252779123 Credit Transaction Uribe

CREDIT TRANSACTIONS Atty. Crisostomo Uribe

Definitions:  Article  Article  Article  Article  Article

1933 1962 2047 2132 2140

Important provisions:  Article 1942  Article 1979  Article 1956 – interest in simple loan  Article 2085  Article 2088 - pactum commissorium  Article 2089 - indivisibility principle (not yet asked in the bar exams)  Article 2115 - right to recover the deficiency or the right to recover the excess in pledge and mortgage (favorite question in bar exams) Q: Are credit transactions bailments? A: No. Some of them are bailments but not all of them. Q: Why are they not bailments? A: In a bailment, there is a delivery of a property by one person to another in trust for a particular purpose with an agreement, express or implied, that such thing will have to be returned or at least accounted for. In fact the word “bailment” is said to come from the French word “bailer” which means to deliver. In some credit transactions, delivery is not required for the perfection of the contract. In fact, that contract may be extinguished even without anything having been delivered. Specifically referring to: 1. Guaranty - nothing is delivered for its perfection and may even be extinguished without anything being delivered by the guarantor to the creditor. 2. Suretyship 3. Mortgage – nothing is delivered. The mortgagor remains in possession of the thing mortgaged. **These transactions are not bailments but are called credit transactions. Q: Why not credit contracts? A: Because not all credit transactions are contracts. Some of these transactions would arise by operation of law and no agreement is required. Examples include: 1. Legal pledge (pledge by operation of law) 2. Judicial deposit – it is by order of the court that a thing would be deposited with the court. Q: Why not secured transactions? A: Because not all credit transactions are secured transactions. Q: Why credit transactions? A: Because all these transactions would involve credit. Credit means the belief by a person in the other person’s capacity to fulfill his obligations in the future. Q: May a sale be a credit transaction? A: Yes. There is a sale known as sale on credit. But we don’t really discuss sales ordinarily as a credit transaction because most sales are not sales on credit. (eg. Kapag bumibili ka naman ng tubig, di naman utang yan! Kung wala kang pambili, mauuhaw ka lang..)

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

Normally, sales on credit would involve yung millions of pesos or hundreds of thousands ang price. Q: Distinguish briefly commodatum (classic bailment that’s why the parties are called bailorbailee) and mutuum (simple loan). A: COMMODATUM MUTUUM The bailee acquires the use of the thing but The borrower acquires ownership over the not its fruits unless otherwise stipulated. The money or property borrowed. However, he thing is delivered for the use of the other will have an obligation to pay the lender a party. thing of the same kind and quality. Q: Distinguish usufruct and commodatum. State whether this may be constituted over consumable goods. A: USUFRUCT COMMODATUM Pertains to the right to enjoy the fruits Refers to the right to use the thing Yes, this may be constituted over Yes, this may be constituted over consumable goods. There can be a usufruct consumable goods. As long as the goods are over money. A valid usufruct may be not to be consumed or the purpose of the constituted as to the fruits of the thing. transaction is not for consumption but probably only for exhibition. Q: Alberto and Janine migrated to the US leaving behind their four children, one of whom is Manny. They owned a duplex apartment and allowed Manny to live in one of the units. While in the US, Alberto died. His widow and his children executed an extrajudicial settlement of Alberto’s estate wherein the two-door apartment was assigned by all the children to their mother Janine. Subsequently, she sold the apartment to Jorge. The latter required Manny to sign a prepared lease contract so that he and his family could continue occupying the unit. Manny refused to sign the contract alleging that his parents allowed him and his family to continue occupying the premises. If you were Jorge’s counsel, what legal steps would you take? Explain. A: First step is to give notice to Jorge to vacate the premises because he refuses to sign the lease contract. Under the facts, when Manny, even in his claim that his parents allowed him and his family to continue occupying the premises and apparently there was no payment for the use of the premises, commodatum was constituted over this apartment unit. As provided by law, commodatum is a purely personal contract and with the death of the bailor, commodatum was extinguished. In fact, under the facts, all his children including Manny executed an extrajudicial settlement wherein the apartment unit was assigned to the mother and therefore if at all he would still be allowed to remain in the premises that would be in the concept of commodatum without paying rentals for the use of the unit. Thus, when it was sold, Manny would no longer have a right over the property as his right would depend on the right given to him by his mother. If he would fail to vacate the premises, an action for ejectment would be the proper remedy. Q: Choose the right answer: The parties to a bailment are a) bailor b) bailee c) commodatario d) all of the above e) letter a and b A: Letter e (bailor and bailee). Commodatario refers only to a particular kind of bailment which is commodatum. The question pertains to a bailment in general.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

LECTURE: Deposit is a bailment. Loosely speaking, the depositor is the bailor and the depositary is the bailee. The party who receives the property is the bailee. Kaya lang I have warned you already that if the law calls them by specific names, by all means, use the name given by law. So kung alam niyong deposit ito, call them depositor-depositary and not bailor-bailee. Q: How many kinds of loan? Deposit? A: In loans, there are two kinds. In deposit, there are also two kinds. But as far as extrajudicial deposit there are two kinds: voluntary and necessary. It is only the voluntary deposit which is a contract. Judicial deposits and necessary deposits are not contracts. Necessary deposits are constituted by law whereas judicial are by order of the court or sequestration. Q: What is the purpose of commodatum? A: The purpose of commodatum is the use of the thing. The bailee would have no right to use the fruits unless otherwise stipulated. In other words, if he borrowed a carabao, and while in his possession the carabao had an offspring, he will have no right to use the offspring unless otherwise stipulated by the parties. Kaya lang by express provision of the law, this is essentially gratuitous. If there is a stipulation for the use of the thing, that is not commodatum. Q: What is the purpose of deposit? A: In deposit, a thing is delivered for safekeeping. That is the purpose of the delivery of the thing. The depositary is not supposed to use the thing. Q: As to contracts under credit transactions, what are the only principal contracts? A: The only principal contracts are commodatum, simple loan, and deposit. All other contracts covered by credit transactions are accessory contracts. All of them are security arrangements such as guaranty, suretyship, pledge, chattel mortgage, real estate mortgage, antichresis. LECTURE: In Art. 1316, commodatum and deposit are mentioned as real contracts. What is not present in this matrix is pledge. Q: Is simple loan also a real contract? A: Yes. Therefore, before the delivery of the thing borrowed the contract is not then perfected. But take note that even before the delivery of the thing which is the subject matter of the contract, the agreement between the parties is already a valid and binding agreement. In other words, there would already be rights arising from the agreement even if the contract itself has not yet been perfected. Q: If there was an agreement to constitute a commodatum in an agreement between A and B, B will borrow the carabao of A. Before the delivery of the carabao, is the agreement already valid and binding? A: Yes. Howeveer, the commodatum itself will not be perfected until the delivery of the carabao. This would definitely be relevant for example in pledge because the rights of the pledgee will only arise in relation to the thing pledged. For example, if there is failure to pay, he can only sell the thing pledged if the pledge was perfected. So kung wala pang delivery of the thing pledged he cannot avail of the remedies provided by law because the contract was not perfected. But since the agreement was already valid and binding, the other party who is entitled to delivery can already compel the other party to deliver the thing in order for the contract to be perfected or if the other party can no longer deliver it can be the basis of liability of that person who bound himself to deliver in this contract whether it is a deposit or pledge, which are real contracts.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

Q: Is commodatum essentially gratuitous? A: Yes. If there is compensation for the use, the SC ruled in the case of Republic v. Bagtas that the contract was a lease contract because there was compensation for the use of the bulls. Q: Is simple loan or mutuum essentially gratuitous? A: No. Simple loan or mutuum is ordinarily gratuitous such that when you borrow a sum of money from a friend, normally walang interest. Pag mag-charge siya ng interest hindi masyadong friend . Q: In such case, is the friend entitled to interest? A: Yes. He may be entitled to interest if there is an express stipulation in writing. I have somehow emphasized that Art.1956, in relation to interest, pertains to compensatory interest. Q: How is compensatory interest earned? A: If the sum of money was borrowed a year ago, and the parties agreed that it would be due today, the interest that would be earned from last year up to this day is compensatory interest. For the creditor to be entitled to this interest, it has to be expressly stipulated in writing. Q: How is interest by way of damages earned? A: If today creditor demanded for payment and the debtor failed to pay starting tomorrow he will be liable already for interest by way of damages. This time, hindi na kailangan na stipulated. So ang liability niya for interest is because he is liable for damages because he was already in delay. Q: What is interest rate in case of loan? A: If there was stipulation in writing, but no specific rate was agreed upon, it will be the legal rate which is 12%. But take note that the usury law had already been suspended kaya normally they can stipulate as to any interest rate except that again the SC from time to time would consider an interest rate as stipulated by the parties to be contrary to morals – to be immoral because it is excessive, unreasonable, thus it is declared void. Eg. 3% per month interest plus 3% per month penalty were both reduced to 1% per month. Yung 3% per month interest which is 36% per annum was considered contrary to morals – immoral, excessive, exorbitant, therefore void. Q: If the interest stipulated is void, would the creditor still be entitled to interest? A: Yes. Pero Ang ginagawa ng SC would reduce the rate to the legal rate. As in the example provided, yung 3% naging 11% per month kaya effectively 12% padn per annum. Q: As to the penalty na 3% naging 1%, is there basis to the reduction? A: Yes. Because in obligations with a penal clause, yung penalty may be reduced in two scenarios: 1)because the penalty is excessive or exorbitant; or 2) there was partial fulfillment or even irregular fulfillment of the obligation. In that case, may partial payments naman kaya that was used as a ground to reduce the penalty from 3% per month to 1% per month. Q: Is deposit ordinarily a gratuitous contract? A: Yes. Deposit ordinarily is a gratuitous contract. When you ask your classmate to hold your book maybe for over the weekend for safekeeping habang nagbabakasyon ka sa boracay, that would be a deposit. But normally you don’t have to pay for the safekeeping of your book. However, this is subject to the exception that there could be an agreement for payment of rentals or even without such stipulation for the payment of rentals if the

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depositary is in the business of safekeeping. So if you deliver goods or things for safekeeping, it is already understood that you have to pay rentals because the depositary is engaged in such business. Q: What is the effect of one of the parties? A: COMMODATUM This contract is purely personal in character. Hence, death of one of the parties extinguishes the contract

MUTUUM This is not a purely personal contract. Therefore, if the creditor dies, his heirs will be happy to demand for the performance of the debtor’s obligation. If debtor dies, obligation is not extinguished. His estate will be responsible for the performance of his obligation.

Q: Is deposit a personal contract? A: The law would consider deposit personal only if it is gratuitous in character. Q: In relation to a contract of loan, what is the A: COMMODATUM movables and immovables eg. 5 hectares of land, house and lot (you can use the house and lot without compensation)

subject matter in commodatum? Mutuum? MUTUUM only movables eg. a sum of money, 1 kilo of sugar

As to whether the subject may be consumable or nonconsumable : COMMODATUM MUTUUM 1. Nonconsumables 1. Consumables -the thing ordinarily should be - there is no other article which would nonconsumable because there is an allow a nonconsumable thing to be obligation to return the very same thing. the subject matter of mutuum. If the goods or the thing is a consumable - eg: Borrowing one kilo of mascovado thing and it is used in accordance to its sugar, that is consumable. you have nature, it will be consumed at wala ng to pay if you are the borrower with maisasauli so dapat nonconsummable. one kilo of mascovado sugar of the same kind and quality but obviously 2. Consumables (Art.1936) not of the same sugar which you - as long as the purpose is not for borrowed (baket ka pa nanghiram consumption. kung hindi mo gagamitin) 2. Nonconsumables (According to Prof. Tolentino and Atty. Uribe) But according to Atty. Uribe, there can be valid mutuum over a nonconsummable thing based on his experience. Atty. Uribe: I had an experience a few meters away San Sebastian. I went to Central Bookstore outlet in Ever Gotesco. When I asked for Volume IV of Prof. Tolentino’s book, the salesperson asked me if I can wait for a few minutes as he will just get a book from another bookstore, I think to Rex Bookstore. When he returned, he sold the book which he got from the other bookstore but he told me that he will just have to deliver a kind of such book when their stocks arrive. In other words, when I tried to buy the book, wala pa silang stocks pero paparating na. So effectively, walang problema between me and Central Bookstore, that’s a sale and therefore I acquired ownership over the book. But what was the legal relationship Transcribed by: Tere Carbero and Mafe Halili

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

between the Central Bookstore and the Rex Bookstore in relation to the book which was sold to them? The possible claims are that 1)it is a barter; or 2)it is a loan. This can never be barter because this involves the same kind of thing. Kapag barter, dapat kalabaw at kabayo. In fact the law expressly provides na kapag barter, nonfungible. Pero since this can be replaced by a thing of the same kind and quality, this is fungible. It cannot be barter rather it is really a loan. Why? It has to be a loan because ownership has to pass to the Central Bookstore so that ownership will pass to me by way of sale. However, they will have an obligation to pay the other bookstore with a thing of the same kind and quality. So I think Tolentino is correct in considering nonconsummables to be a valid subject matter of a contract of loan. The explanation here by some authors is that yung definitions ng simple loan and commodatum under Art.1933 is defective in the sense that if properly translated from the old Civil Code to the New Civil Code, the word that should have appeared instead of consumables for mutuum should have been fungible. Instead of nonconsummables in commodatum, it should have been nonfungible. In other words, in commodatum the thing borrowed cannot be replaced by a thing of the same kind and quality. The bailee or the borrower has to return the very same thing kaya nonfungible. Whereas in simple loan, borrower can return a thing of the same kind and quality kaya fungible sya. The word should not have been really consumable but fungible. Q: In relation to deposit, what is the subject matter in judicial deposit? Extrajudicial deposit? JUDICIAL DEPOSIT MUTUUM Generally immovables only movables (although hindi naman dadalhin ang immovable mismo sa korte if this is a parcel of land. Certificates of title would be delivered to the court) As to whether the subject may be consumable or nonconsumable : in deposit, it may be consumable or nonconsummable. It does not matter. Although I would say that if the goods are perishable na consumables, the period of the deposit will just be a very short period. Baka ilang oras lang or ilang araw kase consumable na perishable pa. Whereas pag nonconsumable, maski 50 yrs. Q: In relation to expenses incurred by the bailee in relation to the thing borrowed in commodatum: Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with Tito with an understanding that the latter could use it for 1 year for his personal or family use while Pedro works in Riyadh. He did not tell Tito that the brakes of the van were faulty. Tito had the van tuned up and the brakes repaired. He spent a total amount of P15,000.00 apparently for both the tune up and the repair of the brakes system. After using the vehicle for two weeks, Tito discovered that it consumed too much fuel. To make up for the expenses, he leased it to Anabelle. Two months later, Pedro returned to the Philippines and asked Tito to return the van. Unfortunately, while being driven by Tito, the van was accidentally damaged by a cargo truck without his fault. Who shall bear the P15,000.00 spent for the van? Who shall bear the cost for the van’s fuel, oil, and other materials while it was with Tito? A: Tito. Libre na nga niya ginamit ung van pati ba naman fuel ipapa-shoulder pa niya sa may-ari. Abuso na yan. In commodatum, first you have to determine the nature of the expense. Is the expense necessary for the use or preservation? If it is not necessary for the

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

use or preservation (eg. He replaced lang yung tires, ginawa niyang mug tires or mug wheels) he cannot demand for reimbursement for such expense. Walang reimbursement. Ang kotse nilagyan niya ng spoiler sa likod, obviously that is not necessary for the use and preservation unless malinaw that he borrowed the car as a sports car (mukhang ang spoiler ay kailangan yata sa mga sports car). As far as the expenses for the use and preservation dalawa ito: 1) in relation to this problem, tune up; 2) repair ng brakes. You have to qualify further whether it is an ordinary expense or an extraordinary expense. For ordinary expense like Tito had the van tuned up, ung tune-up he cannot demand for reimbursement ditto kase kailangan naman talaga yun for the use of the car. If you would be using it, you have to have the car tuned up every now and then. Pero yung repair of the brakes, this is an extraordinary expense which can be the subject of reimbursement. Kaya doon sa P15,000.00, a portion of that can be reimbursed because it pertains to an extraordinary expense. Pero in relation to accidental damage caused by the cargo truck, yung accidental damage happened while the truck was being used. The law provides that for extraordinary expenses the bailee can demand for reimbursement ng 100% if the damage was caused while not being used. Halimbawa, nariyan lang siya sa parking area niya, nagkaroon ng earthquake, whatever expense that will have to be spent for the repair will be wholly reimbursable. But if the damage was caused while the thing was being used, like in this problem, the reimbursement will only be up to 50%. Again, this is an extraordinary expense but the damage was caused while the thing was being used. Q: Into the rights and obligations of the parties: what would be the effect of the loss of the thing borrowed while the thing is in the possession of the bailee or the borrower? A: If the loss was caused by a fortuitous event, ordinarily the bailor will bear the loss if the bailor was the owner. Take note, in commodatum the bailor need not be the owner of the thing loaned because there is no transfer of ownership. But if he is the owner, he will be the one to bear the loss because again, there being no transfer of ownership, he remains to be the owner under the res perit domino rule, the owner bears the loss. Note: under certain circumstances, even if the loss of thing borrowed was due to a fortuitous event it will be the bailee or the borrower who will bear the loss even if he is not the owner. PROBLEM: A, upon request, loaned his passenger jeepney to B to enable the latter to bring his sick wife from Paniqui, Tarlac to the Philippine General Hospital in Manila for treatment. On the way back to Paniqui, after leaving his wife at the hospital, people stopped the passenger jeepney. B stopped for them and allowed them to ride on board accepting payment from them just as in the case of an ordinary passenger jeepneys plying the route. As B was crossing Bamban, there was a thrust of lahar from Mt. Pinatubo. The jeep that was loaned to him was wrecked. (Ordinarily, there would be questions that would be asked because a certain event happened just in the immediate past. Ito 1993 but yung Mt. Pinatubo erupted actually in 1991.) Q: What do you call the contract that was entered into by A and B with respect to the passenger jeepney that was loaned by A to B to transport the latter’s sick wife to Manila? A: If the answer given is contract of loan, hindi masyadong maganda. In fact, the examiner already said “the jeepney that was loaned by A to B”. A better or more accurate answer is that this is a contract of commodatum. It appears in the facts that there has been no compensation for the use of the jeepney. Neighbor lang niya ito, mukhang favor lang niya ito for the use of the jeepney for him to be able to bring his wife to PGH. Q: Is B obliged to pay for the use of the passenger jeepney? A: No. In commodatum, there is no obligation to pay and in fact under the facts there was no stipulation that B is required to pay rental for the use of the jeepney. Q: Is B liable to A for the loss of the jeepney.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

A: The loss of the jeepney was due to a fortuitous event, lahar. However, he would be liable, as the law provides, because he used the thing for a purpose different from that agreed upon by the parties. He was only allowed to use the jeepney to bring his wife to the hospital. He was not allowed by the owner to use it as a passenger jeepney. Siguro mahigpit ang pangangailangan kase nasa ospital ang asawa. But this would fall squarely under Art. 1942 where the bailee will be the one to bear the loss, he will be liable for the loss even if the loss was due to fortuitous event because he devoted the thing to other purpose not contemplated by the parties. This is a good law definitely because had he not used it as a passenger jeepeney, baka hindi inabutan ng lahar kaya he would be liable for the loss. Q: A borrowed B’s truck during a fire which broke out in A’s garage. He had time to save only one vehicle and he saved his car instead of the truck. Is he liable for the loss of B’s truck? Why? A: Yes because there here is a conflict of interest. Instead of saving the truck which he borrowed, he saved his own car. By express provision of the law, if he chooses to save his thing instead of the thing which he borrowed when he had the opportunity to save one of the two things, he can be held liable for the loss of the thing. But you consider the phraseology of the question, he had the time to save only one vehicle. Atty Uribe: I had a student here in San Sebastian, the only student in almost 20 years of teaching, who gave us an answer to a similar question (she is now a lawyer). Sir, it depends on how the cars were parked  if they were parked one after the other, I’m sure she was imagining dun sa mga parking area ng apartment units were vehicles are parked one after the other. So if you are in front, before you could bring your car out of the garage all the other cars would have to be driven out of the garage. E lalo na kung ikaw yung nasa dulo. Kararating mo pa lang ng alas-singko ng umaga tapos may aalis na ng alas-sais gigisingin ka na naman dahil somebody will be leaving the garage. So sabi niya if that is the case, then the borrower cannot be held liable because if the car was in front then he will not have any opportunity to save the car in front because he would only have the time to save the car which was parked at the last row. I actually had to think really hard dun sa tanong na yun because if you consider the phraseology, he saved his car instead of the truck. The premise of the problem which is contemplated by the law is that he actually had the opportunity to save either. Hindi duon sa scenario niya where he never had the opportunity to save either because he could only save one. Hindi mo pwedeng ma-save yung isa because the other cars are still at the back. So what is meant by 1942 is that the bailee actually had the opportunity to save either of the two: yung sarili niya at yung borrowed vehicle. And if he saved his own he would be liable for the loss of the borrowed truck. (At dahil nag-isip ako, binigyan ko sya ng 4points out of 5 ; nasa arguments lang yan, kung gaano kaganda ung arguments. Ung iba, may tamang sagot pero di maganda ang explanations. Sometimes I will not give full points) Q: Give other scenarios where the bailee will be the one to bear the loss. A: If the the bailee kept the thing longer than the period stipulated. This is consistent with Art. 1165 that (to deliver a determinate thing and the thing was lost or destroyed due to a fortuitous event) he may still be held liable for the loss of the thing if he was already in delay at the time of the lost. In the case of Republic v. Bagtas, where the SC actually stated that the contract was a contract of lease despite the contention of the estate of Bagtas that it is commodatum, the SC held that even if this contract is commodatum, still liable pa din ang estate because the estate kept it longer than the period stipulated. Under the facts, nagexpire na ang period, nag-request ng extension for one year, pinagbigyan for the extension , ang succeeding request for the extensions hindi na pinagbigyan and thereafter the bull died. Even if the lost was due to a fortuitous event because the estate was already in delay in the delivery of the bulls still, under Art. 1942, the estate was held liable. The other reason why the estate of Bagtas was held liable in that case was because when the bulls were delivered to Bagtas, may appraised value ang bawat bull, yung isa tipong P1,300.00, yung isa

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P1,200.00. In other words if there is an appraised value of the thing borrowed when it was delivered to the borrower, even if the thing will be lost or destroyed due to a fortuitous event, he would be liable for the loss of the thing. In other words, may appraised value e. Kapag nawala yan sayo, ah yan ang babayaran mo.. the appraised value of the thing. Q: Must the bailor be the owner? A: No. The bailor need not be the owner. However, in mutuum, ownership passes to the borrower or the debtor with the delivery of the thing borrowed. Kaya res perit domino rule ang mag-aaply dito. Q: We actually had a case sa law office where this person borrowed money from a bank. Instead of depositing the amount borrowed to an account with the bank or just asking for a check, he actually asked the cash to be delivered to him. After 15mins. from the time he left the bank, na-holdup. Can he still be compelled to pay in that contract of loan? A: Yes. Ownership already passed to him and therefore even if the loss was due to a fortuitous event he will still have to bear the loss and can be compelled to pay the amount. What is a facultative compensation? A: In obligations, if one of the debts pertains to the obligation of the bailee in commodatum the bailee cannot invoke compensation but the bailor can. The law actually says compensation shall not be proper but what is meant by law is there can be no legal compensation but there can be facultative compensation if the one invoking compensation is the bailor. Policy here of the law is when the bailor or the depositor demands for the return of the thing, they have every right to expect that the thing will have to be delivered to them. Therefore, the bailee cannot invoke compensation Q: What is a precarium? A: It is a special kind of commodatum where the bailor can demand for the return of the thing borrowed at will or at anytime. But this can happen only if there was no stipulation as to duration nor the use of the thing or the use of the thing is merely tolerated by the owner. If there was a period agreed upon (eg. 3mos. within which the bailee could use the thing), the bailor, as a rule, cannot validly demand for the return of the thing before the expiration of the period. Maski gratuitous ang contract na ito, the bailor has to respect the right of the bailee to use the thing until the expiration of the period. Q: What is the exception to the general rule that bailor cannot validly demand for the return of the thing before the expiration of the period? A: The first scenario is when there is an urgent need on the part of the bailor (siya naman ang may kailangan ngayon. If you are the bailee isaoli mo ang hiniram mo. If this is a car you were allowed by the bailor to use for one month but on the 6th day he had to bring his wife to the hospital, of course you have to return the car). Would that result to the extinguishment or termination of the contract? No. that will merely suspend the contract until the urgent need of the bailor is over. Kapag tapos na ang urgent need niya, the bailor is required to return the thing borrowed to the bailee for the bailee to continue with the use of thing until the expiration of the period. The second scenario is when bailee committed an act of ingratitude. If he borrowed a car of the bailor and thereafter before the expiration of the period the borrower raped the daughter of the bailor, that would be an act of ingratitude, wherein the bailor would have the right to demand for the return of the car especially if the incident happened inside the car. Take note if you will read the provision under donations, for that act to be an act of ingratitude the law requires that the person raped, the daughter, must no longer be under the parental authority of the bailor (kaya kung 45yrs.old na ang daughter mukhang hindi na siya act of ingratitude .)

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NOTE: If there is a provision citing another provision, by all means, please read the provisions cited kase makukumpleto lang ang understanding niyo doon sa provision if you will read also the very provision cited in that article. Q: As far as mutuum is concerned, may the borrower be compelled to pay in a currency which is not in Philippine currency? A: Yes, if it was so stipulated by the parties. RA 8183 would now allow parties to stipulate as to which currency debts in money are to be paid unlike the law before this, which is RA 529, which would only allow payment of debts in money in Philippine currency. Siguro alam niyo yung reason kung baket dati may RA 529.. kase we really had a problem with dollars. During that time napakaprecious ng mga US dollars sobra-sobra ang requirement dito pero konti lang ang pumapasok during that time kaya talagang regulated ang dollars. In fact under that law anyone who receives US dollars is required to surrender the dollars to the Central Bank within 24hrs. from the receipt of the US dollars. Hindi naman pupunta ka talaga sa Mabini. You just have to surrender it to a bank. But obviously, with the repeal of this law in 1996, mukhang hindi na nten kailangan talaga ang US dollars or at least hindi na naten problema obviously, dahil sa OFWs. Sila ang tunay na bayani ng bansang ito. Ang problem dito allegedly is sumosobra yung dollars. Ang effect is nagsstrengthen yung peso pero ang nagssuffer ay yung mga OFWs parin. I had a friend in Japan. Before the peso strengthened, ang kinikita nya sa Japan would be equivalent to P100,000.00 per month. But because of strengthening of the peso, lately parang P80,000.00 per month na lang ang value ng kanyang income (pero minsan mas malaki pa yan sa kinikita ng isang abogado ). Q: A deposit made in compliance with a legal obligation is: a) an extrajudicial deposit b) a voluntary deposit c) necessary deposit d) a deposit with a warehouseman e) letters a and b. A: On its face, parang ang sagot A agad because a deposit made in compliance with a legal obligation is an extrajudicial deposit. There are two kinds of extrajudicial: necessary and voluntary. This actually made in compliance is more of a necessary deposit because there are two kinds of extrajudicial: yung isa is voluntary which is not made in compliance with a legal obligation. Kaya pag meron kayong nabasa, huwag agad agad sumagot. Tingnan niyo ung iba baka mas tama siya at mas accurate. The best answer is necessary deposit. Q: Ana rented a safety deposit box at the Alto Bank, paid the rental fee, and was given the key. Ana put her jewelry and her gold coins in the box. Days after, three armed men gained entry into the Alto Bank opening its vault and several safety deposit boxes including Ana’s and emptied them of their contents. Could Ana hold Alto Bank liable for the loss of the contents of her safety deposit box? A: Ordinarily if the loss of the thing deposited is due to a fortuitous event, it will be the depositor (if he is the owner) who will bear the loss. The reason for this is that in deposit the ownership does not pass to the depositary because the thing will be delivered only for safekeeping. However, there are instances when the depositary cannot validly invoke fortuitous event because probably there was concurring negligence on his part. Yes, she can hold Alto Bank liable if she can prove that there was concurring negligence on the part of the Alto Bank. A good example is a case decided by the SC in relation to pawnshops. The fact that there appears to be no security guard or at least the security guard was not even required to testify more often than not dahil wala talagang security guard - then that is negligence which can be the basis of liability by one invoking

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the fortuitous event. Here, under this circumstances again, it will be the depositary who will bear the loss even if the loss was due to a fortuitous event. Q: Is savings deposit a deposit ? A: No. In relation to a bank loan and savings deposit, a savings deposit is not a deposit but a simple loan. Savings deposits, current deposits, and time deposits are not deposits nor are they irregular deposits. SC would say these transactions are in the nature of irregular deposits. Hindi sila irregular deposits rather they are in the nature of irregular deposits (which means may pagka-deposit). Why in the nature of? Because kapag deposit, supposedly the depositary cannot use. But if it is an irregular deposit, the depositary would have the right to use. In here, the bank can use the amount deposited. Although hindi sya deposit, at least it is in the nature of an irregular deposit. Ang bank ginagamit naman talaga nya ung pera at doon sya kumikita because the bank will lend the money. As depositor in a savings account, ang interest rate na ibibigay sayo ay .04% annually. Ganun kataas pero kapag ikaw ang umutang sa kanila, mga 12% or 14% per annum kapag mga housing loan. So ganun kalayo ang difference between the interest that they will pay you as to the interest that you will have to pay them kaya kumikita talaga ang mga banks. Q: When would a deposit be considered as an irregular deposit? A: In general, if the depositary has the right to use the thing. But if he has the right to use pwedeng deposit padn siya as long as the principal purpose would still be safekeeping. But he may have the right to use maybe for only for a day. Example is when a car is delivered to another person. However, that person can use the car everyday to bring his children to the school and bring back the children home. Apparently, hindi na sya deposit. Mukhang pwede na siyang commodatum (kung gratuitous ang use) or pwede ng lease (kung nagbabayad na siya). If this same car is delivered to the other for safekeeping, maybe the depositary would be allowed to use the car maski once lang, example eh in one car show. In such case, the principal purpose would still be safekeeping kaya it would not change the nature of the contract. The other scenario where the deposit would be an irregular deposit is when the use of the thing, even if not expressly granted or permitted by the depositor, is necessary for the preservation of the thing. A good example would pertain to a deposit of a car. Those na may alam sa kotse would know that if you don’t turn on the engine of the car for at least 10 days, 99% possibility that the battery will be discharged. Maski ganun ka-brand new yung battery mo i-try mo lang 10 days mong wag gamitin ang engine at wag mong iturn on, madidischarge yan More than that, if you don’t drive the car for a period of 2 months you will notice yung tires ng sasakyan ay flat na. I don’t know the scientific explanation to that because if you would use the car everyday hindi naman nfa-flat ang tire unless meron talagang problema. In other words if, you are the depositary you may have to use the car to preserve the car so you should drive the car every now and then maybe from Manila to Boracay and then to Baguio for the preservation of the species. Q: In the province, farmer couple borrowed money from the local merchant. To guaranty payment, they left the Torrens title of their land with the merchant for him to hold until they pay the loan. Is there a contract of pledge, contract of mortgage, contract of antichresis, or none of the above? A: None of the above, the transaction is neither a pledge, a mortgage, nor antichresis It is not a contract of antichresis is because there is nothing in the facts which would tell you that the creditor was given the right to the fruits. However, he would have the obligation to apply the fruits to the interest if owing. If there is an excess, the excess should be applied to the principal. Q: May this be a pledge?

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A: Apparently, the subject matter of the contract is a parcel of land. Since the contract of pledge pertains to movables, then it appears that this cannot be a contract of pledge. But it may be argued that this is a contract of pledge but what was pledged was not the land but the certificate of title. Although the examiner said left the “Torrens title”, what is really meant here is the certificate. Maybe it was the certificate which was pledged by the debtor. The problem with that argument is, what if the principal debtor defaults, then the creditor would sell the certificate? Ibebenta nya ang papel, medyo wala yatang bibili jan sa papel na yan. Q: Is this a contract of mortgage? A: Since this is a parcel of land, it appears that this would be a real estate mortgage. Q: Under the facts, may this be a real estate mortgage? A: It is claimed that it cannot be because the agreement is not in writing or it is not in fact in a public instrument nor was it registered. I cannot agree really with this position. I think the best answer to this question is this is a contract of real estate mortgage because the law actually does not require a particular form as far as the real estate mortgage is concerned. By express provision of the law, even if this contract is not registered, it may still be a valid and binding contract between the parties. The limitation only provided by law, as far as real estate mortgage is concerned, as interpreted by the Supreme Court, is that the mortgagee creditor cannot foreclose the mortgage if it is not in a public instrument. Registration is not even required in order for the creditor to be able to foreclose. But it will not ordinarily bind third persons if not registered. But even if the mortgage is not in a public instrument, for example it is in a private instrument, while there can be no valid foreclosure because the instrument is still in a private instrument, at least the creditor here would have a right under Article 1357 which is to demand for this contract to be in the form prescribed by law, because the contract had already been perfected. Considering that there was already delivery of the Torrens title, this would no longer be covered by Statute of Frauds. Pag verbal lng ang real estate mortgage, his remedy here is 1357 for him to be able to foreclose the mortgage. So the best answer here is this is a contract of a real estate mortgage. **But then again, many questions would require you to distinguish one transaction from another. Go into the nature of each transaction first, then you can go into the characteristics, subject matter. Q: Distinguish a contract of chattel mortgage from a contract of pledge. A: In a way, there’s a need to distinguish these two because both involve movables. Obviously, chattel mortgage is not a real contract, pledge is a real contract. Q: Distinguish between a contract of real estate mortgage and a contract of sale with right of repurchase. Why is there a need to distinguish these two? A: A contract of real estate mortgage is an accessory contract. A contract of sale with right of repurchase is a principal contract. In fact, in a contract of real estate mortgage, upon perfection, there would be no transfer of ownership. In contract of sale with right to repurchase, once there is delivery, there is transfer of ownership, although the ownership would still be a conditional ownership. Q: The relevance in this question? A: Under the law on sales, a contract of sale with right of repurchase may be treated actually merely as an equitable mortgage. And then equitable mortgage is actually a mortgage. It has all the elements of a mortgage but it is not in the form of a mortgage. Form lang ang nagkakaiba, but all the requisites would actually pertain to a mortgage. PLEDGE TWO KINDS:

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a. Pledge by operation of law or legal pledge b. Voluntary Pledge (by contract or by agreement of the parties) Q: When would there be a legal pledge? Under what circumstances? A: There would be a legal pledge if a creditor is in the possession of a movable property owned by principal debtor and he would have the right to retain such movable property to secure fulfillment of the obligation of this debtor and if the debtor wouldn’t pay, the creditor would have the right to sell that thing to satisfy his claim. Basically, Article 2121 enumerates 3 scenarios where there would be legal guarantees but the enumeration is not exclusive because even under1914 in agency, if the agent for example incurred expenses for accomplishment of the purpose of agency, and a property to be delivered to the principal was received by this agent, he would have the right to retain this property in pledge to secure the fulfillment of the obligation of the principal to him as far as reimbursement of the expenses is concerned. But the other scenarios mentioned in 2121 would be found in Articles 546, 1731, 1994. Article 1731 pertains to a contract for a piece of work where, for example a car was delivered to a car repair shop for repair. After the repair works were made and the bill was presented to the owner of the car, the owner failed to pay, then the car repair shop would have the right to retain the car in pledge. Thereafter, if this owner fails to pay after a certain period, normally he would be given 30 days within which to pay, then the car repair shop would have the right to sell the car to satisfy his claim. Article 1994 pertains to the right of depositary to retain the things deposited by depositor. Like in a hotel, pag ang customer sa hotel would deposit certain items (like jewelries) and the rentals have not been paid or the bill for his stay in the hotel have not been paid, the hotel would have the right to retain the things in pledge. Thereafter, the hotel may sell the things to satisfy its claim. *In chattel mortgage, a personal property is recorded as a security for the performance of an obligation. This is the reason why it is claimed that this is a formal contract. In a real estate mortgage, a real property or an immovable property is subjected to the claim of the creditor. In antichresis, if there is one unique security arrangement, it is antichresis because it is not an ordinary security arrangement. Nag iiba iba ito ng nature. Before Civil Code, it is treated as a conditional sale. But under the Civil Code, it is a security arrangement because the thing may even be sold by the antichretic creditor in case the principal debtor defaults but it is not an ordinary security arrangement because with this arrangement, the principal obligation may even be extinguished by mere antichresis. Q: Why? A: Because in this arrangement, the creditor would have a right to the fruits of the immovables, however, he would have the obligation to apply the fruits to the interest if owing and then to the principal. This one, somehow, would have the aspect of payment. PURPOSE: All these are entered into to secure fulfillment of the obligation AS TO CAUSE: If the person who entered into this contract is the principal debtor himself, meaning if the pledgor or the mortgagor is the principal debtor himself, then the cause in the pledge or mortgage will be the same cause in the principal contract. The essential reason which impelled him to pledge or to mortgage his property will be the reason why he entered in the contract of loan or the other principal contract which is to be secured by this accessory contract. However, if the pledgor or the mortgagor is a third person, the cause could be liberality pag walang consideration or it may be for compensation. He may receive a sum of money or any other consideration for the execution of these contracts. In guaranty or suretyship, the guarantor or surety is ALWAYS a third person. But in pledge or mortgage, ordinarily, the pledgor or mortgagor is the principal debtor himself. Pero pwede rin third person. In fact, sa bangko if u borrow money from the bank and you can’t

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provide for a security, likeparcel of land wcu actually own, hindi ka papautangin. But pag preferred client ng bank, you may be allowed to borrow even if the security may be provided by a third person. SUBJECT MATTER/OBJECT: a. Pledge and chattel mortgage: movables b. Real estate and antichresis: immovables PLEDGE: Q: A cow was pledged. Because pledge is a real contract, the cow must be delivered in order for the contract to be perfected. While in the possession of the pledge (pledgee is the person to whom the property was delivered as a security in a contract of pledge). While the cow was in the possession of the pledgee, I had an offspring. (a) Who owns the offspring? The pledgor or if he is also the principal debtor, call him pledgor-debtor. The law requires the pledgor to be the absolute owner of the thing. The accessories/fruits would go to the owner of the thing. (b) However, because he is the owner of the thing, would the pledgor have the right to demand for delivery of the offspring to him from the pledgee? The answer ordinarily is no, because despite the fact that the offspring would be owned still by the pledgor during the existence of the pledge, the pledgee has the right to the thing. The offspring would be covered by the pledge. All these would be covered by the pledge – the thing pledged, the fruits, the offspring. He would have the right to retain the thing as a security for the fulfillment of the obligation and if the principal debtor defaults, he would have the right to sell not only the mother cow but also the offspring to satisfy his claim. CHATTEL MORTGAGE: Q: Chattel mortgage over a house, may it be a valid and binding chattel mortgage? A: It may be a valid chattel mortgage if the house is made of light materials like nipa hut. These houses can be moved from one barangay to another. They are practically movables. But the problem here is a chattel mortgage over a concrete house. Exceptionally, it may still be a valid mortgage over a house if the house was really intended for demolition. In other words, what were really mortgage were the materials of the house. Meron pa bang silbi ang mga materials ng isang bahay? Yes. There are people who would actually live by this business of buying woods and materials from the demolished house. The SC ruled that the chattel mortgage was a valid chattel mortgage. The problem really is a chattel mortgage over a concrete house which is not for demolition. X constructed a house in a lot which he was leasing from Y. Later, X executed a chattel mortgage over said house in favor of Z as security for a loan obtained from the latter. Still later, X acquired ownership over the land where his house was constructed. After which, he mortgaged both house and land in favor of the bank, which mortgage is annotated on the Torrens certificate of title. When the bidder at the foreclosure sale foreclosed the mortgage, it was the bank(creditor) which acquired X’s house and lot. Learning of the proceedings conducted by the bank, Z is now demanding that the bank reconvey to him X’s house or pay X’s loan to him plus interest. Q: Is Z’s demand against the bank valid and sustainable? Why? A: Z’s demand that the bank reconvey to him X’s house would only be a valid demand if the chattel mortgage over the house is a valid and binding chattel mortgage as against the bank. But obviously, the answer to this is no. A chattel mortgage over an immovable property while binding between the parties, under the principle of estoppel, the SC would say that the mortgagor will not be allowed to question the validity of mortgage because he signed the chattel mortgage even if it involves immovable property. But the chattel

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mortgage is always void as against third persons. In relation the chattel mortgage over the house, the bank is a third person. And therefore as to the bank, the chattel mortgage as to the house is a void chattel mortgage. In relation to the claim that the bank should pay X’s loan to him, there is no basis to that claim because the bank has nothing to do with the loan. There is no privity of contract between the bank and Z or even X. The loan contract was between X and Z. The bank has nothing to do with that loan. Vinny constructed a building on a parcel of land he leased from Andrea. He chattel mortgaged the land to Felicia. When he couldn’t pay Felicia, Felicia initiated foreclosure proceeding. Vinny claimed that the building he had constructed on the leased land cannot be validly foreclosed because the building was by law an immovable. Q: Is Vinny correct? A: (Harmonize the facts daw! ) Under the facts, the chattel mortgaged the land, tapos the building cannot be forclosed. So what was really mortgaged, the land or the building? (Sbi ni sir, he considers this a typo error lang daw) Ang chinattel mortgaged was the building because Vinny was claiming that the building cannot be validly foreclosed because it is an immovable. So, Vinny apparently chattel mortgaged the building, not the land. But do not state such, it is not the building which is foreclose, it is the mortgage over the building which is foreclosed. (Do not shortcut daw, parang jejemon ang dating daw! ) To be very accurate, foreclose the mortgage over the property. So, is Vinny correct? The answer is definitely no. He cannot oppose the foreclosure over the mortgage, not because the mortgage really is a valid mortgage but because he is estopped from doing so. Under the principle of estoppel, the mortgagor himself cannot question the validity of the mortgage. In the problem, no third person is involved. To secure the payment to B of a loan, A, the owner of the lot, executed a chattel mortgage on the building he erected thereon as well as on some newly bought machinery stored therein. Thereafter, a judgment was rendered against A in favor of C who had the building and the machinery levied upon to satisfy the judgment. Q: Is the chattel mortgage binding on C? A: The answer is yes, as far as the machinery is concerned because under the facts, the machineries are newly bought machineries stored therein. It does not appear to be an immovable property. It was not brought to a building for a certain industry or a certain work. And therefore, it will still be considered as a movable property. But as far as the building is concerned, the chattel mortgage over the building cannot bind a third person. The mortgage is void as far as third persons are concerned. So, it cannot bind C, a third person. Q: While the law requires that the thing to be mortgaged be a movable property, may a chattel mortgage over a property ordinarily considered as an immovable property be a valid and binding chattel mortgage? A: The answer is yes, if there is a law which treats such immovable property merely as personalty for purposes of chattel mortgage. Q: And is there such a law? A: The answer is yes, the chattel mortgage law which is older than your grandparents would treat certain immovables merely as personalty. These would include large cattles and growing crops. Large cattles and growing crops ordinarily would be considered as immovables but the chattel mortgage law merely considered them as personalty for purposes of the chattel mortgage. Thus, it would be a valid and binding chattel mortgage if the things mortgaged are large cattle or growing crops. REAL ESTATE MORTGAGE/ANTICHRESIS: IMMOVABLES A big difference between a contract of sale and a contract of pledge or a mortgage would pertain to the ownership over the thing. In sale, a contract of sale would be valid even if the seller is not the owner of the thing sold. Ownership over the thing sold is not one of the

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essential elements. But that is not so in pledge and mortgage. By express provision of the law, Article 2085, the mortgagor/pledgor must be the absolute owner. The question here would pertain to this problem. MARCOS V. BAUTISTA A borrowed money from B. To secure the fulfillment of her obligation to B, A mortgaged a parcel of land. But at the time the mortgage is constituted, A was not yet the owner of the land because that was still the subject of a pending application under the homestead law. But before the obligation of A to B became due and demandable, that land was awarded to her. So A was already the owner at the time when the obligation became due. And definitely, when she failed to pay and B filed an action for the foreclosure of the mortgage, A was already the owner. Nonetheless, A questioned the validity of the foreclosure. Q: Was the foreclosure valid? A: The SC ruled that the foreclosure was not valid because the mortgagor was not yet the owner at the time of the constitution of the mortgage. The pledgor or mortgagor must be the owner not only at the time when the obligation became due, not only at the time of foreclosure or the sale of the thing, but also at the time of the constitution of the mortgagor. Otherwise, the pledge or mortgage would be void. *In relation to the subject matter, one other requirement and essential requisite for a pledge or mortgage to be valid is that the pledgor or mortgagor must have free disposal of the thing pledged or mortgaged. A person may be the absolute owner but he may not have free disposal for one reason or another. The best reason why he will not have free disposal is because there is order of the court for him to retain the thing, by way of attachment or by way of garnishment. If there is a mortgage over the thing, that is a void pledge or mortgage. The other reason could be that the pledgor or mortgagor is suffering civil interdiction. As such, he is prohibited from disposing the property which would be effective inter vivos. In the same manner, if a person or entity like a corporation is under receivership, it will not have free disposal. The Board of Directors cannot bind the corporation in a pledge over the properties of the corporation because then it will be the receiver who would actually have control over the properties of the corporation. The law requires the pledgor or mortgagor to have free disposal of the thing for the pledge or mortgage to be valid. IN RELATION TO THIS ESSENTIAL REQUISITE: A, B and C are co-owners in equal shares of a residential house and lot. During their coownership, the following were respective done by the co-owners: B and C mortgaged the house to secure a loan. Q: What is the legal effect of the mortgage contract executed by B and C? A: That mortgage will only bind the interest of B and C over the mortgaged house and lot. If their interest are equal, then the mortgage over the house and lot will only pertain to 2/3 of the property. It will not bind A. Because in mortgage, the mortgagor must be the absolute owner of the thing mortgage. CHARACTERISTICS: All these contracts are accessory contracts. But how are they perfected? Ang may issue lang here is pledge, which is a real contract. The problem here pertains to the kind of delivery for the perfection of the pledge. In other words, would constructive delivery suffice just like in sale? Or is it required that there be physical delivery or actual delivery of the thing in order for the pledge to be perfected? The SC would tell us ordinarily it should be physical delivery. There should be actual, material delivery of the thing for the pledge to be perfected. However, in exceptional circumstances when it would be an unreasonable requirement for the thing or the goods to be physically delivered to the pledgee, then constructive delivery may suffice.

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BANGKO FILIPINO ESPANOL v. PETERSON The goods pledged were voluminous goods found in a warehouse. What the pledgor did was to deliver the keys to the warehouse to the pledgee. Q: Upon the delivery of the keys to the pledgee, was there already a perfected pledge? A: The SC said yes. De Leon and others would call this symbolic delivery because it would have been an unreasonable requirement for the thing to be physically delivered to the pledgee. So the delivery of the keys to the place where the goods are located would result already in a perfected pledge. YULIONGSIU V. PNB Three ships were pledged. The parties executed a public instrument wherein it was stated thatwhile the ship were still manned by the crew of Yuliongsiu, the borrower-pledgor, they will be under the control and supervision of PNB. Was there a perfected pledge? Why is there an issue of whether the pledge again had already been perfected? Because if the principal debtor defaulted, and the pledge had not yet been perfected, the pledgee cannot invoke the remedies under the law on pledge. He cannot invoke any right under the contract. Q: So, was there a perfected pledge? A: The SC said yes. Citing the ruling in BANGKO FILIPINO ESPANOL v. PETERSON, it would be an unreasonable requirement for Yuliongsiu to be required to physically deliver the ships to PNB. Thus, symbolic delivery suffices for the perfection of the pledge. **Take Note: Ordinarily, verbal pledge? May it be perfected? Yes, as long as there was delivery. But for a pledge to bind third persons, the law requires that such pledge must be in a public instrument and it must be dated and the property pledged must be described in that instrument. As to chattel mortgage and real estate mortgage, this is where the debate would lie. Real estate or chattel mortgage, are they really solemn contract or formal contracts. Especially in real estate mortgage, Justice Vitug would only be the only author who would claim na solemn or formal contract ang real estate mortgage. I am also not one of those, not even De Leon would consider this a solemn contract because while the law says the real estate mortgage must be recorded in the Registry of Property, however the law says if not, it would still be binding upon the parties. By express provision, a mere promise to constitute a mortgage already gives rise to a personal action between the contracting parties. As long as the contract had already been perfected, an action to compel the other party to have that contract in the form required by law may already prosper under Article 1357. I already mentioned if it is not yet in a public instrument, the mortgagee cannot foreclose the mortgage. Remedy: Invoke Article 1357. Antichresis is no doubt a solemn contract. The law is very clear. An agreement as to the principal and interest must be in writing, otherwise, the antichresis is void. These contracts definitely are unilateral contract because at least as to mortgage, upon perfection of the mortgage, only one would have an obligation under the contract. In pledge, the pledgee is the one who would have an obligation. Upon perfection, the pledgor does not have any obligation anymore (paupo-upo na lng pro takot na takot because if the principal debtor defaults, his property would be sold in an auction sale! ). **Into the rights and obligations of the parties: isa sa pinakamadaming tanong would fall under pactum commisorium. As to the right to use: Q: Does the pledgee have the right to use because the thing was delivered to him, he is in possession, can the pledgee use the thing?

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A: The answer is no because the thing was delivered to him as security, not for him to use. But then again, there are exceptions. If he was authorized to use by the pledgor or it is necessary for the preservation of the thing. This is exactly the same rule as in the law on deposit. Q: But in Chattel mortgage or the real estate mortgage, does the mortgagee have the right to use the thing? A: Ordinarily, in a standard arrangement as far as these contracts are concerned, the mortgagee will have no right to use because in the first place, delivery is not required. Ordinarily, the mortgagor would still be in possession of the thing mortgaged. Q: However, in one case decided by the SC, what if there was a stipulation that the thing mortgaged would be delivered to the mortgagee in order for the creditor to deliver the amount borrowed to the borrower? Would that change the nature of the contract as a contract of mortgage, whether chattel or real estate? A: The SC said no. It will remain to be a mortgage. Although, it means sigurista ang mortgagee. Q: Is this a reasonable stipulation? A: This is a very much reasonable stipulation especially in chattel mortgage. Q: Why? Can a mortgagee foreclose the mortgage if the goods or the thing is not in his possession? A: The answer is no. And if the thing in the possession of the mortgagor by the time the principal debtor defaults, tinatago na ang thing mortgaged. Nagdidisappear na. (The car mortgaged would normally be with the mortgagor who is the borrower. Pag nagdefault na ang borrower nay an, you would not see the car anymore pag ikaw ang bank. You may still have to file an action for replevin in order to recover the car, in order for you to foreclose the mortgage. Kaya ang gusto ng ibang creditor/mortgagee, in possession na sila ng thing mortgaged so that if the principal debtor defaults, they can immediately foreclose the mortgage. But obviously, some debtors would not agree to this because they would use the machineries.) Q: In antichresis, does the antichretic creditor have the right to use the thing? A: No. Ang right nya is to the fruits – to receive the fruits, not the right to use. Q: In fact, in a standard arrangement, who is in possession of the thing which is the subject matter of antichresis? A: The creditor/antichretic creditor. The thing would be delivered to him although this is not a real contract but it would ordinarily be delivered to him because he would have the right to the fruits. Q: Kaya lng, if the creditor returns the thing to the debtor, would that extinguished antichresis? A: No. But there will be changes in the rights and obligations. For example, ordinarily with the thing being with the creditor, it is the creditor who is obliged under the law to pay the real property tax. Pro if he returns the thing to the debtor, although he would still have the right to receive the fruits, he would no longer have the obligation to pay the taxes. So obviously, he doesn’t have the right to use the thing. INDIVISIBILITY: The law provides that a contract of pledge or a contract of mortgage is an indivisible contract. What is indivisible is the contract, not the things pledged or mortgaged, not the obligations. Q: Pwede bang the things pledged divisible, like 3 watches?

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A: Pwede. Q: But would the pledge be divisible? A: No indivisible pa rin. Q: Or the obligation to pay may be divisible. Example, Obligation to pay P300,000 payable in 3 months (100,000 per month). The obligation is divisible. Is the contract of pledge divisible? A: No indivisible pa rin. Meaning, until the entire obligation is fully paid or fully complied with, the pledge or mortgage will continue to have full force and effect. Q: Example, the obligation is an obligation to pay P100,000 and he delivered a watch to secure the fulfillment of his obligation. Thereafter, he was able to pay P95,000. Can he now demand for the return of the watch? A: No. Under the principle of indivisibility. Until the entire obligation is fully paid, the pledge or mortgage will continue to have full force and effect. But consider this scenario, he delivered 3 watches to secure an obligation which is in the amount of 300,000. After paying 100,000, he demanded from the creditor for the return of 1 of the watches. That’s not a valid demand under the indivisibility principle. **Take note that this principle is not applicable if it was clear in their agreement that each watch will secure a specific amount. Q: Would this principle be affected if the debtor dies? Kung ang obligation is an obligation to deliver 300,000 tapos ang idineliver as a security, 3 watches. When the debtor died, he was survived by 3 children. Ordinarily, who would own the 3 watches? A: The 3 children. Kung walang ibang heirs, kung walang will, each one of them would be entitled to 1 watch. So, if one of the children told the creditor, here is my 100,000 return to me the watch of which I am the heir. Q: Can the creditor be compelled to deliver the watch to that heir? A: No. The indivisibility principle would not be affected by the death of the debtor nor would it be affected by the death of the creditor. Q: Does it matter if the obligation involved, if there are 2 or more debtor, does it matter if the obligation is only a joint obligation if they are not solidarily liable? A: No. The indivisibility principle will not be affected by the fact that the obligation is not a solidary obligation. This was the ruling of the SC in DAYRIT v. CA where 4 persons obtained certain goods from the creditor. To secure fulfillment of the obligation, only one of them (si Dayrit lng) ang nag execute ng real estate mortgage over his parcels of land. When the obligation of these 4 became due, thecreditor demanded payment but no one was able to pay until Dayrit offered to pay only his share claiming that the obligation is a joint obligation. But after paying his share, he demanded that the mortgage over his parcels of land be cancelled. The SC ruled that the obligation was a joint obligation because the obligation does not fall under any of the 3 circumstances under Article 1207 where the obligation would be considered solidary. But being a joint obligation, does it give Dayrit the right to have the mortgage cancel after paying his share? The SC ruled no because of the indivisibility principle. Before the real estate mortgage can be cancelled, the entire indebtedness must be fully paid. PACTUM COMMISORIUM:

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

ABC loaned to MNO 50000 for which the latter pledged 400 shares of stock in XYZ Inc. It was agreed that if the pledgor failed to pay the loan with 10% yearly interest within 4 years, the pledgee is authorized to foreclose the shares of stock. As required, MNO delivered possession of the shares to ABC with the understanding that the shares would be returned to MNO upon payment of the loan. However, the loan was not paid on time. Q: A month after 4 years, may the shares of stock pledged be deemed owned by ABC? A: Of course not. Even under the facts, it was clear that he is only authorized to foreclose the shares if there was no payment within 4 years. And even if there was a stipulation to the effect that he will already be the owner after the lapse of 4 years, that stipulation would even be void. To secure a loan obtained from a rural bank, Purita assigned her leasehold right over a stall in a public market in favor of the bank. The deed of assignment provides that in case of default in the payment of the loan, the bank shall have the right to sell the leasehold right over the stall as her attorney-in-fact and to apply the proceeds to the payment of the loan. Q: Assuming the assignment to be a mortgage, does the provision giving the bank the power to sell Purita’s right constitute pactum commisorium or not? Why? A: The provision does not constitute pactum commisorium because for a stipulation to be considered as Pactum commisorium, it should provide for the automatic transfer of ownership over the property pledged or mortgaged of the principal debtor. By mere default, owner will now belong to the pledgee or mortgagee. That would be pactum commisorium and that is void under the law. That is not the remedy of the pledgee or mortgagee. His remedy under the law is to have thing sold in pledge thru a public auction, or thru a notary public, or in a mortgage thru a foreclosure sale. Q: In relation to pledge, if the pledgee appropriates the thing for himself, may that be a valid appropriation of the thing? A: That may be valid in a scenario where the appropriation happened after a 2 nd auction. Kung sa 1st auction, walang bidders or the only bidder is the pledgee, the law requires another auction. In the 2nd auction at wala pa ring bidder or the only bidder is the pledgee, the law allows him now to appropriate the thing pledged for himself. However, that would extinguish not only the principal obligation, but also the pledge. X borrowed money from Y and gave a piece of land as security by way of mortgage. It was expressly agreed between the parties in the mortgage contract that upon non-payment of the debt on time, the mortgaged land would already belong to Y. Q: If X defaulted in paying, would Y now become the owner of the land? A: Definitely no because that stipulation constitutes pactum commisorium which is void. Q: Suppose in the preceding question, the agreement between X and Y was that if X failed to pay the mortgage debt on time, the debts shall be paid by the land mortgaged by X to Y, would your answer be the same as in the preceding question? A: No. That stipulation now does not constitute PC because upon default, the mortgagee does not automatically aquire ownership here. As stated, the debts shall be paid with the land. Ownership does not automatically pass upon default, rather the mortgagee, upon default, will only have the right to demand that the land be delivered to him as payment. This would be a valid dation in payment in case the principal debtor defaults. Would there be transfer of ownership before delivery in dation in payment? No. There can never be dation in payment without delivery. But with delivery by way of dacion, ownership then would pass. Q: Rosario obtained a loan of 100,000 from Jennifer and pledged her diamond ring. The contract signed by the parties stipulated that if Rosario is unable to redeem the ring on due date, she would execute a document in favor of Jennifer providing that the ring shall automatically be considered full payment of the loan.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

(a) Is the contract valid? There are 2 contracts here. First, there’s a loan. And second, there’s a pledge. But apparently, the 2 contracts may be in one document lang. Which contract is referred to in the question? In fact, is the contract valid? A: The answer is yes because even if the stipulation would be considered as pactum commisorium, it will not affect the validity of the loan, it will not affect the validity of the mortgage. It is only the stipulation which is void, not the contract. But even the stipulation, I would admit thereis a debate on this. With the stipulation that if Rosario is unable to redeem the ring on due date, she would execute a document in favor of Jennifer providing that the ring shall automatically be considered full payment of the loan, does that constitute pactum commisorium? The answer is no. Upon default of the principal debtor, the creditor does not acquire ownership automatically. The creditor under the facts would only have the right to compel the other party to execute a document in favor of Jennifer that the ring shall automatically be considered full payment. Until the execution of the document, the creditor will not acquire ownership. Therefore, it is not pactum commisorium. (b) Will your answer to A be the same if the contract stipulates that upon failure of Rosario to redeem the ring on due date, Jennifer may immediately sell the ring and appropriate the entire proceeds thereof for herself as full payment of the loan? Reason. A: The answer would be the same. The validity of the contract would not be affected. That stipulation cannot constitute PC. In fact, the creditor here is only given the right to sell which normally would be given to creditor upon default of the debtor, by stipulation of the debtor. Without stipulation, the creditor may ask the notary public to sell the thing in order for the proceeds to be applied to the indebtedness. REMEDIES: Q: If a thing was pledged or mortgaged, and instead of having the thing pledged sold in an auction sale or instead of foreclosing the mortgage, the creditor instead filed an action for specific performance to demand for the payment of the debt. May the action prosper? A: The SC would say yes. That is one of the remedies of a creditor. However, if he files an action for recovery of the sum of money instead of a foreclosure, he is deemed to have abandoned his rights under the mortgage or he would be deemed to have abandoned his rights under pledge. In other words, manalo man sya sa kaso na yun, he would not have preference over the property pledged or mortgaged. He will merely be considered as an unsecured creditor just like the other unsecured creditors. As to the right to recover deficiency: Q: If the thing pledged was sold (public auction or foreclosure sale), net proceeds 80000 pero ang unpaid amount 100000. So may deficiency the 20000. Can the creditor (pledgee or mortgagee) recover such deficiency from whom in the first place? A: Principal debtor is different from the pledgor/mortgagor. If there is a right to recover the deficiency, from whom? From the principal debtor or mortgagor? It will be from the principal debtor. Ang liability ng mortgagor extends only to the property itself. But he cannot be held liable for any other amount because he bound himself only as far as the property is concerned without prejudice to an express stipulation. But is there such a right to recover deficiency? Yes. Q: What if the thing was sold for 130000, and the total indebtedness was only 100,000 may excess na 30,000, who is entitled to the excess? A: The excess should go to the owner of the property kc mawawalan na sya ng property, mapupunta sa highest bidder. At least man lang ung excess, mapunta sa kanya konswelo de bobo.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

Q: Pero ito ba ang rules pagdating sa pledge, real estate mortgage, chattel mortgage, antichresis? A: The answer is yes except sa pledge. Sa chattel mortgage, real estate, antichresis, if there is deficiency, there’s a right to recover the deficiency, if there is an excess, it goes to the mortgagor, take note, who is not necessarily the principal debtor. Q: Pero sa pledge, baligtad. In case there is a deficiency, can the pledgee recover the deficiency from the principal debtor? A: The answer is no. If there is a stipulation in the contract of pledge where it is provided that in case of deficiency, the pledgee can recover deficiency from the principal debtor, that stipulation is void. Therefore, the pledgee cannot recover any deficiency. Q: However, if there is an excess, who would be entitled to the excess? A: The answer is the pledgee, not the pledgor. The only plausible explanation is because this is a form of balancing. Wala syang right to recover deficiency. If only for that, I think the rule is reasonable. Q: But is it possible that the pledgor may be entitled to the excess instead of the pledgee? A: Yes, if there is a stipulation to that effect. Without a stipulation, the pledgee would be entitled to the excess. Sa deficiency, void ang stipulation. Sa excess, that’s a valid and binding stipulation. **Aside from pledge, there is only one other exception to the rules mentioned. This would be in chattel mortgage. If there is a deficiency, there would be no right to recover deficiency. Ordinarily, under the chattel mortgage law, pag may deficiency there would be a right to recover deficiency. But under a specific scenario, the mortgagee(creditor) may have no right to recover deficiency. Saan mangyayari ito? When the Recto law would be applicable. If the mortgage is covered by Recto law, if ther is deficiency, there would be no right to recover deficiency. Q: Mr. Matunod lent Mr. Maganaka 100000. as security of the payment of said amount, Maganaka delivered to Matunod 2 rings in pledge. When Maganaka failed to pay, matunod foreclosed and had the ring sold at the auction. The proceeds of the sale after deducting expenses amounted to only 70000. (a) May Matunod demand the deficiency from Maganaka? A: Of course he can always demand. But is the demand a valid demand or can he recoverthe deficiency? That will not be a valid demand. He cannot recover the deficiency because, under the law in pledge, in case there is deficiency, the pledgee cannot recover. (b) Assume that the proceeds, after deducting expenses, amounted to 150000. Would Matunod have been entitled to the excess? A: No, there being no stipulation that the excess shall pertain to the pledgor. Under the law on pledge, the excess goes to the pledgee. A diamond ring and female cow were pledged to secure a loan amounting to 100000. The pledge appeared in a public instrument. A month later, the cow gave birth. When the amount of the loan was not paid upon its maturity date, the pledgee cause to be sold at the public auction the ring, the cow, and the cow’s offspring. And the amount of 150000 was realized. The pledgor, upon learning of the sale, demanded from the pledgee the excess in the price over and above the amount of the principal obligation claiming that he is entitled to the excess and claiming that the offspring was not included in the pledge. The pledgee refused to comply with the demand. Q: How would you resolve this conflict? Give your reasons.

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CREDIT TRANSACTIONS Atty. Crisostomo Uribe

A: I would decide this conflict in favor of the pledgee. First, as to the claim of the pledgor that the offspring was not included in the pledge, underthe law offsprings are covered by the pledge unless otherwise stipulated by the parties. There appears to be no stipulation which would exclude the offspring from the pledge, thus, under the law, it is covered by the pledge. Second, as to the excess, the claim of the pledgor that he is entitled to the excess is not tenable because under the law on pledge, it is the pledgee who is entitled to the excess unless otherwise stipulated by the parties. There being no stipulation to that effect, under the facts, the pledgee is the one entitled to the excess. Q: Similar facts dun sa Matunod and Maganaka. But the question now, suppose the ring, instead of being pledged, has been mortgaged to Matunod, would Matunod have been entitled to the deficiency if the sales proceeds were less than the indebtedness or to the excess if the proceeds were more? A: As to the deficiency, under the chattel mortgage law, the mortgagee can recover the deficiency. But would this be covered by the Recto law? No, because this is not a sale on installment. So the chattel mortgage law will apply that the pledgee can recover the deficiency. Q: Who would be entitled to the excess? Would the pledgee be entitled? A: No. The excess would go to the mortgagor which is the reasonable rule. RIGHT OF REDEMPTION/EQUITY OF REDEMPTION TO A MORTGAGOR Q: Are the right of redemption and equity of redemption the same? A: No. The right of redemption is the right after the sale. Equity of redemption is the right to redeem before the sale is conducted. Q: Is there an equity of redemption in pledge? A: There is none. Walang equity or right kc normally ang pinepledge mga singsing lang, relo. So medyo di masyadong expensive. Q: Sa judicial foreclosure? A: there would be equity of redemption. Before the court would order the sale of the thing in a foreclosure sale, the redemptioner/principal debtor would have the opportunity to pay the debt, would be given a period, normally 90 days. Pag judicial foreclosure, wala ng right of redemption kc nga meron ng equity of redemption. Except: if the mortgagee is a financial institution. Pag mga banks ang mortgagee, even in judicial foreclosure, merong right of redemption. In extrajudicial foreclosure, is there a right of redemption? Yes, which is 1 year. Sa judicial foreclosure, what is the period of redemption? 12 mnths or 1 year? Is there a difference between the 2? There is a big difference, 5 days. Old rule, 12 months (means 30*12). Now, the SC deemed it wise to change the law into 1 year. Q: 1 year from when? A: 1 year from the registration of the sale. Until the deed of sale is registered, the 1 year period will not even start to run. *The mortgage was not registered and the offer to redeem was filed thereafter, more than 1 year from the sale. The 1 year period never even started to run because of the failure to register. Still, the offer to redeem was filed within 1 year from registration of the sale. It was a proper redemption.

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