS WHICH CANNOT BE PROVED 1. he is Insolvent or in contemplation of insolvency
1. barred by prescription 2. made within 30days from filing of petition
2. secured creditors, unless waived 3. with a view to giving preference to any creditor
3. claims of creditors who hold an attachment or execution issued 30days 4. person receiving benefit has reason to believe that debtor is
before institution insolvent and transfer is made to defeat rights of other creditors
4. fraudulent preference
5. Support Fraudulent Conveyance / Transfer
6. Damages from tort Any disposition made by insolvent 30days before filing,
EXCEPT FOR VALUABLE CONSIDERATION AND IN
- The discharge granted to the debtor does not cover those debts that GOOD FAITH
could not have been proved.
- Compensation can be set up against insolvent only for debts arising at Status of Fraudulent Conveyance
least 30days before filing. Within 30days from filing VOID
After filing RESCISSIBLE
COMPOSITIONS May file criminal complaint
An agreement made upon sufficient consideration between insolvent and all
creditors whereby the creditors agree to accept a dividend less than the Presumption of FRAUD
amount of their claims, for the sake of getting paid sooner. 1. Not made in usual and ordinary course of business of debtor
2. Made under a confession of judgment
REQUISITES
1. offer of the terms of composition made after filing of the schedule and
list of creditors
2. Offer accepted in writing by a DOUBLE MAJORITY of creditors
3. Made after depositing the consideration to be paid and the cost of
proceedings
4. Court must approve terms of compensation
DISCHARGE
Debtor must ask for discharge within 3 months to 1 year from time he is
adjudicated insolvent. It is not automatic.

by the guardian, or administrator, of the person who made the deposit,

IX. DEPOSIT or by the latter himself if he should acquire capacity.
2. Depositor – one who deposits
o If the deposit has been made by a capacitated person with another
who is not, the depositor shall only have an action to recover the thing
• Essence of Contract of Deposit deposited while it is still in the possession of the depositary, or to
o A person receives a thing belonging to another, with the obligation of compel the latter to pay him the amount by which he may have
safely keeping it and of returning the same. enriched or benefited himself with the thing or its price. However, if a
o If the safekeeping of the thing delivered is not the principal purpose of the third person who acquired the thing acted in bad faith, the depositor
contract, there is no deposit but some other contract may bring an action against him for its recovery.
• Perfection
o Upon delivery of the thing held in deposit OBLIGATIONS OF DEPOSITARY
o But an agreement to constitute a deposit, even without delivery, is • obliged to keep the thing safely and to return it, when required, to the depositor, or
binding upon the parties already. to his heirs and successors, or to the person who may have been designated in
• Methods of constituting a deposit the contract. His responsibility, with regard to the safekeeping and the loss of the
o Judicially thing, shall be governed by the provisions of Title I of this Book.
o Extra-judicially, either • If the deposit is gratuitous, this fact shall be taken into account in determining the
Voluntary - wherein the delivery is made by the will of the degree of care that the depositary must observe.
depositor • Unless there is a stipulation to the contrary, the depositary cannot deposit the
Necessary – (1) When it is made in compliance with a legal thing with a third person.
obligation; (2) When it takes place on the occasion of any • If deposit with a third person is allowed, the depositary is liable for the loss if he
calamity, such as fire, storm, flood, pillage, shipwreck, or other deposited the thing with a person who is manifestly careless or unfit. The
similar events. depositary is responsible for the negligence of his employees.
• A deposit may also be made by two or more persons each of whom believes • May change the way of the deposit if under the circumstances he may reasonably
himself entitled to the thing deposited with a third person, who shall deliver it in a presume that the depositor would consent to the change if he knew of the facts of
proper case to the one to whom it belongs. the situation. However, before the depositary may make such change, he shall
notify the depositor thereof and wait for his decision, unless delay would cause
• Nature danger.
o GR: gratuitous contract • The depositary holding certificates, bonds, securities or instruments which earn
o E: agreement to the contrary OR if depositary is engaged in the business interest shall be bound to collect the latter when it becomes due, and to take such
of storing goods steps as may be necessary in order that the securities may preserve their value
and the rights corresponding to them according to law. This provision shall not
• Subject apply to contracts for the rent of safety deposit boxes.
o Only movable things may be the object of a deposit. • Unless there is a stipulation to the contrary, the depositary may commingle grain
or other articles of the same kind and quality, in which case the various depositors
• Form shall own or have a proportionate interest in the mass.
o Oral, or • The depositary cannot make use of the thing deposited without the express
o In writing permission of the depositor. Otherwise, he shall be liable for damages. However,
when the preservation of the thing deposited requires its use, it must be used but
• Parties only for that purpose.
1. Depositary – person who safekeeps • When the depositary has permission to use the thing deposited, the contract loses
o If a person having capacity to contract accepts a deposit made by the concept of a deposit and becomes a loan or commodatum, except where
one who is incapacitated, the former shall be subject to all the safekeeping is still the principal purpose of the contract. The permission shall not
obligations of a depositary, and may be compelled to return the thing be presumed, and its existence must be proved.

• The depositary is liable for the loss of the thing through a fortuitous event: • If the depositor should lose his capacity to contract after having made the deposit,
(1) If it is so stipulated; the thing cannot be returned except to the persons who may have the
(2) If he uses the thing without the depositor's permission; administration of his property and rights.
(3) If he delays its return; • If at the time the deposit was made a place was designated for the return of the
(4) If he allows others to use it, even though he himself may have been thing, the depositary must take the thing deposited to such place; but the
authorized to use the same. expenses for transportation shall be borne by the depositor.
• Fixed, savings, and current deposits of money in banks and similar institutions If no place has been designated for the return, it shall be made where the thing
shall be governed by the provisions concerning simple loan. deposited may be, even if it should not be the same place where the deposit was
• When the thing deposited is delivered closed and sealed, the depositary must made, provided that there was no malice on the part of the depositary.
return it in the same condition, and he shall be liable for damages should the • The thing deposited must be returned to the depositor upon demand, even though
seal or lock be broken through his fault. a specified period or time for such return may have been fixed.
Fault on the part of the depositary is presumed, unless there is proof to the This provision shall not apply when the thing is judicially attached while in the
contrary. As regards the value of the thing deposited, the statement of the depositary's possession, or should he have been notified of the opposition of a
depositor shall be accepted, when the forcible opening is imputable to the third person to the return or the removal of the thing deposited. In these cases, the
depositary, should there be no proof to the contrary. However, the courts may depositary must immediately inform the depositor of the attachment or opposition.
pass upon the credibility of the depositor with respect to the value claimed by • Unless the deposit is for a valuable consideration, the depositary who may have
him. justifiable reasons for not keeping the thing deposited may, even before the time
When the seal or lock is broken, with or without the depositary's fault, he shall designated, return it to the depositor; and if the latter should refuse to receive it,
keep the secret of the deposit. the depositary may secure its consignation from the court.
• When it becomes necessary to open a locked box or receptacle, the depositary • If the depositary by force majeure or government order loses the thing and
is presumed authorized to do so, if the key has been delivered to him; or when receives money or another thing in its place, he shall deliver the sum or other
the instructions of the depositor as regards the deposit cannot be executed thing to the depositor.
without opening the box or receptacle. • The depositor's heir who in good faith may have sold the thing which he did not
• The thing deposited shall be returned with all its products, accessories and know was deposited, shall only be bound to return the price he may have received
accessions. or to assign his right of action against the buyer in case the price has not been
Should the deposit consist of money, the provisions relative to agents in article paid him.
1896 shall be applied to the depositary.
• The depositary cannot demand that the depositor prove his ownership of the
thing deposited. OBLIGATIONS OF THE DEPOSITOR
Nevertheless, should he discover that the thing has been stolen and who its • If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for
true owner is, he must advise the latter of the deposit. the expenses he may have incurred for the preservation of the thing deposited.
If the owner, in spite of such information, does not claim it within the period of • The depositor shall reimburse the depositary for any loss arising from the
one month, the depositary shall be relieved of all responsibility by returning the character of the thing deposited, unless at the time of the constitution of the
thing deposited to the depositor. deposit the former was not aware of, or was not expected to know the dangerous
If the depositary has reasonable grounds to believe that the thing has not character of the thing, or unless he notified the depositary of the same, or the
been lawfully acquired by the depositor, the former may return the same. latter was aware of it without advice from the depositor.
• When there are two or more depositors, if they are not solidary, and the thing • The depositary may retain the thing in pledge until the full payment of what may
admits of division, each one cannot demand more than his share. be due him by reason of the deposit.
When there is solidarity or the thing does not admit of division, the provisions • A deposit its extinguished:
of Articles 1212 and 1214 shall govern. However, if there is a stipulation that the (1) Upon the loss or destruction of the thing deposited;
thing should be returned to one of the depositors, the depositary shall return it (2) In case of a gratuitous deposit, upon the death of either the depositor
only to the person designated. or the depositary.

KINDS OF DEPOSIT SEQUESTRATION OR JUDICIAL DEPOSIT

• A judicial deposit or sequestration takes place when an attachment or seizure of
1. VOLUNTARY DEPOSIT - wherein the delivery is made by the will of the depositor property in litigation is ordered.
• Movable as well as immovable property may be the object of sequestration.
2. NECESSARY DEPOSIT • The depositary of property or objects sequestrated cannot be relieved of his
(1) When it is made in compliance with a legal obligation; responsibility until the controversy which gave rise thereto has come to an end,
governed by the provisions of the law establishing it, and in case of unless the court so orders.
its deficiency, by the rules on voluntary deposit. • The depositary of property sequestrated is bound to comply, with respect to the
(2) When it takes place on the occasion of any calamity, such as fire, storm, same, with all the obligations of a good father of a family.
flood, pillage, shipwreck, or other similar events. • As to matters not provided for in this Code, judicial sequestration shall be
The deposit mentioned in No. 2 of the preceding article shall be governed by the Rules of Court.
regulated by the provisions concerning voluntary deposit and by
Article 2168.
~ END ~
• The deposit of effects made by the travellers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for
them as depositaries, provided that notice was given to them, or to their
employees, of the effects brought by the guests and that, on the part of the
latter, they take the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.
• The hotel-keeper is liable for the vehicles, animals and articles which have been
introduced or placed in the annexes of the hotel.
• The responsibility referred to in the two preceding articles shall include the loss
of, or injury to the personal property of the guests caused by the servants or
employees of the keepers of hotels or inns as well as strangers; but not that
which may proceed from any force majeure. The fact that travellers are
constrained to rely on the vigilance of the keeper of the hotels or inns shall be
considered in determining the degree of care required of him.
• The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force.
• The hotel-keeper is not liable for compensation if the loss is due to the acts of
the guest, his family, servants or visitors, or if the loss arises from the character
of the things brought into the hotel.
• The hotel-keeper cannot free himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the responsibility of the former
as set forth in articles 1998 to 2001 is suppressed or diminished shall be void.
• The hotel-keeper has a right to retain the things brought into the hotel by the
guest, as a security for credits on account of lodging, and supplies usually
furnished to hotel guests.

(Jen Laygo) Sectrans Reviewer - San Pedro

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SECURITY TRANSACTIONS THE WOMEN OF ALEITHEIA JP SAN PEDRO

COMMODATUM v MUTUUM / SIMPLE LOAN

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 1

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 2

FORM OF PAYMENT MUTUUM v COMMODATUM v BARTER

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 3

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 4

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 5

1. gratuitous guaranty EXTINGUISHMENT OF GUARANTY

XVI. JOINT LIABILITY BETWEEN SEVERAL CO-GUARANTORS –

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 6

NATURE OF SURETY’S UNDERTAKING

GUARANTY SURETYSHIP KINDS: Voluntary / Conventional and Legal

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 7

RULES ON PLEDGE PROVISIONS APPLICABLE ONLY TO PLEDGE

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 8

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 9

- SURPLUS should be delivered to PLEDGOR

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 10

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 11

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 12

PERIOD OF REDMEPTION FOR JURIDICAL PERSONS REQUISITES

CHATTEL MORTGAGE LAW

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 13

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 14

4. Debtor CANNOT reacquire property w/o first having TOTALLY PAID

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 15

4. Property held by insolvent debtor as a trustee of an express or implied

DEFINITION I. SPECIAL PREFERRED CREDITS

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 16

(1) Credits for services rendered the insolvent by employees, laborers, or

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 17

b. The 2/3 must represent at least 60% of the

PROCEDURE FOR SUSPENSION OF VOLUNTARY INSOLVENCY

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 18

PROCEDURE VOLUNTARY INVOLUNTARY

Purpose is to impound all of the non-exempt properties of the debtor, to

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 19

PROCEDURE Effects of Assignment

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 20

CONTINGENT CLAIM FRAUDULENT PREFERENCES & TRANSFERS

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 21

by the guardian, or administrator, of the person who made the deposit,

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 22

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 23

KINDS OF DEPOSIT SEQUESTRATION OR JUDICIAL DEPOSIT

JEN LAYGO 2D ’05 TRUTH. HONOR. EXCELLENCE. 24

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