UP Notes - Credit Transactions

FOR UP CANDIDATES ONLY
CREDIT
TRANSACTIONS
CIVIL LAW
Page 337 of 85
UP Law Bar Operations Commission 2023
CREDIT TRANSACTIONS CIVIL LAW
money or other consumable thing, upon
the condition that the same amount of the
CREDIT same kind and quality shall be paid [Art.
1933, Civil Code].
TRANSACTIONS
A. Kinds
I. LOAN
Commodatum vs. Mutuum
Art. 1933, Civil Code. By the contract of loan, one
of the parties delivers to another, either something
1. Nature
not consumable so that the latter may use the same Commodatum Mutuum
for a certain time and return it, in which case the
contract is called a commodatum; or money or other
Purely personal in Not purely personal in
consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in character character [Art. 1939,
which case the contract is simply called a loan or Civil Code]
mutuum.
Both are reciprocal obligations
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to As commodatum is a purely personal

pay interest. obligation, consequently:
1. The death of either the bailor or the bailee
In commodatum the bailor retains the ownership of extinguishes the contract
the thing loaned, while in simple loan, ownership
passes to the borrower.
2. The bailee can neither lend nor lease the
object of the contract to a third person.
However, the members of the bailee’s
Contract of Loan vs. Contract to Loan household may make use of the thing
Contract of Loan Contract to Loan loaned, unless there is a stipulation to the
contrary, or unless the nature of the thing
forbids such use [Art. 1939, Civil Code]
Real Contract: Consensual
perfected, not by Contract: perfected 2. Purpose
mere consent, but by by mere consent.
delivery of the object
Commodatum Mutuum
of the contract [Art. An accepted promise
1934, Civil Code; see to deliver something
Loan for permissive Loan for consumption
also Art. 1316, Civil by way of
or temporary use
Code]. commodatum or
[Art.1935, Civil
simple loan is binding
Code]
upon the parties [Art.
1934, Civil Code]. Note: If the purpose is not the use or
consumption of the thing, transaction may
Note: Contract to loan becomes a contract of
be a deposit.
loan once delivery of the object is made.
Commodatum is essentially gratuitous.

Two Types of Contracts of Loan
Hence, the contract ceases to be a
1. Commodatum – a contract where one
commodatum if any compensation is to be
party delivers to another something not
paid by the borrower who acquires the use. In
consumable so that the latter may use the
such a case, there arises a lease contract.
same for a certain time and return it [Art.
[see Arts. 1642, 1643, 1644, Civil Code]
1933, Civil Code].
2. Mutuum (Simple Loan) – a contract
where one party delivers to another,
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a. As to Object d. As to Obligations of the Borrower
Commodatum Mutuum Commodatum Mutuum
General Rule: General Rule: Borrower must Borrower need only

Involves non- Involves money or return the same pay an equal
consumable other consumable thing loaned [Art. amount of the same
movable or movable property 1933, Civil Code] kind and quality [Art.
immovable property 1953, Civil Code]
Consumable - cannot
Exception: be used in a manner General Rule: General Rule:
Consumable goods appropriate to their Bailor CANNOT Lender may NOT
may be the subject nature without their demand the return of demand the return of
of commodatum if being consumed [Art. the thing until after the thing loaned nor
the purpose of the 418, Civil Code] the expiration of the payment before the
contract is NOT period stipulated or lapse of the term
consumption of the the accomplishment agreed upon
object, as when it is of the use for which
merely for the contract was
exhibition constituted
[Art. 1936, Civil [Art.1946, Civil
Code] Code]
(e.g., stamps for an
exhibition) Exception: Bailor
may demand the
return or temporary
b. As to Ownership of the Thing use of the thing
Loaned loaned before the
expiration of the
term:
Commodatum Mutuum 1. In case of urgent
need [Art. 1946,
Retained by the Transferred to the
Civil Code]
bailor [Art. 1933, borrower
2. If the
Civil Code]
commodatum is
a precarium [Art.
c. As to Consideration 1947, Civil Code]
3. If the bailee
commits any of
Commodatum Mutuum
the acts of
Essentially May be gratuitous or ingratitude in Art.
gratuitous [Art. onerous, i.e. with 765 [Art. 1948,
1933, Civil Code] stipulated interest Civil Code]
If use is
compensated,
transaction is not a
commodatum, i.e.
lease.
Page 339 of 444

e. As to Liability for Loss ii. As to the Use of Fruits of the Thing
Loaned
Commodatum Mutuum General Rule: The bailee acquires the
permissive use of the thing loaned but NOT its
Bailor suffers the Borrower suffers the
fruits [Art. 1935, Civil Code].
loss of the subject loss even if caused
matter since he is exclusively by a
Exception: Parties stipulate otherwise; such
the owner [Arts. fortuitous event and
stipulation is considered valid [Art. 1940, Civil
1942 and 1174, he is not, therefore,
Code].
Civil Code] discharged from his
duty to pay the same
amount, kind and
b. Obligations of the Bailee (TUNR-
quality PBS)
1. Take care of the thing loaned with the

f. Commodatum proper diligence of a good father of a
family [Art. 1163, Civil Code].
3. Parties 2. Use the thing loaned only for the purpose
for which it was loaned and not for any
1. Bailee – debtor – person who receives other purpose [Arts. 1935, 1939 (2), 1942
2. Bailor – creditor – person who gives (1), Civil Code].
3. Not to lend the thing to a third person who
“Bailor” or “Bailee” may also be used in a is not a member of his household [Art.
contract of deposit. 1942 (4), Civil Code].
Who May Be a Bailor in Commodatum? Exception: The members of the bailee’s

Anyone. The bailor in commodatum need not household may make use of the thing
be the owner of the thing loaned [Art. 1938, loaned.
Civil Code], but as against the bailee, the
bailor retains ownership of the thing loaned. Exceptions to the Exception:
a. If there is a stipulation to the contrary,
a. Use by the Bailee or
b. The nature of the thing forbids such
i. As to Who May Use of the Property use [Art. 1939 (2), Civil Code].
Loaned
4. Return the thing upon the expiration of the
General Rule: The bailee acquires permissive period stipulated or after the
use of the thing loaned only for himself. He accomplishment of the use for which it has
may not lend nor lease the thing loaned to him been constituted [Arts. 1944, 1946, Civil
to a third person [Art. 1939 (2), Civil Code]. Code].
Exception: The members of the bailee’s Exception: Bailee has right of retention
household may make use of the thing loaned. for damages when the bailor who,
knowing the flaws of the thing loaned,
Exceptions to the Exception: does not advise the bailee of the same
1. If there is a stipulation to the contrary, or [Arts. 1951, 1944, Civil Code].
2. The nature of the thing forbids such use
[Art. 1939 (2), Civil Code]. 5. Pay for the ordinary expenses for the use
and preservation of the thing loaned [Art.
1941, Civil Code].
6. Bear equally (with the bailor) the

extraordinary expenses arising on the
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occasion of the actual use of the thing by 2. Refund the extraordinary expenses during
the bailee even though bailee acted the contract for the preservation of the
without fault [Art. 1949, Civil Code]. thing loaned [Art. 1949, Civil Code].
Exception: Contrary stipulation. Provided that: Bailee brings the same to

the knowledge of the bailor before
Solidarily liable when there are two or incurring them, except when they are so
more bailees to whom a thing is loaned in urgent that the reply cannot be awaited
the same contract [Art. 1945, Civil Code]. without danger.
Note: If, for the purpose of making use of 3. Bear equally (with the bailee) the
the thing loaned, the bailee incurs extraordinary expenses arising on the
expenses which are neither for the use occasion of actual use of the thing by the
nor the preservation of the thing, he is not bailee [Art. 1949, Civil Code].
entitled to reimbursement [Art. 1950, Civil
Code]. Exception: Contrary stipulation.
c. Obligations of the Bailor (DR-BP) 4. Pay damages to the bailee for hidden
flaws known to the bailor [Art. 1951, Civil
1. Demand the return of the thing only upon Code].
the expiration of the term or after the
accomplishment of the use [Art. 1946, Note: Bailor has no right of abandonment;
Civil Code]. he cannot exempt himself from payment
of expenses or damages to the bailee by
Exceptions: abandoning the thing to the latter [Art.
a. When bailor has urgent need of the 1952, Civil Code].
thing, he may demand its return
(extinguish commodatum) or its d. Liability for Deterioration
temporary use (suspend
commodatum) [Art. 1946, Civil Code]. General Rule: The bailee is NOT liable for the
b. Precarium [Art. 1947, Civil Code] or a deterioration of the thing loaned when the
contractual relation where the bailor deterioration of the thing is due only to the use
may demand the property loaned at thereof and without his fault [Art. 1943, Civil
will. Code].
c. If bailee commits any acts of
ingratitude in Art. 765 [Art. 1948, Civil Exception: The bailee is liable only when the
Code]: deterioration of the thing is due to his fault
d. Bailee committed some offense [Art. 1943, Civil Code].
against the person, honor or property
of the bailor, or of his wife or children e. Liability for Loss
under his parental authority;
e. Bailee imputes to bailor any criminal General Rule: The bailee is NOT liable for
offense, or any act involving moral loss of the thing due to a fortuitous event [Art.
turpitude, even though he should 1174, Civil Code].
prove it, unless the crime or act has Since the bailor retains ownership of the
been committed against the bailee property loaned, generally, it is the bailor who
himself, his wife or children under his bears the liability for loss of the property
authority; or loaned due to fortuitous events.
f. Bailee unduly refuses bailor support
when bailee is legally or morally Bailee is liable for loss if loss is due to
bound to give support to the bailor. Bailee’s fault.
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Exceptions: The bailee is liable for loss of the 3. Act/s of ingratitude has/have been
thing, even if it is through a fortuitous event, if committed by the bailee, and the bailor
the bailee [Art. 1942, Civil Code]: (DDS-KL) demands the return [Art. 1948, Civil Code]
1. Devoted the thing to any purpose different 4. Upon demand in case of Precarium [Art.
from that for which it has been loaned; 1947, Civil Code]
2. Loaned thing has been Delivered with 5. Bailor has Urgent need of the thing
appraisal of its value; loaned, and he demands the return (and
not just temporary use) [Art. 1946, Civil
Exception: Unless there is a stipulation Code]
exempting the bailee from responsibility in
case of a fortuitous event. 4. Mutuum or Simple Loan
3. Saved his own thing, being able to save Mutuum – a contract where one of the parties
either the thing borrowed or his own thing; (creditor) delivers to another (debtor/borrower)
4. Kept the thing longer than the period money or other consumable thing upon the
stipulated, or after the accomplishment of condition that the same amount of the same
the use for which the commodatum has kind and quality shall be paid [Art. 1933, Civil
been constituted; Code].
5. Lent or leased the thing to a third person;
a. Obligations of the Borrower (EVI)
Exception: The members of the bailee’s
household may make use of the thing 1. Pay the creditor an Equal amount of the
loaned. same kind and quality [Art. 1953, Civil
Code]
Exceptions to the exception: 2. Pay Value at the time of perfection of loan,
1. If there is a stipulation to the contrary, if impossible to deliver the same kind [Art.
or 1955, Civil Code]
2. The nature of the thing forbids such 3. Pay Interest, if stipulated in writing [Art.
use [Art. 1939 (2), Civil Code]. 1956, Civil Code]
f. Right of Retention Rights of the Borrower
General Rule: The bailee has no right of 1. Right of ownership; upon delivery/receipt
retention of the thing loaned on the ground of the loan of money or any fungible thing,
that the bailor owes him something, even the person acquires ownership of the
though it may be by reason of expenses [Art. money/fungible thing [Art. 1953, Civil
1944, Civil Code]. Code]
2. Right not to pay interest, unless stipulated
Exception: The bailee has the right of [Art. 1956, Civil Code]
retention for damages arising from hidden a. If the debtor, however, pays interest when
flaws when bailor, knowing the flaws of the there is no stipulation, the rules on solutio
thing loaned, does not advise the bailee of the indebiti, or natural obligations, shall be
same [Art. 1944, 1951, Civil Code]. applied [Art. 1960, Civil Code]
Note that the thing is retained by way of legal b. Obligations of the Creditor
pledge.
Barred from placing stipulations under any
g. Extinguishment (DEA-PU) cloak or device that circumvent laws on usury.
Such contract or stipulation shall be void [Art.
1. Death of either the bailor or the bailee [Art. 1957, Civil Code].
1939, Civil Code]
2. Expiration of term or accomplishment of
purpose [Art. 1946, Civil Code]
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Rights of the Creditor 1. Requisites for Interest to be
Chargeable (EWL)
1. Right to receive an equal amount of the
same kind and quality [Art. 1953, Civil 1. Must be Expressly stipulated [Art. 1956,
Code] Civil Code]
2. Right to receive interest, once stipulated
[Art. 1956, Civil Code] If interest is stipulated to be paid, but the
rate of interest is not stipulated, the rate is
5. Precarium 6% (i.e. legal interest).
Article 1947, Civil Code. The bailor may demand

Exceptions:
the thing at will, and the contractual relation is a. The debtor in delay is liable to pay
called a precarium, in the following cases: legal interest (6% per annum) as
1. If neither the duration of the contract nor the indemnity for damages [Art. 2209,
use to which the thing loaned should be Civil Code]
devoted, has been stipulated; or b. Interest accruing from unpaid interest
2. If the use of the thing is merely tolerated by the
owner.
– Interest demanded shall earn
interest from the time it is judicially
demanded [Art. 2212, Civil Code] or
Precarium is a kind of commodatum where where there is an express stipulation
the bailor may demand the thing at will. It has [Art. 1959, Civil Code]
been defined as a “contract by which the 2. Agreement must be in Writing [Art. 1956,
owner of a thing, at the request of another Civil Code]
person, gives the latter the thing for use as 3. Must be Lawful
long as the owner shall please” [De Leon,
Comments and Cases on Credit Transactions Note: If the above-mentioned requisites are
citing Cyc. Law Dictionary]. not met, and the borrower:
1. Paid interest by mistake, the creditor is
In either of the two cases mentioned in Art. obliged to return what was delivered [Arts.
1947, it is presumed that use of the thing has 1960 and 2154, Civil Code]
been granted subject to revocation by the 2. Voluntarily paid interest (i.e., with
bailor at any time, whether or not the use for knowledge that the requisites have not
which the thing has been loaned has been been met), the creditor is authorized to
accomplished. Hence, the name precarium retain what was paid [Art. 1423, Civil
[De Leon, supra]. Code]
Note: The use of the term “owner” in Art. 1947 2. Kinds of Interest
(2) is inaccurate. Per Art. 1938, the bailor
need not be the owner of the thing loaned [De
a. Conventional Interest
Leon, supra].
Simple interest – Paid for the principal at a
B. Interest certain rate fixed or stipulated by the parties.
Interest – The compensation allowed by law b. Interest on Interest

or fixed by the parties for the loan or
forbearance of money, goods or credits Compound Interest – Interest which is
(conventional interest), or the amount imposed when interest due and unpaid is
imposed by law or by courts as penalty or capitalized or added to the principal [Art.
indemnity for damages (compensatory 1959, Civil Code].
interest) [Siga-an v. Villanueva, G.R. No.
173227 (2009)]. The accrued interest is added to the principal
sum and the whole (principal and accrued
interest) is treated as a new principal upon
Page 343 of 444
which the interest is calculated for the next judicial demand until full payment.
period [Mambulao Lumber Co. v. Philippine
National Bank, G.R. No. L-22973 (1968)]. 3. In the absence of stipulated interest, in a
loan or forbearance of money, goods,
General Rule: Compound interest is not credits or judgments,
presumed [Art. 1959, Civil Code]. a. The rate of interest on the principal
amount shall be the prevailing legal
Exceptions: Compound interest may be interest prescribed by the Bangko
enforced: Sentral ng Pilipinas, which shall be
1. When there is an express written computed from default, i.e., from
stipulation to that effect [Art. 1956, Civil extrajudicial or judicial demand in
Code] or accordance with Art. 1169 of the Civil
2. Upon judicial demand [Art. 2212, Civil Code, UNTIL FULL PAYMENT,
Code] without compounding any interest
b. Interest due on the principal amount
c. Compensatory, Penalty or Indemnity accruing as of judicial demand shall
Interest SEPARATELY earn legal interest at
the prevailing rate prescribed by the
Also known as Legal Interest – That which the Bangko Sentral ng Pilipinas, from the
law directs to be charged in the absence of time of judicial demand UNTIL FULL
any agreement as to the rate between the PAYMENT.
parties, or when there are actual and 4. When the obligation, not constituting a
compensatory damages imposed by the Court loan or forbearance of money, goods,
[Siga-an v. Villanueva, supra]. credits or judgments, is breached
a. An interest on the amount of damages
awarded may be imposed in the
Rules for the Award of Interest in the
discretion of the court at the prevailing
Concept of Actual and Compensatory
legal interest prescribed by the
Damages Bangko Sentral ng Pilipinas, pursuant
to Arts. 2210 and 2011 of the Civil
Note: Jurisprudential basis is Lara's Gifts & Code.
Decors, Inc. v. Midtown Industrial Sales, Inc., b. No interest shall be adjudged on
G.R. No. 225433 (2019) unliquidated claims or damages until
the demand can be established with
1. When the obligation is breached, and it reasonable certainty.
consists in the payment of a sum of c. Where the amount of the claim or
money, i.e, a loan or forbearance of damages is established with
money, goods, credits or judgments, reasonable certainty, the prevailing
a. the interest due shall be that which is legal interest shall begin to run from
stipulated by the parties in writing, the time the claim is made
provided it is not excessive and extrajudicially or judicially (Art. 1169,
unconscionable. Civil Code) UNTIL FULL PAYMENT.
b. In the absence of a stipulated d. When such certainty cannot be so
reckoning date, interest shall be reasonably established at the time the
computed from default, i.e., from demand is made, the interest shall
extrajudicial or judicial demand in begin to run only from the date of the
accordance with Article 1169 of the judgment of the trial court (at which
Civil Code, UNTIL FULL PAYMENT, time the quantification of damages
without compounding any interest may be deemed to have been
2. Interest due on the principal amount reasonably ascertained) UNTIL FULL
accruing as of judicial demand shall PAYMENT.
SEPARATELY earn legal interest at the e. The actual base for the computation of
prevailing rate prescribed by the Bangko the interest shall, in any case, be on
Sentral ng Pilipinas, from the time of
Page 344 of 444
the principal amount finally adjudged, exorbitant” interest [Carpo v. Chua, G.R. Nos.
without compounding any interest 150773 and 153599 (2005)].
unless compounded interest is
expressly stipulated by law or Note: The Circular did not repeal or amend
regulation. the Usury Law, but simply suspended its
effectivity. Hence, should the Monetary Board
3. Usury restore interest rate ceilings on loans, the
Usury Law would again apply [De Leon,
Unlawful or Usurious Interest – Paid or supra].
stipulated to be paid beyond the maximum
fixed by law. 4. Finance Charges
The Usury Law [Act No. 2655] is an act fixing a. Under the Truth in Lending Act [RA
rates of interest on loans and declaring the 3765]
effect of receiving or taking usurious rates and
for other purposes [Arevalo v. Dimayuga, G.R. Section 3(3), Truth in Lending Act. "Finance
No. L-26218 (1927)]. charge" includes interest, fees, service charges,
discounts, and such other charges incident to the
Elements of Usury [De Leon, supra]: (MR-IT) extension of credit as the Board may be regulation
1. A loan or forbearance of Money prescribe.
2. An understanding between parties that the
loan shall and may be Returned Note: This law applies to all persons who
3. An unlawful Intent to take more than the extend credit, who require as an incident to
legal rate for the use of money or its extending credit, the payment of a finance
equivalent charge [Sec. 3 (4), Truth in Lending Act].
4. The Taking or agreeing to take for the use
of the loan of something in excess of what “Credit” is defined in the TILA as “any loan,
is allowed by law. mortgage, deed of trust, advance, or discount;
any conditional sales contract; any contract to
Note: A usurious loan transaction is not a sell, or sale or contract of sale of property or
complete nullity but defective only with respect services, either for present or future delivery,
to the agreed interest, i.e., as if no interest under which part or all of the price is payable
was stipulated [Carpo v. Chua, G.R. Nos. subsequent to the making of such sale or
150773 and 153599 (2005)]. Hence, if the contract; any rental-purchase contract; any
principal obligation is the payment of a sum of contract or arrangement for the hire, bailment,
money, the debtor will be liable for the or leasing of property; any option, demand,
principal plus legal interest, following Art. lien, pledge, or other claim against, or for the
2209. delivery of, property or money; any purchase,
or other acquisition of, or any credit upon the
The Monetary Board of the Central Bank of security of, any obligation of claim arising out
the Philippines (now the Bangko Sentral ng of any of the foregoing; and any transaction or
Pilipinas) issued Circular No. 905, Series of series of transactions having a similar purpose
1982 which lifted the ceilings on interest rates or effect [Sec. 3 (2), Truth in Lending Act].
pursuant to the powers granted to it by the
Usury Law. Thus, usury is legally non-
existent. Interest can be charged based on
agreement of the parties pursuant to Art.
1306.
BUT although usury is legally inexistent,

courts will not hesitate to declare void
“excessive, iniquitous, unconscionable,
Page 345 of 444

b. Requirement for Disclosure person within one year from the date of the
occurrence of the violation, in any court of
competent jurisdiction. In any action under
Section 4, Truth in Lending Act. Any creditor
this subsection in which any person is entitled
shall furnish to each person to whom credit is
to a recovery, the creditor shall be liable for
extended, prior to the consummation of the
reasonable attorney's fees and court costs as
transaction, a clear statement in writing setting
determined by the court.
forth, to the extent applicable and in accordance
b. Except as specified in subsection (a) of this
with rules and regulations prescribed by the Board,
section, nothing contained in this Act or any
the following information:
regulation contained in this Act or any
1. the cash price or delivered price of the property
regulation thereunder shall affect the validity
or service to be acquired;
or enforceability of any contract or
2. the amounts, if any, to be credited as down
transactions.
payment and/or trade-in;
c. Any person who willfully violates any
3. the difference between the amounts set forth
provision of this Act or any regulation issued
under clauses (1) and (2);
thereunder shall be fined by not less than
4. the charges, individually itemized, which are
P1,00 or more than P5,000 or imprisonment
paid or to be paid by such person in connection
for not less than 6 months, nor more than one
with the transaction but which are not incident
year or both.
to the extension of credit;
d. No punishment or penalty provided by this Act
5. the total amount to be financed;
shall apply to the Philippine Government or
6. the finance charge expressed in terms of
any agency or any political subdivision
pesos and centavos; and
thereof.
7. the percentage that the finance bears to the
e. A final judgment hereafter rendered in any
total amount to be financed expressed as a
criminal proceeding under this Act to the
simple annual rate on the outstanding unpaid
effect that a defendant has willfully violated
balance of the obligation.
this Act shall be prima facie evidence against
such defendant in an action or proceeding
brought by any other party against such
Under Sec. 4 (6), "finance charge" represents
defendant under this Act as to all matters
the amount to be paid by the debtor incident respecting which said judgment would be an
to the extension of credit such as interest or estoppel as between the parties thereto.
discounts, collection fees, credit investigation
fees, attorney’s fees, and other service
charges. The total finance charge represents c. Under the Philippine Credit Card
the difference between (1) the aggregate Industry Regulation Law [RA 10870]
consideration (down payment plus
installments) on the part of the debtor, and (2) Section 5(k), Philippine Credit Card Industry
the sum of the cash price and non-finance Regulation Law. Finance charges refer to the
charges [Sps. Silos v. Philippine National interest charged to the cardholder on all credit card
Bank, G.R. No. 181045 (2014)]. transactions in accordance with the terms and
conditions specified in the agreement on the use of
the credit card;
Should the requirement under the TILA be not
complied with, the penalties under Sec. 6 will
apply: Note: This law governs all credit card issuers,
acquirers and all credit card transactions.
Section 6, Truth in Lending Act.
a. Any creditor who in connection with any credit d. In Relation to Credit Limit
transaction fails to disclose to any person any
information in violation of this Act or any
Section 5(i), Philippine Credit Card Industry
regulation issued thereunder shall be liable to
Regulation Law. Credit card limit refers to the
such person in the amount of P100 or in an
maximum total amount for purchases, cash
amount equal to twice the finance charged
advances, balance transfers, and finance charges,
required by such creditor in connection with
service fees, penalties, and other charges which
such transaction, whichever is the greater,
can be charged to the credit card;
except that such liability shall not exceed
P2,000 on any credit transaction. Action to
recover such penalty may be brought by such
Page 346 of 444

Thus, in computing for the credit limit, the For a loan where the principal is payable in
finance charge is included. installments, interest per installment period
shall be calculated based on the outstanding
e. Requirement for Disclosure balance of the loan at the beginning of each
installment period.
Section 11, Philippine Credit Card Industry
Regulation Law. Information to be Disclosed. - A All credit card-related documents shall show
credit card issuer shall disclose to all credit repayment schedules in a manner consistent
cardholders and potential credit cardholders the with this provision. Marketing and advertising
following information: materials shall likewise be consistent with this
a. Finance charges for unpaid amounts after provision.
payment due date
Note: Basis is BSP Circular No. 1003, Series
f. When Finance Charge is Imposed of 2018, “Guidelines on the Establishment and
Operations of Credit Card lssuers to
Implement Republic Act No. 10870 or the
Section 10, Philippine Credit Card Industry
Regulation Law. Imposition of Finance Charges. - Philippine Credit Card Industry Regulations
Finance charges and other fees arising from Law.”
nonpayment in full or on time of the outstanding
balance shall be based on the unpaid amount of
the outstanding balance. II. DEPOSIT
A deposit is constituted from the moment a
g. How Finance Charge is Imposed person receives a thing belonging to another,
with the obligation of safely keeping it and of
Credit card issuers shall only charge interest returning the same [Art. 1962, Civil Code].
or finance charges arising from the non-
payment in full or on time of the outstanding Object of Deposit
balance based on the unpaid amount of the Art. 1966 provides that only movable things
outstanding balance as of statement cut-off may be the object of a deposit. However, Art.
date, but excluding: 2006 provides that movable as well as
1. the current billing cycle's purchase immovable property may be the object of
transactions reckoned from the previous sequestration or judicial deposit.
cycle's statement cut-off date; and
2. deferred payments under zero-interest Principal Purpose
installment arrangements which are not Safekeeping of the thing; if safekeeping is
yet due. NOT the principal purpose, or is only an
accessory obligation, there is NO DEPOSIT
Interest or finance charges shall be imposed but some other contract [Art. 1962, Civil
on the unpaid outstanding balance as of cut- Code].
off date each time a cardholder pays less
than, or does not pay on time, the outstanding Consideration
balance stated in his/her statement of A deposit is generally gratuitous, except:
account. Such interest or finance charge shall 1. If there is an agreement to the contrary
continue to be imposed until the outstanding 2. When the depositary is engaged in the
balance and applicable interest are fully paid. business of storing goods [Art. 1965, Civil
Code]
For credit card cash advances, a cardholder
may be charged cash advance fees and Parties
finance charges on the date that the cash is 1. Depositor (Bailor): the person who
obtained, subject to terms and conditions delivers, or formally transfers, gives, or
under the credit card agreement or contract. yields possession or control of the
movable property for purposes of
safekeeping
Page 347 of 444
2. Depositary (Bailee): the person who 2. Obligations of a Depositary (KRB)
receives it
1. Keep the thing safely
Kinds of Deposit 2. Return the thing to the depositor, heirs,
1. Extrajudicial successors or person designated in the
1. Voluntary – obligation arises as a contract, when required [Art. 1972, Civil
consequence of contract; Code], together with all its products,
2. Necessary – obligation arises as a accessories and accessions [Art. 1983,
consequence of law or quasi-contract Civil Code] at the place designated when
2. Judicial – obligation arises as a deposit was made. Otherwise, where the
consequence of a law allowing the thing may be [Art. 1987, Civil Code].
issuance of a judicial order constituting a
deposit Exception to return on demand: there is
no obligation to return on demand when
A. Voluntary Deposit (a) the thing is judicially attached while in
the depositary’s possession, or (b) when
Voluntary deposit – The deposit itself is a the depositary is notified of the opposition
real contract, as it is not perfected until the of a third person [Art. 1988, Civil Code].
delivery of the thing. A contract to deposit, or
an agreement to constitute a deposit, is Depositary has obligation to return on
consensual and binding [Art. 1963, Civil demand even if period is stipulated.
Code].
Note: The depositary must return the thing
A deposit may be made by two or more closed and sealed if it is delivered in that
persons (who believe that they are entitled to condition [Art. 1981, Civil Code].
the thing deposited with a third person). The
third person is to deliver the thing to the one to 3. Bear the expenses for preservation of the
whom it belongs [Art. 1968, Civil Code]. thing deposited if the deposit is onerous
[Art. 1992, Civil Code]
How Entered Into: Orally or in writing [Art.
1969, Civil Code]. Depositary NOT Liable for Loss
How Perfected: The deposit is perfected General Rule: The depositary is not liable in
upon delivery, which is made by the will of the the event of loss. The required degree of care
depositor [Arts. 1963 and 1968, Civil Code]. however, is greater if the deposit is for
compensation [Art. 1972, Civil Code].
1. Extinguishment
Exceptions: (NPC-FUTR)
Loss or destruction of thing deposited, or 1. Loss is through his fault or Negligence
1. In case of a gratuitous deposit, upon the [Art. 1170, Civil Code] or the negligence of
death of either the depositor or depositary his employee [Art. 1973, Civil Code], even
[Art. 1995, Civil Code]. The depositary is if the thing was insured [Art. 2207, Civil
not obliged to continue with the contract of Code];
deposit. 2. Loss while in his Possession, ordinarily
2. By other modes provided in the Civil raises presumption of fault on his part [Art.
Code, e.g. novation, merger, etc. [Art. 1265, Civil Code]
1231, Civil Code]. 3. Loss arose from the Character of the thing
deposited, and the depositary was notified
of, or was aware of such character at the
time of the constitution of the deposit [Art.
1993, Civil Code]
4. Loss is through a Fortuitous event, and if
Page 348 of 444

a. It is stipulated that depositary will be 4. Obligations of a Depositor
liable;
b. Depositary uses the thing without 1. Depositor is obliged to reimburse the
Depositor’s permission; depositary for expenses incurred for
c. Depositary delays its return; or preservation in a gratuitous deposit [Art.
d. Depositary allows others to use it [Art. 1992, Civil Code].
1979, Civil Code] 2. Depositor is obliged to pay losses incurred
5. Loss when depositary Uses the thing due to the character of the thing deposited
[Art. 1993, Civil Code].
Exception: Use with depositor’s
permission or for preservation [Art. 1977, Exceptions:
Civil Code] 1. Depositor was not aware nor expected to
know of the dangerous character of the
6. Loss when depositary deposits the thing thing;
with a Third person 2. Depositor notified the depositary of such
dangerous character;
Exception: if a stipulation allows for 3. Depositary was aware of the danger
deposit with a third person without advice from the depositor.
Exception to the Exception: if such third If stipulated, depositor is obliged to pay fees.
person is manifestly careless or unfit [Art.
1973, Civil Code]; 5. Authority of Depositor
7. Loss occurs and the depositary Receives 1. When there are two or more depositors
money/replacement, he must deliver such and they are not solidary and the thing
to the depositor [Art. 1990, Civil Code] admits of division, one cannot demand
more than his share [Art. 1985, Civil
3. Authority of Depositary (CC-UR) Code].
2. If he should lose his capacity to contract
1. Depositary may Change way of deposit if after having made the deposit, the thing
he may reasonably presume that the cannot be returned except to persons who
depositor would consent if he knew the may have administration of his property
situation. He is to notify the depositor and rights [Art. 1986, Civil Code].
thereof and wait for the latter’s decision,
unless delay would cause danger [Art. 6. Right of Retention
1974, Civil Code].
2. Depositary is required to Collect on The depositary may retain the thing until the
interest earned by certificates, bonds,
full payment of what may be due him by
securities and instruments when it
reason of the deposit [Art. 1994, Civil Code].
becomes due [Art. 1975, Civil Code].
3. Depositary cannot make Use of the thing Note that the thing is retained by way of legal
deposited, unless with depositor’s consent
pledge [Ortiz v. Kayanan, G.R. No. L-32974
or its preservation requires its use [Art.
(1979)].
1977, Civil Code].
4. Depositary may Return the thing to the
depositor even before the time B. Necessary Deposit
designated, if there is justifiable reason
not to keep it. Made in compliance with a legal obligation, or
on the occasion of any calamity, or by
Exception: when the deposit is for valuable travelers with common carriers [Arts. 1734-
consideration [Art. 1989, Civil Code] 1735, Civil Code], or by travelers in hotels and
inns [Arts. 1998-2004, Civil Code].
Page 349 of 444

1. Kinds of Necessary Deposit 4. When Hotel-Keeper Liable
(LCCH)
Regardless of the amount of care exercised,
1. Deposit made in compliance with a Legal the hotel-keeper is liable when:
obligation, in which case it is governed by 1. The loss or injury to personal property is
the law establishing it, and in case of caused by his servants or employees as
deficiency, the rules on voluntary deposit, well as by strangers [Art. 2000, Civil
e.g., Arts. 538, 586 and 2104 Code].
2. Deposit taking place on the occasion of 2. The loss is caused by the act of a thief or
any Calamity [Art. 2168, Civil Code] robber without the use of arms and
without the use of irresistible force [Art.
Note: There must be a causal relation 2001, Civil Code].
between the calamity and the constitution
of the deposit. In this case the deposit is 5. When Hotel-Keeper not Liable
governed by the rules on voluntary
deposit. 1. The loss or injury is caused by force
majeure, like flood, fire, [Art. 2000, Civil
3. Deposit made by passengers with Code], and theft or robbery by a
Common carriers [Art. 1754, Civil Code]. stranger—not the hotel-keeper’s servant
4. Deposit made by travelers in Hotels or or employee—with the use of arms or
inns [Art. 1998, Civil Code]. irresistible force [Art. 2001, Civil Code]
• Exception: Hotel-keeper is guilty of
2. Deposit by Travelers in Hotels and fault or negligence in failing to provide
Inns against the loss or injury from his
cause [Arts. 1170 and 1174, Civil
Before keepers of hotels or inns may be held Code]
responsible as depositaries with regard to the 2. The loss is due to the acts of the guest,
effects of their guests, the following must his family, servants, visitors [Art. 2002,
concur: Civil Code]
1. Keepers or their employees have 3. The loss arises from the character of the
previously been informed about the effects things brought into the hotel [Art. 2002,
brought by the guests; and Civil Code]
2. The latter have taken the precautions
prescribed regarding their safekeeping a. Rule in the Occurrence of Theft or
[Art. 1998, Civil Code]. Robbery
3. Extent of Liability Under Art. 1998, The act of a thief or robber, who has entered
Civil Code the hotel is not deemed force majeure, unless
it is done with the use of arms or through
1. Those lost or damaged in hotel rooms irresistible force [Art. 2001, Civil Code].
which come under the term “baggage” or
articles such as clothing as are ordinarily b. Exemption or Diminution of Liability
used by travelers
2. Those lost or damaged in hotel annexes The hotel-keeper cannot free himself from
such as vehicles in the hotel’s garage [De responsibility by posting notices to the effect
Leon, supra]. that he is not liable for the articles brought by
3. Those lost after the perfection of the the guest [Art. 2003, Civil Code]. This is due
contract of deposit [Art. 1962, Civil Code, to public policy. The hotel business is imbued
Durban Apartments v. Pioneer Insurance, with public interest [YHT Realty Corp. v. CA,
G.R. No. 179419 (2011)] G.R. No. 126780 (2005)].
Any stipulation between the hotel-keeper and
Page 350 of 444

the guest whereby the responsibility of the 1. To take care of the property with the
former as set forth in Arts. 1998 to 2001 is diligence of a good father of the family
suppressed or diminished shall be void [Art. [Art. 2008, Civil Code]
2003, Civil Code]. 2. To continue in his responsibility until the
controversy which gives rise thereto is
6. Hotel-Keeper’s Right to Retention ended, unless the court so orders [Art.
2007, Civil Code]
The hotel-keeper has a right to retain the
things brought into the hotel by the guest, as a 3. Applicable Law
security for credits on account of:
1. lodging, Judicial deposit law is remedial or procedural.
2. supplies usually furnished to hotel guests The Rules of Court shall govern matters not
[Art. 2004, Civil Code]. provided for in the Civil Code [Art. 2009, Civil
Code].
The right of retention recognized in this article
is in the nature of a pledge created by
operation of law [Ortiz v. Kayanan, supra].
III. GUARANTY AND
SURETYSHIP
C. Judicial Deposit or
Guaranty – A contract whereby a person
Sequestration (guarantor) binds himself to the creditor to
fulfill the obligation of the principal debtor in
Takes place when an attachment or seizure of case the latter should fail to do so [Art. 2047,
property in litigation is ordered [Arts. 2005- Civil Code].
2009, Civil Code]. It is the only type of deposit
that may involve immovable property. Suretyship – A relation which exists where
one person (surety) binds himself solidarily
Examples of Judicial Deposit [De Leon, supra] with the principal debtor, such that the former
1. When properties are attached by the undertakes a direct and primary obligation or
sheriff upon the filing of a complaint (Rule other duty to a third person (creditor), who is
57, Rules of Court) entitled to but one performance, and as
2. When a receiver (a disinterested party) is between the two who are bound, the latter
appointed by the court to administer and rather than the former should perform.
preserve the property in litigation (Rule 59,
Rules of Court) While a surety undertakes to pay if the
3. When personal property is seized by the principal does not pay, the guarantor only
sheriff in suits of replevin or manual binds himself to pay if the principal is unable
delivery of personal property (Rule 60, to pay [See benefit of excussion, Art. 2058,
Rules of Court) Civil Code].
1. Nature and Purpose A. Nature and Extent of

It is auxiliary to a case pending in court. The Guaranty
purpose is to maintain the status quo during
pendency of the litigation or to insure the right Article 2047, Civil Code. By guaranty a person,
of the parties to the property in case of a called the guarantor, binds himself to the creditor to
favorable judgment [De Leon, supra]. fulfill the obligation of the principal debtor in case
the latter should fail to do so.
2. Depositary of Sequestered If a person binds himself solidarily with the principal

Property debtor, the provisions of Section 4, Chapter 3, Title
1 of this Book shall be observed. In such case the
A person is appointed by the court [Art. 2007, contract is called a suretyship.
Civil Code] with the obligations—
Page 351 of 444
General Rule: Guaranty is gratuitous 3. Guarantor
Exception: When there is a stipulation to the a. Qualifications of a Guarantor [Art.

contrary [Art. 2048, Civil Code] 2056, Civil Code]
1. Obligation Secured by Guaranty 1. He possesses integrity;
2. He has capacity to bind himself;
1. The guaranty must be founded on a valid 3. He has sufficient property to answer for
principal obligation [Art. 2052 (1), Civil the obligation which he guarantees.
Code]
2. A guaranty may secure the performance General Rule: Creditor has the right to
of a voidable, unenforceable, and natural demand another guarantor with the
obligation [Art. 2052 (2), Civil Code]. This qualifications in Art. 2056 if the previous
implies that a guaranty may secure the guarantor has been convicted in first instance
performance of a: of a crime involving dishonesty or has become
a. Voidable contract – such contract is insolvent [Art. 2057, Civil Code].
binding, unless it is annulled by a
proper court action. Exception: Creditor has no right to demand a
b. Unenforceable contract – because replacement guarantor if he himself required
such contract is not void. and stipulated that the specified person
c. Natural obligation – the creditor may should be the guarantor.
proceed against the guarantor
although he has no right of action
3. Excussion
against the principal debtor for the
reason that the latter’s obligation is not
The guarantor cannot be compelled to pay the
civilly enforceable. When the debtor
creditor unless the latter has [Art. 2058, Civil
himself offers a guaranty for his
Code]:
natural obligation, he impliedly
1. Exhausted all of the property of the
recognizes his liability, thereby
debtor; and
transforming the obligation from a
2. Resorted to all the legal remedies against
natural into a civil one.
the debtor.
3. A guaranty may secure a future debt [Art.
2053, Civil Code]; Continuing Guaranty
a. Not limited to a single transaction but To avail of the benefit of excussion, the
which contemplates a future course of guarantor must [Art. 2060, Civil Code]:
dealings, covering a series of 1. Set it up against the creditor upon demand
transactions generally for an indefinite for payment; and
time or until revoked. 2. Point out to the creditor available property
b. It is prospective in its operation and is of the debtor within PH territory sufficient
generally intended to provide security to cover the amount of the debt.
with respect to future transactions.
c. Future debts, even if the amount is not Excussion will be available even if judgment is
yet known, may be guaranteed but rendered against the creditor [Tupaz v. CA,
there can be no claim against the G.R. No. 145578 (2005)].
guarantor until the amount of the debt
is ascertained or fixed and General Rule: The guarantor has the right to
demandable [De Leon, supra]. benefit from excussion/exhaustion.
Exception: The excussion shall not take

2. Parties to a Guaranty [Art. 2047 (1),
place: (ESIAP)
Civil Code] 1. If the guarantor has Expressly renounced
it;
1. Creditor 2. If he has bound himself Solidarily with the
2. Debtor of the Principal Obligation debtor;
Page 352 of 444
3. In case of Insolvency of the debtor; 5. Right to Indemnification
4. When he has Absconded, or cannot be
sued within the Philippines unless he has The guarantor who pays for a debtor must be
left a manager or a representative; or indemnified by the latter.
5. If it may be Presumed that an execution
on the property of the principal debtor The indemnity comprises:
would not result in the satisfaction of the 1. The total amount of the debt;
obligation [Art. 2059, Civil Code]. 2. The legal interests thereon from the time
the payment was made known to the
Other Exceptions debtor, even though it did not earn interest
1. If he does not comply with Art. 2060; for the creditor;
2. If he is a judicial bondsman and sub- 3. The expenses incurred by the guarantor
surety [Art. 2084, Civil Code]; after having notified the debtor that
3. Where a pledge or mortgage has been payment had been demanded of him;
given by him as a special security 4. Damages, if they are due [Art. 2066, Civil
[Southern Motors, Inc. v. Barbosa, G.R. Code].
No. L-9306 (1956)]; or
4. If he fails to interpose it as a defense If no consent of debtor, guarantor only has a
before judgment is rendered against him. right of reimbursement. There is no right of
subrogation or indemnity.
4. Right to Protection
6. Right to Subrogation
Art. 2071 provides a protective remedy in
favor of the guarantor as against the principal The guarantor who pays is subrogated by
debtor, which is available BEFORE he has virtue thereof to all the rights which the
paid, but after he is made liable for the debt, creditor had against the debtor.
and when any of the ff. grounds is applicable:
1. When he is sued for the payment; If the guarantor has compromised with the
2. In case of insolvency of the principal creditor, he cannot demand of the debtor
debtor or if he is in imminent danger of more than what he has really paid [Art. 2067,
becoming insolvent; Civil Code].
3. When the debtor has bound himself to
relieve him from the guaranty within a 7. Right of Reimbursement
specified period, and this period has
expired; If one, at the request of another, becomes a
4. When the period for payment has expired; guarantor for the debt of a third person who is
5. After the lapse of ten years, when the not present, the guarantor who satisfies the
principal obligation has no fixed period for debt may sue either the person so requesting
its maturity, unless it be of such nature or the debtor for reimbursement [Art. 2072,
that it cannot be extinguished except Civil Code].
within a period longer than ten (10) years;
6. If there are reasonable grounds to fear If the debt was for a period and the guarantor
that the principal debtor intends to paid it before it became due, he cannot
abscond. demand reimbursement of the debtor until the
expiration of the period unless the payment
To protect his interest, a guarantor can has been ratified by the debtor [Art. 2069, Civil
proceed against the principal debtor by: Code].
1. Obtaining release from the guaranty; or
2. Demanding a security that shall protect 8. Rights of Co-Guarantors
him from any proceedings by the creditor
and from the danger of insolvency of the 1. Right of excussion against the principal
debtor [Art. 2071, Civil Code]. guarantor and the principal debtor [Art.
2064, Civil Code]
Page 353 of 444
2. Benefit of division [Art. 2065, Civil Code]. except those that are personal to the debtor
[Art. 2074, Civil Code].
Should there be several guarantors of only
one debtor and for the same debt, the B. Nature and Extent of
obligation to answer for the same is
divided among all [Art. 2065, Civil Code]. Suretyship
However, the benefit of division will cease 1. Concept

if:
a. Solidary liability has been stipulated Article 2047, Civil Code. By guaranty a person,
[Art. 2065, Civil Code]; or called the guarantor, binds himself to the creditor to
b. If any of the exceptions to the benefit fulfill the obligation of the principal debtor in case
of excussion are present [Art. 2059, the latter should fail to do so.
Civil Code]
If a person binds himself solidarily with the principal
3. Right to reimbursement, i.e. to demand debtor, the provisions of Section 4, Chapter 3, Title
payment from the other co-guarantors 1 of this Book shall be observed. In such case the
their proportional share owed to him/her. contract is called a suretyship.
This is available to the co-guarantor who
paid the debt [Art. 2073 (1), Civil Code]
a. Suretyship
4. Right of an insolvent guarantor to have his
share borne by the others, including the
A relation which exists where one person
payor, in the same proportion [Art. 2073
(surety) binds himself solidarily with the
(2), Civil Code]
principal debtor, such that the former
5. Right to set-up defenses against the
undertakes a direct and primary obligation or
paying co-guarantor those available to the
other duty to a third person (creditor), who is
principal debtor against the creditor
entitled to but one performance, and as
• Exception: Defenses personal to the
between the two who are bound, the latter
debtor are not available to the
rather than the former should perform.
guarantor, hence not available as well
to the co–guarantor [Art. 2081, Civil
A suretyship is also an agreement whereby a
Code]
surety guarantees the performance or
6. Right to Benefit from the release of one
undertakes to answer, under specified terms
guarantor [Art. 2078, Civil Code]
and conditions, for the debt, default or
miscarriage of the principal or obligor, such as
a. Requisites for the Applicability of failure to perform, or breach of trust,
Art. 2073, Civil Code negligence and the like, in favor of a third
party.
1. There are two or more guarantors of the
same debtor for the same debt; It shall be deemed as insurance contract if the
2. Payment has been made by one surety’s main business is that of insurance,
guarantor; and not where the contract is merely
3. The payment was made: incidental to any other legitimate business or
a. Because of the insolvency of the activity of the surety.
debtor, or
b. By judicial demand 2. Form of Surety
4. The paying guarantor seeks to be
indemnified only to the extent of his The contract of a surety is evidenced by a
proportionate share in the total obligation. document called surety bond which is
essentially a promise to guarantee the
For purposes of proportionate reimbursement, obligation of the obligor. In turn, the obligor
the other guarantors may interpose such executes an indemnity agreement in favor of
defenses against the paying guarantor as are the insurer [De Leon].
available to the debtor against the creditor,
Page 354 of 444
It is an accessory contract unlike a contract of meant to secure gratuitous obligations, which
insurance which is the principal contract itself. is not present in compensated sureties. Thus,
in compensated sureties, if there is any
A suretyship is covered by the Statute of ambiguity in the surety bond, it should be
Frauds since it constitutes a special promise interpreted against the surety company that
to answer for the debt, default, or miscarriage prepared it [Pao Chuan Wei v. Reposito, G.R.
of another [Art. 1403, Civil Code]. No. L-10292 (1958)].
Therefore, a suretyship is unenforceable Comprehensive or Continuing Surety

unless: Art. 2053 applies to suretyships as well, such
1. The suretyship or some note or that a surety may also be given as security for
memorandum thereof, is in writing; and future debts.
2. The suretyship is subscribed by the party
or by his agent [Art. 1403, Civil Code]. It contemplates a prospective or future course
of dealing, covering a series of transactions
3. Obligations Secured within the stipulations of the contract, until the
expiration or termination of the suretyship.
A suretyship is valid despite the absence of
any direct consideration received by the 4. Surety Distinguished from Standby
surety, either from the principal debtor or from Letter of Credit
the creditor.
Surety Standby L/C
The consideration necessary to support a
surety’s obligation need not pass directly to Upon debtor’s Upon default, the
the surety. A consideration moving the default, the creditor creditor-beneficiary
principal debtor alone is sufficient [Garcia v. expects that the expects that it will
CA, G.R. No. 80201 (1990)]. surety will perform promptly receive
cash before any
Strictissimi Juris Rule litigation
The obligation of the surety cannot be
extended by implication beyond the terms of There is no duty to There is a duty to
the contract [La Insular v. Go-Tauco, G.R. No. indemnify the creditor pay the creditor-
L-13307 (1919)]. until the creditor beneficiary upon
establishes the fact presentation of the
The rule will apply only after it has been of the debtor’s non- required documents
definitely ascertained that the contract is one performance
of suretyship or guaranty. It cannot be used as No need to prove
an aid in determining whether a party’s non-performance in
undertaking is that of a surety or guarantor litigation.
[Palmares v. CA, G.R. No. 126490 (1998)].
This rule is applicable only to an 5. Surety Distinguished from

accommodation surety. An accommodation Guaranty
surety acts without motive of pecuniary gain.
Therefore, the accommodation surety should
Surety Guaranty
be protected against unjust pecuniary
impoverishment by imposing on the principal, An accessory A collateral
duties akin to those of a fiduciary [Pacific promise by which a undertaking to pay
Tobacco Corp. v. Lorenzana, G.R. No. L-8086 person binds himself the debt of another in
(1957)]. for another already case the latter is
bound, and agrees unable to pay the
This rule is not applicable to compensated with the creditor to debt
sureties. The rule of strictissimi juris was satisfy the obligation
Page 355 of 444
Surety Guaranty 6. Surety Distinguished from Joint

and Solidary Obligations
if the debtor does not
Nature of Liability
A surety is usually The contract of
Although contractual (limited by the terms of
bound with his guaranty is the
the contract) and accessory (arises only if
principal by the same guarantor's own
principal debtor is held liable), a surety’s
instrument, executed separate
liability is direct, immediate, primary, and
at the same time, undertaking, in which
absolute [De Leon, supra].
and on the same the principal does not
consideration. He is join. It is usually
an original promisor entered into before Joint and Solidary
Surety
and debtor from the or after that of the Obligations
beginning, and is principal, and is often
held, ordinarily, to supported on a Surety has the right Joint and solidary
know every default of separate to indemnification debtor has only a
his principal. consideration from and subrogation as right to
that supporting the against the principal reimbursement as
contract of the debtor [Arts. 2066- against his co-
principal. The original 2067, Civil Code] debtors [Art. 1217,
contract of his Civil Code]
principal is not his
contract, and he is Accessory, ancillary, Not dependent on,
not bound to take and collateral or not an incident to
notice of its non- obligation a principal obligation
performance
A surety will not be A guarantor is often C. Effect of Guaranty

discharged, either by discharged by the
the mere indulgence mere indulgence of Article 2058, Civil Code. The guarantor cannot be
of the creditor to the the creditor to the compelled to pay the creditor unless the latter has
principal, or by want principal, and is exhausted all the property of the debtor, and has
of notice of the usually not liable resorted to all the legal remedies against the
debtor. (1830a)
default of the unless notified of the
principal, no matter default of the Article 2059, Civil Code. The excussion shall not
how much he may be principal take place:
injured thereby (1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the
A surety is the A guarantor is the debtor;
insurer of the debt, insurer of the (3) In case of insolvency of the debtor;
and he obligates solvency of the (4) When he has absconded, or cannot be sued
within the Philippines unless he has left a
himself to pay if the debtor and thus manager or representative;
principal does not binds himself to pay (5) If it may be presumed that an execution on the
pay if the principal is property of the principal debtor would not result
unable to pay in the satisfaction of the obligation. (1831a)
[Zobel, Inc. v. CA, G.R. No. 113931 (1998)] Article 2060, Civil Code. In order that the
guarantor may make use of the benefit of exclusion,
Note: Rules on indemnification, subrogation, he must set it up against the creditor upon the
and reimbursement of guarantor also apply to latter's demand for payment from him, and point out
sureties. to the creditor available property of the debtor
within Philippine territory, sufficient to cover the
amount of the debt. (1832)
Article 2061, Civil Code. The guarantor having
Page 356 of 444

fulfilled all the conditions required in the preceding 4. The Guarantor has the Duty to Set
article, the creditor who is negligent in exhausting Up the Benefit of Excussion [Art.
the property pointed out shall suffer the loss, to the
extent of said property, for the insolvency of the
2060, Civil Code]
debtor resulting from such negligence. (1833a)
As soon as he is required to pay, the
Article 2062, Civil Code. In every action by the guarantor must also point out to the creditor
creditor, which must be against the principal debtor available property (not in litigation or
alone, except in the cases mentioned in article encumbered) of the debtor within the
2059, the former shall ask the court to notify the
guarantor of the action. The guarantor may appear
Philippines.
so that he may, if he so desire, set up such
defenses as are granted him by law. The benefit of 5. The Creditor has the Duty to
excussion mentioned in article 2058 shall always be Resort to All Legal Remedies [Arts.
unimpaired, even if judgment should be rendered
against the principal debtor and the guarantor in 2058 and 2061, Civil Code]
case of appearance by the latter. (1834a)
After the guarantor has fulfilled the conditions
Article 2063, Civil Code. A compromise between required for making use of the benefit of
the creditor and the principal debtor benefits the excussion, it becomes the duty of the creditor
guarantor but does not prejudice him. That which is
entered into between the guarantor and the creditor
to:
benefits but does not prejudice the principal debtor. 1. Exhaust all the property of the debtor
(1835a) pointed out by the guarantor;
2. If he fails to do so, he shall suffer the loss
for the insolvency of the debtor, but only to
1. The Guarantor has the Right to the extent of the value of the said property
Benefit from Excussion/Exhaustion
[Art. 2058, Civil Code] 6. The Creditor has the Duty to Notify
the Guarantor in the Action Against
2. The Creditor has the Right to
the Debtor [Art. 2062, Civil Code]
Secure a Judgment Against the
Guarantor Prior to the Excussion Notice to the guarantor is mandatory in the
action against the principal debtor. The
General Rule: An ordinary personal guarantor guarantor, however, is not duty bound to
(NOT a pledgor/mortgagor), may demand appear in the case, and his non-appearance
exhaustion of all the property of the debtor shall not constitute default, with its
before he can be compelled to pay. consequential effects.
Exception: The creditor may, prior thereto, Rationale: To give the guarantor the
secure a judgment against the guarantor, who opportunity to allege and substantiate
shall be entitled, however, to a deferment of whatever defenses he may have against the
the execution of said judgment against him, principal obligation, and chances to set up
until after the properties of the principal debtor such defenses as are afforded him by law.
shall have been exhausted, to satisfy the
latter’s obligation [Tupaz v. CA, G.R. No. 7. A Compromise Shall Not Prejudice
145578 (2005)].
a Person Not Party to It [Art. 2063,
Civil Code]
3. The Creditor has the Duty to Make
Prior Demand for Payment from the A compromise between creditor and principal
Guarantor [Art. 2060, Civil Code] debtor benefits the guarantor but does not
prejudice him.
The demand is to be made only after
judgment on the debt. A compromise between guarantor and the
creditor benefits but does not prejudice the
principal debtor.
Page 357 of 444
8. Effects of Guaranty between the 2. Specific Instances that Extinguish
Debtor and the Guarantor the Guaranty
1. The guarantor has the duty to notify the a. Creditor Voluntary Accepts the
debtor before paying the creditor [Art. Immovable for Payment
2068; see also Arts. 1236 and 1237, Civil
Code] The guarantor is released if the creditor
voluntarily accepts immovable or other
Should payment be made without property in payment of the debt, even if he
notification or against the debtor’s will, and should afterwards lose the same through
supposing the debtor has already made a eviction [Art. 2077, Civil Code].
prior payment, the debtor would be
justified in setting up the defense that the b. When an Extension is Granted to the
obligation has already been extinguished Debtor without the Consent of
by the time the guarantor made the
Guarantor
payment. The guarantor will then lose the
right of reimbursement and consequently
An extension granted to the debtor by the
the right of subrogation.
creditor without the consent of the guarantor
2. The guarantor cannot demand
extinguishes the guaranty.
reimbursement for payment made by him
before the obligation has become due [Art.
However, the mere failure on the part of the
2069, Civil Code]
creditor to demand payment after the debt has
become due does not, of itself, constitute any
General Rule: Since a contract of guaranty is extension of time [Art. 2079, Civil Code].
only subsidiary, the guarantor cannot be liable
for the obligation before the period on which c. When Subrogation is Not Feasible
the debtor’s liability will accrue. Any payment
made by the guarantor before the obligation is The guarantors, even though they may be
due cannot be indemnified by the debtor. The
solidary, are released from their obligation,
guarantor can only demand reimbursement whenever by some act of the creditor they
upon expiration of the period. cannot be subrogated to the rights,
mortgages, and preference of the latter [Art.
Exception: Prior consent or subsequent
2080, Civil Code].
ratification by the debtor.
The guarantor may also proceed against the E. Legal and Judicial Bonds
debtor even before payment has been made
under certain conditions [Art. 2071, Civil Article 2051, Civil Code. A guaranty may be
Code]. conventional, legal, or judicial, or gratuitous or by
onerous title.
D. Extinguishment of Guaranty It may be constituted, not only in favor of the

principal debtor, but also in favor of the other
1. General Rule guarantor, with the latter’s consent, or without his
knowledge, or even over his objection.
The obligation of the guarantor is extinguished
at the same time as that of the debtor and for Bond
the same causes as all other obligations [Art. An undertaking that is sufficiently secured,
2076, Civil Code]. and not cash or currency.
Bondsman
A surety offered in virtue of a provision of law
or a judicial order.
Page 358 of 444

1. Qualifications of Personal Section 66. Repealing Clause. — The following
Bondsman [Art. 2082 in relation to laws, and all laws, decrees, orders, and issuances
or portions thereof, which are inconsistent with the
Art. 2056, Civil Code] provisions of this Act, are hereby repealed,
amended, or modified accordingly:
1. He possesses integrity; a. Sections 1 to 16 of Act No. 1508, otherwise
2. He has capacity to bind himself; known as "The Chattel Mortgage Law"
3. He has sufficient property to answer for b. Articles 2085-2123, 2127, 2140-2141, 2241,
the obligation which he guarantees. 2243, and 2246-2247 of Republic Act No.
386, otherwise known as the "Civil Code of
the Philippines";
2. Pledge or Mortgage in Lieu of c. Section 13 of Republic Act No. 5980, as
Bond [Art. 2083, Civil Code] amended by Republic Act No. 8556,
otherwise known as the "Financing Company
Act of 1998";
Guaranty or suretyship is a personal security. d. Sections 114-116 of Presidential Decree No.
Pledge or mortgage is a property or real 1529, otherwise known as the "Property
security. If the person required to give a legal Registration Decree";
or judicial bond should not be able to do so, a e. Section 10 of Presidential Decree No. 1529,
pledge or mortgage sufficient to cover the insofar as the provision thereof is
inconsistent with this Act; and
obligation shall be admitted in lieu thereof. f. Section 5(e) of Republic Act No. 4136,
otherwise known as the "Land Transportation
3. Bondsman Not Entitled to and Traffic Code"
Excussion [Art. 2084, Civil Code]
Implications
A judicial bondsman and the sub-surety are Sec. 66 provides that the PPSA will now apply
not entitled to the benefit of excussion. over the laws it repeals. The following are the
implications in connection with the repealing
Reason: They are not mere guarantors, but clause:
sureties whose liability is primary and 1. The system of conventional pledges and
solidary. chattel mortgages are “replaced with a
framework for secured transactions”
Effect of Negligence of Creditor [Somera, The Personal Property Security
Mere negligence on the part of the creditor in Act, 2018].
collecting from the debtor will not relieve the 2. Art. 2127 of the Civil Code is modified with
surety from liability. regard to property included in a Real
Estate Mortgage. Under Art. 2127, a REM
IV. PERSONAL PROPERTY “extends to natural accessions, to the
improvements, growing fruits and the
SECURITIES (R.A. No. rents or income not yet received when the
11057) [principal] obligation becomes due.”
These personal properties are no
longer covered by Art. 2127 [Somera].
A. Scope of the Personal 1. Arts. 2093–2123 on Pledges are
Property Security Act (PPSA) repealed, with the exception of Art.
[Sec. 4, PPSA] 2121 on Legal Pledges.
2. Arts. 2140–2141 and Act. No. 1508 on
General Rule: The PPSA applies to ALL Chattel Mortgages are repealed.
transactions that secure an obligation with 3. The provisions on special preferred
movable collateral credits on movables (Arts. 2241, 2243,
2246, 2247) are amended.
Exceptions
1. Interests in aircrafts The creation of the Registry, as defined in
2. Interests in ships Sec. 3 (h) of the PPSA repeals the ff. Laws:
Page 359 of 444

1. Secs. 10 & 114–116 of PD No. 1529 2. A buyer or other transferee of a collateral
(Property Registration Decree) on the that acquires its right subject to a security
functions of the Register of Deed & interest;
Registration of Chattel Mortgages, 3. A transferor in an outright transfer of an
2. Sec. 13 of the Financing Company Act of accounts receivable; or
1998 on registry of financial leases, and 4. A lessee of goods.
3. Sec. 5 (3) of Rep. Act No. 4136 (Land
Transportation Code) on the recording of Secured Creditor [Sec. 3 (i)]
mortgages, attachments and other A secured creditor is a person that has a
encumbrances on motor vehicles security interest.
[Somera].
For the purposes of registration and priority
B. Security Interest only, “secured creditor” includes a buyer of
account receivable and a lessor of goods
A security interest is a property right in under an operating lease for not less than one
collateral that secures payment or other (1) year.
performance of an obligation, regardless of:
1. Whether the parties have denominated it 1. Asset-Specific Rules - Accounts
as a security interest; and Receivable
2. The type of asset, the status of the grantor
or secured creditor, or the nature of the Future Property
secured obligation Section 5. Creation of a Security Interest.
o Including the right of a buyer of (b) A security agreement may provide for the
accounts receivable and a lessor under creation of a security interest in a future property,
an operating lease for not less than but the security interest in that property is
one (1) year [Sec. 3(j)] created only when the grantor acquires rights in
it or the power to encumber it.
Proceeds
Under the PPSA, even when the collateral is Such security agreement containing a
disposed, the security interest extends to its provision over future property is akin to a
identifiable or traceable proceeds [Sec. 8]. It Contract to Mortgage. Both secured
covers sales, leases, licenses, exchanges, transactions are preparatory contracts
other forms of disposition [Sec. 9]. wherein the security interest is only created or
perfected once the grantor is the absolute
Proceeds are: owner of the future property.
1. Any property received upon sale, lease or
other disposition of collateral; or Rights to Proceeds and Commingled
2. Whatever is collected on or distributed Funds
with respect to collateral, claims arising When the collateral is disposed, the security
out of the loss or damage to the collateral, interest extends to the proceeds from such
as well as a right to insurance payment or disposition, in the form of funds, even when
other compensation for loss or damage of they are credited to a deposit account or
the collateral [Sec. 3 (f)]. money are commingled with other funds or
money [Sec. 8]:
Parties 1. Despite the fact that they are no longer
The parties to a security agreement under the identifiable
PPSA are the grantor and the secured 2. Only to the extent that they remain
creditor [Sec. 3]. traceable
Grantor [Sec. 3 (c)] Rules on Commingled Funds [Sec. 8]

1. The person who grants a security interest 1. The security interest in the commingled
in collateral to secure its own obligation or funds shall be limited to the amount of the
that of another person;
Page 360 of 444
proceeds immediately before they were However, the PPSA limits the application of
commingled. these provisions to accounts receivable
2. If at any time after the commingling, the arising from:
balance credited to the deposit account or 1. A contract for the supply or lease of goods
the amount of the commingled money is or services other than financial services;
less than the amount of the proceeds 2. A construction contract or a contract for
immediately before they were the sale or lease of real property; and
commingled: 3. A contract for the sale, lease or license of
a. The security interest against the intellectual property [Sec. 10 (d)].
commingled funds or money shall be
limited to the lowest amount of the Sec. 10 also shall not affect any obligation or
commingled funds or money. liability of the grantor for breach of the
b. The reckoning period for such amount agreement in Sec. 10 (a).
is between the time when the
proceeds were commingled and the C. Security Agreement
time the security interest in the
proceeds is claimed.
The secured transaction under the PPSA is
called the security agreement. It is a
Tangible Assets Commingled in a Mass;
consensual contract, perfected by the meeting
Continuity of Security Interest of the minds of the grantor and the secured
The PPSA provides rules for the continuity of creditor [Somera].
the security interest over tangible assets (i.e.,
movable property) which has either: The agreement must be contained in a
1. Become a fixture, written contract [Sec. 6]. Writing, for the
2. Undergone accession or purposes of the PPSA, includes electronic
3. Undergone commingling. records [Sec. 3 (k)]. It is an accessory
obligation entered into by a person who grants
According to the PPSA, the security interest a property right to another person, in order to
over the said movable will continue, provided secure the payment or performance of an
that it can still be reasonably traced. obligation [Somera].
However, as to the question of ownership over
the said tangible assets, Book II of the Civil
Code will govern [Sec. 25].
D. Perfection of Security
Interest
Otherwise, if the tangible asset did not
become a fixture, or underwent accession or General Provisions
commingling, a party who obtains the asset Section 11. Perfection of Security Interest. —
in good faith will take it free from any a. A security interest shall be perfected when
security interest. However, good faith will not it has been created and the secured
exist if the movable property was registered creditor has taken one of the actions in
before being obtained [Sec. 21]. accordance with Section 12.
b. On perfection, a security interest becomes
effective against third parties.
Accounts Receivables
Security interests in accounts receivable shall
be effective notwithstanding any agreement It is not perfection that gives birth to the
between the grantor and the account debtor or security agreement, since it is a consensual
any secured creditor limiting in any way the contract. Rather, perfection gives the security
grantor’s right to create a security interest interest third-party effectiveness [Somera].
[Sec. 10 (a)].
Likewise, any stipulation limiting the grantor’s

right to create a security interest shall be void
[Sec. 10 (c)].
Page 361 of 444
Section 12. Means of Perfection. — A security security interest in the books
interest may be perfected by: maintained by or on behalf of the
a. Registration of a notice with the Registry; issuer for the purpose of recording the
b. Possession of the collateral by the name of the holder of the securities [Sec.
secured creditor; and 13 (a)].
c. Control of investment property and
deposit account.
The Intermediary’s Role in Control
A security interest in any tangible asset may be Agreements
perfected by registration or possession. A security Under Sec. 13 (b), a deposit-taking institution
interest in investment property and deposit account or intermediary must consent to the entering
may be perfected by registration or control.
of a control agreement.
Perfection by Registration The PPSA does NOT require the intermediary

A security interest in the ff. may be perfected to enter into such agreements, since its
by registration of a notice with the Registry obligation is limited to following the
[Sec. 12 (a)]: instructions of the grantor, who is its
1. A tangible movable asset depositor.
2. Investment property • i.e., It has the right to refuse to follow the
3. A deposit account instructions of the secured creditor
Notice – a statement of information that is Should the intermediary refuse to enter into a
registered in the Registry relating to a security control agreement, the remedy of the grantor
interest or lien. The term includes an initial and secured creditor is to register the security
notice, amendment notice, and termination agreement instead, in order to perfect the
notice [Sec. 3 (e)]. security interest.
Perfection by Possession Three Types of Control Agreements

A security interest in a tangible movable asset 1. Control Agreement with Respect to
may be perfected by possession of the Securities
collateral by the secured creditor [Sec. 12 a. An agreement in writing among the
(b)]. issuer or the intermediary, the grantor
and the secured creditor.
Possession is defined as “the holding of a b. The issuer or the intermediary agrees
thing or the enjoyment of a right” [Art. 523, to follow instructions from the secured
Civil Code]. creditor with respect to the security,
without further consent from the
Perfection by Control grantor [Sec. 3 (b)(1)].
A security interest in the ff. may be perfected 2. Control Agreement with Respect to Rights
by control [Sec. 12 (c)]: to a Deposit Account
1. Investment property 3. An agreement in writing among the
2. A deposit account deposit-taking institution, the grantor and
the secured creditor.
A security interest in a deposit account or 4. The deposit-taking institution agrees to
investment property may be perfected by follow instructions from the secured
control through: creditor with respect to the payment of
1. The creation of the security interest in funds credited to the deposit account
favor of the deposit-taking institution or the without further consent from the grantor
intermediary; [Sec. 3 (b)(2)].
2. The conclusion of a control agreement; 5. Control Agreement with Respect to
or Commodity Contracts
3. For an investment property that is an 6. An agreement in writing among the
electronic security not held with an grantor, secured creditor, and
intermediary, the notation of the intermediary.
Page 362 of 444
7. The commodity intermediary will apply any Registry, and pays the prescribed fee. The
value distributed on account of the notice is considered sufficient if it:
commodity contract as directed by the 1. Identifies the grantor by an
secured creditor without further consent identification number
by the commodity customer or grantor 2. Identifies the secured creditor or its
[Sec. 3 (b)(3)]. agent by name
3. Provides an address for the grantor
Note: A commodity contract is a and secured creditor or its agent
commodity futures contract, an option on a 4. Describes the collateral [Sec. 28].
commodity futures contract, a commodity 2. The Registry either accepts or rejects the
option, or another contract, if the contract or notice for registration. However, if the
option is: notice meets the minimum requirements
1. Traded on or subject to the rules of a and the fee is paid, it shall not be rejected
board of trade that has been [Sec. 28 (a)].
designated as a contract market for 1. The Registry does not determine the
such a contract; or correctness, authenticity, or validity of
2. Traded on a foreign commodity board the information contained in the
of trade, exchange, or market, and is notice.
carried on the books of a commodity 2. Thus, questions regarding the validity
intermediary for a commodity customer of the security agreement are
[Sec. 3 (a)]. expected to be decided in a proper
litigation after registration [Somera].
Summary of Perfection of Security 3. If the Registry rejects the registration of a
Interests notice, it shall promptly communicate the
fact and reason for its rejection to the
Registrati Possessi
on on
Control person who submitted the notice [Sec. 28
(b)]
Tangible P P 4. If the Registry accepts the registration of a
Assets notice, it shall be effective, from the time it
is discoverable on the records of the
Investment P P Registry, until such time that the duration
Property indicated on the notice lapses [Sec. 30]
1. Any person may search notices
Deposit P P registered in the Registry [Sec. 27].
Account 2. The electronic records of the Registry
shall be the official records [Sec. 27].
E. Registration of Security Effects of Registration
Interest 1. The security interest becomes binding on
third parties [Sec. 11].
A security interest may be perfected by 2. The registered notice is considered a
registration of a notice with the Registry. public record [Sec. 27].
3. Subsequent purchasers of the collateral
Section 26. Establishment of Electronic Registry. — are charged with notice of the security
a. The Registry shall be established in and interest burdening the title of said
administered by the LRA. collateral.
b. The Registry shall provide electronic means o Such notice cannot be overcome by
for registration and searching of notices. proof of good faith [Legarda & Prieto v.
Saleeby, G.R. No. L-8936 (1915)]
Procedure
1. The grantor, or any person authorized by
the grantor, submits the notice to the
Page 363 of 444

4. Establishes the basis of priority of institution may have against a grantor’s
security of interest according to time of right to payment of funds credited to a
registration [Sec. 17]. deposit account shall have priority over a
security interest in the deposit account.
F. Priority of Security Interest

Priority of Security Interests Over
Priority – the right of a person to derive the Deposit Accounts/Investment Property
economic benefit of its security interest in Note: With (1) having the highest priority
preference to the right of a competing 1. Right to set-off of the deposit-taking
claimant [Somera, 2018, citing UNCITRAL institution against a grantor’s right to
Guidelines]. payment of funds credited to a deposit
account
The perfection of a security interest gives 2. Security interest in a deposit account with
rights to the secured creditor against other respect to which the secured creditor is
creditors asserting rights over the same the deposit-taking institution
collateral. 3. Security interest in a deposit account or
investment property that is perfected by a
Priority Rules control agreement
The priority of security interests and liens on o The earlier the conclusion of the
the same collateral shall be determined control agreement, the higher in
according to the time of registration of a notice priority
or perfection by other means [Sec. 17].
4. Security interest in a deposit account
General Rule: Such priority is without regard or investment property that is perfected by
to the order of creation of the security registration
interests and liens, or to the mode of
perfection [Sec. 17]. Security Interests Over Electronic
Securities
Exception: Except as provided in Secs. 18-25 Section 18. Priority for Perfection by Control. —
of the PPSA or Secs. 6.02-6.05 of these Rules ---xxx---
[Rule VI, Sec, 6.01, IRR of R.A. 11057]. f. A security interest in electronic securities not
held with an intermediary perfected by a
notation of the security interests in the books
1. Priority Rules for Intangible Assets
maintained for that purpose by or on behalf of the
issuer shall have priority over a security interest in
Security Interests Over Deposit the same securities perfected by any other
Accounts/Investment Properties method.
g. A security interest in electronic securities not
Section 18. Priority for Perfection by Control. — A
held with an intermediary perfected by the
security interest in a deposit account with
conclusion of a control agreement shall have
respect to which the secured creditor is the
priority over a security interest in the same
deposit-taking institution or the intermediary shall
securities perfected by registration of a notice in
have priority over a competing security interest
the Registry.
perfected by any method.
h. The order of priority among competing security
a. A security interest in a deposit account or
interests in electronic securities not held with an
investment property that is perfected by a
intermediary perfected by the conclusion of control
control agreement shall have priority over a
agreements is determined on the basis of the
competing security interest except a security
time of conclusion of the control agreements.
interest of the deposit-taking institution or the
intermediary.
b. The order of priority among competing security Priority of Security Interests Over Non-
interests in a deposit account or investment
property that were perfected by the conclusion
Intermediated Electronic Securities
of control agreements shall be determined on 1. Security interest in non-intermediated
the basis of the time of conclusion of the electronic securities perfected by a
control agreements. notation of such interest in the books of
c. Any rights to set-off that the deposit-taking the issuer
Page 364 of 444
2. Security interest in non-intermediated Section 24. Livestock. – A perfected security interest
electronic securities perfected by control in livestock securing an obligation incurred to enable
o The earlier the conclusion of the the grantor to obtain food or medicine for the livestock
control agreement, the higher in shall have priority over any other security interest in
priority the livestock, except for a perfected purchase
money security interest in the livestock, if the
secured creditor providing credit for food or medicine
2. Priority Rules for Tangible Assets gives written notification to the holder of the conflicting
perfected security interest in the same livestock
Security Interests Over Security before the grantor receives possession of the food or
Certificates medicine.
Certificated non-intermediated securities are
considered tangible property if the mere Priority of Security Interests Over
possession of such instruments results in the Livestock
ownership of the underlying rights or property 1. A perfected purchase money security
embodied by them [Rule I, Sec. 1.05(kk), IRR interest in the livestock incurred to enable
of R.A. 11057]. the grantor to obtain food or medicine for
the livestock, provided that –
Section 18. Priority for Perfection by Control. a. The secured creditor providing credit
---xxx--- for said food or medicine gives written
A security interest in a security certificate notification to the holder of the
perfected by the secured creditor’s possession of
the certificate shall have priority over a competing
conflicting perfected security interest
security interest perfected by registration of a notice in in the same livestock.
the Registry. b. Such notice must be given before the
grantor receives possession of the
food or medicine
Priority of Security Interests Over
2. A perfected security interest in livestock
Security Certificates
securing an obligation incurred to enable
1. Security interest in a security certificate
the grantor to obtain food or medicine for
perfected by possession of said certificate
the livestock
2. Security interest in a security certificate
3. other security interest in the livestock,
perfected by registration of a notice in the
incurred for any other purpose
Registry.
Note: A purchase money security interest is
Security Interests Over Instruments or a security in goods, taken by:
Negotiable Documents 1. The seller to secure the price; or
Section 19. Priority for Instruments and Negotiable 2. A person who gives value to enable the
Documents. – A security interest in an instrument or grantor to acquire the goods to the extent
negotiable document that is perfected by that the credit is used for that purpose
possession of the instrument or the negotiable [Sec. 3 (g)].
document shall have priority over a security interest
in the instrument or negotiable document that is
perfected by registration of a notice in the Registry. 3. Priority Rules for Specific
CasesSecurity Interests Over Goods
Priority of Security Interests Over that are Subject to the Right of
Instruments or Negotiable Documents Retention
1. A security interest in an instrument or
negotiable document that is perfected by Section 20. Priority and Right of Retention by
possession Operation of Law. – A person who provides
2. A security interest in an instrument or services or materials with respect to the goods, in
negotiable document that is perfected by the ordinary course of business, and retains
registration possession of the goods shall have priority over
a perfected security interest in the goods until
payment thereof.
Security Interests Over Livestock
Page 365 of 444
Priority of Security Interests Over Goods days after the grantor receives
1. Lien over goods created by operation of possession of the equipment
law in favor of a person who provides 2. Right over the same equipment in favor of
services or materials with respect to the a buyer, lessee, or lien holder which arise
goods, in the ordinary course of business between delivery of the equipment to the
2. Any perfected security interest over the grantor and the time the notice is
same goods. registered
3. Any perfected security interest in the
same equipment.
Section 23. Purchase Money Security Interest. —
a. A purchase money security interest in
equipment and its proceeds shall have priority Priority of Security Interests Over
over a conflicting security interest, if a notice Consumer Goods [Sec. 23]
relating to the purchase money security interest 1. A PMSI in consumer goods shall have
is registered within three (3) business days after
the grantor receives possession of the
priority, provided that –
equipment. • A notice relating to the PMSI is
b. A purchase money security interest in consumer registered within three (3) business
goods that is perfected by registration of days after the grantor receives
notice not later than three (3) business days possession of the consumer goods
after the grantor obtains possession of the
2. Right over the same goods in favor of a
consumer goods shall have priority over a
conflicting security interest. buyer, lessee, or lien holder which arise
c. A purchase money security interest in between delivery of the consumer goods
inventory, intellectual property or livestock to the grantor and the time the notice is
shall have priority over a conflicting perfected registered
security interest in the same inventory, 3. Any perfected security interest in the
intellectual property or livestock if:
same goods.
1. The purchase money security interest is
perfected when the grantor receives
possession of the inventory or livestock, Priority of Interests Over Inventory,
or acquires rights to intellectual property; Intellectual Property or Livestock [Sec. 23]
and 1. A PMSI in inventory, intellectual property
2. Before the grantor receives possession of
or livestock shall have priority, provided
the inventory or livestock, or acquires rights
in intellectual property, the purchase money that –
secured creditor gives written notification a. The PMSI is perfected when the
to the holder of the conflicting perfected grantor receives possession of the
security interest in the same types of inventory or livestock, or acquires
inventory, livestock, or intellectual property. rights to intellectual property;
The notification sent to the holder of the
conflicting security interest may cover
b. The secured creditor gives a written
multiple transactions between the purchase notification to the holder of the
money secured creditor and the grantor conflicting perfected security interest
without the need to identify each transaction. in the same types of inventory,
d. The purchase money security interest in livestock, or intellectual property
equipment or consumer goods perfected i. Such notification must be given
timely in accordance with subsections (a)
and (b), shall have priority over the rights of
before the grantor receives
a buyer, lessee, or lien holder which arise possession of the inventory or
between delivery of the equipment or livestock, or acquires rights in
consumer goods to the grantor and the time intellectual property; and
the notice is registered. ii. The notification may cover multiple
transactions between the secured
Priority of Security Interests Over creditor and the grantor, without the
Equipment and its Proceeds [Sec. 23] need to identify each transaction.
1. A PMSI in equipment and its proceeds 2. Any perfected security interest in the
shall have priority, provided that – same inventory, intellectual property or
• A notice relating to the PMSI is livestock.
registered within three (3) business
Page 366 of 444
4. Priority of Perfected Security Means of Perfection [Secs. 4.02-4.03, IRR
Interest Prior to Insolvency of R.A. 11057]
Proceedings
Intangible
Section 22. Effect of the Grantor’s Insolvency on (Investment
Tangible
the Priority of a Security Interest. – Subject to the Property/Deposit
applicable insolvency law, a security interest Account)
perfected prior to the commencement of
insolvency proceedings in respect of the grantor Registration
shall remain perfected and retain the priority it
had before the commencement of the insolvency Possession Control
proceedings.
G. Repossession
This section amends Arts. 2241, 2243, 2246,
2247 of the Civil Code or the provisions on
Repossession is a preliminary process that
special preferred credits on movable property.
must be undertaken by secured creditor
1. The preference created by these Articles
seeking to enforce its security interest
will be SUBORDINATE to the priority
[Somera].
perfected pursuant to the PPSA [Somera].
2. During insolvency proceedings, the
May be undertaken extrajudicially or judicially.
perfected security interest shall constitute
a lien over the collateral [Rule VI, Sec.
Extra-Judicial Repossession
6.04(b), IRR of R.A. 11057].
The secured creditor may:
1. Take possession of the collateral without
Tangible Assets; Intangible Assets [Sec.
judicial process if the security agreement
12] so stipulates: Provided, That possession
can be taken without a breach of the
Tangible asset – any tangible movable asset, peace.
including: 2. Remove the collateral from the real
1. Money property to which it is affixed, in case it is
2. Negotiable instruments a fixture, without judicial process:
3. Negotiable documents; and Provided that –
4. Certificated non-intermediated securities a. The secured creditor has priority over
• Only if the mere possession of such all owners and mortgagees
instruments results in the ownership of b. The secured creditor exercises due
the underlying rights or property care in removing the fixture [Sec. 47
embodied by them [Rule I, Sec. (a) & (b)].
1.05(kk), IRR of R.A. 11057].
Judicial Repossession
Intangible asset – any movable property If, upon default, the secured creditor cannot
other than a tangible asset including, but not
take possession of collateral without breach of
limited to, investment property, deposit the peace, the secured creditor shall:
accounts, commodity contracts and 1. Be entitled to an expedited hearing upon
receivables [Rule 1, Sec. 1.05(m), IRR of R.A.
application for an order granting the
11057]. secured creditor possession of the
collateral. Such application shall include a
statement by the secured creditor, under
oath:
a. Verifying the existence of the security
agreement attached to the application;
and
Page 367 of 444

b. Identifying at least one (1) event of interest after deducting the secured
default by the debtor under the creditor’s reasonable collection expenses.
security agreement;
2. Provide the debtor, grantor, and, if the Note: The account debtor may request the
collateral is a fixture, any real estate secured creditor to provide evidence of its
mortgagee, a copy of the application, security interest to the account debtor when it
including: delivers the instruction to the account debtor
a. All supporting documents; and [Sec. 48].
b. Evidence for the order granting the
secured creditor possession of the Recovery is conceptually similar to the
collateral; and exchange in Yau Chu v. CA [G.R. No. L-
3. Be entitled to an order granting 78519 (1989)], wherein the collateral was also
possession of the collateral money or an exchange of “peso for peso”
a. Upon the court finding that: [Somera].
i. A default has occurred under the
security agreement; and Specific Cases of Recovery [Sec. 48]
ii. The secured creditor has a right to
take possession of the collateral. Action Available to
Specific Case
b. The court may direct the grantor to Secured Creditor
take such action as the court deems
necessary and appropriate so that the Negotiable Proceed as to the
secured creditor may take possession document perfected negotiable document
of the collateral [Sec. 47 (c)]. by possession or goods covered by
the negotiable
Note: Breach of the peace shall include: document;
1. Entering the private residence of the
grantor without permission, Deposit account Apply the balance of
2. Resorting to physical violence or maintained by the the deposit account
intimidation, or being accompanied by a secured creditor to the obligation
law enforcement officer when taking secured by the
possession or confronting the grantor deposit account
[Sec. 47 (c)].
Security interest in a Instruct the deposit-
H. Enforcement of Security deposit account taking institution to
perfected by control pay the balance of
Interest the deposit account
to the secured
The creditor with the security interest having creditor’s account
the highest priority will be able to enforce
his/her interests via recovery, disposition or
retention. 2. Disposition
1. Recovery Right to Dispose of Collateral
Recovery is an enforcement procedure that After default, a secured creditor may:

does not require judicial process. It applies 1. Sell or otherwise dispose of the collateral,
only to the special cases provided in Sec. 48. publicly or privately, in its present
condition or following any commercially
Upon default, the secured creditor may reasonable preparation or processing;
without judicial process: 2. Buy the collateral at any public disposition,
1. Instruct the account debtor to make or at a private disposition but only if the
payment to the secured creditor, and collateral is of a kind that is customarily
2. Apply such payment to the satisfaction of sold on a recognized market or the subject
the obligation secured by the security
Page 368 of 444
of widely distributed standard price 4. States the time and place of a public
quotations [Sec. 49]. disposition or the time after which other
disposition is to be made [Sec. 51].
Disposition is a method of enforcement
similar to the general right of the creditor to Exceptions to the Notification Requirement
alienate the collateral upon default of the The requirement to send a notification under
debtor under the Civil Code. The difference in this section shall not apply if the collateral is:
the PPSA is that it requires commercial 1. Perishable; or
reasonableness of the disposition [Somera]. 2. Threatens to decline speedily in value;
3. Of a type customarily sold on a
Procedure recognized market [Sec. 51].
Before disposition may be availed of, a
creditor must: b. Right of Redemption
1. Repossess the collateral, either: Extra–
judicially [Sec. 47 (a) & (b)] or Judicially General Rule: A party who is entitled to a
[Sec. 47 (c)], and notification is also entitled to redeem the
2. There must be compliance with property [Sec. 45 (a)].
notification requirements in Sec. 51.
3. Let those entitled exercise the right of Exceptions: The right of redemption may be
redemption under Sec. 45. exercised, unless:
1. The person entitled to redeem has not,
a. Notification of Disposition after the default, waived in writing the right
to redeem;
Not later than ten (10) days before disposition 2. The collateral is sold or otherwise
of the collateral, the secured creditor shall disposed of, acquired or collected by the
notify: secured creditor or until the conclusion of
1. The grantor; an agreement by the secured creditor for
that purpose; and
Note: The grantor may waive the right to 3. The secured creditor has retained the
be notified. collateral [Sec. 45 (b)].
2. Any other secured creditor or lien holder How Exercised

who, five (5) days before the date The right to redeem is exercised by paying or
notification is sent to the grantor, held a otherwise performing the secured obligation in
security interest or lien in the collateral full, including the reasonable cost of
that was perfected by registration; and enforcement [Sec. 45 (a)].
3. Any other person from whom the secured
creditor received notification of a claim of Disposition and Application of Proceeds
an interest in the collateral if the If there is no redeemer, the secured creditor
notification was received before the may dispose of the property, and the
secured creditor gave notification of the proceeds will be applied in the following order
proposed disposition to the grantor [Sec. [Sec. 52]:
51]. 1. The reasonable expenses of taking,
holding, preparing for disposition, and
Sufficiency of Notification disposing of the collateral, including
A notification of disposition is sufficient if it: reasonable attorneys’ fees and legal
1. Identifies the grantor and the secured expenses incurred by the secured
creditor; creditor;
2. Describes the collateral; 2. The satisfaction of the obligation secured
3. States the method of intended disposition; by the security interest of the enforcing
and secured creditor; and
3. The satisfaction of obligations secured by
any subordinate security interest or lien in
Page 369 of 444
the collateral if a written demand and When Retention May Be Exercised [Sec.
proof of the interest are received before 54]
distribution of the proceeds is completed. The secured creditor may retain the collateral
in the case of:
The secured creditor shall account to the 1. A proposal for the acquisition of the
grantor for any surplus, and, unless otherwise collateral in full satisfaction of the secured
agreed, the debtor is liable for any deficiency. obligation; or
• Unless the secured creditor receives
Commercial Reasonableness Requirement an objection in writing from any person
entitled to receive such a proposal
After repossession and notice, the collateral within twenty (20) days after the
may be disposed of provided that the creditor proposal is sent to that person
acts in a “commercially reasonable manner” 2. A proposal for the acquisition of the
[Sec. 50 (a)]. collateral in partial satisfaction of the
secured obligation
A creditor acts in such manner if he/she/it • Only if the secured creditor receives
“disposes of the collateral in conformity with the affirmative consent of each
commercial practices among dealers in that addressee of the proposal in writing
type of property” [Sec. 50 (b)]. within twenty (20) days after the
1. A disposition is presumed commercially proposal is sent to that person.
reasonable when approved in any legal
proceeding [Sec. 50 (d)]. I. Takeover Rights
2. A disposition will still be treated as
commercially reasonable even if “a better
Section 46. Right of Higher-Ranking Secured.
price could have been obtained by Creditor to Take Over Enforcement. —
disposition at a different time or by a a. Even if another secured creditor or a lien holder
different method from the time and has commenced enforcement, a secured
method selected by the secured creditor” creditor whose security-interest has priority
[Sec. 50 (c)]. over that of the enforcing secured creditor or lien
holder shall be entitled to take over the
enforcement process.
3. Retention b. The right referred to in subsection (a) of this
section may be invoked at any time before the
Retention of collateral is the result of an offer collateral is sold or otherwise disposed of, or
on the part of the secured creditor and the retained by the secured creditor or until the
acceptance of the proposal by the parties conclusion of an agreement by the secured
creditor for that purpose.
entitled to receive the same. c. The right of the higher-ranking secured creditor
to take over the enforcement process shall
After default, the secured creditor may include the right to enforce the rights by any
propose to the debtor and grantor to take all method available to a secured creditor under
or part of the collateral in total or partial this Act.
satisfaction of the secured obligation, and
shall send a proposal to: The creditor with security interest that has
1. The debtor and the grantor; highest priority over other security interests
2. Any other secured creditor or lien holder exercises the right of enforcement. However,
who, five (5) days before the proposal is the But PPSA does not prohibit those with
sent to the debtor and the grantor, security interest that has lower priority to
perfected its security interest or lien by commence enforcement. Instead, it reserves
registration; and the right of take over to the higher-ranking
3. Any other person with an interest in the secured creditor.
collateral who has given a written
notification to the secured creditor before
the proposal is sent to the debtor and the
grantor [Sec. 54].
Page 370 of 444
J. Transitional Provisions 6. A written agreement between a grantor
and a secured creditor creating a prior
interest is sufficient to constitute
1. Prior Interests
authorization by the grantor of the
registration of a notice covering assets
Prior interest – A security interest that was:
described in that agreement under this
1. Created or provided for by an agreement
Act.
or other transaction that was made or
entered into before the effectivity of this
Act; and When a Prior Law Over a Prior Interest
2. Had not been terminated before the Applies
effectivity of this Act [Sec. 55 (c)].
General Rule: The priority of a prior interest
However, a security interest that is renewed or as against the rights of a competing claimant
extended by a security agreement or other is determined by the prior law if:
transaction made or entered into on or after 1. The security interest and the rights of all
the effectivity of this Act is not considered a competing claimants arose before the
prior interest [Sec. 55 (c)]. effectivity of this Act; and
2. The priority status of these rights has not
Creation of Prior Interest changed since the effectivity of this Act
Creation of prior interest shall be determined [Sec. 58 (a)].
by prior laws, which are laws that existed or in
Exceptions: The priority status of a prior
force before the effectivity of this Act [Sec.
interest has changed (refer to the 2nd
56].
instance under the General Rule, i.e. Sec. 58
(a)(2)) only if:
Effectivity of Prior Interest
1. It was perfected when this Act took effect,
A prior interest remains effective between the
but ceased to be perfected; or
parties, notwithstanding its creation did not
2. It was not perfected under prior law when
comply with the creation requirements of this
this Act took effect, and was only
Act [Sec. 56].
perfected under this Act [Sec. 58 (b)].
Perfection of Prior Interest [Sec. 57]
Enforcement of Prior Interest [Sec. 59]
A prior interest that was perfected under prior
If any step or action has been taken to enforce
law continues to be perfected under this Act
a prior interest before the effectivity of this Act,
until the earlier of:
enforcement may continue under prior law or
1. The time the prior interest would cease to
may proceed under this Act.
be perfected under prior law; and
2. The expiration of the transitional period.
Note: Prior law shall apply to a matter that is
3. If the perfection requirements of the PPSA
the subject of proceedings before a court
are satisfied before the perfection of a
before the effectivity of this Act.
prior interest ceases in accordance with
(a), the prior interest continues to be
perfected under this Act from the time 2. Transitional Period
when it was perfected under the prior law.
4. If the prior interest was perfected by the Transitional Period
registration of a notice under prior law, the The period from the date of effectivity of this
time of registration under the prior law Act until the date when the Registry has been
shall be the time to be used for purposes established and operational [Sec. 55 (d)].
of applying the priority rules of this Act.
5. If the perfection requirements of the PPSA Thus, the transitional period is from
are NOT satisfied before the perfection of September 7, 2018 until the date when the
a prior interest ceases in accordance with Registry has been established and operational
(a), the prior interest is perfected only from 1. All pledges and mortgages created
the time it is perfected under this Act. pursuant to the Civil Code and the Chattel
Page 371 of 444
Mortgage Law remain effective between 2. The mortgagor must be the absolute
the parties. owner of the immovable or alienable real
2. But upon expiration of the transitional rights [Art. 2085, Civil Code];
period, the binding effect as against third 3. The mortgagor must have free disposal of
parties of chattel mortgages is lost, the property or is legally authorized for the
UNLESS the requirements of the PPSA purpose [Art. 2085, Civil Code];
are complied with [Somera]. 4. The mortgage must be subjected to the
condition that when the principal obligation
Establishment of Electronic Registry becomes due, the collateral may be
alienated for payment to the creditor [Art.
2087, Civil Code];
Section 68. Implementation. — Notwithstanding the
entry into force of this Act under Section 67, the 5. Must be recorded in the Registry of
implementation of the Act shall be conditioned upon Property [Art. 2125, Civil Code].
the Registry being established and operational
under Section 26. However, if the instrument is not recorded, the
mortgage is nevertheless binding between the
Section 26. Establishment of Electronic Registry.
parties [Art. 2125, Civil Code].
a. The Registry shall be established in and
administered by the LRA. A. Objects of Real Estate
b. The Registry shall provide electronic means for
registration and searching of notices. Mortgage
Only the following property may be the object
Based on Secs. 68 and 26 of the PPSA, the of real estate mortgages:
implementation of the PPSA is conditioned on 1. Immovables
the establishment and operation of the 2. Alienable real rights over immovables [Art.
Registry. The Registry will be administered by 2124, Civil Code]
the Land Registration Authority (LRA).
Note: Art. 2127 is modified by the PPSA with
To date, the LRA has yet to establish the
regard to property included in a Real Estate
Electronic Registry, although it has
Mortgage. Under Art. 2127, a REM “extends
announced that it is targeting to launch the
to natural accessions, to the improvements,
same on the sixth month from the
growing fruits, and the rents or income not yet
promulgation of the IRR, which was issued on
received when the [principal] obligation
Nov. 18, 2019.
becomes due.” These personal properties are
no longer covered by Art. 2127 [Somera].
V. REAL ESTATE
Future property cannot be an object of
MORTGAGE mortgage; however stipulation subjecting to
the mortgage improvements which the
Real Mortgage mortgagor may subsequently acquire, install
The mortgage directly and immediately or use in connection with real property already
subjects the property upon which it is mortgaged belonging to the mortgagor is
imposed, whoever the possessor may be, to valid. [People’s Bank & Trust Co. v. Dahican
the fulfillment of the obligation for whose Lumber Co., G.R. No. L-17500 (1967)].
security it was constituted [Art. 2126, Civil
Code].
1. Obligations Secured
Requisites: General Rule: A real estate mortgage is
1. The mortgage must be constituted to limited to the principal obligations mentioned
secure the fulfillment of a principal in the contract (within its four corners) [Lim
obligation [Art. 2085, Civil Code]; Julian v. Lutero, G.R. No. L-25235 (1926)].
Page 372 of 444

Exception: A real estate mortgage may is a right in rem. The mortgage creates a real
contain a dragnet or blanket mortgage clause right or a lien which, after being recorded,
which subsumes all debts, whether past or follows the chattel wherever it goes.
future [Philippine Bank of Communications v. [Philippine National Bank v. RBL Enterprises,
CA, G.R. No. 118552 (1996)]. Inc., G.R. No. 149569, (2004)].
Note: This clause will be strictly construed A real estate mortgage that is unregistered
[Prudential Bank v. Alviar, G.R. No. 150197 binds the parties to the contract and it only
(2005)]. A mortgage with a dragnet clause gives the mortgagee the right to demand the
makes the mortgage a continuing security and execution and recording of the mortgage. To
constitutes an exception to the rule that an bind third parties, a real estate mortgage must
action to foreclose a mortgage must be limited be recorded in the Registry of Property [Art.
to the amount mentioned in the mortgage 2125, Civil Code].
contract [PCSO v. New Dagupan Metro Gas
Corporation, G.R. No. 173171 (2012)]. Mortgage extends to the natural accessions,
to the improvements, growing fruits and the
Reliance on Security Test: When the rents or income not yet received when the
mortgagor takes another loan for which obligation becomes due, including indemnity
another security was given, it could not be from insurance, and/or amount received from
inferred that such loan was made in reliance expropriation for public use [Art. 2127, Civil
solely on the original security with the dragnet Code].
clause, but rather, on the new security given 1. Applies only when the accessions and
[Prudential Bank v. Alviar, supra]. accessories subsequently introduced
belongs to the mortgagor.
B. Characteristics 2. To exclude them, there must be an
express stipulation, or the fruits must be
collected before the obligation becomes
1. Characteristics of the Collateral
due.
3. Third persons who introduce
As a general rule, the mortgagor retains
improvements upon the mortgaged
possession of the property. He may deliver
property may remove them at any time.
said property to the mortgagee without
altering the nature of the contract of mortgage.
The right to alienate the real estate mortgage
Mortgage creates an encumbrance over the credit is the right of the mortgagee to assign
property, but ownership of the property is not its rights under the principal obligation
parted with. It merely restricts the mortgagor’s secured. Although the mortgagee does not
jus disponendi over the property. The become the owner of the collateral, it owns
mortgagor may still sell the property, and any the real estate mortgage credit and may
stipulation to the contrary (pactum de non alienate the same to a third person [Art. 2128,
alienando) is void [Art. 2130, Civil Code]. Civil Code; Santiago v. Pioneer Savings &
Loan Bank, et al., G.R. No. 77502 (1988)].
However, a stipulation prohibiting the
mortgagor from entering into second or Pactum de non alienando (Sp. pacto de non
subsequent mortgages is valid since there is alienando) is prohibited:
no law prohibiting it [Litonjua et al. v. L&R 1. Stipulations forbidding the mortgagor from
Corporation, et al., G.R. No. 130722 (1999), selling the collateral [Art. 2130, Civil Code]
citing Philippine Industrial Co. v. El Hogar & 2. Stipulations forbidding the mortgagor from
Vallejo, G.R. No. 20482 (1923)]. selling the collateral without the consent of
the mortgagee [Litonjua, et al. v. L&R
Corporation, et al., supra, citing
2. Characteristics of the Mortgage
Tambunting v. Rehabilitation Finance
Corporation, G.R. Nos. L-54224-5 (1989).
A registered mortgage lien is considered
inseparable from the property inasmuch as it
Page 373 of 444
Alienation or assignment of mortgage credit is iv. When the purchaser retains for
valid even if it is not registered. [Villanueva v. himself a part of the purchase
Perez, G.R. No. L-3438 (1907)]. price;
v. When the vendor binds himself to
C. Kinds pay the taxes on the thing sold;
vi. In any other case where it may be
1. Voluntary – constituted by the will of the fairly inferred that the real intention
owner of the property on which it is of the parties is that the
created. transaction shall secure the
2. Legal – required by law to be executed in payment of a debt or the
favor of certain persons: performance of any other
a. Persons in whose favor the law obligation. [Art. 1602, Civil Code]
establishes a mortgage have no other c. Provisions governing equitable
right than to demand the execution mortgage: Arts. 1365, 1450, 1454,
and recording of the document in 1602, 1603, 1604 and 1607
which the mortgage is formalized [Art.
2125, Civil Code] D. Principle of Indivisibility of
b. The bondsman who is to be offered in Mortgage
virtue of a provision of law or of a
judicial order shall have the
A mortgage is indivisible, even though the
qualifications prescribed in Art. 2056
debt may be divided among the successors in
(integrity, capacity to bind himself, and
interest of the debtor or of the creditor [Art.
sufficient property to answer for the
2089, Civil Code].
obligation), and in other laws [Art.
2082, Civil Code]
A mortgage directly and immediately subjects
c. If the person bound to give a bond
the property upon which it is imposed. It is
should not be able to do so, a pledge
indivisible even though the debt may be
or mortgage considered sufficient to
divided, and such indivisibility is likewise
cover his obligation shall be admitted
unaffected by the fact that the debtors are not
in lieu thereof [Art. 2083, Civil Code]
solidarily liable [Dayrit v. CA, G.R. No. L-
3. Equitable – One which, although lacking
29388 (1970)].
the proper formalities of a mortgage,
shows the intention of the parties to make
The principle of indivisibility presupposes
the property a security for the debt
several heirs of the debtor or creditor and
a. Lien created by equitable mortgage
DOES NOT APPLY in the absence of such a
ought not to be defeated by requiring
situation [Spouses Yu v. Philippine
compliance with formalities necessary
Commercial International Bank, G.R. No.
to the validity of voluntary real estate
147902 (2006)].
mortgage. Ex.: Pacto de retro
b. The contract shall be presumed to be
Indivisibility arises only when there is a
an equitable mortgage, in any of the
debtor-creditor relationship. It does not apply
following cases:
to assignees of an accommodation mortgagor
i. When the price of a sale with right
and not of a debtor-mortgagor. [Spouses Belo
to repurchase is unusually
v. Philippine National Bank, G.R. No. 134330
inadequate;
(2001), citing Philippine National Bank v.
ii. When the vendor remains in
Agudelo, G.R. No. L-39037 (1933)]
possession as lessee or
otherwise;
Note: Where only a portion of the loan is
iii. When upon or after the expiration
released, the mortgage becomes enforceable
of the right to repurchase another
only as to the proportionate value of the loan
instrument extending the period of
[Central Bank v. CA, G.R. No. L-45710
redemption or granting a new
(1985)].
period is executed;
Page 374 of 444
Exception to the Principle of Indivisibility The elements of pactum commissorium are as
follows: [Development Bank of the Philippines
Where there are several things given in v. Court of Appeals, G.R. No. 118342 (1998)]
mortgage, each one of them guarantees only 1. There should be a property mortgaged by
a determinate portion of the credit, the debtor way of security for the payment of the
shall have a right to the extinguishment of the principal obligation; and
pledge or mortgage as the portion of the debt 2. There should be a stipulation for
for which each thing is specially answerable is automatic appropriation by the creditor of
satisfied [Art. 2089, Civil Code]. the thing mortgaged in case of non-
payment of the principal obligation within
the stipulated period.
E. Recording Required
Acceleration Clause Allowed
The real estate mortgage must be recorded in
the Registry of Property in order to be validly
constituted [Art. 2125, Civil Code]. Acceleration clause, or the stipulation stating
that on the occasion of the mortgagor’s
Note: The mortgage would still be binding default, the whole sum remaining unpaid
between the parties even if the instrument is automatically becomes due and demandable,
not recorded [Art. 2125, Civil Code]. is ALLOWED [Luzon Development Bank v.
Conquilla, G.R. No. 163338 (2005)].
F. Foreclosure of Mortgage Kinds of Foreclosure
1. Judicial Foreclosure
Foreclosure is the remedy available to the 2. Extrajudicial Foreclosure
mortgagee by which he subjects the
mortgaged property to the satisfaction of the
obligation secured by the mortgage by Judicial Extrajudicial
causing its alienation in accordance with the Foreclosure Foreclosure
procedures allowed by law [Spouses Caviles
v. CA, G.R. No. 126857 (2002)]. Court intervenes No court intervention
In general, an action for foreclosure of a There is equity of There is right of

mortgage is limited to the amount mentioned redemption – period redemption – period
in the mortgage [Landrito Jr. v. CA, G.R. No. starts from the start from date of
133079, (2005)], except when the mortgage finality of the registration of
contract intends to secure future loans or judgment until order certificate of sale
advancements [See ACME Shoe, Rubber & of confirmation
Plastic Corporation v. CA, G.R. No. 103576
(1996); Philippine Bank of Communications v. Decisions are Decisions are not
CA, supra]. appealable appealable
No need for a There is a need for a

Mortgage may be used as a “continuing
special power of special power of
security” which secures future advancements
attorney in the attorney in favor of
and is not discharged by the repayment of the
contract of mortgage the mortgagee in the
amount in the mortgage [Julian v. Lutero,
contract
supra].
Pactum Commissorium 1. Judicial Foreclosure [Rule 68,

The creditor cannot appropriate the things Rules of Court]
given by way of mortgage or dispose of them.
Any stipulation to the contrary is null and void. 1. May be availed of by bringing an action in
[Art. 2088, Civil Code] the proper court which has jurisdiction
over the area wherein the real property
Page 375 of 444

involved or a portion thereof is situated 6. A certified copy of the final order of the
[Rule 68, Sec. 1, Rules of Court]. court confirming the sale shall be
2. If the court finds the complaint to be well- registered in the registry of deeds.
founded, it shall order the mortgagor to
pay the amount due with interest and If no right of redemption exists: The
other charges within a period of not less certificate of title in the name of the
than 90 days nor more than 120 days from mortgagor shall be cancelled, and a new
the entry of judgment [Rule 68, Sec. 2, one issued in the name of the purchaser.
Rules of Court].
If a right of redemption exists: The
Note: The mortgagor may exercise the certificate of sale and the order confirming
equity of redemption during this period of the sale shall be registered [Rule 68, Sec.
grace in order to extinguish the mortgage 7, Rules of Court].
and retain ownership of the collateral by
paying the mortgage obligation [Top Rate 7. The proceeds of the sale shall be applied
International Services, Inc. v. IAC, G.R. to the payment of the:
Nos. L-67496 and L-68257 (1986)]. a. costs of the sale;
b. amount due the mortgagee;
It is this equity of redemption that is c. claims of junior encumbrancers or
conferred on the mortgagor’s successors- persons holding subsequent
in-interest or on third persons acquiring mortgages in the order of their priority;
rights over the collateral from the and
mortgage subsequent. Although these d. the balance, if any shall be paid to the
subsequent or junior lien-holders acquire mortgagor, his agent, or the person
the equity of redemption, this right is entitled to it [Rule 68, Sec. 4, Rules of
strictly subordinate to the superior lien of Court]
the first mortgagee [Sun Life Assurance
Company of Canada v. Diez, G.R. No. L- 8. Sheriff’s certificate is executed,
29027 (1928)]. acknowledged and recorded to complete
the foreclosure [Development Bank of the
3. If the mortgagor fails to pay within the at Philippines v. Zaragoza, G.R. No. L-23493
time directed, the court, upon motion, shall (1978)].
order the property to be sold to the highest
bidder at a public auction [Rule 68, Sec. 3,
Nature of Judicial Foreclosure
Rules of Court].
Proceedings
4. The issuance of a judicial confirmation of
1. Quasi in rem action. Hence, jurisdiction
the sale shall operate to divest the rights
may be acquired through publication.
of all parties to the action and to vest their
[Ocampo v. Domalanta, G.R. No. L-21011
rights to the purchaser subject to such
(1967)]
right of redemption as may be allowed by
2. Foreclosure is only the result or incident of
law [Rule 68, Sec. 3, Rules of Court].
the failure to pay debt [Salvador v. Locsin,
G.R. No. L-4629, (1953)].
Note: A foreclosure sale is not complete
3. Survives death of mortgagor [Spouses
until it is confirmed. Thus, after the
Manalansan v. Castañeda, Jr., G.R. No.
foreclosure sale but before its
L-43607 (1978)].
confirmation, the court may grant the
judgment debtor or mortgagor the equity
of redemption.
2. Extrajudicial Foreclosure
5. Before the confirmation, the court retains
control of the proceedings; Secs. 31, 32, A real estate mortgage may be extrajudicially
and 34 of Rule 39 on the execution of foreclosed only if there is a special power
judgments apply [Rule 68, Sec. 8, Rules inserted or attached to the document in which
of Court]. the real estate mortgage appears and only in
accordance with the provisions of Act No.
Page 376 of 444
3135 [Luna v. Encarnacion, G.R. No. L-4637 sold is situated [Sec. 4, Act No. 3135;
(1952)]. Sec. 5, A.M. No. 99-10-05-0, as amended]
7. Surplus proceeds of foreclosure sale
Act No. 3135 belong to the mortgagor [Gorospe v.
1. Applies to mortgages where special Gochangco, G.R. No. L-12735 (1959)].
authority to foreclose is granted to the 8. The Clerk of Court shall issue and sign the
mortgagee [Luna v. Encarnacion, supra] Certificate of Sale [Sec. 9, A.M. No. 99-
2. Authority is not extinguished by death of 10-05-0, as amended]
mortgagor or mortgagee. This is an 9. Debtor (who must be a natural person),
agency coupled with interest. [Perez v. his successors in interest, or any junior
Philippine National Bank, G.R. No. L- encumbrancer has the right to redeem the
21813, (1966)]. property sold within one (1) year from and
3. Public sale should be made after proper after the date of sale [Sec. 6, Act No.
notice to the public; otherwise, it is a 3135].
jurisdictional defect which could render the a. If the mortgagee is a bank, quasi-bank
sale voidable. or trust entity and the debtor is a
a. General Rule: Statutory provisions juridical person, then there is no right
governing posting of notice must be of redemption. However, juridical
strictly complied with and even slight mortgagors may redeem the property
deviations will invalidate the notice. before the registration of the TCT to
b. Exception: If the objectives are the buyer, which is similar to the
attained, immaterial errors and equity of redemption. The TCT must
mistakes may not affect the sufficiency be registered within three (3) months
of the notice. after the foreclosure [Sec. 47, General
[Spouses Suico v. Philippine National Banking Law].
Bank, G.R. No. 170215 (2007); b. The mortgagor can only legally
Metropolitan Bank and Trust Company v. transfer the right to redeem and the
Wong, G.R. No. 120859 (2001) discussing use of the property during the period
Olizon v. CA, G.R. No. 107075 (1994)]. of redemption because ownership of
4. Republication of the notice of sale is the collateral is retained by the
necessary for the validity of the postponed mortgagor until the expiration of such
extrajudicial sale [Development Bank of period [Medida v. CA, G.R. No. 98334
the Philippines v. Aguirre, G.R. No. (1992)]
144877 (2001)]. 10. During the redemption period, the
5. There is no need to notify the mortgagor, purchaser may petition the land
where there is no contractual stipulation registration court to give him possession
therefor [Grand Farms, Inc. v. CA, G.R. of the property by furnishing a bond in an
No. 91779 (1991)]. amount equivalent to the use of the
a. Proper notice consists of: property for a period of twelve (12)
i. posting notice in three (3) public months. Upon approval of the bond, the
places and/or Court shall issue a Writ of Possession.
ii. publication in newspaper of general [Sec. 7, Act No. 3135]
circulation [Sec. 3, Act No. 3135] 11. Remedy of party aggrieved by foreclosure
b. Purpose of notice is to obtain the best is a petition to set aside sale and the
bid for the foreclosed property, and to cancellation of Writ of Possession.
inform the public of: However, if the mortgagee is a bank, the
i. the nature and condition of the mortgagor is required to post a bond equal
collateral, and to the value of the mortgagee’s claim.
ii. the time, place, and terms of the [Sec. 8, Act No. 3135]
sale [Olizon v. CA, supra] 12. If no redemption is made within one (1)
6. The foreclosure sale shall be made at year from the date of registration of the
public auction through sealed bids, within Certificate of Sale, the purchaser is
the province in which the property to be entitled to a conveyance and possession
Page 377 of 444

of the property (Consolidation of 4. Right to Surplus or Deficiency
Ownership). Right of the Mortgagor
a. General Rule: Upon Consolidation of
Ownership, possession of the property The mortgagor is entitled to the surplus, if any,
shall be given to the purchaser or last after payment of the proceeds of the sale
redemptioner as a matter of right. [Gorospe v. Gochangco, supra]
[Cua Lai Chu v. Philippine Bank of
Communications, G.R. No. 169190 Right of the Mortgagee
(2010)] 1. Mortgagee is entitled to recover
b. Exceptions: deficiency. This extends to judicial
i. A third party is actually holding the foreclosure of mortgage arising out of the
property [Rule 39, Sec. 33, Rules of settlement of estate, but NOT to
Court] extrajudicial foreclosure arising out of the
ii. The mortgagor filed a separate same [Heirs of Sps. Maglasang v. Manila
action to invalidate the auction sale Banking Corp., G.R. No. 171206 (2013)].
because of the unusually low price 2. If the deficiency is embodied in a
paid therein [Cometa v. IAC, G.R. judgment, it is referred to as deficiency
No. L-69294 (1987)] judgment [See Art. 2115, Civil Code].
iii. The mortgagee failed to deliver the 3. Action for recovery of deficiency may be
surplus from the proceeds of the filed even during redemption period
foreclosure sale [Sulit v. CA, G.R. [Tarnate v. CA, G.R. No. 100635 (1995)].
No. 119247 (1997)] 4. Action to recover prescribes after ten (10)
years from the time the right of action
3. Nature of Power of Foreclosure by accrues [See Art. 1144, Civil Code].
Extrajudicial Sale
5. Effect of Inadequacy of Price in
1. Conferred for mortgagee’s protection Foreclosure Sale
2. An ancillary stipulation [Perez v. Philippine
National Bank, supra] 1. Where there is right to redeem,
3. A prerogative of the mortgagee [Rural inadequacy of price is immaterial because
Bank of San Mateo v. IAC, G.R. No. L- the judgment debtor may redeem the
66936, (1986)] property [Velasquez v. Coronel, G.R. No.
L-18745 (1962)].
Note: • Exception: Where the price is so
1. Both should be distinguished from inadequate as to shock the
execution sale governed by Rule 39, conscience of the court, taking into
Rules of Court. consideration the peculiar
2. Foreclosure retroacts to the date of circumstances [National Bank v.
registration of mortgage [St. Dominic Gonzales, G.R. No. L-21026 (1924)].
Corp. v. IAC, G.R. Nos. 70623 and L- 2. Property may be sold for less than its fair
48630 (1987)]. market value, upon the theory that the
3. A stipulation of upset price, or the lesser the price the easier it is for the
minimum price at which the property shall owner to redeem [Development Bank of
be sold to become operative in the event the Philippines v. Moll, G.R. No. L-25802
of a foreclosure sale at public auction, is (1972)].
null and void [El Banco Español-Filipino v. 3. The value of the mortgaged property has
Donaldson, Sim & Co., G.R. No. 2422 no bearing on the bid price at the public
(1906)]. auction, provided that the public auction
was regularly and honestly conducted
[Escudero v. Ticson, 7 C.A. Rep. 139).
A suit for the recovery of the deficiency after

the foreclosure of a mortgage is in the nature
Page 378 of 444
of a mortgage action because its purpose is preserving the right of redemption. [Tolentino
precisely to enforce the mortgage contract v. CA, G.R. Nos. L-50405-6 (1981)]
[Caltex v. IAC, G.R. No. 74730 (1989)].
In a judicial foreclosure sale, the right of
G. Waiver of Security by redemption must be allowed by law. The
references in Rule 68 and Rule 39 to the right
Creditor of redemption are not grants of this statutory
prerogative. To claim a right of redemption in
1. Mortgagee may waive the right to judicial foreclosure, there must be a specific
foreclose his mortgage and maintain a law that allows it [GSIS v. CFI of Iloilo, G.R.
personal action for recovery of the No. L-45322 (1989)].
indebtedness [Hijos de I. de la Rama v.
Sajo, G.R. No. 20870 (1924)]. Example: In the event of foreclosure of any
2. Mortgagee cannot have both remedies mortgage on real estate which is security for
because he only has one cause of action, any loan or other credit accommodation
the nonpayment of the mortgage debt granted, the mortgagor or debtor whose real
[Caltex v. IAC, supra]. property has been sold for the full or partial
payment of his obligation shall have the right
H. Redemption within one (1) year after the sale of the real
estate, to redeem the property by paying the
amount due under the mortgage deed, with
It is a transaction by which the mortgagor
interest thereon at rate specified in the
reacquires the property which may have
mortgage, and all the costs and expenses
passed under the mortgage or divests the
incurred by the bank or institution from the
property of the lien which the mortgage may
sale and custody of said property less the
have created [De Leon, citing 59 C.J.S. 813,
income derived therefrom. [RA 8791 (General
supra].
Banking Law of 2000), Sec. 47.]
1. Kinds
2. Requisites
Equity of redemption – in judicial foreclosure
Requisites for a Valid Redemption
of real estate mortgage under the Rules of
1. Redemption must be made within:
Court, it is the right of the mortgagor to
a. For natural persons: one (1) year from
redeem the mortgaged property by paying the
the registration of the TCT
secured debt within the 120-day period from
b. For juridical persons: until, but not
entry of judgment or after the foreclosure sale,
later than, the registration of the
but before the sale of the mortgaged property
certificate of foreclosure sale (no more
or confirmation of sale [See Secs. 2, 3, Rule
than three (3) months after
68, Rules of Court; Raymundo v. Sunico, G.R.
foreclosure) [Sec. 10, A.M. No. 99-10-
No. 8241 (1913); Rosales v. Suba, G.R. No.
05-0, as amended]
137792 (2003)].
2. Payment of the purchase price of the
Right of redemption – in extrajudicial collateral involved, plus 1% interest per
month, together with the amount of any
foreclosure of real estate mortgage, the right
of the mortgagor to redeem the property within assessments or taxes if any, paid by the
purchaser after the sale [Sec. 9, Act No.
one (1) year after it was sold for the
satisfaction of the debt [Sec. 6, Act No. 3135]. 3135].
Note: Under RA 8791, the amount is the

A formal offer to redeem must be with a bona
fide tender of redemption price to preserve the amount due under the mortgage deed
right of redemption. Where the right of
redemption is exercised through judicial 3. Written notice of the redemption must be
served on the officer who made the sale
action, such filing is equivalent to a formal
offer to redeem and have the effect of and a duplicate filed with the Register of
Page 379 of 444

Deeds of the province [Rosales v. Yboa, application to the interest and principal [Art.
G.R. No. L-42282 (1983)] 2133, Civil Code].
The creditor by acquiring the right to enjoy the

Equity of fruits of the property delivered to him [Art.
Right of Redemption
Redemption 2132, Civil Code] has three obligations:
1. Payment of taxes and charges upon the
Secs. 2, 3, Rule 68 Sec. 6, Act No. 3135
estate, unless there is a stipulation to the
Right to extinguish Right to redeem the contrary;
the mortgage and property within one 2. Bear the expenses necessary for its
retain ownership of (1) year from the date preservation and repair; and
the property by or registration of the 3. Application of the fruits of the estate to the
paying the secured certificate of sale interest, if owing, and thereafter to the
debt within the 90- principal [Arts. 2132, 2135, Civil Code].
day period after the
judgment becomes The contracting parties may stipulate that the
final in accordance interest upon the debt be compensated with
with Rule 68, or the fruits of the property which is the object of
even after the the antichresis, provided that if the value of
foreclosure sale but the fruits should exceed the amount of interest
prior to its allowed by the laws against usury, the excess
confirmation. shall be applied to the principal [Art. 2138,
Civil Code].
Applies to judicial Applies to
foreclosure of real extrajudicial B. Form of Antichresis
estate mortgage foreclosure of real
estate mortgage The amount of the principal and of the interest
shall be specified in writing; otherwise, the
The rule up to now is that the right of a contract of antichresis shall be void [Art. 2134,
purchaser at a foreclosure sale is merely Civil Code].
inchoate until after the period of redemption
has expired without the right being exercised. C. Obligations Secured
The title to land sold under mortgage
foreclosure remains in the mortgagor or his
1. Principle of Indivisibility
grantee until the expiration of the redemption
period and conveyance by the master's deed
General Rule
[Medida v. CA, supra].
An antichresis is indivisible [Arts. 2139, 2089,
2090, Civil Code].
VI. ANTICHRESIS
Exception
A. General Concepts When there are several things given in
antichresis, each one of them guarantees only
By the contract of antichresis, the creditor a determinate portion of the credit [Arts. 2139,
acquires the right to receive the fruits of an 2089, 2090, Civil Code].
immovable of his debtor, with the obligation to
apply them to the payment of the interest, if 2. After-Incurred Obligations
owing, and thereafter to the principal of his
credit [Art. 2132, Civil Code]. The contract of antichresis may secure all
kinds of obligations. [Arts. 2139 and 2091,
The contract only covers the fruits of the Civil Code]
immovable, which must be appraised at their
actual market value at the time of their
Page 380 of 444
Similar to a real estate mortgage, an the debtor to enter again upon the enjoyment
antichresis may exceptionally secure after- of the property [Arts. 2135, 2136, Civil Code].
incurred obligations as long as these future
debts are accurately described [Gomez- Exception to the Exception
Somera, Credit Transactions: Notes and A stipulation to the contrary [Art. 2136, Civil
Cases, 2nd Edition, Vol. II]. Code].
D. Right of Retention E. Foreclosure of Antichresis

General Rule The creditor does not acquire the ownership
The debtor cannot reacquire the enjoyment of of the real estate for non-payment of the debt
the immovable without first having totally paid within the period agreed upon. Every
what he owes the creditor [Art. 2136, Civil stipulation to the contrary shall be void. But
Code]. the creditor may petition the court for the
payment of the debt or the sale of the real
Exception property. In this case, the Rules of Court on
The creditor can exempt himself from the the foreclosure of mortgages shall apply [Art.
obligation to pay the taxes and charges upon 2137, Civil Code].
the estate as well as the expenses necessary
for its preservation and repair by compelling
Page 381 of 444


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FOR UP CANDIDATES ONLY

Simple loan may be gratuitous or with a stipulation to As commodatum is a purely personal

Commodatum is essentially gratuitous.

Commodatum Mutuum Commodatum Mutuum

General Rule: General Rule: Borrower must Borrower need only

Page 339 of 444

1. Take care of the thing loaned with the

Who May Be a Bailor in Commodatum? Exception: The members of the bailee’s

6. Bear equally (with the bailor) the

Exception: Contrary stipulation. Provided that: Bailee brings the same to

Page 341 of 444

f. Right of Retention Rights of the Borrower

Article 1947, Civil Code. The bailor may demand

Interest – The compensation allowed by law b. Interest on Interest

BUT although usury is legally inexistent,

Page 345 of 444

Page 346 of 444

Page 348 of 444

Page 349 of 444

Any stipulation between the hotel-keeper and

Page 350 of 444

1. Nature and Purpose A. Nature and Extent of

2. Depositary of Sequestered If a person binds himself solidarily with the principal

Exception: When there is a stipulation to the a. Qualifications of a Guarantor [Art.

Exception: The excussion shall not take

However, the benefit of division will cease 1. Concept

Therefore, a suretyship is unenforceable Comprehensive or Continuing Surety

This rule is applicable only to an 5. Surety Distinguished from

Surety Guaranty 6. Surety Distinguished from Joint

A surety will not be A guarantor is often C. Effect of Guaranty

Article 2061, Civil Code. The guarantor having

Page 356 of 444

D. Extinguishment of Guaranty It may be constituted, not only in favor of the

Page 358 of 444

Page 359 of 444

Grantor [Sec. 3 (c)] Rules on Commingled Funds [Sec. 8]

Likewise, any stipulation limiting the grantor’s

Perfection by Registration The PPSA does NOT require the intermediary

Perfection by Possession Three Types of Control Agreements

Page 363 of 444

F. Priority of Security Interest

Page 367 of 444

1. Recovery Right to Dispose of Collateral

Recovery is an enforcement procedure that After default, a secured creditor may:

2. Any other secured creditor or lien holder How Exercised

Page 372 of 444

In general, an action for foreclosure of a There is equity of There is right of

No need for a There is a need for a

Pactum Commissorium 1. Judicial Foreclosure [Rule 68,

Page 375 of 444

Page 377 of 444

A suit for the recovery of the deficiency after

Note: Under RA 8791, the amount is the

Page 379 of 444

The creditor by acquiring the right to enjoy the

D. Right of Retention E. Foreclosure of Antichresis

Page 381 of 444

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