Section 3 – Effects of Guaranty as Between Co-guarantors
Certain causes peculiar to extinguishment of
Art. 2073
When there are 2 or more guarantors for 1 debtor for the
same debt, the guarantor who paid can demand from each
of the other guarantors the share which they
proportionally owe
If any guarantor is insolvent, his share shall be borne by
the other guarantors, including the payer, in the same
proportion
This is only applicable if payment has been made in virtue
of a judicial demand or unless the principal debtor is
insolvent
Obligation of several guarantors for the same debt and
debtor is joint.
1. Restrictions: payment made by one of the
guarantor should be:
a. In virtue of a judicial demand
b. Because the principal debtor is
insolvent
2. Effect of insolvency of any guarantor
- Insolvent guarantor’s share will be borne by
the others including the paying guarantor in
a joint proportion
3. Accrual and basis of right
- No need to obtain from the creditor any
prior cession of rights to such guarantor,
because the right of guarantor to proceed is
ipso jure acquired because of their payment
Art. 2074
Co-guarantors may set up as a defense against the
guarantor who paid the same defenses the principal debtor
can set up as against the creditor, excluding those purely
personal to the debtor.
Defenses available to co-guarantors
Art. 2068
Art. 2081
Art. 2075
A sub-guarantor is responsible to the co-guarantors in the
same way as the guarantor, in case of the insolvency of the
guarantor for whom the sub-guarantor bound himself.
Liability of sub-guarantor in case of insolvency of
guarantor
Chapter 3
Extinguishment of Guaranty
Art. 2076
The obligations of a guarantor are extinguished by:
1. Causes under general contract law
2. Principal obligation is extinguished – accessory
follows the principal
3.
guaranty
A guaranty may be extinguished by:
1. Payment or performance
2. Dacion en pago
3. Loss of the thing due – when obligation is to
deliver a determinate thing without debtor’s
fault before he incurs in delay
4. Service becomes impossible – for obligations to
do
5. Consignation
6. Condonation
7. Merger or confusion
8. Compensation
9. Novation
10. Extension – that granted to debtor by creditor
without consent of guarantor
11. Failure of subrogation – caused by the acts of
the creditor
12. Release – creditor may release the guarantor
13. Others – annulment, rescission, fulfillment of a
resolutory condition, prescription
* Direct extinguishment of guaranty – such as when
creditor releases the guarantor
Material alteration of principal contract
1. Based on what – when creditor and principal
debtor varies terms of principal contract without
consent of the surety = surety is released,
accessory contract is extinguished
2. Effect – accessory contract is extinguished =
surety/guarantor is released
3. When alteration is material – when the change
in the principal contract has the effect of making
it more onerous
a. Change that imposes a new obligation
or adding burden, or taking away an
obligation already imposed
Art. 2077
When the creditor voluntarily accepts the immovable or
other property as payment, the guarantor is released, even
if the creditor loses the immovable or other property
through eviction)
Release by conveyance of property
- Any payment (whether money or substitute of
money) that is accepted by the creditor
extinguishes the obligation and the guaranty
- Eviction – revives principal obligation but not the
guaranty so cannot revive guaranty of guarantor
already released
Reason for release:
1. Obligation secured by the guarantee is
extinguished through dation in payment
(accessory follows principal)
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 2. If creditor loses a thing through eviction, a new
relationship is created between the principal
debtor and creditor, a relationship different
from the originally guarantee of the guarantor
Art. 2078
If a creditor release one of the guarantors without the
other guarantor’s consent, the release would benefit ALL of
the guarantors to the extent of the share of the guarantor
that was released
Release of guarantor without consent of others
- GR: guarantors enjoy the benefit of division
- EXP: if one of the guarantors are insolvent, all
guarantors must bear his share.
Thus, if the creditor releases only one guarantor, this will
prejudice all other guarantors (since they all are liable for
the. Insolvency of one). Thus, the release of one benefits
the others to the extent of the share of the guarantor
released.
Art. 2079
If the creditor grants an extension to the debtor without
the guarantor’s consent, the guaranty is extinguished and
the guarantor is released.
Mere failure of the creditor to demand payment after debt
is due is NOT an extension of time.
Released by extension of term granted by creditor to
debtor:
1. Where release without consent of guarantor
Reason – to avoid prejudicing the
guarantor/surety since the debtor may become
insolvent during the extension. Surety will also be
deprived of his right to pay the creditor and to be
immediately subrogated to the creditor’s
remedies against principal debtor upon payment
a. Payment due to debtor from third
person assigned to creditor
b. Where obligation is payable in
installment
c. Guarantor may waive in advance his
right to be notified of or to give
consent to release by the creditor or
extension of time
d. Payment by guarantor after creditor’s
demand – where the guarantor may
opt not to avail of the benefit of
excussion or requirement of consent of
extension by paying the obligation
according to the tenor of the
guarantee once demand is made by
the creditor.
e. Extension not granted by creditor on
the bond
f. Extension granted to first-tier obligors
- creditor can’t directly demand
payment of the principal obligations
from the indemnitors (since the
indemnitors are simply bound to the
surety and not the creditor; being only
second-tier parties)
2. Prejudice to guarantor and period of extension is
immaterial
o Amount of time of extension or
whether it is actually prejudicial is
immaterial
3. Extension must be based on a new agreement
o The extension of term must be based
on a new agreement which deprives
the creditor of his claim
o Rule applies even if debtor becomes
insolvent after the debt matures
4. Diligence on the part of creditor to enforce claim
is generally not required
o Mere inaction, passiveness or delay of
creditor in proceeding against principal
debtor is not a defense for the surety
UNLESS contract expressly requires
such diligence
o Requisites in order that extension
without consent will release
surety/guarantor
 (1) extension is for a definite
period
 (2) extension is pursuant to
an enforceable agreement
 (3) made without consent of
surety or with a reservation
of rights
5. No cause of action against creditor for delay
Art. 2080
Though solidary, the guarantors are released from their
obligations if by some act of the creditor, they cannot be
subrogated to the rights, mortgages, and preferences of
the creditor
Release when guarantor can’t be subrogated
1. Fault of creditor for non-subrogation
o Example: when creditor releases or
fails to register a mortgage
2. Rationale – creditor shouldn’t worsen or
prejudice the guarantor
3. Act of the creditor
o Act of creditor must be personal,
direct, and of a positive character.
o Act of creditor doesn’t include mere
passivity or lack of diligence
o *But guarantor may set up negligence
as a defense
4. Duty of creditor to account for his lien on
principal’s property
o If creditor acquires a lien on the
debtor’s property, he has the duty to
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 retain the security and maintain the
lien in the interest of the surety
o Any release of the lien as payment of
debt will release the guarantor
Art. 2081
Guarantor can set up a defense against the creditor all
those that the debtor can and are inherent to the debt; but
not those personal to the debtor
Defenses available to the guarantor against creditor
1. Those derived from the principal obligation
o Examples: defense of nullity of
principal obligation, that contract is
voidable (other than purely personal
defense)
o Rules:
 If guarantor doesn’t set up
the defenses (knowing such
defenses), debtor can set up
all the defense which the
debtor could’ve set up
against the creditor at the
time of payment
 Guarantor may set up
defenses even against will of
debtor
 Guarantor can intervene
between the debtor and
creditor re: principal
obligation. But failure to
intervene doesn’t bar him
from still setting up the
defenses
 Voluntary waiver of debtor
of prescription of debt
doesn’t affect guarantor’s
right to set up defenses
(even prescription)
2. Those derived from the contract of guarantee
a. Benefit of excussion
b. Benefit of division
c. Those relating to creation of
guarantee: defense of lack of consent,
mistake, nullity
3. Defenses derived from the conduct of creditor
a. Negligence – negligent in exhausting
property
b. Extension – granted extension without
his consent (2079)
c. Subrogation – committed acts which
prevent subrogation (2080)
Purely personal defenses:
- Based on incapacity or limited capacity
(minority, insanity)
- Doesn’t include vitiation of consent of debtor by
mistake, violence, intimidation, undue influence,
or fraud (since these are inherent in the debt not
purely personal)
Chapter 4: Legal and Judicial Bonds
Art 2082
Bondsman is offered by provision of law or judicial order
Bondsman must have qualifications in Art. 2056 and in
special laws
Meaning of:
1. Bond - Undertaking that is sufficiently secured,
and not cash or currency
a. Nature of bond – contractual in nature,
consequence of a meeting of minds
b. Judicial bonds – special case of
contracts of guaranty, they are given in
virtue of a judicial order
2. Bondsman – surety offered in virtue of a
provision in law or judicial order
Qualifications (2056)
- Integrity
- Capacity to bind himself
- Sufficient property to answer for what he
guarantees
Art. 2083
If the bondsman is not able to give a bond, a pledge or
mortgage considered sufficient shall be admitted in lieu of
the bond
- Guarantee or surety – personal security
- Pledge or mortgage – real security
Art. 2084
Judicial bondsman doesn’t have benefit of excussion. Sub-
surety cannot also demand exhaustion of property of
debtor or surety
Bondsman not entitled to excussion
- Reason: they are not guarantors but sureties
whose liability is primary and not solidary
Effect of negligence of creditor
- Not affect the release of the surety from liability
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VI: Pledge (Arts. 2085-2123)
CHAPTER 1: PROVISIONS COMMON TO PLEDGE AND MORTGAGE
Art. 2085
Art. 2086
Art. 2087
Art. 2088
Art. 2089
GR: A pledge or mortgage is indivisible even if debt is
divided among debtors/creditors
EFEECT:
1. Debtor’s heir – cannot extinguish part of debt
2. Creditor’s her – cannot return or cancel mortgage
to the prejudice of the heirs who haven’t paid
EXP: If the pledge or mortgage given guarantees only a
determinate portion of the credit, then the debtor can
extinguish the portion of the pledge or mortgage for which
each thing is answerable to
Art. 2090
Pledge or mortgage’s indivisibility is not affected by the fact
that the debtors are NOT solidarily liable. (thus, whether the
debtors are solidarily liable or not won’t affect the
indivisibility of the pledge or mortgage)
Pledge or mortgage is indivisible
- Only as to the parties, not the 3rd persons
- WON parties are joint or solidary
- Art. 2089 presupposes several heirs or of the
debtor or creditor
Consequence of indivisibility:
1. Single thing – when a single thing is
pledged/mortgaged, every portion is answerable
for the whole obligation
2. Several things – when several things are pledged
or mortgaged, all of them are liable for the
totality of the debt
3. Debtor’s/creditor’s heirs
a. Debtor’s heir – cannot ask for the
proportionate extinction of the pledge
or mortgage
b. Creditor’s heir – cannot return pledge
or cancel mortgage if the debt is not
completely satisfied yet
Exceptions to rule of indivisibility:
1. Where each party guarantees only a
determinate portion of the credit, there would
be as many pledges/mortgages as there are
things given in for pledge/mortgage
2. Where only a portion of a loan is released
3. Where there’s a failure of consideration
4. Where there is no debtor-creditor relationship
because indivisibility only arises when there’s a
debtor-creditor relationship
5. Where the benefit of indivisibility is waived – can
be waived because indivisibility is NOT an
essential characteristic of a mortgage
Foreclosure of mortgage constituted on several properties
- Rule that real property, which is consisting in
several lots, should be sold separately is NOT
applicable to foreclosure of mortgages, only to
sales in execution
o Thus, you can mortgage real property
consisting in several lots, as one and
indivisible.
- Mortgage, even if constituted on two or more
properties, is still one and indivisible mortgage =
cannot be divided among different properties
o Mortgagee has the right to have the
properties, either or both, to satisfy his
claim
- Doctrine of indivisibility of mortgage doesn’t
apply once the mortgage is extinguished already
by foreclosure.
Where real mortgage and chattel mortgage is in one
instrument = doesn’t fuse both securities into one
indivisible whole
- Both remain distinct from each other
- Illustration: mortgagee may legally foreclose the
real estate mortgage extrajudicially and waive
the chattel mortgage foreclosure, and maintain a
personal action for the unpaid balance of the
credit
Art. 2091
Contract of pledge or mortgage may secure ALL kinds of
obligations; pure/conditional (suspensive/resolutory)
Art. 2092
A promise to constitute a pledge/mortgage gives rise to a
personal action between the contracting parties only
Without prejudice to the criminal responsibility incurred by
him who defrauds by offering in pledge or mortgage as
unencumbered, things which he knows were encumbered or
by misrepresenting himself to be the owner of the property
pledged or mortgaged
Promises to constitute pledge or mortgage creates no real
right
- What exists is only a right of action to compel
fulfillment of promise but tbere is no pledge or
mortgage yet
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Criminal responsibility of pledge or mortgagor
- Fraud or deceit is executed upon the vendee at Pledgee
the time of the sale Creditor/pledgee’s rights
CHAPTER 2: PROVISIONS APPLICABLE TO PLEDGE ONLY 1. Right to retain
2. Right to bring actions
Art. 2093 which pertain to the
In order to constitute a pledge, In addition to the requisites owner of thing
in Art. 2085, the thing pledged must be in the possession of pledged
the creditor or of a third person by common agreement 3. Right to compensate
fruits and interests
What is a pledge received
- Debtor delivers to the creditor (or 3rd person by 4. Right to be
common agreement) reimbursed of
- a (1) movable property which can be preservation
appropriated or (2) a document evidencing expenses
incorporeal rights, 5. Right to cause the
- for the purpose of securing the fulfillment of an public sale of the
obligation thing pledged IF
- with the understanding that once the obligation there’s danger of
is fulfilled, the thing will be returned (along with destruction,
its fruits and accessions if applicable) impairment, or
diminution of value
Kinds of pledge 6. Right to demand
1. Voluntary/Conventional – created by agreement substitute of thing
2. Legal – created by operation of law pledged
Creditor/pledgee’s
obligations
1. Take care of thing
pledged with
diligence of good
father
2. Not to deposit the
thing pledged,
unless allowed by
stipulation
3. Not use the thing
pledged
4. Return the thing
pledged upon
payment of debt
5. Advise the pledgor
of any danger to
the thing pledge

Characteristics of a pledge Pledor:

1. Real – perfected by delivery
2. Unilateral - creates an obligation on the part of
creditor to return thing upon fulfillment of
obligation
a. Bilateral if third-party pledgor receives
fees from the creditor for entering into
the pledge agreement
3. Nominate – has a specific name
4. Accessory – existence depends upon another
contract
5. Formal – particular form is required
6. Onerous or gratuitous
a. Onerous – pledge was given by the
debtor (since the debtor granted the
pledge in consideration of a loan or
principal obligation to be secured)
b. Gratuitous – third-party pledgor
receives no compensation
**In case of doubt whether:
1. Dation en pago or pledge = presumption of
pledge because it transfers fewer rights
2. Sale or loan with pledge or mortgage =
presumption of a loan
Parties to the pledge and their rights and obligations
1. Pledgor – may be debtor or third person, must
be the absolute owner of thing pledged and have
free disposal of property or have legal authority
2. Pledgee – creditor
Rights and obligations of a pledgor
1. Require the deposit of thing pledged with a third
person if thing pledged is in danger of being lost
or impaired
2. Right to demand the substitution of the thing if
there are reasonable grounds to fear destruction
or impairment
Essential requisites of a contract of pledge
1. Consent of contracting parties
2. Object certain/subject matter
3. Cause of obligation
4. Pledge must be constituted for the fulfillment of
a principal obligation
5. Pledgor must be the absolute owner of thing
pledged
6. Pledgor has free disposal of property pledged or
have legal authority
7. Thing pledged must be delivered to perfect the
contract
8. Thing pledged must be in the possession of the
creditor/third party
1. Consent
o Given by parties who have legal
capacity
o Meeting of minds as to thing and cause
of contract
2. Object

5
 o Movable things within the commerce
of man (can be appropriated) or
certain incorporeal rights
3. Consideration
o If debtor - cause is the principal
obligation
o If not the debtor – cause is
compensation or mere liberality of
pledgor
Transfer of possession is essential in pledge
1. To constitute a contract – there must be delivery
2. To affect third persons – apart from being in a
public instrument, possession of the thing
pledged must be delivered to the pledgee
Type of delivery depends upon nature of the thing pledged
1. Actual delivery
2. Constructive delivery
a. Indispensable that the thing pledged
must be under the effective control
and possession of the pledgee (or third
person by common agreement)
b. Pledgor must cease to have effective
control and possession over the thing
(tradition brevi manu and not tradition
constitutum possessorium)
Art. 2094
All movables which are within commerce (can be
appropriated) may be pledged, provided that they are
susceptible of possession
Art. 2095
Incorporeal rights, evidenced by negotiable instruments,
bills of lading, shares of stock, bonds, warehouse receipts,
and similar documents, may be pledged
Instrument proving the right pledged must be delivered to
creditor
If negotiable instrument, must be indorsed
Subject matter of pledge
1. Personal property only that must be:
a. Within commerce of man AND
b. Susceptible of possession
2. Incorporeal rights
a. Evidenced by documents whether
negotiable or not
i. Document must be
delivered; if negotiable, must
be indorsed also
b. Instrument/documents must be of
such nature that the delivery or
indorsement of the instrument is
capable of transferring ownership over
the right or property of the person
who received the instrument
3. May or may not be cash, or even deed if
assignment over time deposit
Art. 2096
For the pledge to take effect against 3rd persons, the
description of thing pledged and date of the pledge should
appear in a public instrument
Public document is necessary to bind third persons
1. Contents of public document
a. In addition to delivery of the thing
pledged, it should be embodied in a
public document (attested and
certified by a public officer authorized
to administer oath, like a notary
republic)
2. Object of the requirement
a. To forestall fraud, because the debtor
may attempt to conceal his property
from his creditors when he sees that
it’s in danger of execution by
simulating a pledge thereof with an
accomplice
3. Non-compliance with requirement
a. Pledge is nevertheless valid and is
binding only upon the parties to the
pledge
Art. 2097
Thing pledged may be alienated by the pledgor or owner,
subject to the consent of pledgee and the pledge
Ownership of thing pledged is transmitted to the vendee or
transferee as soon as the pledgee consents to the
alienation. But the pledgee shall continue in possessing the
pledge.
Alienation by the pledgor of the thing pledged
- Since the pledgor remain as the owner of the
thing pledged, he can sell it provided that the
pledgee consents
- Ownership of the thing pledged is transferred to
the vendee subject to the rights of the pledgee:
o Thing sold may be alienated to satisfy
the obligation
o Pledgee myst continue in possession of
it during the existence of the pledge
- 2nd part of 2097 – case where ownership is
transferred without actual delivery
Time when consent is obtained has different effects:
1. Pledgor got consent before actual sale between
pledgor and buyer = ownership transferred only
when the sale contract is executed
2. Pledgor and pledgee executes a deed of
conditional sale (sale is conditional upon pledgee
giving consent) = ownership of thing pledged is
6
 transferred to the buyer as soon as the pledgee
consents
Art. 2098
Effect of contract of pledge – creditor can retain thing
pledged in his possession or third person to whom the
thing is delivered
Can retain until debt is paid
Fundamental rights of a pledgee over the thing pledged
1. Right to retain thing (jus retinendi); and
2. Right to proceed before a notary public to the
sale of thing pledged (just distrahendi)
Right of pledgee to retain thing pledged
- Possession of the pledgee of the thing pledged
constitutes as security. Thus, debtor can’t
demand for its return until debt is paid
- Right of retention limited only to the fulfillment
of principal obligation for which the pledge is
created
Art. 2099
Obligation of pledgee/creditor: take care of thing with
diligence of a good father;
Right of pledgee/creditor: right of reimbursement of
expenses made for its preservation
Liable for loss or deterioration
Obligation of pledgee to take due care of thing pledged
- Must take care of thing pledged with diligence of
a good father
- Can retain thing until debt is paid
- Must return thing when debt is paid
- Entitled to reimbursement for causes for
preservation
- In case of fortuitous event – pledgee not liable
- In case of fraud, negligence, delay, or violation of
terms of contract – pledgee is liable
Art. 2100
GR: A pledgee can’t deposit the thing pledged with a third
person
EXP: stipulation authorizes him
Pledgee is responsible for the acts of his agents or
employees with respect to the thing pledged.
Obligation of pledgee to deposit thing pledged
- Can retain possession of thing until debt is paid
but not authorized to transfer to third person
- This is to protect pledgor or owner of the thing
Responsibility of pledgee for acts of employees
- Pledgee is responsible for the acts of his agents
or employee because their actws are deemed his
Art. 2101
Pledgor has same responsibility as pledgor in
commodatum in case under article 1951
Art. 1951
Bailor who knowing the flaws of thing loaned, doesn’t
advise bailee of the fact, shall he liable to the latter for
damages the bailee suffers by reason of it.
Art. 2102
GR: If the pledge earns or produces fruits, income,
dividends or interests, creditor shall compensate what he
receives with those which are owing to him
EXP: But if none are owing to him, or amount exceeds
what’s due, he pledgor shall apply it to the principal
EXP to EXP: unless there is a stipulation to the contrary, the
pledge shall extend to the interest and earnings of the
right pledged
GR: In case of pledge of animals, their offspring shall
pertain to the pledgor or owner of the animal pledged
EPXP: shall be subject to the pledge, if there is no
stipukation to contrary
Right of pledgee to compensate earnings of pledge with
debt
- Pledgee can apply the fruits, income, dividends,
etc. earned or produced by thing pledged to the
payment of interest, then to the payment of
principal credit
- Interest and earnings of the right pledged and in
case of animals, their offspring are included in
the pledge
Art. 2103
GR: Debtor continues to be the owner of the thing pledged
UNLESS expropriated
Nevertheless, creditor can bring actions (against 3rd
persons) which the owner of the thing pledged can bring,
in order to recover it from, or defend it against a third
person.
Right of pledgee against third persons
- Pledgee is authorized to bring such actions
pertaining to the owner of the thing to recover
or defend the thing against claims by a third
person
- Right of pledgee is a real right enforceable
against the third person but it’s necessary that
the contract of pledge is in a public instrument
containing the description of thing pledged and
date of the pledge
Art. 2104
GR: Owner can’t use thing pledge without authority of
owner.
7
EXP: Use is needed to preserve the thing, can use, but only
for such purpose.
If he uses it, the owner can juridically or extrajudicially
deposit it.
Obligation of pledgee not to use the thing
- Cannot use thing without permission
- Except if thing pledged needs to be used in order
to preserve the thing
Right of pledgor to ask that the thing be deposited
1. If creditor uses the thing without authority
2. If he misuses the thing in any way
3. IF thing is in danger of being lost or impaired
because of the negligence or willful act of the
pledgee
Art. 2105
GR: Debtor can’t ask to return the thing pledged against
the will of the creditor
EXP: Until he has paid the debt and its interest, with
expenses in a proper case
Right of pledgor to demand return of thing pledged
- Pledgor can’t ask for its return until the debt is
paid, given that the pledge is a security to fulfill
the obligation of the pledgor
- Prescription on the action to demand thing will
not run until the debt is paid
- Possession of thing pledged ripening into
ownership by prescription is NOT possible since
pledgee is not holding thing pledged in the
concept of an owner
- EXP: pledgor allowed to substitute the thing
pledged which is in danger of destruction or
impairment with another thing of the same kind
and quality
Right of owner to demand return of thing pledged
- If pledgor is not the debtor, then the pledgor
doesn’t have the right to demand the return of
the thing
- If both debtor and pledgor/owner of thing claim
right to return thing after payment of debt =
creditor can consign the thing
Art. 1206
Pledgor may require the thing to be deposited with a third
person if thing pledged is in danger of being lost or
impaired through the negligence or willful acts of the
pledgee
Right of pledgor to ask for deposit of thing pledged
- Has such right if thing is in danger of being lost
or impaired
- Or if the pledgee used the thing without
authority or misuses it in any way
Art. 2107
GR: If there are reasonable grounds to fear the destruction
or impairment of the thing pledged, without fault of
pledgee, pledgor may demand the return of thing, upon
offering another thing in pledge.
PROVIDED, the substitute thing pledged is of the same kind
and not of inferior quality, and without prejudice to the
right of pledgee under the provision of the following article
Pledgee is bound to advise the pledgor of any danger to
the thing pledged, without delay.
Right of pledgor to substitute a thing pledged:
There are 2 remedies granted by this article:
1. Pledgor - right to demand return of thing
pledged upon offer of a substitute pledge
2. Pledgee - right to cause the substituted thing to
be sold at a public sale
Requisites to apply 2107:
1. Pledgor has reasonable grounds to fear
destruction or impairment of thing pledged
2. There is no fault on the part of pledgee for the
reasonable ground to fear destruction or
impairment
3. Pledgor is offering a thing of same kinds, not of
inferior quality
4. Pledgee doesn’t choose to exercise his right to
cause the thing pledged to be sold at a public
auction
Art. 2108
If thing pledged is in danger of destruction, impairment, or
diminution of value, and this is without fault of pledgee,
pledgee may sell the thing pledged at a public sale
Proceeds of the auction shall be a security for the principal
obligation like the thing originally pledged.
Right of pledgee to casue sale of thing pledged
- Right of pledgee to casue the sale of thing
pledged is SUPERIOR than the right of pledgor to
substitute a thing
- Sale must be a ‘public sale.’
- Pledgee shall keep the amount from the sale as
SECURITY for the fulfillment of the principal
obligation. The amount belongs to the pledgor.
Art. 2109
If creditor is deceived by the substance of the thing
pledged he may:
1. Claim another as substitute
2. Demand immediate payment of the principal
obligation
Right of pledgee to demand substitute or immediate
payment. There are 2 remedies here:
8
 1. Pledgor can claim another thing in pledge
2. Pledgor can demand immediate payment of the
principal obligation
- The remedies are alternative, can choose either
one.
Art. 2110
The pledge is extinguished if once the pledged thing is
returned by the pledgee to the pledger or owner. Any
stipulation to the contrary is void.
There is a prima facie presumption that the thing is has
been returned by the peldgee if subsequent to the
perfection of the pledge, the thing is in the possession of
the pledgor or owner.
This presumption applies if the thing is in the possession of
a third person who has received it from the pledgor or
owner after the constitution of the pledge.
Extinguishment of pledge by return of the thing
- Pledge is extinguished if the thing pledged is
returned to the pledgee/owner/third person
agreement. This is true even if there is a
stipulation to the contrary.
- Pledge is also extinguished by payment of debt,
by renunciation or abandonment of pledge, sale
of thing pledged at a public auction, prescription,
loss of thing, merger, compensation, novation,
etc.
Presumption of extinguishment
- Presumption may be rebutted by evidence to the
contrary such as:
o Return was merely for the substitution
of thing pledged
o Thing was token and given by thief to
the pledgor or owner
o Holding pledged property merely as a
trustee
- When the thing pledged is found in the hands of
the pledgor or owner, only the accessory
obligation is extinguished, not principal
obligation itself
Art. 2111
Statement in writing made by the pledgee renouncing or
abandoning the pledge extinguishes the pledge.
Neither the acceptance by the pledgor or owner, nor the
return of the thing pledged is necessary, since the pledgee
became a depositary.
Extinguishment of pledge by renunciation or
abandonment
- Pledge is a personal right that’s why it can be
waived
- Renunciation
o Not conditioned upon the acceptance
by the pledgor or owner of the thing
nor upon the return of the thing
deposited
o Must be made in writing
- Waiver
o Must be in writing
o Transforms the pledgee into a
depositary
o Principal debt is NOT affected by
waiver of accessory but not waiver of
principal debt affects accessory
- Difference with 2110
o No need for waiver to be in writing to
extinguish the debt since possession of
thing pledged is already prima facie
evidence of it
Art. 2112
If the obligation is not satisfied in due time, then the
creditor may proceed to a Notary Public to sell the thing
pledged.
Sale must be:
- in a public auction,
- with notification to the debtor and owner of
thing pledged,
- stating the amount for which the public sale is to
be held
If not sold at the first auction, a second one will be held
with the same formalities
If not sold after second auction, creditor may appropriate
the thing pledged. He shall then be obliged to give an
acquittance for his entire claim.
Right of pledgee to cause sale of thing pledged
- Formatlities required for a valid sale of thing
pledged:
o (1) debt is due and unpaid
o (2) sale at a public auction
o (3) there must be notice to the pledgor
and owner, stating the amount due (no
need for posting of sale and
publication)
o (4) sale must be made with the
intervention of the notary public
- Only notary public can cause the public auction
after notice sent to pledgor and owner. Sale is
extrajudicial.
- No need for the pledged properties sold at
public auction to be sold separately.
Right, not an obligation, to cause sale of thing pledged
- Sale is not mandatory, discretion is still with
creditor who can pursue other legal remedies.
9
 - Pursuing those other legal remedies doesn’t
waive right to the sale of thing pledged
o Can initially foreclose then cause the
sale of thing
Right of pledgee to appropriate thing pledged
- This is an exception to the prohibition of pacto
commisorium
- If the creditor appropriates the thing, it shall be
considered full payment already for the entire
claim. Thus, he is obliged to give acquittance of
claim
- Debtor is not entitled to the excess in case the
value of thing pledged is more than the principal
obligation.
Art. 2113
At a public auction, the pledgor or owner may bid. The
pledgor or owner has a better right if he should offer the
same terms as the highest bidder.
Pledgee may also bid but his offer is not valid if he is the
only bidder.
Right of pledgor and pledgee to bid at a public sale
- Pledgor shall be preferred if he offers the same
terms as the highest bidder. This rule is
considering that all the things belong to him
- To avoid fraud, the pledgee is not allowed to
acquire the thing pledged if he is the only bidder.
Art. 2114
All bids at a public auction shall be offered to pay the
purchase price at once.
If any other bid is accepted, the pledgee is deemed to
have received the purchase price, as far as the pledgor or
owner is concerned
Bid must be for cash
- All bids must be for the cash. If it was anything
other than cash, the pledgor or owner has the
right to consider the pledgee has received the
purchase price in cash.
Art. 2115
Sale of thing pledged will extinguish principal obligation
whether the proceeds of the sale are equal to the amount
of the principal obligation, interest, and expenses
If price of sale is more than principal obligation, interests,
and expenses, debtor is not entitled to the excess, unless
otherwise agreed.
If price of sale is less, the creditor can’t recover the
deficiency, even if there’s a stipulation to the contrary.
Effect of sale of thing pledged
Right of debtor to excess
- Sale of thing pledged extinguishes the principal
obligation whether the price of sale is more or
less than the amount due
o (1) if more than = debtor NOT entitled
to excess unless contrary stipulation
o (2) if less = creditor not entitled to
recover the deficiency, whether
there’s a contrary stipulation or not
 Reason: to compel creditor
to hold an honest public sale
 Creditor should see to it that
what he loans is only as
much as he is likely to
receive at a public sale
Right of debtor to excess
- GR: Debtor is not entitled to excess
- EXP: contrary stipulation
- Reason: to compensate the creditor for his risk
of not being able to recover the deficiency in
case the thing pledged is sold below amount of
principal obligation.
o But this is a pacto commisorio =
prohibited
- Under chattel mortgage law, the mortgagor is
entitled to recover the excess of proceeds of the
sale in a foreclosure proceeding
Right of creditor to recovery deficiency
- Creditor not entitled to recover the deficiency in
all cases because by electing to sell the thing
pledged, he waives his right of any other remedy
(such as suing)
- Creditor can recover deficiency from debtor if he
instead sue for the principal obligation and not
sell the thing pledged
Right of redemption
- No ight of redemption over personal property
- Such right is only applicable to an execution sale
of real property
Art. 2116
After public auction, pledgee shall propmptly afvise the
pledgor or owner of the results of the pledge
Reason: to enable the pledgor or owner to take steps to
protect their rights where he has a reasonable ground to
believe that the sale is not an honest one
Art. 2117
Any third person with a right to the thing pledged may
satisfy the principal obligation as soon as it becomes due
and demandable
Right of third person to satisfy an obligation
10
 - GR: creditor is NOT bound to accept payment or
performance by a third person who has no
interest in fulfilling the obligation
- EXP: a third person who has a right to the thing
pledged (such as when the debtor has
contracted to sell the pledged thing to him) may
pay the debt as soon as it becomes due and
demandable. In this case, creditor cannot refuse
to accept payment
Art. 2118
If a credit which has been pledged becomes due before it
can be redeemed, then the pledgee can collect and receive
the amount due.
The pledgee shall apply the amount due to the payment of
his claim and deliver the surplus if there’s any to the
pledgor
Right of pledgee to collect and receive amount of due on
the credit that’s pledged
- This right is NOT mandatory. Pledgee may
choose not to exercise this.
- EXP: if not collecting would endanger the
recovery of the credit, then pledgee MUST
collect (pursuant to Art. 2009, take care of thing
pledged with the diligence of a good father)
Art. 2119
GR: pledgee may choose which he will sell if there’s two or
more things that are pledged.
EXP: stipulation to the contrary
Pledgee may demand the sale of only as many of the thing
as are necessary to fulfill the obligation (so, no need to sell
everything that’s pledged)
Right of pledgee to choose which of several things pledged
should be sold
- After sufficient property has been sold to satisfy
the obligation, interest, and expenses, no more
shall be sold
- Usually, the value of the property pledged
exceeds the amount of debt guaranteed
Art. 2120
If a third person secures an obligation by pledging his own
movable property under Art. 2085, he shall have the same
rights as a guarantor under 2066-2070 and 2077-2081.
He is not prejudiced by any waiver of defense by principal.
Right of third person who pledged his own property
Art. 2121
Pledged created by the operation of law
- Governed by articles on possession, care, and
sale of the ting and the termination of pledge
After the payment of debt and expenses, remainder of the
price of sale shall be delivered to the obligor
Art. 2122
Thing pledged by operation of law can only be sold after
demanding the amount for which the thing is retained
Public auction should take place within 1 month after the
demand.
If creditor doesn’t cause the auction within the period
without justification, debtor can require the return of the
thing
Instances of pledges by operation of law
1. Art. 546
a. Necessary expenses refunded to every
possessor, but only possessor in good
faith may retain thing until fully
reimbursed
b. Useful expenses are refunded only to
the possessor in good faith with the
right of retention
c. Person who defeats him has the option
of refunding the amount of the
expense or pay for the increase in
value of the thing
2. Art. 1731
a. He who executed work over a movable
has the right to retain if by pledge
until paid
3. Art. 1914
a. Agent can retain pledge of things
which are the object of the agency
until the principal reimburses and pays
for the indemnity
4. Art. 1707
a. Laborer’s wage shall be a lien on the
goods manufactured or the work done
5. Art. 1994
a. Depositary
6. Art. 2004
a. Instance of a legal pledge and refers to
a hotel keeper
Rules in cases of pledge by operation of law
1. Conventional pledge – debtor is not entitled to
the excess unless otherwise agreed
2. Legal pledge – remainder of price of sale after
payment of debt and expenses shall be delivered
to the debtor
a. No definite period of payment of
principal obligation. Pledgee has to
demand the payment, or else he can’t
exercise right to sell at a public auction
b. Pledgee must sell within 1 month from
demand, or else debtor can require
him to return the thing retained
11
Art. 2123
With regard to pawnshops and other establishments
engaged in making loans secured by pledges, special laws
and regulations over them shall be observed. The rules on
this title subsidiarily observed
CHAPTER 3: REAL MORTGAGE
Art. 2124
Only the following property may be the object of a contract
of mortgage:
1. Immovables
2. Alienable real rights in accordance with the laws,
imposed upon immovables
Nevertheless, movables may the object of a chattel
mortgage.
Art. 2125
For a real estate mortgage to be valid, it must comply with:
1. The requisites of Art. 2085
2. Must be recorded in the Registry of property
In case it’s not, the mortgage is still binding between the
parties (personal note: but not the 3rd person)
The persons to whom the mortgage is for have no other
right than to demand the execution and the recording of
the document in which the mortgage is formalized
Essential requisites of a mortgage
1. Public Document
2. Mortgage in a private document
3. Not registered mortgage
4. Mortgage registered under Art. 3344
Doctrine of mortgagee in good faith
Right in case of legal mortgages
Registration of mortgage
Effect of invalidity of mortgage on principal obligation
Art. 2126
The effect of the mortgage directly and immediately
subjects the property upon which it is imposed to the
fulfillment of the obligation for whose security it was
constituted, whoever the possessor may be.
Effect of mortgage
Ownership rights of mortgagor
Art. 2127
The mortgage extends to:
1. Natural accession
2. Improvements
3. Growing fruits
4. Rents or income not yet received when the
obligation becomes due
5. Amount of indemnity granted or owing to the
proprietor from the insurers of the property
mortgaged
6. In virtue of expropriation for public use
With the declarations, amplifications and limitations
established by law, whether the estate remains in
possession of the mortgagor, or to the 3rd person.
Extent of mortgage
Stipulation in mortgage contract including after-acquired
properties
Mortgage with “dragnet” clauses to secure future
advancements
Art. 2128
Mortgage credit can be alienated or assigned to a 3rd
person, in whole or in part, with the formalities required by
law
Alienation or assignment of mortgage credit
Art. 2129
The creditor can claim from a third person who’s
possessing the property the payment of the part of the
credit secured by the property which the 3rd person
possesses. This should be done in terms of the formalities
established by law.
Right of creditor against transferee of mortgaged property
Art. 2130
A stipulation which forbids the owner from alienating the
immovable mortgage shall be void.
Stipulation forbidding alienation of mortgaged property
Stipulation requiring mortgagee’s consent before
alienation of property
Stipulation granting right of first refusal
Art. 2131
The form, extent and consequences of a mortgage (as to
its constitution, modification, and extinguishment and
other matters not included) shall be governed by the
provisions of the Mortgage Law and of the Land
Registration Law
Laws governing mortgage
1. Mortgage Law
2. Land Registration Law
Foreclosure
12
Meaning of foreclosure (of mortgage)
Validity and effect of foreclosure
Kinds of foreclosure
Judicial foreclosure under the Rules of Court
Extrajudicial foreclosure under Act. 3135
Remedy in case mortgagor refuses to surrender
mortgaged property
Injunction to prevent foreclosure
Right of mortgagee to recover deficiency
Nature of judicial foreclosure proceeding
Nature of power of foreclosure by extrajudicial sale
Stipulation of upset price in mortgage contract void
Effect of inadequacy of price in foreclosure sale
Waiver of security by mortgage
Foreclosure retroacts to date of registration of mortgage

Redemption
Meaning of redemption (of foreclosed property)
Kinds of redemption
Equity of redemption
Levy of equity if redemption
Right of redemption
Nature of mortgagor’s right of redemption
Requisites for valid redemption
Payment of redemption money
Amount payable
Rights of persons with subordinate interest
Persons entitled to exercise right of redemption
Registration of transfer of right of redemption
Right of buyer to sell property during period of
redemption
Rights of mortgagor during period of redemption
Vendee’s right to possession of mortgaged property sold
Right of purchaser to writ of possession
Right before lapse of redemption period
Right after lapse of redemption period

Writs
Nature of petition/motion for issuance of writ
Nature of order for the issuance of the writ
Right of purchaser to a conveyance and to possession
Right of purchaser to aid of court
Suspension of implementation of writ
When writ of possession not available
Nature of petition for annulment of foreclosure
proceedings
Issuance of writ before lapse of redemption period

Auction Sale
Confirmation by court of auction sale in judicial
foreclosure
Where rights of third persons involved

13
Chapter 4: Antichresis
[Antichresis; Arts. 2132-2139] Antichresis v Pledge
Antichresis Pledge
Art. 2132  Fruits of real  Personal property
The contract of antichresis is when the creditor acquires property  Perfected by delivery
the right to receive the fruits of an immovable of his  Perfected by mere of the thing pledged
debtor, and the creditor has the obligation to apply them consent (as long as  Real contract
to the payment of interest, if there is, and then to the it’s written)
principal of his credit.  Consensual

Characteristics of the contract of antichresis

1. Accessory – secures the performance of a Antichresis v Mortgage
principal obligation Antichresis Mortgage
2. Formal – it must be in a specified form; in  Property is delivered  Possession of
writing, the amount of the principal and interest to the creditor property stays with
should be specified in writing  Creditor has the the mortgagor
3. Nominate – it has a specific name rights to the fruits of  Creditor doesn’t
4. Consensual – no need for delivery of the the property, thus, have any right to
immovable to the creditor not a real right receive the fruits but
 Creditor is obliged to mortgage creates a
Parties to the contract pay the taxes and real right over the
- Debtor and creditor charges upon the property
estate (enforceable against
Essential requisites  Creditor must apply the world)
1. Consent of the contracting parties the fruits of the  Creditor doesn’t
a. Meeting of the offer and acceptance property as payment have an obligation to
upon the subject matter and cause of interest (if there pay taxes
b. Should be given by parties with is) then principal  No obligation to
capacity to give consent credit apply fruits to
2. Object certain which is the subject matter interest/principal
3. Consideration/Cause Both involves real property, gives a real and not merely
a person right if it’s registered in the Registry of
Delivery Property
- Debtor must deliver to the creditor that property
given as security but this delivery is only requires
so that the creditor can receive the fruits and Application of the fruits to interest then principal
not that the contract shall be binding if there’s - To be considered antichresis it is ESSENTIAL that
delivery (since this is not a real contract) the parties EXPRESSLY AGREES that the creditor,
- The contract only covers the fruits and not the having possession of the properties given as
immovable security, will applu their fruits to the payment of
interest, if owing, and thereafter to the principal
Right of creditor to the fruits - OTHERWISE, then it is not antichresis
- Generally, it covers all the fruits of the
encumbered property BUT parties have the Art. 2133
freedom to stipulate otherwise The measure of the application of the fruits is based on the
- Reducing the amount of fruits to be given to the actual market value of the fruits at the time they’re applied
creditor doesn’t vary the nature of the contract to the interest/principal

Obligation to pay interest is not essential
- Antichresis can guarantee all kinds of
obligations, pure or conditional, not just the
payment of interest
- “if owing” interest means that it is not essential
that the loan should earn interest in order that it
can be guaranteed by a contract of antichresis
Measure of application of fruits to interest and principal
- The fruits must be appraised at their value at the
time of the application to the interest or
principal
- “The foregoing rule will forestall the use of
antichresis for purposes of usury”
Art. 2134
The amount of principal and interest should be specified in
writing; or else the contract is void

14
Form of the contract
- Law requires a form not just to affect third
persons but so that the contract is valid
- But even if the antichresis is void, the principal
obligation is still valid (since antichresis is just an
accessory contract)
Art. 2135
The creditor is obliged to pau the taxes and charges on the
estate, unless there’s a contrary stipulation
Creditor is also bound to bear the expenses necessary for
the estate’s preservation and repair
Sums spent for the purpose shall be deducted from the
fruits
Obligations of the antichretic creditor
1. Payment of taxes and charges on the estate
a. If he doesn’t, he is required to pay
indemnity for damages to the debtor
b. If the debtor pays for it, the amount is
to be applied to the payment of the
debt and debtor is entitled to the
return of the property free from all
encumbrances, if the debtor, by
advancing the taxes, has been
discharged of the debt
2. Application of the fruits of the estate
a. Creditor has a duty to account of the
fruits to the debtor and corresponding
right of the debtor to apply the fruits
to the debt
*The sums spend by the creditor in fulfillment of his
obligations shall be charged against the fruits of the
property
Art. 2136
Debtor can’t get his property back before he has totally
paid what he owes
But the creditor, to exempt himself from his obligations
(the previous article), may compel the debtor to enter the
enjoyment of the property, except if there’s a contrary
stipulation
Right of antichretic debtor to reacquire enjoyment of the
property
- Debtor can’t demand return until he pays full
debt since property is delivered as security
- But, if credit doesn’t want to pay the taxes and
incur expenses on the necessary preservation of
the property. Then he may compel the debtor to
reacquire the enjoyment of it (except if there’s a
stipulation to the contrary)
Art. 2137
Creditor doesn’t acquire ownership of the real estate for
nonpayment of the debt within the period agreed
A stipulation to the contrary (that nonpayment within the
specified period will grant ownership to the creditor) is void
But creditor can petition the court for the payment of the
debt or sale of the property. Here, rules on foreclosure
applies.
Remedy of creditor in case of non-payment
- Stipulation is valid if it authorizes the creditor
merely to take actual or constructive possession
of the property, not ownership
- Remedy:
o (1) bring an action for specific
performance
o (2) petition for the sale of the real
property as foreclosure of mortgage
(judicial foreclosure)
o But parties can stipulate extrajudicial
foreclosure
Acquisition by creditor of property by prescription
- Possession, for the purposes of acquisitive
prescription, must be in the concept of an owner
- Antichresis is not in the concept of an owner,
only a holder in possession of the lawn
- Thus, can’t acquire through prescription
Art. 2138
Parties can stipulate that the interest on the debt be
compensated with the fruits of the property which is the
object of the antichresis
But, if the value of the fruits exceed the amount of interest
allowed by laws against usury, then excess is to be applied
to the principal
Interest in antichresis subject to the laws on usury
- Fruits must be appraise on the basis of their
actual market value at the time of the
application
- If value exceeds what’s allowed in usury law,
excess shall be applied to the principal
o But, right now, usury law is suspended,
so there’s no ceiling prescribed
Art. 2139
Last paragraph of Art. 2085 and 2089 to 2091 are
applicable in antichresis
Applicability of certain articles
- Since antichresis is constituted so that the
creditor can receive the fruits and apply it to the
interest/principal, antichresis secures an
obligation to pay a sum of money
15
16
CHAPTER 5: CHATTEL MORTGAGE  Procedure is found in  Procedure is in Art.
Sec. 14, Act. 1508 2112 of CC
Art. 2140  If property is  If property is sold,
Chattel mortgage is where personal property is recorded in foreclosed, the debtor is not entitled
the Chattel Mortgage Register as security for the excess amount goes to excess (unless
performance of an obligation. to debtor agreed by parties or
 If property is in case of legal
If the movable is delivered to the creditor or a third person, foreclosed and pledge)
instead of being recorded, then it is considered a pledge there’s a deficiency,  If property is sold
and not a chattel mortgage. creditor entitled to and there’s a
the deficiency from deficiency, creditors
*Personal note: So, what differentiates pledge and chattel debtor (except if are not entitled to
mortgage is recording in the Chattel Mortgage Register chattel mortgage is recover the
to secure purchase of deficiency, even if
Definition personal property in there’s a stipulation
- Where personal property is recorded in Chattel installments)
Mortgage Register as security for an obligation 1. Both secures performance of an obligation
- Based on CML, considered as a conditional sale 2. Constituted on personal property only
3. Indivisible
Characteristics 4. Constitute as a lien
1. Accessory - to secure the performance of a 5. Cereditor can’t appropriate property to
principal obligation himself as payment for the debtor’s debt
2. Formal – must be registered to be valid 6. If debtor defaults, property is sold to pay the
3. Unilateral – produces obligations of the creditor creditor
to free the thing from encumbrances on the 7. Extinguished by the fulfillment of principal
fulfillment of the obligaiton obligation or destruction of property pledged
4. Nominate – has a specific name or mortgaged.

Parties
1. Mortgagor Art. 2141
a. Must be the absolute owner of the Provision of this CC on pledge, as long as not in conflict
thing mortgaged and must have free with the Chattel Mortgage Law, is applicable to chattel
disposal of the property, or have an mortgage
authorized representative
2. Mortgagee Laws governing chattel mortgage
- Chattel mortgage law
Essential Requisites - Civil Code
1. Consent of contracting parties - Admin Code
a. Meeting of the mind as to the subject - RPC
matter and consideration
b. Parties must have legal capacity Offenses involving chattel mortgage
2. Object certain which is the subject matter Since chattel mortgage doesn’t transfer ownership of
3. Obligaiton property, the mortgagor cannot, without the consent of
4. Chattel mortgage must be constituted to secure the mortgagee, sell or freely move the mortgaged
the performance of a principal obligation property. Under the RPC, Art. 319, the following acts are
5. Mortgagor must be the absolute owner of thing punishable:
mortgaged 1. Knowingly removing, without consent, the
6. Mortgagor must have free disposal of the mortgaged personal property to any other place
mortgaged property or be legally authorized than the one where the mortgaged property was
*Delivery of property mortgaged not essential for when it was executed
perfection 2. Selling or pledging the thing already mortgaged
without consent written on the back of the
Chattel mortgage v pledge; similarties mortgae and duly recorded in the register
Chattel mortgage Pledge  Property mortgaged or pledged is the same or
 Delivery not  Delivery necessary identical to what is removed or repledged
necessary  Registration not  Mortgagor not relieved of criminal liability even if
 Registration needed needed obligation is paid in full, or they informed the
to be valid purchaser that the thing is mortgage

17

Applicability of provisions on pledge
- Only insofar as it is not in conflict with each
other
- CML is silent on the matter of recovering
deficiency after the foreclosure sale of the
mortgaged chattel
Subject matter of chattel mortgage
*Always movable/personal such as:
1. Shares of stock
a. Owner must be domiciled in the
province where the corporation is
domiciled.
b. If not, must register in both places
2. Interest in business
a. Since it’s capable of appropriation
3. Machinery treated by the parties as personal
property subsequently installed on leased land
4. Vessels
a. But it should be recorded in the office
of PH Coast Guard of the port of
documentation of the vessel to effect
third persons
b. Not needed that it’s recorded in the
office of registry of deeds
5. Motor vehicles
a. Must also be registered in LTO
i. Failure will make the
mortgage ineffective as
against purcaher in good
faith who registers his
purchased of the same
vehicle in LTO
b. If for public service, must be recorded
in Land Transportation Franchising and
Regulatory Board
6. House of mixed materials
a. By nature, and express intention of
parties
7. House intended to be demolished
a. Since what’s really mortgaged are the
materials in the house
8. House built on rented land
a. Since it doesn’t form part of the land
since it doesn’t become immobilized
since there’s only temporary right to
the land
9. House of strong materials
a. As long as parties agree and no
innocent third party is prejudiced
b. Not the same with BUILDING of strong
materials
Mortgage of improvements on land
1. Chattel mortgage
a. Growing crops and large cattle are
personal property and can be
mortgaged
2. Real Estate mortgage
a. In general, so far as the public is
concered, no matter what the parties
agreed upon, improvements that fall
within Art. 415 of CC, are considered
real property
No absolute criterion between personal and real property
- Since it can depend on the stipulation of the
parties
Subject matter must be described and identified
- Sec. 7 of CML –
o No need for a specific and minute
description.
o Enough that it enables people to
identify it after reasonable
investigation and inquiry, otherwise,
mortgage is invalid.
Extent of chattel mortgage
Sec. 7, par. 4 – “only covers the property described therein
and not like or substituted property thereafter acquired by
the mortgagor and placed in the same depositary as what
was originally mortgaged”
1. “Covers only properties described therein”
a. Doesn’t cover those like or substituted
property acquired THEREAFTER
i. Example: stores open to
public for retail business
where goods are constantly
restocked like grocery,
drugstore
b. Includes already existing and originally
included at the date of the constitution
of the mortgage
2. Stipulation including after-acquired properties
a. Valid stipulation so long as the after-
acquired properties are in renewal of,
or in substitution for the goods on
hand when the mortgage was
executed
i. Must be the same
description as the properties
enumerated
b. After-acquired properties can be
included through executing a mortgage
supplement
Chattel mortgage limited to existing obligations
Creation of a chattel mortgage
Recording as a requirement for validity
18
Period within which registration should be made

Effect of registration

Registration of assignment of mortgage not required

Duty of Register of Deeds ministerial

Affidavit of good faith required

Equity redemption

Right acquired by second mortgage and subsequent

purchaser

Right of mortgagee to possession

Foreclosure of chattel mortgage

Period of foreclosure of mortgage

Civil action to recover credit

Ordinary action to recover possession of chattel

Action for replevin as a remedy

Right of mortgagee to recover deficiency

Application of proceeds of sale

Right of mortgagor to balance of process

19