Credit Transactions Lecture Notes Complete

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COMMODATUM MUTUUM -look at the nature of the object

both not subject to statute
Fungible-depends upon the intention if parties
of frauds
-not on the nature of the object
Ownership retained by Ownership
bailor transferred because
Art. 1953. A person who receives a loan of money or
you do not return
any other fungible thing acquires the ownership
the same thing
thereof, and is bound to pay to the creditor an equal
Gratuituos Can be gratuitous or amount of the same kind and quality.
onerous
Return the same thing Return the same Art. 1933. By the contract of loan, one of the parties
kind/quality delivers to another, either something not consumable
Movable or Immovable Only movable so that the latter may use the same for a certain
(personal propertty) time and return it, in which case the contract is
Even if there's a period If there's a called a commodatum; or money or other
can demand return when period,debtor cannot consumable thing, upon the condition that the same
there is an urgent need pay ahead. amount of the same kind and quality shall be paid, in
-not necessary that the which case the contract is simply called a loan or
bailor is the owner ( lessee mutuum.
or usufructuary can lend
the thing) Commodatum is essentially gratuitous.
Art. 1938. The bailor in Simple loan may be gratuitous or with a stipulation
commodatum need not be to pay interest.
the owner of the thing
loaned In commodatum the bailor retains the ownership of
Loan for use or temporary Loan for the thing loaned, while in simple loan, ownership
possession consumption passes to the borrower.
Art. 1947. The bailor may
demand the thing at will, Ex. A borrowed wine bottles from B for display but
and the contractual visitor drank it, or if B said you may drink it.
relation is called a =mutuum
precarium, in the
following cases: Ex. A buys coke and deposited money for the bottle,
then returns it.
(1) If neither the duration = barter
of the contract nor the use
to which the thing loaned Art. 1954. A contract whereby one person transfers
should be devoted, has the ownership of non-fungible things to another with
been stipulated; or the obligation on the part of the latter to give things
(2) If the use of the thing of the same kind, quantity, and quality shall be
is merely tolerated by the considered a barter
owner.
COMMODATUM
Real contract Art. 1940. A stipulation that the bailee may make use
of the fruits of the thing loaned is valid.
Art. 1316. Real contracts,
such as deposit, pledge Ex. You may use my land and enjoy fruits coz i will
and Commodatum, are not go abroad. Commodatum if the main purpose is to
perfected until the delivery use land. If main purpose is fruits--usufruct.
of the object of the
obligation A Car cannot be subject of mutuum
Bailor-bailee Creditor-debtor But a gasoline can be a subject of mutuum.
Art. 418. Movable property--either consumable or Consensual

nonconsumable. Art. 1934. An accepted promise to deliver something
-consumable: movables which cannot be used in a by way of commodatum or simple loan is binding
manner appropriate to their nature without their upon parties, but the commodatum or simple loan
being consumed itself shall not be perfected until the delivery of the
object of the contract.
Credit Transactions Lecture ~ Atty. Estolloso 2013

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Art. 1941. The bailee is obliged to pay for the

ordinary expenses for the use and preservation of
Art. 1479. A promise to buy and sell a determinate the thing loaned.
thing for a price certain is reciprocally demandable. Art. 1943. The bailee does not answer for the
deterioration of the thing loaned due only to the use
An accepted unilateral promise to buy or to sell a thereof and without his fault
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a Art. 1949. The bailor shall refund the extraordinary
consideration distinct from the price. expenses during the contract for the preservation of
the thing loaned, provided the bailee brings the
BPI v. CA, Feb 2002 same to the knowledge of the bailor before incurring
A applied for loan which was approved by BOD, them, except when they are so urgent that the reply
Mortgaged her land but Bank did not deliver money. to the notification cannot be awaited without danger.
= no perfected contract of loan. Bank is liable for
damages for breach of promise of loan. If the extraordinary expenses arise on the occasion
of the actual use of the thing by the bailee, even
Loan contact perfected in 1996, 12% per year but though he acted without fault, they shall be borne
money was given only in 2000 equally by both the bailor and the bailee, unless
= no interest to pay before year 2000. Only from the there is a stipulation to the contrary.
time you receive the money.
Ex. Car in the garrage lost thru fortuitous even-
1934- commodatum or mutuum- perfected upon bailor is liable
delivery Ex. House actually used - borne equally by bailor and
bailee unless there's stipulation.
Art. 1935. The bailee in commodatum acquires the Note:
used of the thing loaned but not its fruits; if (1944) In commodatum, bailee can't retain property
any compensation is to be paid by him who acquires even if not paid extraordinary expenses.
the use, the contract ceases to be a commodatum. Xp: (1951) damages because of hidden defects and
the bailor new but did not advise bailee.
Commodatum ad ostentationem - for exhibit only
Bailor not liable for hidden defects unless he knew.
Art. 1937. Movable or immovable property may be
the object of commodatum. GR: Art. 1944. The bailee cannot retain the thing
loaned on the ground that the bailor owes him
Usufructuary can lease the land to another. something, even though it may be by reason of
Art. 572. The usufructuary may personally enjoy the expenses. However, the bailee has a right of
thing in usufruct, lease it to another, or alienate his retention for damages mentioned in Article 1951.
right of usufruct, even by a gratuitous title; but all
the contracts he may enter into as such usufructuary XP: Art. 1951. The bailor who, knowing the flaws of
shall terminate upon the expiration of the usufruct, the thing loaned, does not advise the bailee of the
saving leases of rural lands, which shall be same, shall be liable to the latter for the damages
considered as subsisting during the agricultural year. which he may suffer by reason thereof.
Bailee died and the thing is used by his household.= Note: nobody is liable for fortuitous event
extinguished because he died. Except:
1) mutuum - because money is generic
Art. 1939. Commodatum is purely personal in 2) Art. 1942. The bailee is liable for the loss of the
character. Consequently: thing, even if it should be through a fortuitous event:
(1) The death of either the bailor or the bailee (1) If he devotes the thing to any purpose
extinguishes the contract; different from that for which it has been
(2) The bailee can neither lend nor lease the object loaned;
of the contract to a third person. However, the (2) If he keeps it longer than the period
members of the bailee's household may make use of stipulated, or after the accomplishment of the
the thing loaned, unless there is a stipulation to the use for which the commodatum has been
contrary, or unless the nature of the thing forbids constituted;
such use.
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a

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stipulation exemption the bailee from

responsibility in case of a fortuitous event; Art. 1589. The vendee shall owe interest for the
period between the delivery of the thing and the
(4) If he lends or leases the thing to a third payment of the price, in the following three cases:
person, who is not a member of his (1) Should it have been so stipulated;
household; (2) Should the thing sold and delivered produce
fruits or income;
(5) If, being able to save either the thing (3) Should he be in default, from the time of judicial
borrowed or his own thing, he chose to save or extrajudicial demand for the payment of the price.
the latter.
Art. 1788. A partner who has undertaken to
Art. 1945. When there are 2 or more bailees to contribute a sum of money and fails to do so
whom a thing is loaned in the same contract, they becomes a debtor for the interest and damages from
are liable solidarily. the time he should have complied with his obligation.
The same rule applies to any amount he may have
Art. 1946. The bailor cannot demand the return of taken from the partnership coffers, and his liability
the thing loaned till after the expiration of the period shall begin from the time he converted the amount
stipulated, or after the accomplishment of the use for to his own use.
which the commodatum has been constituted.
However, if in the meantime, he should have urgent SIGAAN V. VILLANUEVA (2009)
need of the thing, he may demand its return or -A borrowed money from B, P100,000, 25% interest,
temporary use. not in writing
In case of temporary use by the bailor, the contract HELD: loan valid even not in writing
of commodatum is suspended while the thing is in
the possession of the bailor. (1960) if paid voluntarily, cannot recover anymore
(natural obligation)
In Precarium- demand is necessary If he he did not know-mistake of payment - can
recover but if not recovered (solutio indebiti) -- can
Note: bailor may demand return immediately: demand interest of 6%.
1) if he needs it
2) Precarium Art. 1226. In obligations with a penal clause, the
3) Acts of ingratitude penalty shall substitute the indemnity for damages
and the payment of interests in case of
noncompliance, if there is no stipulation to the
Bailor has to reimburse for extraordinary expenses.
contrary. Nevertheless, damages shall be paid if the
Art. 1952. The bailor cannot exempt himself from the
obligor refuses to pay the penalty or is guilty of fraud
payment of expenses or damages by abandoning the
in the fulfillment of the obligation.
thing to the bailee.
Art. 2209. If the obligation consists in the payment
Bailor and bailee cannot compensate
of a sum of money, and the debtor incurs in delay,
Art. 1287. Compensation shall not be proper when:
the indemnity for damages, there being no
1) one of the debts arises from a depositum or
stipulation to the contrary, shall be the payment of
from the obligations of a depositary or
the interest agreed upon, and in the absence of
2) of a bailee in commodatum. stipulation, the legal interest, which is six per cent
3) Neither can compensation be set up against a per annum.
creditor who has a claim for support due by
gratuitous title. Art. 2212. Interest due shall earn legal interest from
the time it is judicially demanded, although the
SIMPLE LOAN or MUTUUM obligation may be silent upon this point.
-consummable
-if non-consummable and you transfer ownership=it
is barter 12% 6%
Back rentals -from Damages (2213-only

-value at the time of perfection of loan not at the demand from judgment-
time of loss judicial/extra j reasonable certainty)
-no interest unless expressly stipulated or if the law -if becomes judgment
provides for it [ art.229- delay 6%, art.1589-when final 12%
you do not pay and thing produces fruits, or 1788
when you do not give what you promised to the Loan forbearance of Return of
partnership) money downpayment in sales

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Illegal recruitment Non-payment of -loan with Monetary interest 24%, no penalty

(PP v. Billaber) purchase price interest, delay for 1 year
How much interest can be recovered?
Estafa Payment of goods Held: The appropriate measure damages in case of
delay is payment of penalty interest, in case there is
Final judgment Solution indebiti no penalty interest use the monetary interest rate, in
the absence of monetary interest use legal interest.
Reimbursement of
In this case penalty interest is also 24%. Apply legal
insurance
interest if no stipulated interest.
Specific performance
with damages Art. 2209. If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay,
Contact to sell but the indemnity for damages, there being no
seller sold to another stipulation to the contrary, shall be the payment of
(tan v. Renolirao) the interest agreed upon, and in the absence of
stipulation, the legal interest, which is 6% per
3% per annum interest- excessive, void under 1403 annum.
Art. 1229. The judge shall equitably reduce the DEPOSIT

penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if -Real contracts (have to be delivered)
there has been no performance, the penalty may -There can be a contract of future deposit/promise to
also be reduced by the courts if it is iniquitous or deposit (just like commodatum and mutuum)
unconscionable - standard of safekeeping: good father of the family
Art. 2227. Liquidated damages, whether intended as Art. 1963. An agreement to constitute a deposit is
an indemnity or a penalty, shall be equitably reduced binding, but the deposit itself is not perfected until
if they are iniquitous or unconscionable. the delivery of the thing.
Art. 1409. The following contracts are inexistent and Borrowed money, deposited title of his property=
void from the beginning: loan with deposit
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public Two kinds of deposit:
policy;xxx 1) voluntary
2) Necessary
1409 (1)- even if declared void, creditor can still
recover 12% per annum. (Only reduce) Art. 1962. A deposit is constituted from the moment
a person receives a thing belonging to another, with
[Civil circular 415] the obligation of safely keeping it and of
Legal interest of 12% for loans and forbearance of returning the same. If the safekeeping of the
money -if no stipulated interest/penalty interest and thing delivered is not the principal purpose of the
delay- commence to run if there's demand contract, there is no deposit but some other
contract.
Art. 2213. Interest cannot be recovered upon
unliquidated claims or damages, except when the Ex. “I will deposit my car to you, you may use it”- if
demand can be established with reasonably safekeeping is principal purpose, it is still deposit.
certainty.
Art. 1978. When the depositary has permission to
Contract to make wedding gown and there is delay - use the thing deposited, the contract loses the
6% concept of a deposit and becomes a loan or
commodatum, except where safekeeping is still the
If no monetary interest- use penalty interest at the principal purpose of the contract. The permission
time of delay shall not be presumed, and its existence must be
No monetary, no penalty - can recover legal interest proved.
Art. 2212. Interest due shall earn legal interest from Rule: look at the principal purpose of the contract
the time it is judicially demanded, although the If safekeeping- Deposit
obligation may be silent upon this point. If use – Commodatum
[State investment v. Ca , june 19, 1991]

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Ex. You entered into a dorm, you entered into a ordinary expenses for presevation and it may be
contract of deposit for 6 months, 2-month deposit sold.
which will be part of rental, if you will not continue
will be forfeited.  not a deposit under the Civil Art. 1992. If the deposit is gratuitous, the
Code. “2-months deposit” considered as advance depositor is obliged to reimburse the
rental; forfeiture of deposit serves as a penalty depositary for the expenses he may have
clause. If the deposit will be returned to you, it’s a incurred for the preservation.
Loan.
Irregular deposits: Art. 1994. The depositary may retain the

1) Art. 1992. If the deposit is gratuitous- depositor is thing in pledge until the full payment of what
obliged to reimburse the depositary for the expenses may be due him by reason of the deposit.
he may have incurred for the preservation of the
thing. Art. 2121. Pledges created by operation of law,
such as those referred to in 1994, it will be sold
2) Deposits in bank- Loan but he excess will have to be returned.
Art. 1980. Fixed, savings, and current deposits of
money in banks and similar institutions shall be In commodatum, who pays for the preservation of
governed by the provisions concerning simple loan. the thing? –Bailee, since it’s gratuitous
If you have a savings deposit in a bank and you owe In commodatum, is there a right to retention of
the same bank, there can be compensation. If debts unpaid extra ordinary expenses?
are of the same kind and principally debtor and -NO , except for damages by reason of the defect of
creditor of each other. thing where the bailor did not inform the bailee.
Art. 1286. Compensation takes place by operation of
law, even though the debts may be payable at Deposit is a gratuitous contract generally.
different places, but there shall be an indemnity for
expenses of exchange or transportation to the place Gratuitous v. Compensated deposit
of payment -In compensated deposit, the depositary usually pays
for the expenses.
Ex. A deposited “time deposit” in a bank. Bank -In compensated, Death of the depositary does not
declared closed by the central bank. Can the extinguish the deposit. Transmissible.
depositor recover from the bank what he has -Even, if there is a period the depositor can demand
deposited? No, this is not a deposit; there is no the return anytime.
obligation to return the same thing. The purpose is
to use. To recover, file a suit as collection or thru Art. 1995. A deposit its extinguished:
PDIC. If you base it in deposit, cannot. This is a loan (1) Upon the loss or destruction of the thing
since ownership has already transferred. In a true deposited;
deposit you have to return the same thing. In fact, (2) In case of a gratuitous deposit, upon the
you have an obligation not to use in a deposit. death of either the depositor or the depositary
Deposit v. Loan Voluntary deposit-made by the will of depositor

-in deposit, you must return the same thing Art. 1968. A voluntary deposit is that wherein the
delivery is made by the will of the depositor.
Ex. A and B grew palay in their rice field. They went -A deposit may also be made by 2 or more persons
to C who owns a rice mill. 50 sacks of rice. C would each of whom believes himself entitled to the thing
mill and C would sell in manila where they can get deposited with a third person, who shall deliver it in
higher price and from the sale per sack, C will be a proper case to the one to whom it belongs.
receiving P50 per sack. Before C could mill the rice,
burned thru fortuitous event. Who will bear the lost? *deposit may be done orally. But it should be
 A and B. Res perit domino. delivered. If not delivered- not deposit.
Deposit of Car v. Pledge of Car Art. 1970. Depositary (capacitated); Depositor

-Deposit is a principal contract, while pledge is a (incapacitated). Can depositor demand the return
security. In pledge, if you do not pay the loan you of the thing? --Depositary may be compelled to
can sell the car. return the thing by the guardian, or administrator, of
- Depositary spent for the preservation of the car the person who made the deposit, or by the latter
and the owner did not pay. Can the depositary sell himself if he should acquire capacity.
the car if it is a gratuitous deposit?  Yes, it now
becomes a pledge (2121) if owner will not pay

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Art. 1971. Depositor (capacitated); Depositary when it becomes due, and to take such steps as
(incapacitated): may be necessary in order that the securities
-the depositor can have an action to recover the may preserve their value and the rights
thing d while it is still in the possession of the corresponding to them according to law.
depositary, or
-to compel the incapacitated depositary to pay him Note: Buyer NOT obliged to pay to depositary
the amount by which he may have enriched or unless the latter has SPA or holds a negotiable
benefited himself with the thing or its price. instrument or depositor ratifies. Depositor should
However, if a third person who acquired the thing inform Debtor to pay to Deposity.
acted in bad faith, the depositor may bring an action
against him for its recovery. Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
Depositor died. constituted, or his successor in interest, or any
Art. 1972. Depositary: obliged to keep the thing person authorized to receive it.
safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the SEA v. CA (1993)
person who may have been designated in the -Safety Deposit Box –more of a lease
contract. -Two keys: One key given to depositor, One with the
-If gratuitous, this fact shall be taken into account in Bank
determining the degree of care that the depositary -bank is liable because it did not inform depositor of
must observe. the flood.
Depositary died. * depositary cannot use thing unless with express

Art. 1991. Depositary’s heir in good faith sold the permission or for preservation.
thing which he did not know was deposited- only
bound to 1) return the price received or Art. 1978. When the depositary has permission to
2) to assign his right of action against the buyer in use the thing deposited, the contract loses the
case the price has not been paid. concept of a deposit and becomes a loan or
commodatum, except where safekeeping is still the
GR: Art. 1977. The depositary cannot make use principal purpose of the contract.
of the thing deposited. The permission shall not be presumed, and its
existence must be proved.
XP:
1) by stipulation or with the express permission of *depositor can demand return anytime.
the depositor. Otherwise, he shall be liable for
damages. In deposit,
2) when preservation of the thing requires its use, Art. 1979. The depositary is liable for the loss of
it must be used but only for that purpose. the thing through a fortuitous event:
(1) If it is so stipulated;
-Can depositary let his household use it? –NO. (only (2) If he uses the thing without the depositor's
available in commodatum) permission;
(3) If he delays its return;
*Cannot sub-deposit. If deposit is allowed, (4) If he allows others to use it, even though he
subdepositary is liable. But depositary is still liable if himself may have been authorized to use the same.
he knows that the subdipositary is careless or unfit,
or if negligent subdepositary is his Employee. In commodatum,
Art. 1942. The bailee is liable for the loss of the
Art. 1973. Unless there is a stipulation to the thing, even if it should be through a fortuitous
contrary, the depositary cannot deposit the thing event:
with a third person. If deposit with a third person (1) If he devotes the thing to any purpose different
is allowed, the depositary is liable for the loss if from that for which it has been loaned;
he deposited the thing with a person who is (2) If he keeps it longer than the period stipulated,
manifestly careless or unfit. The depositary is or after the accomplishment of the use for which
responsible for the negligence of his employees the commodatum has been constituted;
(3) If the thing loaned has been delivered with
*Obligation to take care includes obligation to collect. appraisal of its value, unless there is a stipulation
exemption the bailee from responsibility in case of a
Art. 1975. The depositary holding certificates, fortuitous event;
bonds, securities or instruments which earn (4) If he lends or leases the thing to a third person,
interest shall be bound to collect the latter who is not a member of his household;

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(5) If, being able to save either the thing borrowed specified period or time for such return may have
or his own thing, he chose to save the latter. been fixed.
-this will not apply when the thing is judicially
1981~1975 attached while in the depositary's possession, or
Stocks certificates which give regular dividends should he have been notified of the opposition of a
sealed in envelop, depositary is not liable. third person to the return or the removal of the thing
Art. 1981. When the thing deposited is delivered deposited.
closed and sealed, the depositary must return it in
the same condition, and he shall be liable for *if no claim and notified the owner, after 30 days
damages should the seal or lock be broken through you can return it.
his fault.
Fault on the part of the depositary is presumed, Necessary deposit
unless there is proof to the contrary. Art. 1996. A deposit is necessary:
As regards the value of the thing deposited, the (1) When it is made in compliance with a legal
statement of the depositor shall be accepted, when obligation;
the forcible opening is imputable to the depositary, (2) When it takes place on the occasion of any
should there be no proof to the contrary. However, calamity, such as fire, storm, flood, pillage,
the courts may pass upon the credibility of the shipwreck, or other similar events.
depositor with respect to the value claimed by him.
When the seal or lock is broken, with or without the Art. 1997. The deposit referred to in No. 1 (in
depositary's fault, he shall keep the secret of the compliance with a legal obligation) shall be governed
deposit. by the provisions of the law establishing it, and in
case of its deficiency, by the rules on voluntary
Art. 1975. The depositary holding certificates, bonds, deposit.
securities or instruments which earn interest shall be
bound to collect the latter when it becomes due, and The deposit mentioned in No. 2 (on the occasion of
to take such steps as may be necessary in order that any calamity ) by the provisions concerning voluntary
the securities may preserve their value and the rights deposit and by Article 2168 (negotiorum gentio).
corresponding to them according to law.
The above provision shall not apply to contracts for *It is the Depositor who has to go to the place of
the rent of safety deposit boxes. depositary.
Return all, including accessories, accessions and *Depositor may demand return of thing anytime
fruits. Art. 1988. The thing deposited must be returned
Art. 1983. The thing deposited shall be returned with to the depositor upon demand, even though a
all its products, accessories and accessions. specified period or time for such return may
have been fixed.
Note: Depositor need not be the owner of the thing -if onerous, depositor must pay compensation.
deposited.
*How about in commodatum?
1984~1988 -Yes if there is a period or precarium (merely
Art. 1984. Depositary cannot demand that the tolerated).
depositor prove his ownership. But if he
discovers that the thing has been stolen and who its *Depositary can return if there’s justifiable reason
true owner is, he must advise the latter of the regardless of whether it is gratuitous or onerous.
deposit. XP: custodial legis or somebody claims it (1984)
-If the owner does not claim it within (30days) 1
month, the depositary shall be relieved of all Art. 1989. Unless the deposit is for a valuable
responsibility by returning the thing deposited to the consideration, the depositary who may have
depositor. justifiable reasons for not keeping the thing
-If the depositary has reasonable grounds to believe deposited may, even before the time designated,
that the thing has not been lawfully acquired by the return it to the depositor; and if the latter should
depositor, the former may return the same. refuse to receive it, the depositary may secure its
consignation from the court.
*if there is a claim the proper action is Interpleader,
by depositing it in court. *can depositary return the thing anytime?
-NO, unless there is justifiable reason.
Art. 1988. The thing deposited must be returned
to the depositor upon demand, even though a Obligations of Depositor:
If compensated- he has to pay price

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If gratuitous- reimburse Depositary expenses for deposit pending determination of its possession
preservation or ownership through proper proceedings
Can Depositary retain the thing, if depositor does not 2) Art. 586. Should the usufructuary fail to give
pay expenses for preservation? – YES. Can even sell security in the cases in which he is bound to give
it in public auction because it becomes a Pledge. it, the owner may demand that the immovables
(unlike commodatum, not allowed except damages). be placed under administration, that the movables
be sold, that the public bonds, instruments of
Art. 1993. depositor -reimburse the depositary for credit payable to order or to bearer be converted
any loss arising from the character of the thing into registered certificates or deposited in a bank
deposited, unless at the time of the constitution of or public institution, and that the capital or sums
the deposit the depositor was not aware of, or was in cash and the proceeds of the sale of the
not expected to know the dangerous character of the movable property be invested in safe securities.
thing, or unless he notified the depositary of the The interest on the proceeds of the sale of the
same, or the latter was aware of it without advice movables and that on public securities and bonds,
from the depositor. and the proceeds of the property placed under
administration, shall belong to the usufructuary.
Voluntary Deposits Necessary Deposits Furthermore, the owner may, if he so prefers,
-there must be consent -by force of until the usufructuary gives security or is excused
circumstance from so doing, retain in his possession the
property in usufruct as administrator, subject to
the obligation to deliver to the usufructuary the
Depositus Miserables- Based on calamity net proceeds thereof, after deducting the sums
which may be agreed upon or judicially allowed
Supposing you go to Lee Plaza and it says deposit him for such administration.
your bags-> Voluntary deposit.
3) Pledge. If the creditor misuses it, the owner
In necessary- no choice. can ask that it be deposited.
Art. 1994. The depositary may retain the thing in Art. 2104. The creditor cannot use the thing
pledge until the full payment of what may be due pledged, without the authority of the owner, and
him by reason of the deposit. if he should do so, or should misuse the thing in
any other way, the owner may ask that it be
Art. 1995. A deposit its extinguished: judicially or extrajudicially deposited. When the
(1) Upon the loss or destruction of the thing preservation of the thing pledged requires its
deposited; use, it must be used by the creditor but only for
(2) In case of a gratuitous deposit, upon the death of that purpose.
either the depositor or the depositary.
Hotel Deposits and Hand Carry Baggage
Art. 1754. The provisions of Articles 1733 to 1753
Art. 1996. A deposit is necessary: shall apply to the passenger's baggage which is not
xxx in his personal custody or in that of his employee. As
(2) When it takes place on the occasion of any to other baggage, the rules in Articles 1998 and 2000
calamity, such as fire, storm, flood, pillage, to 2003 concerning the responsibility of hotel-
shipwreck, or other similar events. keepers shall be applicable.
Examples of Deposits by Operation of law / Legal 1998, 2000, 2003

Deposits:
Art. 1998. The deposit of effects made by the
1) Possession of Movable. Art. 538. Possession travelers in hotels or inns shall also be regarded as
as a fact cannot be recognized at the same time necessary. The keepers of hotels or inns shall be
in two different personalities except in the cases responsible for them as depositaries, provided that
of co-possession. Should a question arise notice was given to them, or to their employees, of
regarding the fact of possession, the present the effects brought by the guests and that, on the
possessor shall be preferred; if there are two part of the latter, they take the precautions which
possessors, the one longer in possession; if the said hotel-keepers or their substitutes advised
dates of the possession are the same, the one relative to the care and vigilance of their effects.
who presents a title; and if all these conditions
are equal, the thing shall be placed in judicial

Page 9 of 22
*Notice- it is enough that it is with the knowledge or GUARANTEE PLEDGE,

known to the hotel’s staff. No need to itemized or MORTGAGE,
individualized. Enough that it is inside the hotel. ANTICHRESIS
Security based on Security based on
Art. 2003. The hotel-keeper cannot free himself from money (personal property (real security)
responsibility by posting notices to the effect that he security)
is not liable for the articles brought by the guest. Any Accessory contract. Accessory contracts.
stipulation between the hotel-keeper and the guest Subject to condition
whereby the responsibility of the former as set forth that principal debtor Pledge- Real Contract
in articles 1998 to 2001 is suppressed or diminished does not/can’t pay
shall be void. Antichresis- Consensual
but with obligation to
BUT If guest did not take necessary precautions- deliver property (not
Hotel not liable. real contract)
Diminishing liability not valid.

GUARANTEE SURETY SOLIDARY
Art. 2000. The responsibility referred to in the two DEBTOR
preceding articles shall include the loss of, or injury subsidiary Not a debtor A Debtor
to the personal property of the guests caused by the liability but debt’s Solidary liability
servants or employees of the keepers of hotels or nature is
inns as well as strangers; but not that which may solidary (direct
proceed from any force majeure. The fact that liability)
travellers are constrained to rely on the vigilance of Accessory Accessory Principal
the keeper of the hotels or inns shall be considered obligation
in determining the degree of care required of him. Benefit of Benefit of
exhaustion exhaustion not
Art. 1763. A common carrier is responsible for available to available to
injuries suffered by a passenger on account of the guarantor guarantor
wilful acts or negligence of other passengers or of (liable if because
strangers, if the common carrier's employees debtor is liability is
through the exercise of the diligence of a good father insolvent) direct.
of a family could have prevented or stopped the act Demand Demand on
or omission. necessary debtor not
necessary to
make surety
Art. 2001. The act of a thief or robber, who has liable
entered the hotel is not deemed force majeure, Creditor can
unless it is done with the use of arms or through an go directly to
irresistible force. Surety
Debtor cannot Debtor does
*If stranger- hotel will not be liable if due to Arms or
pay not pay
irresistible force.
Insurer of Insurer of the
*If employee- whether by use of force or negligence,
solvency debt (pay
Hotel is liable.
when it is
due)
*use of arms- force majeur
Has to be in Has to be in
-if he entered surreptitiously with weapons that
writing writing
would be negligence on the part of the hotel.
2 contracts:
1) guarantee/ surety will pay
*irresistible force- on the victim not on things.
creditor;
2) debtor will reimburse the
Art. 2004. The hotel-keeper has a right to retain the
guarantee/ surety (contract of
things brought into the hotel by the guest, as a
indemnity).
security for credits on account of lodging, and
supplies usually furnished to hotel guests.
*Guarantee is gratuitous unless there is a stipulation
to the contrary.
GUARANTEE

Page 10 of 22
*When the principal is void, also the accessory Art. 882. The statement of the object of the
(guarantee/surety) is void. institution, or the application of the property left
*if principal or voidable, accessory is valid until by the testator, or the charge imposed by him,
annulled. shall not be considered as a condition unless it
appears that such was his intention.
*Special promise to answer for debt or default of That which has been left in this manner may be
another has to be in writing under the statute of claimed at once provided that the instituted heir
frauds. or his heirs give security for compliance with the
wishes of the testator and for the return of
*Nature of performance bond of a contractor= anything he or they may receive, together with
guarantee. its fruits and interests, if he or they should
disregard this obligation.
*Creditor can enter into a contract of guarantee
even without the consent of debtor/knowledge. But Art. 885. The designation of the day or time
debtor only liable to the Guarantor up to the amount when the effects of the institution of an heir shall
he has benefited. commence or cease shall be valid.
In both cases, the legal heir shall be considered
Art. 2050. If a guaranty is entered into without the as called to the succession until the arrival of the
knowledge or consent, or against the will of the period or its expiration. But in the first case he
principal debtor, the provisions of Articles 1236 and shall not enter into possession of the property
1237 shall apply. until after having given sufficient security, with
the intervention of the instituted heir.
Art. 1236. The creditor is not bound to accept
payment or performance by a third person who Art. 2051. A guaranty may be conventional, legal or
has no interest in the fulfillment of the obligation, judicial, gratuitous, or by onerous title.
unless there is a stipulation to the contrary. It may also be constituted, not only in favor of the
Whoever pays for another may demand from the principal debtor, but also in favor of the other
debtor what he has paid, except that if he paid guarantor, with the latter's consent, or without his
without the knowledge or against the will of the knowledge, or even over his objection.
debtor, he can recover only insofar as the payment
has been beneficial to the debtor. Co-guarantee Sub-guarantee
Pro rata Will guarantee also the
Art. 1237. Whoever pays on behalf of the debtor guarantor
without the knowledge or against the will of the If there are several co-
latter, cannot compel the creditor to subrogate him guarantor, debts will be
in his rights, such as those arising from a mortgage, divided among them
guaranty, or penalty. (2065)
*Guarantee can secure a natural obligation. Art. 2065. Should there be several guarantors of only
one debtor and for the same debt, the obligation to
*A married woman may guarantee an obligation answer for the same is divided among all. The
without her husband’s consent if she uses her own creditor cannot claim from the guarantors except the
money. This is purely her own personal liability, she shares which they are respectively bound to pay,
cannot make the conjugal partnership liable unless it unless solidarity has been expressly stipulated.
is for the benefit of the absolute community. (2049)
Art. 2052. A guaranty cannot exist without a valid
Conventional guarantee-by agreement obligation.
Legal guarantee-usufruct Nevertheless, a guaranty may be constituted to
guarantee the performance of a voidable or an
Negative Potestative Conditions in a Will unenforceable contract. It may also guarantee a
Art. 879. If the potestative condition imposed natural obligation.
upon the heir is negative, or consists in not
doing or not giving something, he shall comply *Future debts; Continuing Guarantee
by giving a security that he will not do or give Art. 2053. A guaranty may also be given as security
that which has been prohibited by the testator, for future debts, the amount of which is not yet
and that in case of contravention he will return known; there can be no claim against the guarantor
whatever he may have received, together with until the debt is liquidated. A conditional obligation
its fruits and interests. may also be secured.
Resolutory Period

Page 11 of 22
Ex. I want to purchase goods from you on credit. *Simple and Definite- If guarantor does not limit a
You can get goods on credits to be paid within specified amount then he is liable not merely only
60days, no stipulation as to the amount and there is the principal obligation but will be liable for all that is
a guarantor. Is the guarantee without statement of mentioned in the promissory note which will also
amount valid? include interest.
-YES. Because future debt can be liquidated later on. *if express or stipulated amount- guarantee is limited
on the stipulated amount.
Ex. There is an existing debt which includes
additional debt. Art. 2066. The guarantor who pays for a debtor must
-valid if there is a stipulation. Continuing obligation. be indemnified by the latter.
The indemnity comprises:
*Guarantee or security- can secure future debts (1) The total amount of the debt;
(Continuing Guarantee/Surety) (2) The legal interests thereon from the time the
*Real Mortgage can secure future debts (Dragnet payment was made known to the debtor, even
clause or Blanket clause) though it did not earn interest for the creditor;
*Chattel Mortgage cannot secure future debts (3) The expenses incurred by the guarantor after
because the “affidavit of Good faith” requires that it having notified the debtor that payment had been
only secures existing debts. demanded of him;
(4) Damages, if they are due.
*A the Principal delivered to B his agent goods worth
P10k for consignment so that B can sell, if he cannot *Guarantor should be a person who possesses
sell he needs to return the same. integrity
A demanded that C guarantee’s the debt. B ran away
with the goods. Can A sue C for estafa? *What if the guarantor dies? Is the estate liable?-
 NO. No criminal liability. The obligation is Yes. This involves money. Not merely a personal
purely civil in nature. Note if debtor absconds, and contract.
doesn’t leave property, Guarantor is civilly liable but
not criminally. *Benefit of exhaustion and other legal remedies:
Accion pauliana, accion subrogatoria.
*Guarantor/Surety cannot be held liable for more -guarantor can point out the available properties and
than the principal debtor. legal remedies of the debtor.
Art. 2054. A guarantor may bind himself for less, but
not for more than the principal debtor, both as Art. 2060. In order that the guarantor may make
regards the amount and the onerous nature of the use of the benefit of exclusion, he must set it up
conditions. against the creditor upon the latter's demand for
Should he have bound himself for more, his payment from him, and point out to the creditor
obligations shall be reduced to the limits of that of available property of the debtor within Philippine
the debtor. territory, sufficient to cover the amount of the
debt.
*A borrowed money from B for 10k. Surety said he is
liable only for 10k. When it became due, B Art. 2058. The guarantor cannot be compelled to
demanded payment from Surety. Surety did not pay pay the creditor unless the latter has exhausted
but paid after a year. Is the surety liable for 10k only all the property of the debtor, and has resorted
or with interest? – Answer: 10k plus interest because to all the legal remedies against the debtor
there is delay.
Note: if it is the guarantor- only up to the amount of *concept of excussion is not applicable in judicial
debt or stipulated debt. deposits.
*A creditor, B debtor, C guarantor, Exceptions to Excussion:

C said to secure my guarantee, I will give a 1) Art. 2059. The excussion shall not take place:
mortgage. Can the creditor claim the mortgage? – (1) If the guarantor has expressly renounced it;
NO. (because this is to secure the guarantee not the (2) If he has bound himself solidarily with the
debt) debtor;
If C gives 2 security, “I will guarantee or I will give (3) In case of insolvency of the debtor;
mortgate”- Creditor can claim the mortage. Valid (4) When he has absconded, or cannot be sued
because there are 2 choices, as long as it will not within the Philippines unless he has left a
exceed the debt. (valid since it is to secure the debt manager or representative;
not the mortage) (5) If it may be presumed that an execution on
the property of the principal debtor would not
result in the satisfaction of the obligation.

Page 12 of 22
as the benefit of excussion against the principal

2) Art. 2084. A judicial bondsman cannot demand debtor.
the exhaustion of the property of the principal
debtor. A sub-surety in the same case, cannot Release in favor of one guarantor, only affects his
demand the exhaustion of the property of the share.
debtor of the surety. Art. 2078. A release made by the creditor in favor of
one of the guarantors, without the consent of the
Art. 2080. The guarantors, even though they be others, benefits all to the extent of the share of the
solidary, are released from their obligation whenever guarantor to whom it has been granted.
by some act of the creditor they cannot be
subrogated to the rights, mortgages, and preference Art. 2065 v. Art. 2073.
of the latter. Art. 2065 Art. 2073
Art. 2065. Should there Art. 2073. When there
Art. 2061. The guarantor having fulfilled all the be several guarantors are 2 or more
conditions required in the preceding article, the of only one debtor and guarantors of the same
creditor who is negligent in exhausting the property for the same debt, the debtor and for the
pointed out shall suffer the loss, to the extent of said obligation to answer for same debt, the one
property, for the insolvency of the debtor resulting the same is divided among them who has
from such negligence. among all. The paid may demand of
creditor cannot claim each of the others the
*can the creditor sue the debtor and the guarantor from the guarantors share which is
at the same time? –YES. The civil code does not except the shares proportionally owing
prohibit creditor from suing both at the same time. which they are from him.
In fact, the guarantor can even intervene. respectively bound to If any of the guarantors
Permissible under the rules of court. pay, unless solidarity should be insolvent, his
Art. 2062. Permissible Joinder of parties. In has been expressly share shall be borne by
every action by the creditor, which must be stipulated. the others, including
against the principal debtor alone, except in the the payer, in the same
cases mentioned in Article 2059, the former shall proportion.
ask the court to notify the guarantor of the The provisions of this
action. The guarantor may appear so that he article shall not be
may, if he so desire, set up such defenses as are applicable, unless the
granted him by law. The benefit of excussion payment has been
mentioned in Article 2058 shall always be made by virtue of a
unimpaired, even if judgment should be judicial demand or
rendered against the principal debtor and the unless the principal
guarantor in case of appearance by the latter. debtor is insolvent.
Total Compromise. Jointly liable. No liability Solidarily liable.

Art. 2063. A compromise between the creditor and when one is insolvent. Insolvency of one will
the principal debtor benefits the guarantor but does have to be borne by the
not prejudice him. That which is entered into others.
between the guarantor and the creditor benefits but
does not prejudice the principal debtor. No payment yet. One of the co-
guarantors paid the
If debtor and guarantor are insolvent- sub guarantor total debt.
is liable Extrajudicial demand is There is judicial
made to the co- demand.
Joint obligation of several guarantors. Creditor has guarantors.
do demand payment to each guarantors.
Art. 2065. Should there be several guarantors of only *if there is extrajudicial demand, and one of the co-
one debtor and for the same debt, the obligation to guarantor’s paid. The share of the insolvent
answer for the same is divided among all. The guarantor will not be borne by the others.
creditor cannot claim from the guarantors except the
shares which they are respectively bound to pay, *there are two contracts in guarantee: the guarantor
unless solidarity has been expressly stipulated. will pay creditor, and the debtor will pay guarantor
when debtor is financially capable.
The benefit of division against the co-guarantors
ceases in the same cases and for the same reasons *if the guarantee or surety is express- liability is
limited to amount stipulated.

Page 13 of 22
*if simple or indefinite- includes accessories. (4) When the debt has become demandable, by
reason of the expiration of the period for payment;
*the guarantor who pays will now step into the (5) After the lapse of ten years, when the principal
shoes of the creditor (2067-subrogated). However, if obligation has no fixed period for its maturity, unless
the debtor had no knowledge or consent with regard it be of such nature that it cannot be extinguished
to the guarantor, guarantor is not subrogated, the except within a period longer than ten years;
guarantor can only demand that to which he was (6) If there are reasonable grounds to fear that the
benefited. principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger of
Art. 2066. The guarantor who pays for a debtor must becoming insolvent.
be indemnified by the latter.
(1) The total amount of the debt; Extinguishment of a guarantee when there is an
(2) The legal interests thereon from the time extension of credit without the consent of guarantor.
the payment was made known to the debtor, Art. 2079. An extension granted to the debtor by the
even though it did not earn interest for the creditor without the consent of the guarantor
creditor; extinguishes the guaranty. The mere failure on the
(3) The expenses incurred by the guarantor part of the creditor to demand payment after the
after having notified the debtor that payment debt has become due does not of itself constitute
had been demanded of him; any extention of time referred to herein.
(4) Damages, if they are due.
*failure to demand does not release the guarantor,
*Guarantor should notify the debtor. Otherwise, the remedy is 2071.
debtor can raise defenses such as fraud, vitiated
consent, etc. Effects of Guarantee as between Co-Guarantors
Art. 2068. If the guarantor should pay without
notifying the debtor, the latter may enforce against *GR: two or more guarantors- liability is joint
him all the defenses which he could have set up (Proportional)
against the creditor at the time the payment was
made. Art. 2074. In the case of the preceding article, the
co-guarantors may set up against the one who paid,
*if guarantor paid not knowing that debtor already the same defenses which would have pertained to
paid and the debtor did not know that guarantor also the principal debtor against the creditor, and which
paid, guarantor cannot ask reimbursement from are not purely personal to the debtor.
debtor. What he can do is go to the creditor for
reimbursement. Ex.
A, B, C, D- guarantors
2071 2066 X Creditor
Guarantor’s Right of Guarantor’s Right of Y Debtor (Minor) -cannot pay
release and to demand indemnification. There was an extrajudicial demand, A paid.
a security that shall A demanded payment from B and C. B raised the
protect him from any issue that A is a minor. Is B obliged to pay A?
proceedings by the  No. Minority is not purely personal because in
creditor and from the 1397, Action for annulment may be instituted by all
danger of insolvency of those who are principally or subsidiarily liable.
the debtor Guarantor is a subsidiarily liable.
There is no payment Talks about the
yet. guarantor who pays. -anybody can guarantee a voidable contract
2071~2079 Art. 1397. The action for the annulment of

failure of creditor to demand does not extinguish the contracts may be instituted by all who are thereby
guarantee; will not release guarantor, remedy is for obliged principally or subsidiarily. However, persons
guarantor to ask for release under 2071 who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who
Art. 2071. The guarantor, even before having paid, exerted intimidation, violence, or undue influence, or
may proceed against the principal debtor: employed fraud, or caused mistake base their action
(1) When he is sued for the payment; upon these flaws of the contract.
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve
him from the guaranty within a specified period, and Art. 2076. Extinguishment of Guarantee -- same
this period has expired; causes as all other obligations.

Page 14 of 22
Art. 1231. Obligations are extinguished: Art. 2080. The guarantors, even though they be
(1) payment or performance: solidary, are released from their obligation
(2) loss of the thing due: whenever by some act of the creditor they
(3) condonation or remission of the debt; cannot be subrogated to the rights, mortgages,
(4) confusion or merger of the rights of creditor and preference of the latter.
and debtor;
(5) compensation; Ex. Creditor did not register the mortgage, Debtor
(6) novation. sold property to an innocent purchaser for value. 
Guarantor is released because thru the act of the
Ex. There can be no compensation in this situation. creditor, he cannot be subrogated anymore (debtor
Not principal creditors and debtors. has no more properties).
First Transaction: 2nd Transaction:
A-debtor B-debtor What if the guarantor is a surety, would your answer
B-creditor C-creditor be the same? –Yes. 2080 is applicable to both
C-guarantor guarantee and surety.
Novation
-extention of time without the consent of guarantor -
released but not when there is failure to demand. Legal and Judicial Bond-no benefit of excussion,
-increase of principal obligation - released considered as surety.
-increase in interest- not release, not a material Art. 2083. If the person bound to give a (judicial)
alteration. Guarantor is only liable for the original bond should not be able to do so, a pledge or
interest. (To be released, Increase must refer to the mortgage considered sufficient to cover his obligation
principal obligation, not to be interest.) shall be admitted in lieu thereof.
*compromise must be total to extinguish guarantee. PLEDGE, MORTAGE, ANTICHRESIS
Art. 1276. -Merger which takes place in the person of PLEDGE CHATTEL
the principal debtor or creditor benefits the To secure a loan
guarantors. Movables
-Confusion which takes place in the person of any of Custody given to Custody not given to
the latter does not extinguish the obligation. creditor creditor
Does not have to be Has to be registered
Dacion en pago- even if there is eviction, guarantor registered to bind 3rd to be valid against third
is released. persons (Only in public persons
Art. 2077. If the creditor voluntarily accepts instrument where
immovable or other property in payment of the debt, property is described)
even if he should afterwards lose the same through No recovery of Can recover deficiency
eviction, the guarantor is released. deficiency. (but NO deficiency in
chattel mortgage
Release of one guarantor without consent of the Debtor not entitled to foreclosure on sale by
others, benefits all excess, unless agreed installment)
Art. 2078. A release made by the creditor in favor of (2115) (1484)
one of the guarantors, without the consent of the
others, benefits all to the extent of the share of the *2125- Mortgage must be recorded in the Registry of
guarantor to whom it has been granted. Property to effect 3rd persons. If not recorded, can
still be binding between parties.
*The creditor assigned the credit to a 3rd person
without the consent of the debtor. Is the guarantor ANTICHRESIS REAL ESTATE
released? –NO. It doesn’t increase his burden. It MORTAGE
doesn’t matter who the creditor is. Assignment of immovable
credit does not need the consent of the debtor. Creditor harvests fruits Debt will be paid by
selling property in public
*What if the debtor is the one substituted, is the auction
guarantor released? – Yes. Sold property to public
auction if fruits not
*if guarantor is convicted, creditor can demand sufficient
substitution.
*”To secure my loan, I’m leaving you my torrents
By the act of creditor, guarantor cannot be title” deposit/safekeeping. Not pledge because the
subrogated- released.

Page 15 of 22
essence of pledge is that it can be alienated (2087). judgment, to waive objections to the venue of an
You cannot sell the paper. action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
2087-not pledge (5) To enter into any contract by which the
Art. 2087. It is also of the essence of these ownership of an immovable is transmitted or
contracts that when the principal obligation acquired either gratuitously or for a valuable
becomes due, the things in which the pledge or consideration;
mortgage consists may be alienated for the (6) To make gifts, except customary ones for charity
payment to the creditor. or those made to employees in the business
managed by the agent;
Art. 2095. Incorporeal rights, evidenced by (7) To loan or borrow money, unless the latter act be
negotiable instruments, bills of lading, shares of urgent and indispensable for the preservation of the
stock, bonds, warehouse receipts and similar things which are under administration;
documents may also be pledged. The instrument (8) To lease any real property to another person for
proving the right pledged shall be delivered to the more than one year;
creditor, and if negotiable, must be indorsed. (9) To bind the principal to render some service
without compensation;
* A pawned his watch to the pawnshop B. A (10) To bind the principal in a contract of
borrowed money from C and gave the pawned ticket partnership;
(incorporeal right) . What is the transaction between (11) To obligate the principal as a guarantor or
A and B; A and C? –both are pledge. surety;
(12) To create or convey real rights over immovable
*Pledgor/Mortgagor must be the absolute owner at property;
the time the pledge/mortgage is constituted. (13) To accept or repudiate an inheritance;
*the ownership must be at the time mortgage it (14) To ratify or recognize obligations contracted
is constituted. (in sale, at the time of delivery) before the agency;
(15) Any other act of strict dominion.
Future Debts
Pledge valid *SPA must state in one document the power to Loan
REM valid and to Mortgage.
Chattel Mortgage not valid (affidavit of
good faith) *power to mortgage does not include the power to
sell.
Future Property
All Void (must be the owner at the Mortgage
time of constitution) - An accessory obligation
Except: - Need not be supported by consideration; the
1. Perishable stocks in trade in consideration is included in the loan
chattel - Even if the mortgagor is not the debtor and
2. Fruits (not actually future he receives no consideration for the
property but accession of thing mortgage, the loan is still valid.
pledged) - Debtor need not be the mortgagor; however,
the mortgagor must be the owner of the
Deficiency Judgment land
REM available
Pledge not A – debtor B – creditor C – mortgagor D –
Chattel M available, except under Recto buyer (3rd party)
Law (foreclosure on sale by
installment) Mortgagor gave an SPA to the debtor to mortgage
the land. While the debt was still subsisting, the
mortgagor sold it to D. Debtor did not pay. The
Art. 1878. Special powers of attorney are necessary mortgage is registered.
in the following cases:
(1) To make such payments as are not usually Can the mortgagor sell the property without the
considered as acts of administration; consent of the mortgagee? Yes. (Art 2130)
(2) To effect novations which put an end to If the mortgagor sold the property, the
obligations already in existence at the time the mortgage not registered, and he claims that there is
agency was constituted; no encumbrance over the property = he can be held
(3) To compromise, to submit questions to liable criminally. But in the situation, the mortgage
arbitration, to renounce the right to appeal from a was registered.

Page 16 of 22
2. A owner. Entered into pacto de retro. Land is

Can the land be foreclosed? Yes. Loan is inseparable worth P1,000,000. The pacto de retro price
from the land. Principle of INSEPARABILITY. is P100,000. B is in possession. A fails to
Article 2126. The mortgage directly or redeem. B seeks consolidation of title
immediately subjects the property upon which it is because A failed to pay the pacto de retro
imposed, whoever the possessor may be, to the price. Is it a valid pacto de retro or is it pacto
fulfillment of the obligation for whose security it was comisorio? Was there a sale? No. It was an
constituted. equitable mortgage because the price was so
low. If legitimate pacto de retro = not
B foreclosed. It was sold in a public auction. There pactum commissorium. If there is a valid
was a deficiency. Can B ask for the deficiency from sale, it is pacto de retro: there is a transfer
D? No because he is not the debtor. Unless there is of ownership. In pactum commissorium,
SALE WITH ASSUMPTION OF MORTGAGE = so the there is no transfer of ownership.
buyer of the land will be liable for the deficiency. But
in a sale with assumption of mortgage the consent of 3. There was a loan. Because he was not able
the creditor is required since D will now assume the to pay, the mortgagor executed a dacion en
debt. If D wants to redeem the property: he can pago. This is not a pactum commissorium
because he is an interested party. because there are two contracts. They are
not simultaneous. However, if the dacion en
2085. The mortgagor must be the absolute owner of pago is attached simultaneously to the loan
the thing pledged or mortgaged. then it is pactum commissorium.
In the case of Norkis where the intention was not to
transfer ownership but was a contract to sell, the So there are 3 instances when a loan with mortgage
mortgage was not valid – because the mortgagor may be pactum commissorium or not depending on
was not yet the owner of the property mortgaged. the situation. Take note: In pactum commissorium it
is only the MORTGAGE that is VOID; principal
Future property cannot be the subject of obligation remains. You will still be liable for the loan.
pledge or mortgage. Exception: Stocks in trade
(also perishable goods) under chattel mortgage Principles to remember (pledge, mortgage, chattel):
because they may be substituted. For example: 1. It is an accessory obligation
Imung giChattel Mortgage ang contents sa Sari-sari 2. It is subject to the principle of pactum
store. By the nature of the chattel, it is obvious that commissorium
the stocks will be sold. Also, by the nature of the 3. It is a REAL RIGHT inseparable from the
business, replacement of stocks will have to be property itself: whoever the possessor, it will
made. follow the land. It has to be registered
because if it is not registered it is not binding
Art 2087. When the principal obligation becomes upon 3rd persons.
due, is demanded and not paid then the thing 4. Indivisibility. There is one debt but secured
pledged or mortgaged can be foreclosed: it can be by many objects. So if the debt is
alienated. It must be sold in public auction. P1,000,000 and the objects are valued at
Art 2088. It cannot be appropriated (pacto P250,000 each, and the debtor paid
comisorio). P500,000 – the debtor cannot compel the
return of the objects worth P500,000
SPA to sell and apply proceeds to the loan = valid. because the entire debt is not yet paid in
full. It is at the option of the creditor – he
1. They have a contract of mortgage. FMV of can release if he wants to BUT the debtor
land = P1,000,000. Loan = P100,000. In the CANNOT COMPEL the release of the property
same document it is stated that the creditor held as security.
has the option to buy for the amount written
in the loan upon maturity. Upon maturity the Art 2089.
creditor said “quits na ta”. Is it valid? No. (2) A is a debtor. He died. He has 3 heirs. 1 heir paid
Pactum Commissorium. It could be valid if his share (1/3) but the rest did not pay their share.
the sale will be for the FMV of P1,000,000 – Can the paying heir demand the release of his share
it would now be ALIENATION under 2087 of the property? No. Indivisible.
and not APPROPRIATION. Pactum
Commissorium is against public policy There is a 1 million debt and there is a 1 million
because you can get the land at a very very property. Creditor has 4 heirs (C1, C2, C3, C4) and
low cost. Loan value is usually lower than the debtor has 4 heirs (D1, D2, D3, D4). C4 and D4
FMV. entered into a compromise: upon payment of D4’s

Page 17 of 22
share, C4 will release his portion of the property. Art. 2104. The creditor cannot use the thing pledged,
Allowed? No. Indivisible. without the authority of the owner, and if he should
do so, or should misuse the thing in any other way,
Exception: (par 4) When there are several things the owner may ask that it be judicially or
given in mortgage or pledge, each one guarantees a extrajudicially deposited. When the preservation of
determinate portion of the credit. the thing pledged requires its use, it must be used by
the creditor but only for that purpose.
Art 2091. Just like in guaranty: Can secure all
obligations EXCEPT void obligations. *In pledge, consent of pledgee is necessary before
Art 2092. Only with regard to pledge because pledge pledgor can sell but possession must still be with the
is a REAL CONTRACT. There can be a contract of a pledge.
promise of a future pledge. *In mortage, consent of mortgagee not necessary.
PLEDGE Art. 2097. With the consent of the pledgee, the

thing pledged may be alienated by the pledgor
Art 2093. The thing is placed in the possession of the or owner, subject to the pledge. The ownership
creditor or a 3rd person upon the agreement of the of the thing pledged is transmitted to the vendee
parties. or transferee as soon as the pledgee consents to
the alienation, but the latter shall continue in
A has goods in the warehouse of C. A borrowed from possession.
B. And B knew that A had goods in the warehouse.
Was there a pledge? No. There must be a common Art. 2110. If the thing pledged is returned by the
agreement that the depositary recognizes the pledgee to the pledgor or owner, the pledge is
pledge. While it is true that there can be a pledge if extinguished. Any stipulation to the contrary shall be
the goods are in the hands of a 3rd person, it must be void.
remembered that there must be a COMMON If subsequent to the perfection of the pledge, the
AGREEMENT. thing is in the possession of the pledgor or owner,
there is a prima facie presumption that the same has
In pledge, does actual possession be with the been returned by the pledgee. This same
creditor? No. It can be with a 3rd person. presumption exists if the thing pledged is in the
possession of a third person who has received it from
When can the thing pledged be given to a 3 rd person the pledgor or owner after the constitution of the
even against the will of the debtor? pledge.
Art 2104. Deposited with 3rd person if creditor:
1. USES the thing without authority (unless for *should the pledge be in writing? –No. Public
preservation); instrument to bind 3rd persons.
2. Given authority to use but MISUSES the *To renounce pledge, must be in writing (2111).
thing
Debtor may ask that it be deposited with a 3 rd Art. 2111. A statement in writing by the pledgee
person. that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this
Art 2095. Incorporeal rights may be pledged. If purpose, neither the acceptance by the pledgor or
negotiable: must be properly INDORSED. Art 2118. If owner, nor the return of the thing pledged is
a credit which has been pledged becomes due before necessary, the pledgee becoming a depositary.
it is redeemed, the pledgee has an obligation to
collect. So if it is not indorsed, the creditor cannot Art. 2099. The creditor shall take care of the thing
collect. Just like in deposit: example – when a pledged with the diligence of a good father of a
certificate of deposit was deposited to him and he family; he has a right to the reimbursement of the
failed to renew, he will be liable for the amount of expenses made for its preservation, and is liable for
loss because it is part of his duty to take care of that its loss or deterioration.
thing.
Art 2096. A pledge to be valid against 3rd persons has Art. 2100. The pledgee cannot deposit the thing
to appear in a public instrument: pledged with a third person, unless there is a
1. Description of the thing pledged stipulation authorizing him to do so.
2. Date of the pledge The pledgee is responsible for the acts of his agents
So it does not have to be registered unlike in Chattel. or employees with respect to the thing pledged.
2104 Misused and used * The creditor cannot use the thing pledged, without
the authority of the owner unless for preservation.

Page 18 of 22
In case of a pledge of animals, their offspring shall

Art. 1357. If the law requires a document or other pertain to the pledgor or owner of animals pledged,
special form, as in the acts and contracts but shall be subject to the pledge, if there is no
enumerated in the following article, the contracting stipulation to the contrary.
parties may compel each other to observe that form, ---(NOTE: this will not fall under the prohibition of
once the contract has been perfected. This right may future property, since it is accession.)
be exercised simultaneously with the action upon the
contract. Art. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and
Art. 2101. The pledgor has the same responsibility as the rents or income not yet received when the
a bailor in commodatum in the case under Article obligation becomes due, and to the amount of the
1951 (liable for damages if he knew the flaws and indemnity granted or owing to the proprietor from
did not advise). the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the declarations,
When can the debtor ask for the return of the thing amplifications and limitations established by law,
pledged? whether the estate remains in the possession of the
1) Payment. mortgagor, or it passes into the hands of a third
Art. 2105. The debtor cannot ask for the return of person.
the thing pledged against the will of the creditor,
unless and until he has paid the debt and its interest, 2108 2107
with expenses in a proper case. Art. 2108. If, without Art. 2107. If there are
the fault of the reasonable grounds to
2) Fear of destruction but must substitute pledgee, there is fear the destruction or
Art. 2107. If there are reasonable grounds to fear danger of impairment of the thing
the destruction or impairment of the thing pledged, destruction, pledged, without the
without the fault of the pledgee, the pledgor impairment, or fault of the pledgee,
may demand the return of the thing, upon offering diminution in value of the pledgor may
another thing in pledge, provided the latter is of the the thing pledged, he demand the return
same kind as the former and not of inferior quality, may cause the same to of the thing, upon
and without prejudice to the right of the pledgee be sold at a public offering another
under the provisions of the following article. sale. The proceeds of thing in pledge,
The pledgee is bound to advise the pledgor, without the auction shall be a provided the latter is of
delay, of any danger to the thing pledged. security for the the same kind as the
principal obligation in former and not of
Art. 2100. The pledgee cannot deposit the thing the same manner as inferior quality, and
pledged with a third person, unless there is a the thing originally without prejudice to the
stipulation authorizing him to do so. pledged. right of the pledgee
under the provisions of
Art. 2106. If through the negligence or wilful act 2108.
of the pledgee, the thing pledged is in danger of
being lost or impaired, the pledgor may require that Given preference over
it be deposited with a third person. 2107.
*supposing that the thing pledge was a cow. Pledgee can ask for Substitution
Debt – P50k Art. 2109. If the creditor is deceived on the
Cow- worth P50k, before due date a calf was born substance or quality of the thing pledged, he may
worth P10k either claim another thing in its stead, or demand
Debtor did not pay. Can Creditor sell the Cow and immediate payment of the principal obligation.
the Calf?
 Apply first to interest, then to principal. Pledgor can ask for Substitution if there’s danger of
destruction subject to the option of Pledgee to sell in
Art. 2102. If the pledge earns or produces fruits, a public auction.
income, dividends, or interests, the creditor shall
compensate what he receives with those which are Prima facie presumption that pledge is extinguished,
owing him; but if none are owing him, or insofar as not the loan.
the amount may exceed that which is due, he shall Art. 2110. If the thing pledged is returned by the
apply it to the principal. Unless there is a stipulation pledgee to the pledgor or owner, the pledge is
to the contrary, the pledge shall extend to the extinguished. Any stipulation to the contrary shall be
interest and earnings of the right pledged. void.

Page 19 of 22
If subsequent to the perfection of the pledge, the Art. 2118. If a credit which has been pledged
thing is in the possession of the pledgor or owner, becomes due before it is redeemed, the pledgee may
there is a prima facie presumption that the same collect and receive the amount due. He shall apply
has been returned by the pledgee. This same the same to the payment of his claim, and deliver
presumption exists if the thing pledged is in the the surplus, should there be any, to the pledgor.
possession of a third person who has received it from
the pledgor or owner after the constitution of the Art. 2099. The creditor shall take care of the thing
pledge. pledged with the diligence of a good father of a
family; he has a right to the reimbursement of the
Notice to debtor re Public Auction essential expenses made for its preservation, and is liable for
Art. 2112. The creditor to whom the credit has not its loss or deterioration, in conformity with the
been satisfied in due time, may proceed before a provisions of this Code.
Notary Public to the sale of the thing pledged. This
sale shall be made at a public auction, and with Art. 2119. If two or more things are pledged, the
notification to the debtor and the owner of the pledgee may choose which he will cause to be sold,
thing pledged in a proper case, stating the amount unless there is a stipulation to the contrary. He may
for which the public sale is to be held. If at the first demand the sale of only as many of the things as are
auction the thing is not sold, a second one with the necessary for the payment of the debt.
same formalities shall be held; and if at the second
auction there is no sale either, the creditor may Art. 2190. The proprietor of a building or structure is
appropriate the thing pledged. In this case he shall responsible for the damages resulting from its total
be obliged to give an acquittance for his entire claim. or partial collapse, if it should be due to the lack of
-Exception to pactum commisorium-after the 2 nd necessary repairs.
auction if there is no sale, creditor may appropriate.
Pledge – thing should be delivered; if not delivered,
Art. 1486. a stipulation that the installments or rents could be considered as Chattel
paid shall not be returned to the vendee or lessee
shall be valid insofar as the same may not be Article 2140. If the movable, instead of being
unconscionable under the circumstances. recorded, is delivered to the creditor or a third
person, the contract is a pledge and not a chattel
Art. 2114. All bids at the public auction shall offer to mortgage.
pay the purchase price at once. If any other bid is
accepted, the pledgee is deemed to have been Should the Chattel, to be valid, be registered? Under
received the purchase price, as far as the pledgor or the Chattel Mortgage Law, it does not have to be
owner is concerned. registered. Article 2125 can be applied: If the
instrument is not recorded, the mortgage is
GR: No deficiency, you don’t give back excess. nevertheless binding between the parties. The
*stipulation that in case there is deficiency, pledgor Chattel Mortgage Law also does not require that it be
is liable- Void in a public document so pwede ra ang written
*stipulation that in case there is excess, the excess document (private document). While it is true that
should be given back to the pledgor- Valid Art 2140 requires that the document be recorded, it
does not destroy the principle enunciated in Art
Art. 2115. The sale of the thing pledged shall 2125.
extinguish the principal obligation, whether or
not the proceeds of the sale are equal to the amount Art 1357. If the law requires a document or other
of the principal obligation, interest and expenses in a special form, as in the acts and contracts
proper case. If the price of the sale is more than said enumerated in the following article, the contracting
amount, the debtor shall not be entitled to the parties may compel each other to observe that form,
excess, unless it is otherwise agreed. If the price of once the contract has been perfected. – So as long
the sale is less, neither shall the creditor be entitled as you have a document like a private instrument
to recover the deficiency, notwithstanding any specifying that there is a mortgage: pwede na siya.
stipulation to the contrary.
There is a case that it is binding even when it is not
Creditor can participate in a public auction. registered. Pilipinas vs. IAC 142 SCRA 180
Art. 2117. Any third person who has any right in or So in Chattel, once you have a written instrument
to the thing pledged may satisfy the principal you can compel the mortgagor to execute a public
obligation as soon as the latter becomes due and instrument so that it will be binding to third parties
demandable. and the public document should be registered.
Whereas a pledge: doesn’t have to be registered as

Page 20 of 22
long as it is in a public document stating its foreclosure of a sale of a movable by

description. installments (Recto Law).
Chattel: When is it supposed to be registered? Under Just because you have a chattel mortgage does not
the Chattel Mortgage Law: If the properties are mean that your only recourse in case of non-
situated in a province than that of the mortgagor – payment is foreclosure. You can abandon the chattel
example: Mortgagor is in Dumaguete and the car is mortgage and sue for sum of money. In case you are
in Tanjay – then must be registered in both not paid, you can execute on all property of the
registries. So, 2 registries if the movable is not in the debtor. If you opt for extrajudicial foreclosure, the
possession of the mortgagor: in the residence of the property will be sold in public auction - But in case of
mortgagor and where the property is situated. With deficiency, you still have to file an independent case
regard to cars, must be registered with LTO to be for the collection of the deficiency. In Chattel, there
valid against third persons; the chattel mortgage will is no provision for judicial foreclosure. Judicial
be registered in the Register of Deeds. If you will foreclosure is only provided for real property.
mortgage public utility, register with LTO. If you will
mortgage a ship: Under the Ship Mortgage Law, Can chattel mortgage secure future loans? No
register with MARINA and Coast Guard. because of the requirement of Affidavit of Good
Faith: must certify under oath that the loan is a just
Can a House be subject to a Chattel Mortgage? Yes, and valid obligation. For example: there is a clause
if no third person is affected. that says “For all current and future loans” under the
contract. You subsequently borrowed P500,000
A owns a house. However, land belongs to B. A under the same contract. The chattel mortgage will
leases the house to B. A borrowed money from C NOT apply because at the time of execution of the
and executed a chattel mortgage which was chattel mortgage, it was not a just and valid
registered. Subsequently after the registration, A obligation being a future loan. But it is allowed that
bought the land. A, without informing C, mortgaged the parties amend the contract in order to include
the lot to the bank. He did not pay so bank the subsequent loan. Without the amendment, the
foreclosed. C raised a third-party claim. Who was a second loan will not be covered by the chattel
better claim: BANK since there was improper mortgage. But in mortgage and pledge, the
registration so constructive notice rule will not apply. subsequent loan may be covered because there is
Dili binding kay sayup man ang registration. not Affidavit of GF required. Future loans considered
as continuing mortgage. The clause is called
A did not pay, C extra-judicially foreclosed. Does A BLANKET or DRAGNET clause that refers to future
have an equity of redemption or right of redemption? loans.
Right of redemption. Equity of redemption sa chattel
mortgage. While the parties treated it as a chattel FUTURE PROPERTIES: “I will chattel my cars and
mortgage, the parties cannot modify the law because cars that I might buy in the future”
real property is involved. Chattel mortgage is binding Dili pwede. Also not allowed in Mortgage and Pledge
between the parties under the principle of estoppel. because you need to be the ABSOLUTE OWNER of
the property at the time of the constitution of the
Suppose you want to mortgage cattle in your ranch, contract. However in pledge, pwede ang offspring.
should it be Chattel Mortgage or Real Mortgage? The Just like in mortgage, apil ang improvements imung
law provides that large cattle and growing crops gibutang sa yuta. The improvements can be
should be under Chattel Mortgage. If you mortgage considered as accessions to the property at the time
your land under Real Mortgage then the crops will be of the contract even if they were built later. There is
included in the Real property mortgage. But if you an exception (with regard future properties) in
did not mortgage the land, only the growing crops, Chattel Mortgage: Stocks in trade because of the
then chattel mortgage will apply. This is under nature of the business that they need to be sold
Section 7 of the Chattel Mortgage Law. from time to time; so that those goods that are to
substitute the ones sold will still be covered by the
With regard to pledge: chattel. This exception will not apply to other
1. Possession of the thing property such as cars. Example: You chattel your
2. No need for registration car. Subsequently, you bought another car because
3. Cannot recover deficiency even if there is a the first one got destroyed. The second car will not
stipulation substitute the first one and will not be covered by
 But in Chattel = can recover the chattel mortgage even if there is a stipulation in
deficiency. There is no law that the contract. However, the proceeds of the insurance
prohibits the recovery of deficiency. of the 1st car may be subject to chattel mortgage.
Provided that the foreclosure is not

Page 21 of 22
How do you foreclose the mortgage? Since the Right of the mortgagor to sell even against the
property is not in your possession, what action will consent of the mortgagee.
you bring? May file Replevin to get possession. Once If there is a provision under the mortgage that “You
you get possession, extrajudicial foreclosure to the cannot sell the land without my consent” is VOID.
sheriff. Extrajudicial foreclosure under the Chattel Sale does not affect the real mortgage because once
Mortgage Law = no right of redemption. Section 14 registered, it follows the property so the mortgagee
of the Chattel Mortgage Law: After 30 days from is not prejudiced. Mortgagee will be paid first, the
default, can ask that the property be sold at public rest will be paid if naay excess – the junior
auction. The minimum period is 30 days; can set for mortgagees or junior encumbrances (2nd or 3rd
higher period. The rule in equity of redemption is mortgagees).
that even after the sale, you can still pay the sum if
there is still no confirmation of sale by the judge. Property Sold in Public Auction
Pledge, Chattel = Movable Property Act 3135. Extrajudicial Foreclosure of Real Estate
Mortgage, Antichresis = Immovable Property Mortgage.
Guaranty, Surety = Money Right of Redemption when Real Estate Mortgage
is foreclosed = 1 year from registration of Sheriff
REAL MORTGAGE Certificate of Sale which is after the public auction
Jurisprudence provides that may still purchase before
Art 2125. Same ruling with Chattel Mortgage. final confirmation by the court.
Referred to 1357. There is no time limit for which the sale could be
done. It’s up to the mortgagee when he wants it
Art 2126. Principle of Inseparability. The mortgage foreclosed. The time limit could probably be 10 years
follows the property. The real right will attach until – if you want to enforce a contract, the prescriptive
the debt is paid. period is 10 years.
Art 2127. In judicial foreclosure of immovable, there is only

A mortgaged a land with his old ancestral home. Equity of Redemption = exercised before the final
While the loan was still outstanding, A destroyed the confirmation of sale
home and put up a condominium. Then did not pay When can the judge schedule the sale of the
his loan. Can the bank foreclose the land and the property in judicial foreclosure = not less 90 days
condominium? Yes, under 2127. The condominium is from default but not more than 120 days from
considered as an improvement, hence, covered by default but the judge must specify the date. There
the loan. So accessions are included. What is not must be notice. The mortgagor can pay the amount
included is when you buy another land = this is not due prior to the sale and even after the sale provided
an accession. If you mortgage a land with an there is still no confirmation of the sale.
apartment which is being leased = rents are
included. But you cannot recover the rents while the In Banking and Financial Institutions: there is always
loan is not yet due. The rents can be collected when a Right of Redemption whether Judicial or
the loan is due and the debtor did not pay. If there is Extrajudicial Foreclosure
a stipulation that you will collect the rent to apply to
the loan then that is antichresis. Growing fruits also For juridical persons (corporations or partnerships
included. Pero if harvested, not anymore. that are not involved in banking and financial
institutions): the right of redemption is 3 months
Can you include after-acquired properties? No, if
they are not improvements or accessions to the land. Art 2129.
Proceeds from expropriation and insurance may be Can the creditor demand payment of the loan from
included. the buyer?
A is the owner of the land that he mortgaged. While
Art 2128. the loan is existing, he sold it to B. B did not assume
Who can assign the mortgage credit? The the mortgage.
mortgagee. The creditor may claim but he cannot compel him
Can the assignment be effective even without the to pay the debt because he is not the principal
knowledge of the debtor? Yes. debtor. But the debtor may choose to pay in order to
1626. Assignment of Credit. Assignment of credit prevent foreclosure because he has an interest on
may be done without the knowledge of debtor. the property.
1626. Assignment of Credit must be registered in
order to be valid against third persons. Is mortgage of immovable property a REAL
CONTRACT? It is CONSENSUAL. Delivery is not
Art 2130. required.

Page 22 of 22
4. Art 2136. The debtor cannot reacquire the

Real Contracts: immovable without totally paying the
1. Pledge creditor. So the creditor may retain the
2. Deposit property. There is no period provided unlike
3. Commodatum in mortgage where naay period: 10 years to
4. Mutuum pay or 5 years to pay. However, there is no
prohibition on putting a period for the
application of antichresis: so upon the
ANTICHRESIS expiration of the period the fruits will be
insufficient to pay for the obligation, the
Is antichresis real or consensual considering that the debtor must pay for the balance; if he
creditor has possession of the land and under 2135 cannot pay, then you go to judicial
has to pay for the taxes and expenses for the foreclosure. Why not extrajudicial
preservation over the same? foreclosure? Act 3135. There should be a
Can there be Antichresis if the creditor is not in SPA so that you can foreclose extrajudicially
possession or in control of the land? - giving the creditor the power to sell in
case of failure to pay - without the SPA, that
It is CONSENSUAL just like sale. Sale is consensual is not an extrajudicial foreclosure. So if you
but there is an obligation to deliver. Delivery is not have the SPA, you have several options: a.
necessary for the perfection of the contract BUT it is extrajudicial foreclosure; b. judicial
an obligation under the contract. foreclosure; c. collection for sum of money
(can execute on his property). In case of
If the mortgagee is in possession of the property, extrajudicial foreclosure and there is a
does it mean that it is antichresis? No because the deficiency, you have to file an action in court
essence of antichresis is the stipulation that the fruits in order to recover the same.
will be applied to the interest first then the principal;
without the stipulation it is not an antichresis. The
stipulation must be in writing otherwise it will be
void (Art 2134). Even if all the elements of
antichresis are present but the stipulation is not in
writing, it is not an antichresis but an innominate
contract.
What if the antichretic mortgagor constructs a house

on the land: What are the rights of the parties?
Apply the rules of USUFRUCT (Art 579): you cannot
ask reimbursement for the improvement but can
offset for damages OR can remove the improvement
without injury.
If antichretic mortgagee builds an improvement on

the land: he is considered as a builder in bad faith.
So he loses what he built.
Difference between real estate mortgage and

antichresis
1. Both involves immovables but in Antichresis
POSSESSION is given to the creditor.
2. Secures the loan but in mortgage, you wait
until it is due before you collect whereas in
antichresis you can already collect by
applying the fruits to the interest
3. The mortgagee does not pay the taxes nor
the necessary expenses for preservation
because he is not in possession whereas the
antichretic creditor supplies for the payment
of taxes, expenses necessary for
preservation, however, he can deduct it from
the fruits. So ultimately, it is the debtor who
pays for the same. Art 2135.

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Page 1 of 22

COMMODATUM MUTUUM -look at the nature of the object

Art. 418. Movable property--either consumable or Consensual

Credit Transactions Lecture ~ Atty. Estolloso 2013

Art. 1941. The bailee is obliged to pay for the

Credit Transactions Lecture ~ Atty. Estolloso 2013

stipulation exemption the bailee from

Back rentals -from Damages (2213-only

Credit Transactions Lecture ~ Atty. Estolloso 2013

Illegal recruitment Non-payment of -loan with Monetary interest 24%, no penalty

Art. 1229. The judge shall equitably reduce the DEPOSIT

[State investment v. Ca , june 19, 1991]

Credit Transactions Lecture ~ Atty. Estolloso 2013

Irregular deposits: Art. 1994. The depositary may retain the

Deposit v. Loan Voluntary deposit-made by the will of depositor

Deposit of Car v. Pledge of Car Art. 1970. Depositary (capacitated); Depositor

Credit Transactions Lecture ~ Atty. Estolloso 2013

Depositary died. * depositary cannot use thing unless with express

Credit Transactions Lecture ~ Atty. Estolloso 2013

Credit Transactions Lecture ~ Atty. Estolloso 2013

Examples of Deposits by Operation of law / Legal 1998, 2000, 2003

Credit Transactions Lecture ~ Atty. Estolloso 2013

*Notice- it is enough that it is with the knowledge or GUARANTEE PLEDGE,

Diminishing liability not valid.

Credit Transactions Lecture ~ Atty. Estolloso 2013

Credit Transactions Lecture ~ Atty. Estolloso 2013

*A creditor, B debtor, C guarantor, Exceptions to Excussion:

Credit Transactions Lecture ~ Atty. Estolloso 2013

as the benefit of excussion against the principal

Total Compromise. Jointly liable. No liability Solidarily liable.

Credit Transactions Lecture ~ Atty. Estolloso 2013

2071~2079 Art. 1397. The action for the annulment of

Credit Transactions Lecture ~ Atty. Estolloso 2013

*compromise must be total to extinguish guarantee. PLEDGE, MORTAGE, ANTICHRESIS

Credit Transactions Lecture ~ Atty. Estolloso 2013

Credit Transactions Lecture ~ Atty. Estolloso 2013

2. A owner. Entered into pacto de retro. Land is

Credit Transactions Lecture ~ Atty. Estolloso 2013

PLEDGE Art. 2097. With the consent of the pledgee, the

Credit Transactions Lecture ~ Atty. Estolloso 2013

In case of a pledge of animals, their offspring shall

Credit Transactions Lecture ~ Atty. Estolloso 2013

Credit Transactions Lecture ~ Atty. Estolloso 2013

long as it is in a public document stating its foreclosure of a sale of a movable by

Credit Transactions Lecture ~ Atty. Estolloso 2013

Art 2127. In judicial foreclosure of immovable, there is only

Credit Transactions Lecture ~ Atty. Estolloso 2013

4. Art 2136. The debtor cannot reacquire the

What if the antichretic mortgagor constructs a house

If antichretic mortgagee builds an improvement on

Difference between real estate mortgage and

Credit Transactions Lecture ~ Atty. Estolloso 2013

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