Introduction: Partial Outline of Deleons Credit transaction by Dandy Cruz

1. Credit transactions includes all transactions involving the purchase or loan of goods, services, or
money in the present with a promise to pay or deliver in the future. Benefits: a) more exchanges are possible b) actual money transfer is eliminated c) payment for a thing is on a later date 2. Two types of security: a. Secured transactions / contracts of real security contracts supported by a collateral of property Examples: Pledge placing the movable property in the possession of the creditor Chattel mortgage execution of the corresponding deed in the form prescribed by law Real estate mortgage execution of a public instrument encumbering the real property Antichresis- written instrument granting to the creditor the right to receive the fruits and apply them to the payment of the interest and principal obligation b. Unsecured transactions / contracts of personal security contracts where the fulfillment is secured by a personal commitment of another such as guarantor or surety 3. Security something given, deposited or serving as a means to ensure the fulfilment of the obligation 4. Bailment delivery of property of one person to another in trust for a specific purpose with an express or implied contract that (1)the trust shall be faithfully executed and (2)the property returned, accounted or kept until(3) the special purpose is accomplished or reclaimed by the bailor. Parties in bailment: 1) Bailor (comodatario) the party who delivers the possession or custody of the thing deposited 2) Bailee (comodante) the party who receives the possession or custody of the thing thus delivered Kinds of Bailment according with reference to compensation: 1) For sole benefit of bailor e.g. gratuitous deposit and mandatum 2) For sole benefit of bailee commodatum and gratuitous simple loan 3) For the benefit of both parties deposit for compensation, pledge, bailment for hire and involuntary deposit LOAN (ART 1933-1961) Characteristics: 1) real contract- Art. 1934 commodatum or mutuum shall not be perfected until the delivery of the object of the contract 2) consensual contract: Art 1934 An accepted promised to deliver by way of commodatum or mutuum is binding upon the parties 3) unilateral contract Art 1933- obligation solely on the part of the borrower to return 4) personal contract: Art 1939 Commodatum is purely personal in character. Kinds of Loan: Article 1933: 1) Commodatum a contract of loan where one of the parties delivers to another, either something not consumable or nonfungible so that the latter may use the same for a certain time and return it 2) Mutuum a contract of loan where one of the parties delivers to another money or other fungible thing, upon the condition that the same amount of the same king and quality shall be paid. Difference between commodatum and mutuum: (SOLNORRP) 1. As to subject matter: Commodatum non fungible; muttum -fungible 2. As to ownership: Commodatum ownership is retained; muttum ownership is transferred 3. As to loss: Commodatum bailor suffers loss; muttum borrower suffers loss even if due to Fort.evnt 4. As to nature: Commodatum essentially gratuitous; mutuum gratuitous or onerous 5. As to object: Commodatum real or personal property; mutuum personal property 6. As to return: commodatum- return the same thing; mutuum same amount of the same kind and quality 7. As to right to demand: Commodatum- bailor may demand return even before exp. Of term; mutuum lender may not demand return before the lapse of the term agreed upon 8. As to purpose: Commodatum for use or temporary possession; mutuum- loan for consumption Credit ability to borrow money or things by virtue of confidence or trust reposed by a lender that he will pay what he may promise within a specified period.

Debt it is that which is due to any person considered from creditors standpoint. Discounting paper interest is deducted in advance; always on double-name paper Commodatum Rules: 1. Art 1935: Bailee in commodatum acquires only the use of the thing loaned and not its fruits If any compensation is paid by borrower, it ceases to be a commodatum Reason: Commodatum is essentially gratuitous (Art 1933); Art 441, fruits pertain to the owner of the thing producing the fruits Exception: Art 1940: A stipulation that the bailee may make use of the fruits of the thing loaned is valid Note: If the main consideration is the use of fruits it is usufructuary. Use of fruits must only be incidental; If bailee is not entitled to the use, the contract is deposit; if the consideration is some service- innominate contract results 2. Art. 1936: Consumable goods may be the subject of commodatum if purpose is not the consumption of object 3. Art 1937: Movable or immovable may be the object of commodatum 4. Art 1938: the bailor need not be the owner of the thing loaned Reason: Ownership does not transfer (e.g. lessor or usufructuary) Exception: Art. 1939: bailee cannot lend nor lease the thing loaned to a third person except to members of bailees household. Except: 1) contrary stipulation 2) nature of the thing forbids such use - Lending or leasing constitute ground to terminate commodatum 5. Art 1939: Commodatum is also extinguished by death of either bailor or the bailee. Reason: purely personal character of commodatum Exception:1. stipulation regarding transfer to heirs of either or both parties 2. Death of one out of 2 or more borrowers unless there is contrary stipulation Obligations of Bailee: 1. To take good care of the thing loaned (Art 1163) 2. To pay for the ordinary expenses for the use and preservation of the thing loaned (Art 1941) 3. Liable for the deterioration of the thing due to his fault (Art 1943) 4. Liable for the loss of the thing even if due to fortuitous event if:(art 1942) a. He devotes the thing to any purpose different from that for which it has been loaned b. He keeps it longer than the period stipulation/ after accomplishment of the purpose of the loan c. Thing loaned was delivered with appraisal of its value. Exception: stipulation to the contrary d. He lends or leases the thing to a third person not a member of his household e. He chooses to save his own thing inspite of being able to save the thing loaned Note: Art 1945: two or more bailees are solidarily liable to whom a thing is loaned in the same contract Reason: to safeguard the rights of the lender. It is an exception to Art 1207 presumption of joint liability Rights of Bailee: 1. To use the thing loaned in a manner appropriate to its purpose (Art 1943) 2. Right of retention for damages because of the flaw of the thing loaned(art 1951) Obligation of Bailor: 1. To refund the extraordinary expenses for the use and preservation of the thing loaned (art 1941 and 1943) 2. To be liable for damages due to hidden defects (art 1951 and 1941) Rights of Bailor: 1. Right to the fruits 2. To demand the return of the thing loaned( Art 1946) Even if: there is a period stipulated a) for urgent use b) precarium c) acts of ingratitude Reason: bailor is the owner and right to demand is consistent with ownership 3. Simple Loan or Mutuum I. Special Feature- transmission of ownership (Art 1953) II. Barter Art 1954 in rel to 1638: III. Obligations of Borrower or debtor: 1. To pay for the amount loaned in the currency stipulated or legal tender (Art 1249 and 1250) 2. To give the same king, quality and quantity 3. To pay stipulated interest Except: when it is usurious, in which case, apply legal interest of 12% per annum (art 2209)

4. Art 2212 5. Rules on the computation of interest as amended by the civil code: a. Lawful rate of Interest must be stipulated in writing in order to be enforced. If made orally, no interest shall be due (art 1956) b. If there is no written stipulation as to payment of the interest, and debtor incurs delay by judicial demand 12% interest on principal from time of filing the complaint (art 2209, 2655). Art 2212 has no application since no interest is yet due when jud demand was made c. If debtor incurs in delay before judicial demand, as damages, an interest at 12% per annum on the principal will be charged for the benefit of the creditor and another 12% per annum on interest due upon judicial demand. d. If there is stipulation as to interst due but not as to rate, it shall be understood to be the legal interest of 12%. Should there be delay before jud demand, 12% interest per annum on the principal as indemnity for damages and upon jud. Demand, another 12% INTEREST on interet due. e. 6% interst fro sources other than loans or forbearance of money, such as sale of goods or damages arising from injury. Deposits: Deposit Art 1962 is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing is not the principal purpose of the contract, there is not deposit but some other contract. Art 1963: An agreement to constitute a deposit is binding but the deposit itseld is not perfected until the delivery of the thing. Art 1964: A deposit is a gratuitous contract except when there is a stipulation to the contrary or unless the depositary is engged in the business of storing goods. Art 1966: Only movable things may be the object of a deposit Exception: judicial deposits may cover movable as well as immovable property Incorporeal rights and actions cannot be the object of deposit Characteristics: a) Real contract- perfect by delivery like commodatum and mutuum b) If it is gratuitous, unilateral contract; if for compensation - bilateral Kinds of deposit: (Art 1964) a deposit may be constituted: 1. Judicial deposit (Art 2005) takes place when an attachment or seizure of property in litigation is ordered 2. Extra judicial deposit made by conventions, agreements or will of the parties a. Voluntary deposits (art 1968) one wherein the delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited b. Necessary deposits (art 1996, 1998, 1754 on common carriers) one made in compliance with a legal obligation or on the occasion of any calamity or by travellers in hotels and inns Distinctions between Deposit and Commodatum (PON) 1. As to purpose, deposit is for safekeeping while commodatum is for use 2. As to object, in deposit it is immaterial while in commodatum, it must be nonfungible 3. As to nature, deposit may or may not be gratuitous while in commodatum it is always gratuitous 4. As to constitution, in deposit, it may be judicially or extrajudicially while in commodatum it is always extrajudicially. Distinction between extrajudicial and judicial deposits; (PON) 1. As to purpose, extrajudicial is for safekeepingh while in judicial it is to secure or protect owners rights 2. As to object, in extrajudicial it must be a movable property while in judicial it may be movable or immovable 3. As to nature, in extrajudicial, it is generally gratuitous while in judicial it is always onerous 4. As to constitution, in extrajudicial it is constituted by will of the contracting parties while in judicial deposits, it is by virtue of court order. 5. As to return. In extrajudicial upon demand while in judicial upon court order. Voluntary Deposits:- one wherein delivery is made by will of the depositor. Depositary may be third persons. Art 1969: A contract of deposit may be entered into orally or in writing Art 1970: If a person having capacity to contract accepts a deposit made by one who is incapacitated, the depositary shall be subject to obligations required of him and maybe compelled to return the thing by the

guardian, or administrator of the person who made the deposit or by the incapacitated person should he acquire capacity. Art 1971: If the deposit has been made by a capacitated person with an incapacitated person: 1) The depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary 2) Or to compel the latter to pay him the amount by which he may be enriched or benefited himself with the thing or its price. However if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery. Rules: 1. Deposit to one person or to third person (Art 1968; 1973; 1985) 2. Rule on conclusiveness of title (Art 1984) 3. Rule on conflicting claims(ask for interpleader) Art 1968; Rule Sec 1, RRCP - Whenever conflicting claims upon the same subject matter are or may be made against a person who claims no interest whetever in the subject matter, or an interest which in whole or in part is not disputed by the cliamants, he may bring an action against the conflicting claimants to compel them to interplead and litigate their several claims among themselves 4. Rule on propertionality-Art 1985 Obligations of the depositary 1. To keep the thing safely (Art 1972) with ordinary or extraordinary diligence; a) he cannot deposit to third person without stipulation to the contrary; or if such person is manifestly careless or unfit (Art 1973) b) he cannot change the way or place of the deposit without proper notification to the depositor, except when delay would cause danger (art 1974) c) he may commingle grains or other articles of the same kind and quality unless otherwise stipulated (art 1976) d) he cannot make use of the thing deposited unless allowed for its preservation (art 1977). If use is allowed, such permission should not be presumed (art 1978) 2. To return the thing deposited (art 1972) a) return to the depositor, his heirs or successors in interest Exception: when some other person is designated (art 1985) If depositor is incapacitated return to administrator (art 1986) b) To be returned upon demand regardless of period stipulated (Art 1988) exception: if the thing is judicially attached; notification of opposition of third person c) Return it in the same condition; sealed or unsealed (art 1981) Exception: if seal is broken, keep secrets of deposits (art 1981) d) Return all its products, accessories and accession (art 1983) e) Return to the place designated, born by depositor; otherwise to the place where the thing deposited may be (art 1987); if return is refused- consign it to the court (art 1989) 3. To be liable for damages in the following instances: a) Depositray deposited it with third person who is manifestly careless or unfit (art 1973) b) Depositary is liable for the loss through fortuitous event (art 1979) c) Depositary used the thing without permission (art 1977) d) Depositary opened the sealed or locked deposit without permission (art 1981) 4. To turn over value of the thing deposited or anything received in case of government takeover (art 1990) 5. To collect monies and interest in cases of deposits regarding bonds, certificates, securities and other intruments of credit (art 1975) Obligations of depositor 1. To reimburse for the expenses for the preservation of the thing deposited is deposit is gratuitous (art 1992) 2. Reimburse for any loss arising form the character of thing deposited except when the depositary was informed or has knowledge of the nature of the thing deposited (art 1993) Note: Art 1970: Guardian of the incapacitated depositor or the depositor who thereafter acquires capacity may compell the return of the thing deposited subject to all obligation of the depositary. Art 1971: Rights of capacitated depostor against incapacitated depositary: (art 1971) 1) Right of action to recover the ting deposited while still in the possession of the depositary 2) Right to compel payment of amount to the extent that benefited the depositor

3) Right to recovery of the thing deposited against the third person in case he acquired the same in badfaith Necessary Deposits: a. When is a deposit necessary: (Art 1996; 1998 and 1754) 1) When it is made in compliance with a legal obligation Example: a) judicial deposit of a thing the posssession of which is being disputed in a litigation by two or more persons (art 538) b) deposit with bank or public institution of public bonds or instruments of credit payable to order or bearer given in usufruct when the usufructuary does not give proper security for their conservation (Art 586) c) deposit of a thing pledged when the creditor used the same without the authority of the owner or misuses it in any other way (Art 2104) d) those required in suits as provided in the Rules of Court e) Those constituted to guarantee contracts with the government 2) When it takes place on the occasion of any calamity such as fire, storm, flood, pillage, shipwreck, or other similar events 3) Art 1998: deposit made by travellers in hotels or inns provided notice was given to them or to their employees of the effects brought by the guests and the guests took the precautions which hotel keepers or their substitutes advised them relative to the care and vigilance of their effects. Art 1999: the hotel keeper is liable for the vahicles, animals and articles which have been intraoduced or placed in the annexes of the hotel. Art 2000 responsibility includes acts of strangers as long as not amounting to force majeure. (use of arms or irresistible force) Art 2002: If loss is due to character of the things brought into the hotel. Art 1997: Deposit made in compliance with a legal obligation shall be governed by the provision of the law establishing it and rules on voluntary deposit applies suppletorily Deposit due to calamity shall be governed by provisions concerning voluntary deposit and art 2168 Judicial Deposit: Art 2005 A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered. Art 2006: Movable as well as immovable property may be the object of sequestration Art 2007: the depositary of property or objects sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders Art 2008: The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family Title XIII Aleatory Contracts - One or both of the parties reciprocally bind themselves (1)to give or to do something(2)in consideration of what the other shall give or do (3) upon the happening of an uncertain event or that which to occur at an indeterminate time. (art 2010) - Element of risk is present Kinds of aleatory contracts: a. Gambling sale of sweeptakes ticket uncertainty of event b. Insurance uncertainty of event c. Life annuity uncertainty of time of certain event Difference between aleatory contract and contract with suspensive condition: a) In aleatory WON the event happens, the contract remains; only the effect of profit and losses are determined while in Con with suspensive condition if condition does not happen the obligation never becomes effective A. Insurance governed by special laws; civil code applies suppletorily (Art 2011) Insurance Code principal law on insurance; in case of incosistency between the Insurance law and Civil Code the former prevails except as regards Art 2012 which is mandatory in character Insurance Contract a contract whereby one party for a consideration known as the premium agrees to indemnify another for loss or damage which he may suffer from a specified peril

All risks insurance policy covers all kinds of losses other than those due to willful and fraudulent axts of the insured. Prescribes in 10 yrs Del Val Vs Del Val beneficiary in a contract of insurance is not the donee spoken of in donations General Rule: The beneficiary has a vested right to collect the insurance indemnity. Exception: (1) When the beneficiary is also the insured or his own estate and premiums were paid from conjugal funds indemnity belongs to the conjugal partnership. (2) insured reserves the right to change the beneficiary If beneficiary predeceases the insured- the heirs of the beneficiary gets the insurance indemnity (Grecio Vs Sunlife Assur. Co of Canada) Art 2012: Any person who is forbidden from receiving any donation under Art 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him Art 739: The following donations shall be void: a) Those made between persons who were guilty of adultery or concubinage at the time of the donation b) Those made between persons found guilty of the same criminal offense, in consideration thereof c) Those made to a public officer or his wife, descendants and ascendants by reason of his office If concubine is made a beneficiary indemnity must go to the legal heirs B. Gambling Art 2013; A game of chance; is that which depends more on chance or hazard than On skill or ability. In case of doubt, a game is deemed to be one of gambling Forms of legal gambling: jai alai, horse racing, sweepstakes or lottery held by the govt, cockfighting and mahjong on certain days Art 2014: No action can be maintained by the winner for the collection of what he has won in a game of chance. Any loser in a game of chance may recover his loss (1) from the winner with legal interest on the time he paid the amount lost, (2) and subsidiarily form the operator or manager of the gambling house. Rodriquez Vs Martinez A promissory note issued due to gambling debt will not produce any effect in the hands of the winner except when indorsed in favor of an innocent third party Ban Vs IAC Art 2014 does not apply to a case where the maintainer of a gambling house sues a gambler to recover money which the latter borrowed. His subsidiary liablity does not arise absent a direct suit against those primarily liable. Art 2015: Exemplary damages not less than the equivalent of the sum lost in addition to the sum lost shall be paid by the winner who committed cheating or deceit. Subsidiary liabilty of operator or manager of game house. Exception: In pari delicto rule Art 2016: If lose refuses or neglects to bring an action to recover what has been lost, the following may institute the action: a) His or her creditors b) Spouse c) Descendants d) Other persons entitled to be supported by the loser Sum collected shall only be applied to the creditors claims or amount of support Art 2017: Art 2014 and 2017 apply to persons who bet in a game of chance although they take no active part in the game itself Art 2018: If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price of the pretended delivery shall be paid by the lose to the winner, - transaction is null and void. Art 2019: Betting on the result of sports, athletic competitions or games of skills may be prohibited bylocal ordinances Art 2020: The loser in any game which is not one of chance, and is not prohibited by local ordinance is under obligation to pay his loss. Except: if excessive; then court shall reduce the loss to the proper sum.

C. Life annuity Art 2021- a contract where the debtor is bound to pay an annual pension or income
during the life of one or more determinate persons(beneficiary) in consideration of a capital consisting of money or other property(annuitant giver of capital), whose ownership is transferred to the debtor at once with the burden of the income. Life annuity Vs Life insurance in life annuity, the giving of income is in consideration of the transfer of ownership and not as payment of interest for the capital given Art 2022: Upon whose life the annuity may be constituted: a) The life of the annuitant b) Life of a third person c) Lives of various persons Who may be the beneficiary: a) The person or persons upon whose life or lives the contract is entered into b) Another person or persons Art 2023: Life annuity is void is constituted upon (1) the life of a person who was already dead at the time the contract was entered into (2) or who was at that time suffering from an illlness which caused his death within 20 days following said date. Art 2024: Lack of payment of the income due does not authorize the recipient of the life annuity (1) to demand the reimbursement of the capital or (2) to retake possession of the property alienated. Exception: stipulation to the contrary. Recipient shall only have a right judicially to claim the payment of the income on arrears and to require a security for the future income. Except: stipulation to the contrary. Art 2025: If the benedficiary dies, the income corresponding to the year shall be paid in proportion to the days which he lived. If the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. Art 2026: General Rule: Annuity cannot be attached by creditors of the recipient if there is a stipulation to that effect. Exception:Creditors of the person who constituted the annuity may ask for the execution or attachment of the property. Art 2027: No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. Reason: if the person does not exist it is void Title XIV Compromises and abritrations: A. Compromises is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. (art 2028) Characteristics: ONO-CAR (1) Onerous (2) Nominate (3) once accepted, it is binding on the parites (4) consensual (5) accessory (6) reciprocal Kinds: (1) Judicial to end a pending litigation (2) Extrajudicial to prevent a litigation from arising Landoil Resources Corp: A compromise may supersed all agreements and proceedings that had previosly taken place and may constitute a final and definite settlement of the contrversies by and between the parties Art 2029: The court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise. Reason: litigation must if possible be avoided. Special authority required by the rules of court before an attorney can compromise in behalf of his client. In case of oral authorization, it must be duly extablished by evidence Art 2030: Every civil action or proceeding shall be suspended: (1) If there is express willingness to discuss a possible compromise by one or both parties, or

(2) One of the parties before commencement of the action offered to discuss a possible compromise but the other refused. Duration and terms of suspension determined by rules of court Note: if the law allows a compromise the fact that an attempt to arrive at one should be stated in the complaint This article refers only to compromise and not arbitration Art 2031: Damages to paid by Losing party who has shown a sincere desire for compromise may be mitigated by courts Art 2032: Compromises entered into by: a) Guardians b) Parents c) Absentees representatives d) Administrators or executors of decedents estates - Requires court approval Other rules: a) Agent needs special pwer to compromise (Art 1878) b) Attorney needs clients authorization to compromise clients claim (Monte de Piedad Vs Rodrigo) c) Legal administratrix cannot compromise claims for indemnity Art . 2033: Juridical persons may compromise only in the form and with the requisites which may be necessary to alientate their property. Requisites: 1) In case of corporation -authority granted by the Board of Directors 2) In case of municpal council requirements for allienation of property and approval by provincial governor Art 2034: Compromise on the civil liability arising from the offense does not extinguish the public action for the imposition of the legal penalty. Exception: in some crimes there can be a sort of compromise e.g. crimes against chastity and violations of the Internal Revenue Code. (Koppel Phil Vs Collector) Rovero Vs Amparo: Compromise must be entered into before or during litigation never after final judgment Art 2035: No compromise upon the following questions: 1) Civil status of persons 2) Validity of a marriage or a legal separation 3) Any ground for legal separation 4) Future support 5) Jurisdiction of courts 6) Future legitime Future conventional support may be the subject of compromise Art 2036: A compromise comprises only those objects which are (1) definitely stated therin, or which by necessary (2) implication from its terms should be deemed to have been included in the same A general renunciation of rights is understood to refer to those that are connected with the dispute which was the subject of the compromise Ferrer Vs Ignacio: A compromise must be strictly consdtrued Art 2037: A compromise has the effect and authority of res judicata upon the parties. But there shall be no execution except in compliance with a judicial compromise. Note: Compromise binds the partie even if there is not judicial approval. In which case it may be enforced only by a court litigation and not by execution. Also it must be signed by the parties. If compromise is approved by court the stipulations are considered court orders and non performance is contempt of court; such may be enforced by execution Rules: 1) judgment on compromise is not appeallable. Reason: constitute waiver of right to appeal. Exception: vitiated consent 2) Judgment rendered by Wage administrastion service, without an agreement to arbitrate is not judgment at all 3) judgment on a compromise signed by attorney without authority is null and void 4) writ of execution of compromise cannot extend to a non party to the compromise although party to the case. Art 2038: A compromise with VIMFU or falsity of documents is subject ot Art 1330. (Voidable)

Exception: mistake of fact cannot be set up against one party if by virtue of the compromise, the litigation already commenced has been withdrawn. Art 2039: Discovery of documents referring to one or more but nor all of the questions settled in a compromise shall not be a cause for annulment or rescission of the compromise. Exception: (1) such document has been concealed by one of the parties.(2) if rescission pertains only to one thing which one of the parties has no right as shown by the newly discovered documents. Art 2040: Compromise may be rescinded if (1) compromise has been agreed upon (2) it was after a litigationhas been decided by a final judgment (3) one or both parties was unaware of the existence of the final decision Ignorance of a judgment which may be revoked or set aside not a valid ground for attacking a compromise (refers to judgment on appeal) Art 2041: If one of the parties fails or refuses to abide by the compromise the other party may (1) enforce the compromise (2) or regard it as rescinded and insist upon the original demand (damages may be recovered) - Judicial rescission not needed

B. Arbitrations process whereby by mutual agreement a third party decides a dispute between two
persons. LM Power Engg Corp Vs CICG: The inclusion of an arbitration clause in a contract does not ipso fact divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because awards are still judicially reviewable under certain conditions. Difference between arbi. And compromise: 1. Arbitration third person gives solution; in compromise decision is arrived by the parties concerned RA 876- special law for arbitration Art 2043: Provisions of compromises shall also apply to arbitrations Art 2044: Any stipulation that the arbitrators awards or decision shall be final is valid. But without prejudice to Art 2038(VIMFU),2039(Rescission due to docs, 2040(unaware of final judgment) Art 2045: Any clause giving one of the parties power to choose more arbitrators than the other is voud and of no effect. Art 2046: Supreme court has the authority to promulgate rules on the appointment of arbitrators and procedure for arbitration. Title XV: Guaranty: - Art 2047: a contract whereby a person, called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. - Suretyship- if a person binds himself solifarily with the principal debtor Parties: guarantor and creditor; Contract of indemnity between debtor and guarantors Guaranty in broad sense may be: a) Personal guaranty a.1 guaranty- guaranty in the strict sense a.2 suretyship solidary obligation b) Real guaranty- guaranty is property b.1 if real property (1) real mortgage (2) antichresis b.2 if personal property (1) pledge (2) chattle mortgage Guaranty as to origin: (1) conventional (2) legal (3) judicial Guaranty as to considaration: (1) gratuitous (2) Onerous As to scope and extent (1) definite (2) indefinite includes accessories Characteristics: PUSA 1) Guarantor must be a person distinct from debtor 2) unilateral 3) subsidiary and conditional 4) accessory

Difference between guaranty and suretyship 1. as to assumption of liability, a surety assumes liablity as a regular party, while in guarantor, it depends upon an independent agreement to pay incase of failure to do so by the primary debtor 2. as to burden, surety is primarily liable, guarantor, subsidiarily liable 3. surety is bound to know every default of his principal, while a guarantor is not bound to take notice of the nonperformance of his principal 4. surety will not be discharged by want of notice of the default of the principal while a guarantor is not liable unless notified by the default of the principal 5. surety pays if debtor does not while guarantor pays if debto cannot Art 2048: A guaranty is gratuitous unlesss there is a stipulation to the contrary Accomodation party and accomodated party relationship is one of principal and surety Art 2049: A married woman may guarantee an obligation without the husbands consent but shall not bind the conjugal partnership. Exception: cases provided by law e.g. if it redounded to the benefit of the family Art 2050: If a guaranty is entered into without the knowledge or consent, or against the will of the principal debtor, he cannot compel the creditor to subrogate him in his (creditors) rights Art 2051: A guaranty may be conventional ,legal, judicial, gratuitous or by onerous title. Subguaranty constituted not only in favor of the principal debtor, but also in favor of the other guarantor, with the latters consent or without his knowledge or even over his objection. Art 2052: A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to gaurantee the performance of a(1) voidable or an (2)unenforceable contract. It may also guarantee a (3)natural obligation Note: the consideration of the guaranty is the same as the considaration of he principal obligation Art 2053: A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debtor is liquidated. A conditional obligation may also be secured. Future debts include existing debts at time of constitution but its amount is unknown Art 2054: A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor. Nat. bank Vs Veraguth: If the indebtedness is increased without the guarantors consent, he is completely released from the obligation as guarantor or surety. Art 2055: A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. If it be simple or indefinite it shall comprise not only the principal obligation, but also all its accessories, including the judicial costs, provided with respect to the judicial costs, that the guarantor shall only bel iable for those cost incurred after he has been judicially required to pay. Nolaco Brothers, Inc. Vs Villarino An oral guaranty is unenforceable Art 2056: One who is obliged to furnish a guarantor shall present a (1)person who possesses integrity, (2)capacity to bind himself, and (3) sufficient property to answer for he obligation which he guarantees. The guarantor shall be subject to the jurisdiction of the court of the place where this obligation is to be complied with. Art 2057: If the guarantor should be convicted in first instance of a crime involving dishonesty or should become insolvent, the creditor may demand another who has all the qualifications required in he preceeding article. Exception: where the creditor has required and stipulated a specified person should be the guarantor Note: if guarantor dies: his heirs are still liable to the extent of the value of the inheritance because the obligation is not purely personal and is therefore transmissible. Effects of Guaranty: (read codal provisions)

Pledge:

Pledge- a contract by virtue of which the debtor delivers to the creditor or to a third person a movable or document evidencing incorporeal rights as security for the fulfillment of the principal obligation Art 2085: Requisites of pledge / mortgage: a. Pledge be constituted to secure the fulfillment of a principal obligation b. the pledgor be the absolute owner of the thing pledged c. the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, they be legally authorized for the purpose. d. Delivery (art 2093) Note: third persons may secure the principal obligations by pledging or mortgaging their property Free disposal of the property means that the property must not be subject to any claim of a third person Capacity to dispose of property means that the pledgor or mortgagor has the capacity or the authority to make a disposition of the property Accomodation pledge or mortgage a pledgor who is not himself a recipient of the loan - Not liable for the payment of deficiency should the property be not sufficient to cover the debt. Exception: express stipulation Art 2086: Provisions of art 2052 are applicable to a pledge or mortgage: Art 2087: When the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. Kinds of Pledge: a. Voluntary or conventional one which is created by agreement of the parties b. Legal one which is created by operation of law Characteristics: a. Real contract perfected by delivery b. Accessory c. Subsidiary obligation does not arise until fulfillment of the principal obligation d. Unilateral Cause /consideration: Principal obligation. In case of third parties, compesation stipulated or mere liberality of the pledgor; Obligation must be valid, voidable, unenforceable or natural obligation Object: Note: in case of incorporeal rights, in order to bind the principal, there must be a valid assignment of rights. Incase of objects or things, as long as it is the property of principal, he is bound by act of agent Absolute ownership of the thing pledged or mortgaged is required to make the contract valid Inchoate rights cannot be mortgaged Future crops valid in sofar as extent of property coowned exception: if authorized to mortgage by other coowners Caselaws: Lopez Vs CA 144SCRA671 : sale of stocks with debtor executing indemnity agreement constitute pledge. Manila Banking Corp Vs Teodoro, Jr. Assignment of rights, receivables, title or interest under a contract to guarantee an obligation is in effect a pledge or mortgage and not an absolute conveyance of title which confers ownership on the assignee. Dilag Vs Heirs of Resurreccion: Future property cannot be pledged or mortgaged PNB Vs Rocha: Registration of mortgage or pledge does not validate a void mortgage or pledge Montano Vs Lim: Date of transfer of registration does not affect the validity of an earlier chattel mortgage Difference between Pledge and real mortgage: a) As to object, pledge is constituted on movables while mortgage on immovables

b) As to delivery, in property is delivered to pledgee, while in mortgage, delivery is not necessary c) As to third persons, pledge is not calid against third persons unless a description of the thing pledged and the date of the pledge appear in a public instrument while mortgage is not valid against third persons if not registered. Art 2088: the creditor cannot appropriate or dispose of the things given by way of pledge or mortgage. Any stipulation to the contrary is null and void. Pactum Commissorium a stipulation whereby the thing pledged or mortgaged or under antichresis shall automatically become the property of the creditor in the event of nonpayment of he debt within the term fixed. It is contrary to good morals and public policy Requisites: A) There should be a pledge, mortgage, or antichresis of the property by way of security for the payment of the principal obligation B) There should be a stipulation for an automatic appropriation by the creditor of the property in the event of nonpayment of the obligation within the stipulated period. Permissible stipulations: 1. Subsequent modification of original contract 2. Subsequent voluntary cession of propertyas payment of the debt which amounts to novation of the original agreement 3. Promise to assign or sell 4. Authority to take possession of property upon foreclosure Risk of loss of mortgaged property lies with the debtor Principal obligation is not extinguished by loss of the thing Art 2089: A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor Note: when several things are pledged or mortgaged to secure the same debt in its entirety, all of them are liable for the totality of the debt and the creditor does not have to divide his action by distributing the debt among the various things. Exception: 1. there are several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit, debtor shall have the right to the extinguishment of the pledge or mortgage as the portion of the debt for which the thing is specifically answerable is satisfied. 2. Where only a portion of the loan was released 3. Where there was failure of consideration 4. Where there is no debtor-creditor relationship there is no rule on indivisibilty of mortgage as accomodation mortgagor and his assignee 5. Where the real mortgage and chattel mortgage is embodied in one instrument Art 2090: the indivisibility of a pledge or mortagage is not affected by the fact that the debtors are not solidarily liable. Art 2091: The contract of pledge or mortgage may secure all kinds of obligation, be they pure or subject to a suspensive or resolutory condition Pledge may stipulate that the pledge will also stand as security for any future advancements or renewals thereof Art 2092: A promise to constitute a pledge or mortgage gives rise only to a personal action between the contracting parties, without prejudice to the criminal responsibility incurred by him who defraudds another, by offering in pledge or mortgage as encumbered, things which he knew were subject to some burden or by misrepresenting himself to be the owner Remedy of creditor: enforce the agreement to constiture a mortgage and right to recover indebtedness Criminal liablity of debtor: estafa Art 316 RPC Provisions Applicable to Pledge only:

Art 2093: The pledged must be placed in the possession of the creditor or of a third person by common agreement - Delivery may be actual or constructive Objectss of pledge: 1. Art 2094: All movables which are within commerce may be pledged, provided they are susceptible of possession 2. Art 2095: Incorporeal rights evidenced by negotiable instruments, bills of lading, shares of stock, bonds, warehouse receipts and similar documents may also be pledged; in case of nego. Ins must be indorsed; otherwise, instrument proving the right pledged shall b e delivered to the creditor Art 2096: Pledge shall not take effect against third persons if : there is no description of the thing pledged and no date of pledge in a public instrument Reason: to forestall fraud, because a debtor may attempt to conceal his property from his creditors when he sees it in danger of execution Art 2097: Alienation of the thing pledged must be with consent of the pledgee. Ownership transfers only as soon as the pledgee consents to such alianation, but pledgee shall continue in possession Art 2098: Right of retention of the thing pledged by the pledgee or third person until the debt is paid. Art 2099: Diligence required by creditor: diligence of a good father Creditor has right to reimbursement for necessary expenses and is liable for its loss or deterioration, in conformity with code provision (by reason of fraud, negligence, dleay or violation of terms of contract) Art 2100: Pledgee cannot deposit the thing pledged with a third person. Exception: stipulation authorizing him to do so Pledgee is responsible for acts of his agents Art. 2101: Pledgor has the same responsibility as bailor in commodatum (art 1951) Art 2102: Creditor shall apply the fruits, income, dividends or interst earned by the pledge AS payment of interest due; if none, the amount exceeding that which is due shall be applied to the principal. Pledge of animals: offspring shall pertain to the pledgor or owner of the animals pledged if there is a stipulation. General rule: Pledge shall extend to the interests and fruits of thing pledged. Exception: stipulation to the contrary Art 2103: Debtor continues to be owner of thing pledged. Exception: Thing pledged is expropriated But: creditor may bring actions to recover thing pledged or defend it form third person as long as it pertains to the thing pledged Art 2104: Creditor cannot use the thing pledged. Exception: if there is authority from owner or if preservation of the thing requires its use (only for that purpose) Remedy in case of (1)use without authority or (2)misuse of the thing pledged (3) danger of being lost or impaired due to negligence of pledgee: owner may ask that it be judicially or extrajudicially deposited Art 2105: the debtor cannot ask the return of the thing pledged. Exception: if he has paid the debt and its interest with expenses in a proper case. Exception: Art 2107: right of the pledgor to demand the return of the thing pledged upon offering another thing in pledge; pledgee right to cause the same to be sold at a public sale Conditions or requisite of Art 2107:

a) The pledgor has reasonable gounds to fear the destruction or impairment of the thing pledged b) There is no fault on the part of the pledgee c) The pledgor is offering in place of the thing, another thing in pledge which is of the same kind and quality as the former d) The pledgee does not choose to exercise his right to cause thething pledged to be sold at public auction Art 2106: If throug the nedligence or willful act of the pledgee, the thing pledged is in danger of being lost or impaired, the pledgor may require that it be deposited with a third person. Art 2108: If there is danger of destruction, impairment or diminution in value of the thing pledged, WITHOUT FAULT of the pledgee, the thing may be sold at public sale. The proceeds of the sale shall be constituted as security for the principal obligation Art 2109: Remedy of creditor if he was deceived as to the substance or quality of the thing pledged: 1) claim another thing in its stead 2) demand immediate payment of the principal obligation Art 2112: If credit has not been satisfied in due time: 1) He may proceed before a notary public to the sale of the thing pledged 2) Sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the sale is to be held 3) If not sold at first auction, second one with the same formalities shall be held Formalities: a) Debt is undue and unpaid b) Sale must be at a public auction c) Notice to pledgor and owner, stating amount due d) Sale must be made with the intervention of a notary pubic 4) If no sale at second auction, creditor may appropriate the thing pledged. he shall be obliged to give an acquittance for his entire claim. Art 2113: The pledgor or owner may bid. He has a better right if he should offer the same terms as the highest bidder. The pledgee may also bid, but his offer shall not be valid if he is the only bidder Art 2114: All bids at the public auction shall offer to pay the purchse price at once. If any other bid(not cash) is accepted, the pledgee is deemed to have received the purchase price, as far as the pledgor or owner is concerned. Art 2116: After the public auction, the pledgee shall promptly advise the pledgor or owner of the result thereof General rule: Art 1236: Creditor is not bound to accept payment or performance by thirdp erson who has not interest in the fulfillment of the obligation. Exception: Art 2117: Any third person who has any right in or to the thing pledged may satisfy the principal obligation as soon as the latter becomsed due and demandable e.g. pledgor contracted third person to sell it to him Art 2118: the pledgee may collect and receive the credit which has been pledged if it becomes due before it is redeemed.He may apply the same to the payment of his claim, and deliver the surplus, should there be any , to the pledgor. Art 2119: If two or more things are pledged, the pledgee may choose which he will cause to be sold, unless there is a stipulation to the contrary. He may demand the sale of only as many of things as are necessary for the payment of the debt.

Art 2120: If a third person secures an obligation by pledging his own movable property under the provision of Artcile 2085 he shall have the same rights as guarantor under Art 2066 to 2070 and art 2077 to 2081. He is not prejudiced by any waiver of defense by the principal obligor. Art 2121: Pledges created by operation of law: - governed by law of pledge as to possession, care and sale of things and termination. Except: after payment of debt and expenses- remainder of price of sale shall be delivered to debtor. Art 2122: A thing under a pledge by operation of law may be sold only after demand of the amount for which the thing is retained. Public auction to take place within one month after such demand. In public sale was not caused without just grounds the debtor may require the return of the thing pledged. Examples of pledge by op of law: a) Art 546: Possessor in good faith may return the thing before it has been reimbursed b) Art 1731: One who has executed work upon a movable and has not yet been paid c) Art 1914: Agent not yet reimbursed and paid for indemnity for the agency d) Art 1707: Laborers wages as lien on the goods manufactured or the work done e) Art 2004: Legal pledge in case of hotel keeper Extinguishment of pledge: 1. Art 2210: If the pledge is returned by the pledgee to the pledgor or owner, the contract is extinguished. Any stipulation to the contrary shall be void. Presumption of extinguishment of pledge: 1) If the thing pledged is in the possession of the pledgor or owner subsequent to the perfection of the pledge 2) If the thing pledged is in the possession of the third person subsequent to the constitution of pledge 2. Art 2111: Statement in writing by pledgee renouncing the pledge Note: acceptance by pledgor or owner of the return of thing pledged is not necessary. Pledgee automatically becomes a depositary 3. Art 2115: The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. Debtor not entitled entitled to the excess; unless otherwise agreed Creditor not entitled to deficiency, notwithstanding any stipulation to the contrary Antichresis Art 2132: antichresis a contract where the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit. Characteristics: a) Accessory contract b) Formal contract specified form Difference between antichresis and pledge: 1) As to object, antichresis refers to real property, while pledge refers to personal property 2) As to perferction, antichresis is perfected by mere consent, while pledge is perfected by delivery of the thing pledged 3) Ast o nature, antichresis is a consensual contract, while pledge is a real contract Difference between antichresis and real mortagage: a) As to delivery, in antichresis, property is delivered to the creditor, while in mortgage, debtor retains possession of the property b) As to right received, in antichresis, it does not produce a real right since creditor acquires only the right to receive the fruits while in mortgage, the credior does not have the right to receive the fruits but creates a real right c) As to obligation, in antichresis, the creditor is obliged to pay the taxes and charges upon the estate unless otherwise stipulated while in mortgage, the creditor has no such obligation

d) As to application of fruits, in antichresis, creditor shall apply the fruits to payment of interest, in mortgage no such obligation. Art 2133: the actual market value of the fruits at the time of the application thereof to the interest and princial shall be the measure of such application Art 2134: The amount of the principal and of the interest shall be specified in writing; otherwise the contract of antichresis shall be void. Art 2136: The debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. But the creditor, in order to exempt himself from the obligations imposed upon him by the preceding acticle, may always compel the debtor to enter again upon the enjoyment of the property, except when there is a stipulation the contrary Art 2137: The creditor does not acquire the ownership of the real estate for nonpayment of the debt within the period agreed upon. stipulation to the contrary shall be void. Remedy of creditor:Every But the creditor may petition the court for (1)the payment of the debt or (2)the sale of the real property. In this case, the Rules of Court on the foreclosure of mortgages shall apply. Art 2138: The contracting parties may stipulate that the interest upon the debt be compensated with the fruits of the property which is the object of the antichresis, provided that if the value of the fruits should exceed the amount of interest allowed by the laws against usury, the escess shall be applied to the principal. Obligations of antichresis creditor: Art 2135: 1)The creditor, is obliged to pay the taxes and charges upon theestate. Exception: stipulation to the contrary 2)Creditor is also bound to bear the expenses necessary for its preservation and repair Sums spent for the purposes stated in this article shall be deducted from the fruits Chapter 3: Mortgage Mortgage- also known as real estate mortgage or real mortgage; - It is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, subjecting immovable property or real rights over immovable property as security and in case of non compliance to obligation, the proceeds of the sale of the said property or rights shall be used to satisfy the obligation. Requisites of Real estate mortgage: 1) They be constituted to secure the fulfillment of a principal obligation 2) That the mortgagor be the absolute owner of the thing mortgaged 3) That the persons constituting the mortgae have free disposal of their property, in the absence thereof, thay be legally authorized for the purpose 4) Document which is recorded in the registry of property Note: if not recorded, binding between parties only; no other right but to demand execution and recording of instrument; document must be notarized first Case Law: Hechanova Vs Adil 144SCRA 450: No valid mortgage is constituted where the alleged deed of mortgage is mere private document. The creditor may recover the loan, although the mortgage document evidencing the loan was non registrable, but he has the right to compel the debtor to execute the contract in a public instrument Soriano Vs Bautista 6 SCRA 946: Mortgage with option to buy Not illegal; It is simply an option to buy sanctioned by art 1479 (promise to buy and sell). Such promise is in the nature of a continuing offer, which upon acceptance gives rise to a perfected sale. Art 2124: Objects of a contract of mortgage (exclusive enumeration):

1) Immovables 2) Alienable real rights in accordance with the laws, imposed upon immovables Object of chattel mortgage: 1) movables Characteristics: 1) Real contract 2) Accessory contract- consideration is the same as principal contract 3) Subsidiary contract 4) Unilateral contract creates only an obligation on the part of the creditor who must free the property from encumbrance once the obligation is fulfilled Dragnet clause blanket clause; principle which guarantees and secure future indebtedness other than the amount agreed upon. Rules: 1) Mortgagor-debtor retains possession of the property mortgaged 2) Payment of interest is not required in mortgage, but interest may be in the form of fruits of the mortgaged property; mortgagee shall be subject to the obligation of an antichresis creditor. If fruits are subjected as payment to interest and thereafter to principal credit antichresis 3) Future property cannot be the object of mortgage Reason: One cannot mortgage what he does not own Exception: improvements on a property already mortgaged is valid 4) Right to attack validity of mortgage may be lost by unreasonable delay amounting to ratification 5) A registered mortgage right over property previously sold is inferior to the buyers unregistered right. Reason: Original seller parted with ownership of the thing sold\ Exception: if it is only a contract to sell, registered mortgage is superior. 6) Wife may mortgage her half share of the conjugal property after the death of the deceased husband 7) Invalid mortgage does not affect principal obligation 8) Invalid mortgage deed remains as evidence of personal obligation 9) Acceleration clause in case of mortgagors default is valid Kinds of mortgage: 1) Voluntary one agreed to by the parties or constituted by the will of the owner of the property on which it is created 2) Legal one required by law to be executed in favor of certain persons 3) Equitable one which, although it lacks the proper formalities of a mortgage required by law nevertheless shows the intention of the parties to burden the property as security for a debt Art 1602: contracts presumed to be an equitable mortgage: a) Inadequacy of price of sale with right to repurchase b) Vendor remains in possession as lessee or otherwise c) Upon exp of RTR, there is extension of period of redemption d) Purchaser retains a part of the purchase price e) Vendor pays taxes on the thing sold f) Other cases where intention is that the transaction is only for security of debt or performance Registration mere ministerial act by which a deed, contract or instrument is sought to be inscribed in the records of the Office of the Register of Deeds and annotated at the back of the certificate of title covering the land subject of the deed, contract or instrument. It does not determine the validity of mortgage or its effects Effects of mortgage: (CUA BIC)

1) Creates real right: Art 2126: Mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted a) Until action for expropriation has been completed, ownership remains with the registered owner b) Auction sale by second mortgagee gived the first mortgagee the right to collect his mortgage credit from the purchaser thereof during the sale conducted (reason: art 2126) c) BP 877 No lessor or his successor in interest shall be entitled to eject the lessee upon the ground that the leased premises has been sold or mortgaged. 2) Creates merely an encumbrance: mortgage creates only a lien Art 2127: The mortgage extends to the: a) Natural accessions b) Improvements c) Growing fruits d) Rents e) Or incomes not yet received when the obligation becomes due f) Amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged g) In virtue of expropriation for public use with the declarations, amplifications and limitations, established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. Art 2128: The mortgage credit may be alienated or assigned to a third person, in whole or in part with the formalities required by law. - Alienation or assignment is valid even if it is not registered Art 2129: The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said third person possesses, in terms and with the formalities which the law establishes. - In the absence of novation, mortgagor is not relieved of his obligation to pay his debt even if the mortgaged property is transferred to 3rd person Art 2130: A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. - Stipulation granting right of first refusal is valid Art 2131:The form, extent and consequences of a mortgage, both as to its constitution, modification, and extinguishment, and as to other matters not included in this chapter shall be governed by the provisions of (1) mortgage law and the (2) land registration law Foreclosure remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given Requisite for Validity: 1. Debtor must be in default 2. Acceleration clause- valid 3. Power to foreclose a mortgage lies with the mortgagee 4. In case of deficiency between amt of loan and foreclosure sale price debtor can be required to pay 5. Mortgagor of a foreclosed property can only sell his right to redeem Kinds of foreclosure: 1) Judicial foreclosure governed by Rule 68; different from ordinary execution sale under rule 39; - Nature: quasi in rem personal claim against specific property Procedure:

a. Judicial action for foreclosure petition to proper court ( where property is located) b. Order to mortgagor to pay the debt within a period of not less than 90 days and not more than 120 days from the entry of judgment c. Sale to highest bidder at public auction d. Confirmation of sale divests ownership e. Executionof judgment ; an appeal from order confirming the sale is th proper remedy to seek reversal of a judgment in an action for foreclosure f. Application of proceeds ( CAJe B) a) cost of sale b) amount due the mortgagee c) junior encumbrancers d) balance if any, paid to mortgagor or duly authorized agent g. Execution of sheriffs certificate signifies completion of foreclosure 2) Extrajudicial foreclosure ordinary action or foreclosure under power of sale contained in the mortgage - Governed by Act 3135 - Authority is not extinguished by death of mortgagor or mortgagee; extrajudicial foreclosure of banks is governed by Act 3135 and not by the bank charter Procedure: 1. Filing of application for extra-judicial foreclosure with the Executive Judge, through clerk of court 2. Clerk of court upon receipt shall: receive,docket and stamp said application; collect filing fees; examine compliance with all requirements for public auction; sign and issue certificate of sale, subject to approval by Executive judge; issue cert of sale to highest bidder and keep records while waiting for 1 year redemption pd. Note: only 1 filing fee for properties located in different areas covering one indebtedness Sale cannot be made legally outside of the province in which the property is situated. Public auction must be after giving proper notice which consists of: a) Posting of notice of sale in at least 3 public places at the municipality or city where the property is located (sheriffs office, assessors office, register of deeds) -certificated of posting not necessary in sheriffs records when there is compliance with posting requirement b) Publication in a newspaper of general circulation Requisites of newspaper of general circulation: i) published for the dissemination of local news and general information ii) bonafide subscription list of payinf subscribers iii) published at regular intervals - Personal notice to mortgagor not required except when required in the mortgage contract itself 3. Publication of notice of auction sale in a newspaper of general circulation 4. Raffle applications for extrajudicial foreclosure of mortgage 5. Reporting of name/s of bidder/s Note: a petition for foreclosure before a notary public is valid provided auction is under the direction of the executive judge Note: formalities of levy not required for extrajud. Fore.; levy is only required in Right of mortgagee to recover deficiency: - In case of judicial foreclosure mortgagee can recover; In case of extrajudicial foreclosure mortgagee not given right to recover but not also prohibited to recover Exception: if mortgagor is third person he is not liable for any deficiency in the absence of contrary stipulation Prescription of recovery: 10 years from the time right accrues Redemption: - transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created;

Note: formal offer to redeem accompanied by bonafide tender of the redemption price within the prescribed period of redemption or . If right to redeem is exercised through filing of judicial action preserves only right of redemption for future enforcement even beyond the period Requisites of valid redemption: 1) Redemption must be exercised within the prescribed period 2) Payment of the purchase price of the property plus 1% interest per month and taxes, amount of prior lien plus interest to be compluted from date of registration to time of redemption 3) Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the proper register of deeds 4) Tender of payment must be for full amount of the purchase price to the purchaser or redemptioner or officer who made the sale. - Payment by check is valid - Purchaser or redemptioner shall not be entitled to receive the rents, earnings and income of the property but shall belong to the judgment debtor until the expiration of the redemption period Note: in judicial foreclosure Gen rule: no right of redemption Kinds of redemption: 1. Equity of redemption prerogative of the mortgagor in case of judicial foreclosure to redeem the mortgage property after his default in the performance of the conditions of the mortgage but before the confirmation of the sale of the mortgaged property ; payment of secured debt within 90 days after the judgment becomes final (date of entry of judgment) or after foreclosure but prior to its confirmation Exception: Mortgagee is PNB redemption is allowed within one year from confirmation of sale. special law provisions, contrary agreement of parties Rights of Second mortgagee acquires only the (1) equity of redemption vested in the mortgagor and his rights are strictly subordinate to the superior lien of the first mortgagor and (2) right to the surplus of the proceeds of sale as payment for credit. If they were not made a party to the foreclosure they accrue in their favor (3) right for unforeclosed equity of redemption 2. Right of redemption right of mortgagor in case of extrajudicial foreclosure to redeem the mortgaged property within a certain period after it was sold for the satisfaction of the mortgage debt a. natural persons) right to redeem the property sold within the term of one year from and after the date of registration of the sale - Filing of an action to enforce right to redeem does not suspend the running of the 1 year prescriptive period b. juridical persons) right to redeem the property until but not after the registration of the certificate of foreclosure sale which shall not be more than 3 months after foreclosure which ever is earlier. (sec 47 GBL 2000) Exception: special law provisions, contrary agreement of parties Note: Exercise of right of redemption is implied admission of regularity of sale; sale of mortgaged property by mortgagor to a third party is sale of right to redeem If mortgagor sold the mortgaged property without consent of mortgagee, third person was not validly substituted as debtor Foreclosure attended by fraud is void ab initio Remedy of mortgagor in case of death of debtor: 3 distinct and mutually exclusive remedy: a) To waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim b) To foreclose the mortgage judicially and prove any deficiency as an ordinary claim

c) Extrajudicial foreclosure without right to file a claim for any deficiency Persons entitled to redemption: Mss -LJ 1. Mortgagor or one in privity of title with the mortgagor 2. Successor in interest in Act 3135 includes transferee of right, conveyee of interest, successor-in-interest by operation of law, joint debtors who were joint owners, one with joint interest 3. Judgment debtor or successor in interest or creditor having a lien by attachment, judgment or mortgage on the property under rules of court 4. Lessee of agricultural land- right to redeem is superior to that of mortgagee (preemptive right to buy) CARL 5. Seller of condominium unit is still bound to redeem mortgage without any cost to the buyer apart from balance of purchase price (PD 957) Terms: 1. Levy essential requisite of a valid execution sale under rule 39 and rule 57 but not in extrajudicial sale 2. Tipo- a stipulation in a mortgage of real property fixing a minimum price at which the property shall be sold at a public auction. It is null and void because the property must be sold to highest bidder. Inadequacy of price not material where there is right to redeem. Reason: judgment debtor may reacquire the property or sell his right to redeem and recover the loss he claims to have been suffered. Exception: when price is so inadequate as to shock the conscience of the court 3. Mortgagee in possession one who has lawfully acquired actual or constructive possession of the premises mortgaged to him, standing upon his rights as mortgagee and not claiming under another title.; not entitled to reimbursement for improvements in the lot 4. Writ of possession order whereby the sheriff is commanded to place in possession of real or personal property the person entitled such property; G.R. Writ Can be granted even if premises is leased. Exception: registered lease or actual knowledge of mortgagee G.R. Issuance is only ministerial. Exception: If a third person is actually holding the property adversely to the mortgagor or judgment debtor in which case an ordinary action is necessary to recover possession from such third person If mortgagor refuses to surrender property, mortgagee must file an ordinary action for recovery of possession since creditors or mortgagees right is dependent on default of mortgagee Right to possession: 1. Vendee before exp of redemption period, it is contingent only upon the failure of mortgagor to redeem, after redemption, right to possession becomes final When to exercise right to possession: a) Before lapse of redemption period: in Xtra-jud: purchaser allowed to take possession of the foreclosed property during the period of redemption; such proceeding is ex parte and any question as to its validity is to be threshed out in a subsequent proceeding; bond in required b) After lapse of redemption period: In Xtra jud: fiLE petition for issuance of writ pursuant to rule 39. Summary in nature; ministerial only; no bond required; Suspension of implementation of writ is not allowed In case of irregularity of sale and cancellation of writ: Remedy of mortgagor: Petition to set aside the sale and cancellation fo writ of possession summary procedure Act 496, should be filed not later than 30 days after the purchaser was given possession Remedy of third party:

1. Terceria remedy to determine whether the sheriff has rightly or wrongly taken hold of the property not belonging to the judgment debtor or obligor; not a condition sine qua non to filing of independent action 2. Independent separate action to vindicate their claim of ownership