GUARANTY SURETY PLEDGE CHATTEL REAL MORTGAGE ANTICHRESIS

MORTGAGE
THE CONTRACT
Definition A contract whereby a A contract whereby A contract wherein A contract by virtue of A contract whereby A contract whereby
person called the one person engages to the debtor delivers to which personal the debtor secures to the creditor acquires
guarantor, binds be answerable for the the creditor or to a property is recorded the creditor the the right to receive
himself to the creditor debt, default, or third person a in the Chattel fulfilment of a the fruits of an
to fulfill the obligation miscarriage of the movable or document Mortgage Register as principal obligation, immovable of the
of the principal debtor principal. (Art.2047, evidencing incorporeal a security for the specially subjecting to debtor, with the
in case the latter par.2) rights for the purpose performance of an such security obligation to apply
should fail to do so. of securing fulfilment obligation (Art 2140). immovable property them to the payment
(Art. 2047, par. 1) of a principal or real rights over of the interest, if
obligation with the immovable property owing, and thereafter
understanding that in case the principal to the principal of his
when the obligation is obligation is not credit (Art 2132)
fulfilled, the thing complied with at the
delivered shall be time stipulated.
returned with all its (Art.2124-2123)
fruits and accessions.
(Art.2093-2123)

Nature and 1. Accessory 1. Real contract it 1. Accessory 1. Real 1. Accessory

Characteristics - Dependent for its is perfected by contract it is for 2. Accessory contract it
existence upon the the delivery of the purpose of 3. Subsidiary secures the
principal the thing securing the Unilateral it creates performance of a
obligation pledged by the performance of a only an obligation on principal
guaranteed by it. debtor who is principal the part of the obligation
*may also guarantee called the obligation creditor who must 2. Formal contract
the performance of a pledgor to the 2. Formal contract free the property from it must be in a
voidable or creditor who is registration in the the encumbrance specified form to
unenforceable called the Chattel Mortgage once the obligation is be valid, i.e., in
contract. It may also pledgee, or to a Register is fulfilled. writing. (Art
guarantee a natural third person by indispensable for As an accessory 2134)
obligation (Art. 2052). common its validity contract, its Indivisibility (Art
2. Subsidiary and agreement; 3. Unilateral consideration is 2089)
Conditional 2. Accessory contract it that of the GENERAL RULE: An
-it takes effect only contract it has produces only principal contract antichresis is
when the principal no independent obligations on the from which it indivisible, even
debtor fails to in existence of its part of the receives life. though the debt may
his obligation own; creditor to free A mortgage does be divided among the
subject to the 3. Unilateral the thing from the not involve a successors in interest
limitation (Arts. contract it encumbrance on transfer, cession of the debtor or of the
 2053, 2058, 2063, creates an fulfilment of the or conveyance of creditor.
2065) obligation solely obligation. property but only Their indivisibility
3. Unilateral on the part of constitutes a lien is not affected by
- it gives rise only to a the creditor to thereon. Until the fact that the
duty on the part of the return the thing discharged, it debtors are jointly
guarantor in relation subject thereof follows the or not solidarily
to the creditor and not upon the property liable.
vice versa although fulfilment of the wherever it goes When the principal
after his fulfillment, principal and subsists obligation becomes
the principal debtor obligation; and notwithstanding due, the things in
becomes liable to 4. Subsidiary changes of which the antichresis
indemnify the contract the ownership. consists may be
guarantor (art. 206) obligation A mortgage gives alienated for the
but this is merely an incurred does the mortgagee no payment to the
incident of the not arise until right or claim to creditor. (Art. 2087)
contract and also the fulfilment of the possession of
because it may be the principal the property, and
entered into even obligation which therefore, a mere
without the is secured. mortgagee has no
intervention of the right to eject an
principal debtor (art Indivisibility (Art occupant of the
2050) 2089) property
4. It requires that the GENERAL RULE: A mortgaged unless
guarantor must be a pledge, is indivisible, the mortgage
person distinct from even though the debt should contain
the debtor. may be divided among some provision to
5. Nominal the successors in that effect. The
6.Consensual interest of the debtor only right of a
7. falls under the or of the creditor. mortgagee in case
Statute of Frauds- it is Their indivisibility of non-payment
not presumed and is not affected by of a debt secured
must be in writing the fact that the by mortgage
otherwise it is debtors are jointly would be to
unenforceable or not solidarily foreclose the
(Art.1403,(2), par.b) liable. mortgage and
8. strictly interpreted have the
against the creditor Consequences of encumbered
and in favor of the indivisibility: property sold to
guarantor and is not 1. Single thing satisfy the
to be extended Every portion of outstanding
beyond its the property indebtedness. If
terms/specified limits pledged or the possession is
mortgaged is transferred to the
answerable for
 It is a contract the whole mortgagee, it
between the obligation must not
creditor and the 2. Several things expressly be for
guarantor; All of the several purpose of
In its broad sense, things pledged or applying the fruits
guaranty includes mortgaged are to the interest
pledge and liable for the then to the
mortgage because totality of the principal of the
the purpose of debt credit, for then it
guaranty may be 3. Debtors would be an
accomplished not heir/creditors antichresis.
only by securing heir - Neither the It is not an
the fulfillment of debtors heir who essential requisite
an obligation has paid part of that the principal
contracted by the the debt cannot of the mortgage
principal debtor ask for credit bears
through the proportionate interest, or that
personal guaranty extinguishment, the interest as
of a third person nor creditors heir compensation for
but also by who received his the use of the
furnishing to the share of the debt principal and
creditor for his return the pledge enjoyment of its
security, property or cancel the fruits be in the
with authority to mortgage as long form of a certain
collect the debt as the debt is not percent thereof.
from the proceeds completely
of the same in satisfied. Special Requisites
case of default. (in addition to the
(Manresa, 151- EXCEPTIONS: common essential
152) 1. Where each one of requisites):
- several things 1. It can cover only
guarantees a immovable
determinate property and
portion of the alienable real
credit rights imposed
2. Where only a upon immovables
portion of the loan (Art 2124);
was released 2. It must appear in
3. Where there was a public
failure of instrument (Art.
consideration. 2125); and
4. Where there is no 3. Registration in the
debtor-creditor registry of
relationship
When the principal property is
obligation becomes necessary to bind
due, the things in third persons, but
which the pledge not for the
consists may be validity of the
alienated for the contract (Art
payment to the 2125).
creditor. (Art. 2087) An order for
foreclosure
cannot be
refused on
the ground
that the
mortgage had
not been
registered
provided no
innocent
third parties
are involved.
NOTE: Where a
mortgage is not valid
or false, the principal
obligation which it
guarantees is not
rendered null and
void.

What is lost only is the

right to foreclose the
mortgage as a special
remedy for satisfying
or settling the
indebtedness which is
the principal
obligation but the
mortgage deed
remains as evidence
or proof of a personal
obligation of the
debtor and the
amount due to the
creditor may be
enforced in an
 ordinary personal
action.
Requisites Essential Requisites Essential Requisites Essential Requisites Essential Requisites
(Art 2085) (Art 2085) (Art 2085) (Art 2085)
1. Secures the 4. Secures the 7. Secures the 10. Secures the
fulfillment of a fulfillment of a fulfillment of a fulfillment of a
principal principal principal principal
obligation; obligation; obligation; obligation;
2. Pledgor must be 5. Mortgagor must 8. mortgagor must 11. antichretic debtor
the absolute be the absolute be the absolute must be the
owner of the owner of the owner of the absolute owner of
thing pledged or thing pledged or thing pledged or the thing pledged
mortgaged; and mortgaged; and mortgaged; and or mortgaged;
The reason being The reason being The reason being and
that in that in that in The reason being
anticipation of a anticipation of a anticipation of a that in
possible possible possible anticipation of a
foreclosure sale in foreclosure sale in foreclosure sale in possible
case of default case of default case of default foreclosure sale in
which is still a which is still a which is still a case of default
sale, the rule is sale, the rule is sale, the rule is which is still a
that the seller that the seller that the seller sale, the rule is
must be the must be the must be the that the seller
owner of the owner of the owner of the must be the
thing sold (Cavite thing sold (Cavite thing sold (Cavite owner of the
Development Development Development thing sold (Cavite
Bank vs. Lim, 324 Bank vs. Lim, 324 Bank vs. Lim, 324 Development
SCRA 346) SCRA 346) SCRA 346) Bank vs. Lim, 324
3. Pledgor must 6. mortgagor must 9. mortgagor must SCRA 346)
have free disposal have free disposal have free disposal 12. antichretic debtor
of their property, of their property, of their property, must have free
or be legally or be legally or be legally disposal of their
authorized for authorized for authorized for property, or be
such purpose. such purpose. such purpose. legally authorized
for such purpose.
Special Requisites (in Special Requisites
addition to the (in addition to the
common essential common essential
requisites): requisites):
1. Possession of the 1. It can cover only
thing pledged the fruits of an
must be immovable
transferred to the property; (Art
 creditor or a third 2132)
person by 2. Delivery of the
agreement (Art immovable is
2093); necessary for the
2. It can only cover creditor to receive
movable property the fruits and not
and incorporeal that the contract
rights evidenced shall be binding;
by documents of 3. Amount of
title and the principal and
instruments interest must be
proving the right specified in
pledged shall be writing (Art.
delivered to the 2134); and
creditor, and if 4. Express
negotiable must agreement that
be endorsed (Art debtor will give
2094); and possession of the
3. The description of property to
the thing pledged creditor and that
and the date must the latter will
appear in a public apply the fruits to
instrument to the interest, if
bind third any, then to the
persons, but not principal of his
for the validity of credit. (Art 2132)
the contract (Art NOTE: The obligation
2096). to pay interest is not
of the essence of the
contract of
antichresis, there
being nothing in the
Code to show that
antichresis is only
applicable to securing
the payment of
interest-bearing loans.
On the contrary,
antichresis is
susceptible of
guaranteeing all kinds
of obligations, pure or
conditional
Registration Need not be Need not be Effect of registration:
registered registered Creates a real right
The registration
of the chattel
mortgage is an
effective and
binding notice to
other creditors of
its existence and
creates a real
right or a lien
which, being
recorded, follows
the chattel
wherever it goes.
The registration
gives the
mortgagee
symbolical
possession
(Northern Motors,
Inc. vs. Coquia, 68
SCRA 374).

Effect of failure to
register chattel
mortgage in the
chattel mortgage
registry
Article 2140
makes the
recording in the
Chattel Mortgage
Register an
essential requisite
but if the
instrument is not
recorded, the
mortgage is
nevertheless
binding between
the parties. But
 the person in
whose favour the
law establishes a
mortgage has no
other right than
to demand the
execution and the
recording of the
document.
Affidavit of Good
Faith
Oath in a contract
of chattel
mortgage wherein
the parties
"severally swear
that the mortgage
is made for the
purpose of
securing the
obligation
specified in the
conditions
thereof and for no
other purposes
and that the same
is a just and valid
obligation and
one not entered
into for the
purpose of fraud.
(Sec. 5, Chattel
Mortgage Law)

Effect of absence
The special
affidavit is
required only for
the purpose of
transforming an
already valid
mortgage into
preferred
mortgage. Thus,
 it is not necessary
for the validity of
the chattel
mortgage itself
but only to give it
a preferred
status. In other
words, its
absence vitiates
the mortgage only
as against third
persons without
notice like
creditors and
subsequent
encumbrancers.

Parties and Capacity Creditor Creditor Pledgor Mortgagor Mortgagor Antichretic Creditor
Principal Debtor Principal debtor Pledge Mortgagee Mortgagee Antichretic Debtor
Guarantor Surety
- Secondarily liable - Primarily liable
- Liability depends on - Surety assumes
an independent liability as a regular
agreement to pay party to the
the obligation if the undertaking
primary debtor fails - An original
to do so promissory
- Collateral - Undertakes to pay if
undertaking the principal does
- Binds himself to pay not pay
if the principal - Insurer of the debt
cannot pay - Cannot avail the
- Insurer of the benefit of excussion
insolvency of the and division
debtor - Held to know every
- Can avail of benefit default of the
of excussion and principal
division in case - Not discharged by
creditor proceeds mere indulgence of
against him. ( the creditor or by
Benefit of Excussion want of notice of
Art. 2058- right in default
which the guarantor
cannot be
compelled to pay
the creditor unless
the latter has
exhausted all the
properties of the
principal debtor,
and has resorted to
all of the legal
remedies against
such debtor.
Benefit of
Division
(art.2065)- should
there be several
guarantors of only
one debtor and
for the same
debt, the
obligation to
answer for the
same is divided
among all.
General Rule:
Joint Liability.
Exceptions: when
solidarity is
stipulated or if
any of the
circumstances
enumerated in
Art. 2059 should
take place.
In case the co-
guarantor pays
for the whole
obligation, he
may demand of
each of the co-
guarantors the
share which
proportionally
owes from him. If
any of the co-
guarantors should
be insolvent his
share shall be
borne by the
others including
the paying
guarantor in the
same joint
proportion. This
rule shall not be
applicable unless
the payment has
been made by
virtue of a judicial
demand or unless
the principal
debtor is
insolvent.
However, the co-
guarantors may
set up against the
one who paid the
same defenses
which have
pertained to the
principal debtor
against the
creditor and
which are not
purely personal to
the debtor.
(Art.2074)
- Not bound to
take notice of
the non-
performance
of his
principal
- Often
discharged by
the mere
indulgence of
the creditor
 or want of
notice of
default
Qualifications of a
Guarantor (arts. 2056-
2057): Possess
integrity
1. Capacity to
bind himself
2. Has sufficient
property to
answer
obligation
which he
guarantees
Gen. Rule: the
qualifications need
not need only be
present at the time of
the perfection of the
contract
Exception: when the
guarantor is selected
by the principal debtor
because the latter
answers for the
insolvency of the
former. In this case,
the guarantor must
possess the
qualifications
prescribed not only at
the moment the
guaranty is given but
also until the
extinguishment of the
debt.
Beneficiary For the benefit of the For the benefit of the
creditor creditor
Consideration Principal obligation Principal obligation Insofar as the A. shares of stock in Future property
pledgor is a corporation cannot be an object of
concerned, the B. Interest in a contract of
cause is the business mortgage (Art
 principal C. Machinery and 2085[2]) However, a
obligation. house of mixed stipulation subjecting
If the pledgor is materials treated to the mortgage lien,
not the debtor, by parties as properties
the cause is the personal property (improvements) which
compensation and no innocent the mortgagor may
stipulated for the third person will subsequently acquire
pledge or the be prejudiced install, or use in
mere liberality of thereby (Makati connection with real
the pledgor. Leasing and property already
Finance mortgaged belonging
Corporation vs. to the mortgagor is
Weaver Textile valid (Peoples Bank
Mills, Inc., 122 and Trust Co. vs.
SCRA 296 [1983]. Dahican Lumber Co.,
D. Vessels, the 20 SCRA 84)
mortgage of
which have been
recorded with the
Philippine Coast
Guard in order to
be effective as to
third persons
E. Motor vehicles,
the mortgage of
which had been
registered both
with the Land
Transportation
Commission and
the Chattel
Mortgage Registry
is order to affect
third persons
F. House which is
intended to be
demolished
G. Growing crops
and large cattle
(section 7,
paragraphs 2 and
3, Act No. 1508)

Note: Section 7 of the Chattel Mortgage Law

 (Saldana vs. Phil.
Guaranty Co., Inc.,
106 Phil. 919
[1960]); otherwise,
the mortgage is
invalid.

Kinds In the Broad sense: 1. Conventional 1. Voluntary

a. Personal- the /Voluntary agreed to by the
guaranty of the created by parties or
credit given by the contract constituted by the
guarantor 2. Legal created by will of the owner
b. Real- the guaranty operation of law of the property on
is the property, (examples: Art. which it is created
movable or 546, 1731 and 2. Legal one
immovable 1914 NCC) required by law to
As to its origin: be executed in
a. Conventional- The provisions of favour of certain
agreed upon by possession, care persons
the parties and sale of the The persons
b. Legal- imposed by thing as well as on in whose
virtue of a the termination of favour the
provision of law the pledge law
c. Judicial- one which governing establishes a
is required by a conventional mortgage
court to guarantee pledges are have no other
the eventual right applicable to right than to
of one of the pledges created demand the
parties in a case. by operation of execution
As to Consideration: law (Art 2121) and the
a. Gratuitous- the Unlike, however, recording of
guarantor does not in conventional the
receive anything pledge where the document in
for acting as such debtor is not which the
b. Onerous- the entitled to the mortgage is
guarantor receives excess unless it is formalized
valuable otherwise agreed, (Art 2125 par
consideration in legal pledge, 2)
As to the Person the remainder of 3. Equitable one
Guaranteed the price of the which, although
a. Single- one sale after lacking the
constituted solely payment of the formalities of a
to guarantee or debt and mortgage, shows
 secure expenses, shall be the intention of
performance by delivered to the the parties to
the debtor or the debtor. make the
principal obligation In legal pledge, property a
b. Double or Sub- there is no security for a debt
guaranty- one definite period for
constituted to the payment of
secure the the principal
fulfillment by the obligation. The
guarantor of a pledgee must
prior guaranty: make a demand
In case of for the payment
insolvency of the of the amount
guarantor for due him;
whom he bound otherwise he
himself, is cannot exercise
responsible to the the right of sale at
co-guarantors in public auction
the same terms as (Art 2122)
the guarantor (Art.
2075)
As to Scope and
Extent
a. Definite- the
guaranty is limited to
principal obligation
only or to a specific
portion thereof
b. Indefinite or
simple- one which
not only includes the
principal obligation
but also all its
accessories including
judicial costs
c. Specific
d. Continuing
- Not limited to
a single transaction
but contemplates a
future course of
dealings, covering a
series of transactions
generally for an
 indefinite time or
until revoked.
Extent/Coverage of Can be comprehensive Unless stipulated Can only cover Absent express
the Contract or continuing otherwise, pledge obligations existing at stipulation to the
extends to the fruits, the time the mortgage contrary, the
The cause of the interests or earnings is constituted and not mortgage includes the
contract is the same of the thing. those contracted accessions,
cause which supports subsequent to the improvements,
the principal execution thereof. growing fruits and
obligation as to the Exception: in case of income of the
principal debtor. stocks in department property not yet
If it is regarded as stores, drug stores, received when the
valid despite the etc. obligation becomes
absence of any direct due and to the
consideration received amount of the
by the guarantor or indemnity granted or
surety either form the owing to the
principal debtor or proprietor from the
from the creditor; a insurers of the
consideration moving property mortgaged,
to the principal alone or in virtue of
with suffice expropriation for
public use (Art 2127)

Prohibited Acts Prohibition against same same same

Pactum
Commissorium (Art
2088; 2137)

Pactum
Commissorium
Stipulation
whereby the thing
pledged shall
automatically
become the
property of the
creditor in the
event of non-
payment of the
debt within the
term fixed.
 Requisites:
1. There should
be a pledge by
way of security
for the payment
of the principal
obligation; and
2. There should
be a stipulation
for an automatic
appropriation by
the creditor of the
property in event
of nonpayment of
the obligation
within the
stipulated period.

GENERAL RULE:
Pactum
Commissorium is
forbidden by law and
is declared null and
void.
EXCEPTION: The
pledgee may
appropriate the thing
pledged if after the
first and second
auctions, the thing is
not sold. (Art 2112)

NOTE: The security

contract remains
valid; only the
prohibited stipulation
is void.

RIGHTS AND
OBLIGATIONS
As to the guarantor: As to the surety: Rights of the Pledgee 1. Mortgagor - To Obligations of
-guarantor must not 1. Liability is 1. Option to demand alienate the antichretic creditor:
be the principal contractual and replacement or mortgaged
1 To pay taxes and
debtor. Exception: in a accessory but immediate payment of property but the
charges on the
real guaranty, like direct. - He directly, the debt in case of mortgage shall
estate, including
pledge and mortgage, primarily and deception as to remain attached
necessary
a person may equally binds substance or quality to the property.
expenses
guarantee his own himself with the (Art 2109)
NOTE: Creditor
obligation with his principal as original 2. To sell at public NOTE: A stipulation
may avoid said
personal or real promisor, although auction in case of forbidding the owner
obligation by:
properties he possesses no reasonable grounds to from alienating the
a. compelli
Where the guarantee direct or personal fear destruction or immovable mortgage
ng
is definite: interest over the impairment of the shall be void (Art
debtor to
It is limited in whole latters obligation, thing without his fault 2130) being contrary
reacquire
or in part to the nor does he receive (Art 2108) to public policy
enjoyme
principal debt, to the any benefits 3. To bring actions inasmuch as the
nt of the
exclusion of therefrom. pertaining to the transmission of
property
accessories. 2. Liability is limited owner (Art 2103) property should not
or
Where guaranty is by the terms of the 4. To choose which be unduly impeded.
b. by
indefinite or simple: contract- a contract of several things
stipulatio
It shall comprise not of surety is not pledged shall be sold 2. Mortgagee - To
n to the
only the principal presumed; it 5. To bid at the claim from a 3rd
contrary
obligation, but also its cannot extend to public auction (Art person in
2 To apply all the
accessories, including more than what is 2113) possession of the
fruits, after
the judicial costs, stipulated. 6. To appropriate mortgaged
receiving them, to
provided with respect 3. Liability arises only the thing in case of property the
the payment of
to the latter, that the if principal debtor failure of the 2nd payment of the
interest, if owing,
guarantor shall only is held liable,- the public auction (Art part of the credit
and thereafter to
be liable for those creditor may sue 2112) secured by the
the principal
costs incurred after he separately or 7. To apply said which said third
3 To render an
has been judicially together, the fruits, interests or person possesses
account of the
required to pay. principal debtor earnings to the (Art 2129)
fruits to the
As to the creditor: and any of the interest, if any, then NOTE: It is necessary
debtor
1. Undertaking is to sureties; in the to the principal of the that prior demand for
4 To bear the
him and not to absence of credit (Art 2102) payment must have
expenses
the debtor. collusion, the 8. To retain excess been made on the
necessary for its
As to the principal surety is bound by value received in the debtor and the latter
preservation and
debtor: a judgment against public sale (Art 2115) failed to pay (BPI vs
repair
Performance of the the principal even 9. To retain the Concepcion & Hijos,
principal obligation of though he was not thing until after full Inc., 53 Phil 906)
the contract. a party to the payment of the debt
proceedings. The (Art 2098)
nature of its 10. To be reimbursed
undertaking makes for the expenses made
it privity to all for the preservation of
 proceedings the thing pledged (Art
against its 2099)
principal. 11. To object to the
4. Surety is not alienation of the thing
entitled to the 12. To possess the
benefit of thing (Art 2098)
exhaustion- 13. To sell at public
Reason: surety auction in case of non-
assumes a payment of debt at
solidarity liability maturity (Art 2112)
for the fulfillment To choose which of
of the principal the several things
obligation. pledged shall be sold
5. Surety is not (Art 2119)
entitled to notice 14. Option to demand
of the principals replacement or
default immediate payment of
6. Prior demand of the debt in case of
the creditor for the deception as to
performance of substance or quality
the principal (Art 2109)
obligation by the 15. To sell at public
principal debtor is auction in case of
not necessary for reasonable grounds to
the assumption of fear destruction or
the suretys impairment of the
obligation to the thing without his fault
contract- as soon (Art 2108)
as the principal 16. To bring actions
debtor is in default, pertaining to the
the surety is owner (Art 2103)
likewise in default 17. To choose which
7. Surety is not of several things
exonerated by the pledged shall be sold
neglect of creditor 18. To bid at the
to sue principal. public auction (Art
As to the creditor: 2113)
2. Undertaking is to 19. To appropriate
him and not to the thing in case of
the debtor. failure of the 2nd
As to the principal public auction (Art
debtor: 2112)
1. Performance of 20. To apply said
the principal fruits, interests or
obligation of the earnings to the
contract. interest, if any, then
to the principal of the
credit (Art 2102)
21. To retain excess
value received
in the public sale (Art
2115)
22. To retain the
thing until after full
payment of the debt
(Art 2098)
23. To be reimbursed
for the expenses made
for the preservation of
the thing pledged (Art
2099)
24. To object to the
alienation of the thing
25. To possess the
thing (Art 2098)
26. To sell at public
auction in case of non-
payment of debt at
maturity (Art 2112)
27. To choose which
of the several things
pledged shall be sold
(Art 2119)

Obligations of the
Pledgee
1. Take care of the
thing with the
diligence of a good
father of a family (Art
2099)
2. Not to use thing
unless authorized or
by the owner or its
preservation requires
its use (Art 2104)
3. Not to deposit the
thing with a 3rd person
unless so stipulated
(Art 2100)
4. Responsibility for
acts of agents and
employees as regards
the thing (Art 2100)
5. To advise pledgor
of danger to the thing
(Art 2107)
6. To advise pledgor
of the result of the
public auction (Art
2116)

RIGHT OF PLEDGOR
TO SUBSTITUTE
THING PLEDGED
(ART.2107)
Requisites:
1. The pledgor has
reasonable
grounds to fear
the destruction or
impairment of the
thin pledged
2. There is no fault
on the part of the
pledgee
3. The pledgor is
offering in place of
the thing, another
thing in pledge
which is of the
same kind and
quality as the
former
4. The pledge does
not choose to
exercise his right
to cause the thing
pledged to be sold
at public auction
NOTE: The pledgees
right to have the thing
pledged sold at public
sale granted under the
Article 2108 is
superior to that given
to the pledgor to
substitute the thing
pledged under Article
2107.

Rights and
Obligations of a
Pledgor
RIGHTS:
1. To demand return
in case of reasonable
grounds to fear
destruction or
impairment of the
thing without the
pledgees fault,
subject to the duty of
replacement (Art
2107)
2. To bid and be
preferred at the public
auction (Art 2113)
3. To alienate the
thing pledged
provided the pledgee
consents to the sale
(Art 2097)
To ask that the thing
pledged be deposited
(Arts 2104 & 2106)
OBLIGATIONS:
2. To advise the
pledgee of the flaws of
the thing (Art 2101)
Not to demand the
return of the thing
until after full
payment of the debt,
including interest due
thereon and expenses
 incurred for its
preservation (Art
2105)

EXTINGUISHMENT
AND REMEDIES
Extinguishment of Extinguishment of Same with guaranty Extinguishment of
Contract Guaranty: Pledge
1. Release in
1. For the same
favor of one of the
causes as all
guarantors, without
other obligations
the consent of the
(Art 1231)
others, benefits all to
2. Return of the
to the extent of the
thing pledged by
share of the
the pledgee to
guarantor to whom it
the pledgor (Art
has been guaranteed
2110)
2. If the creditor
3. Statement in
voluntarily accepts
writing by the
immovable or other
pledgee that he
properties in
renounces or
payment of the debt,
abandons the
even if he should
pledge (Art
afterwards lose the
2111)
same through
4. Payment of the
eviction or
debt (Art 2105)
conveyance of
5. Sale of thing
property. Effect of
pledged at
eviction: revival of
public auction
principal obligation,
(Art 2115)
not the guaranty
NOTE: The possession
3. Whenever by
by the debtor or
some act of the
owner of the thing
creditor, the
pledged subsequent
guarantors even
to the perfection of
though they are
the pledge gives rise
solidarily liable
to a prima facie
cannot be
presumption that the
subrogated to the
thing has been
rights, mortgages
returned and,
and preferences of
therefore, that the
the former
pledge has been
4. For the same extinguished but not
causes as all other the principal
obligations under obligation itself. (Art
art.1231 2110)
5. When
principal obligation is Requirements for sale
extinguished of thing pledged at
6. Extension public auction: (Art
granted to the 2112)
debtor by the 1. The debt is due
creditor without the and unpaid
consent of the 2. Sale must be at a
guarantor public auction
Note: mere failure on 3. there must be
the part of the notice to the
creditor to demand pledgor and
the payment after owner, stating the
the debt has become amount due
due but does not of 4. Sale must be with
itself constitute any the intervention
extension of time of a notary public
referred to herein.
Exceptions: Effect of sale of the
1. Creditor did thing pledged: (Art
not collect from third 2115)
persons 2. The sale of the
2. Obligations thing pledged
payable in shall extinguish
installment the principal
3. Waiver by obligation,
guarantor whether or not
4. Extension the proceeds of
granted by creditor the sale are equal
on bond to the amount of
5. Extension the principal
granted to first-tier obligation,
obligors cannot interest and
prejudice second tier expenses in a
parties proper case
3. If the price of the
Payment of the sale is more than
guarantor without the amount due
notice to the debtor the creditor, the
(Art.2068): debtor is not
 1. The guarantor may entitled to the
interpose against excess unless the
the debtor those contrary is
defenses which he provided
could have set up 4. If the price of the
against the sale is less, the
creditor at the creditor is not
time the payment entitled to
was made. recover the
Payment before deficiency even if
maturity: there is a
1. Not entitled to stipulation to that
reimbursement effect
unless the
p[payment was
made with the
consent or has
been ratified by
the debtor
(Ratification may
be expressed or
implied)

Effect of Repeat
Payment by the
Debtor:
General Rule: before
the guarantor pays the
debtor, he must first
notify the debtor,
otherwise the latter
may set up defenses
he could have set up
against the creditor
(art.2068). if he fails to
give such notice and
the debtor repeats
payment, the
guarantor can only
collect from the
creditor and guarantor
has no cause of action
against the debtor for
the return of the
 amount paid by
guarantor even if
creditor should
become insolvent.
Exception: the
guarantor can still
claim reimbursement
from the debtor in
spite of lack of notice
if the following
conditions are
present:
1. Guarantor
was prevented by
fortuitous event to
advise the debtor of
payment
2. The creditor
becomes insolvent
The guaranty is
gratuitous
Remedies Effect of failure of the Not applicable (arts. Offenses Involving Foreclosure Remedies of creditor
creditor to exhaust 2047, par. 2; 2059[2]) Chattel Mortgage The remedy in case of non-
and resort all legal available to the payment of debt
remedies: General Rule: 1. Knowingly mortgagee by
Creditor shall suffer Guarantor has no removing any which he subjects 1. Bring an action
the loss but only to cause of action against personal property the mortgaged for specific
the extent of the value debtor until after the mortgaged under property to the performance; or
of the said property former has paid the the Chattel satisfaction of the 2. Petition for the
for the insolvency of obligation Mortgage Law to obligation to sale of the real
the debtor Exceptions: (art.2071) any province or city secure that for property as in a
1. When he is other than the one which the foreclosure of
Remedies of sued for in which it was mortgage was mortgages under
guarantor: payment located at the time given Rule 68 of the
Remedies are 2. Insolvency of of the execution of Rules of
alternative. the principal the mortgage It denotes the Court.(Art 2137)
1. Obtain debtor without the written procedure
release form the 3. Debtor has consent of the adopted by the The parties,
guaranty (can only bound mortgagee; and mortgagee to however, may
be exercised against himself to terminate the agree on an
the principal relieve him 2. Selling or rights of the extrajudicial
debtor). Reason: the from the pledging personal mortgagor on the foreclosure in the
creditor cannot be guaranty property already property and same manner as
 compelled to within a mortgaged, or any includes the sale they are allowed
release the specified part thereof, under itself (DBP vs in contracts of
guarantor before person, and the terms of the Zaragoza, 84 mortgage and
payment of his this periods Chattel Mortgage SCRA 668) pledge (Tavera vs.
obligation to the has expired Law without the Foreclosure is El Hogar Filipino,
creditor. 4. Debt consent of the valid where the Inc., 68 Phil 712).
2. Demand a becomes mortgagee written debtor is in A stipulation
security that shall demandable on the bank of the default in the authorizing the
protect him from 5. Lapse of ten mortgage and duly payment of his antichretic
any proceedings by (10) years recorded in the obligation creditor to
the creditor, and when there is Chattel Mortgage (Gobonseng, Jr. vs appropriate the
against the danger no fixed Register (Article 319, CA, 246 SCRA 472) property upon the
of insolvency of the period for its Revised Penal Code). non-payment of
debtor. maturity Note: Kinds: the debt within
6. Reasonable The 1. Judicial ordinary the agreed period
Remedy on the paying grounds to mortgagor is not action for is void (Art 2088).
guarantor against his fear that the relieved of criminal foreclosure under
co-guarantors: principal will liability even if the Rule 68 of the
1. Right of abscond mortgage Rules of Court
indemnity or The debtor is in indebtedness is 2. Extrajudicial
reimbursement imminent danger of thereafter paid in when mortgagee
2. Right of becoming insolvent. full (U.S. vs. Kilayko, is given a special
subrogation 32 Phil. 61 [1915]), power of attorney
General Rule: or the mortgagor- to sell the
guaranty is a contract seller informed the mortgaged
of indemnity. The purchaser that the property by public
guarantor who makes thing sold had been auction, under
payment is entitled to mortgaged. (People Act No. 3135
be reimbursed by the vs. Alvares, 45 Phil. A foreclosure sale
principal debtor. 472 [1923]). But the retroacts to the
The indemnity consists sale is valid although date of
of: no written consent registration of the
1. Total amount of was obtained from mortgage and
the debt- no right the mortgagee but that a person who
to demand the mortgagor lays takes a mortgage
reimbursement himself open to in good faith and
until he has criminal for valuable
actually paid the prosecution. consideration, the
debt, unless by (Servicewide record showing
terms of the Specialists, Inc. vs. clear title to the
contract, he is Intermediate mortgagor, will be
given the right Appellate Court, 174 protected against
before making SCRA 80 [1989]; Dy, equitable claims
the payment. He Jr. vs. Court of
 cannot collect Appeals, 198 SCRA on the title in
more than he has 826 [1981]). favor of third
ppaid. persons, of which
2. Legal interest Foreclosure of Chattel he had no actual
thereon from the Mortgage or constructive
time payment Foreclosure sale notice (St.
was made known in chattel Dominic
(notice of mortgage is by Corporation vs.
payment is in public auction IAC 151 SCRA
effect a demand under Act No. 577).
so that if the 1508, but the Where there is a
debtor does not parties may right to redeem,
pay immediately, stipulate that it be inadequacy of
he incurs in delay) by private sale. price is not
to the debtor The mortgagee material because
even though it did may, after thirty the judgment
not earn interest (30) days from the debtor may
for the creditor. time of the reacquire the
Guarantors right condition broken, property or else
to legal interest is cause the sell his right to
granted by law by mortgaged redeem and thus
virtue of payment property to be recover any loss
he has made. sold at public he claims to have
3. Expenses incurred auction by a suffered by
by the guarantor public officer. The reason of the
after having 30-day period is price obtained at
notified the also a grace the auction sale
debtor that period for the and consequently
payment has mortgagor to not sufficient to
been demanded discharge the set aside the sale.
of him by the mortgage Mere inadequacy
creditor; only obligation. After of the price
those which the sale of the obtained at the
depend upon his chattel at public sheriffs sale will
will or own acts or auction, the right not be sufficient
his fault for these of redemption is to set aside the
are his exclusive no longer sale unless the
personal available to the price is so
responsibility and mortgagor (Cabral inadequate as to
it is not just that vs. Evangelista, 28 shock the
they be SCRA 1000). conscience of the
shouldered by the court taking into
debtor. Application of consideration the
4. Damages if they
 are due in proceed of sale: peculiar
accordance with 1. Costs and circumstances
law. General rules expenses of attendant
on damages keeping and thereto. (Sulit vs.
apply. sale CA, 268 SCRA 441)
Exceptions: 2. Payment of Should there
1. When the the obligation remain a balance
guaranty is secured by due to the
constituted the mortgage mortgagee after
without the 3. Claims of applying the
knowledge or persons proceeds of the
against the will of holding sale, the
the principal subsequent mortgagee is
debtor, the mortgages in entitled to
guarantor can their order recover the
recover only in so 4. The balance, deficiency. This
far as the if any, shall rule applies both
payment had be paid to the to judicial and
been beneficial to mortgagor or extra-judicial
the debtor person foreclosure real
(Art.2050). holding under mortgage.
2. Payment by a him The action to
third person who recover a
does not intend The creditor may deficiency after
to be reimbursed maintain an foreclosure
by the debtor is action for the prescribes after
deemed to be a deficiency, except 10 years from the
donation, which, if the chattel time the right of
however, requires mortgage is action accrues
the debtors constituted as (Arts 1142 &
consent. But the security for the 1144).
payment is in any purchase of Extrajudicial
case valid as to personal property foreclosure real
the creditor who payable in property (Act No.
accepted it. instalments (Art. 3135)
(Art.1238) 1484).
The law covers
3. Waiver of the The action for
right to demand only real estate
deficiency may be
reimbursement. mortgages. It is
brought within
intended merely
ten (10) years
Guarantors right to to regulate the
from the time the
subrogation: extrajudicial sale
cause of action
Subrogation transfers of the property
accrues (Arts
to the person mortgaged if and
subrogated, the credit 1141 and 1142). when the
with all the rights Only equity of mortgagee is
thereto appertaining redemption is given a special
either against the available to the power of express
debtor or against third mortgagor; the authority to do so
persons, be they latter can no in the deed itself
guarantors or longer redeem or in a document
possessors of after the annexed thereto.
mortgages, subject to confirmation of The authority to
stipulation in the foreclosure sell is not
conventional sale. extinguished by
subrogation. It is Right of redemption the death of the
necessary to enable When the mortgagor (or
the guarantor to condition of a mortgagee) as it is
enforce the indemnity chattel mortgage an essential and
given in Art.2066. It is broken the inseparable part
arises by operation of following may of a bilateral
law upon payment by redeem: agreement (Perez
the guarantor. It is not a) mortgagor; vs PNB, 17 SCRA
necessary that the b) person holding 833).
creditor cede to the a subsequent No sale can be
guarantor the mortgage; or legally made
formers rights against c) subsequent outside the
the debtor. It is not a attaching province in which
contractual right. The creditor. the property sold
right of guarantor who An attaching is situated; and in
has paid a debt to creditor who so case the place
subrogation does not redeems shall be within said
stand upon contract subrogated to the province in which
but upon the rights of the the sale is to be
principles of natural mortgagee and made is the
justice. The guarantor entitled to subject of
is subrogated by virtue foreclose the stipulation, such
of the payment to the mortgage in the sale shall be made
rights of the creditor, same manner that in the said place
not those of the the mortgagee in the municipal
debtor. Guarantor could foreclose it. building of the
cannot exercise the municipality in
The redemption is
right to redemption of which the
made by paying
his principal. If the property or part
or delivering to
guarantor paid a thereof is
the mortgagee
smaller amount by situated.
the amount due
virtue of compromise, Redemption
on such mortgage
he cannot demand It is the
more than what he and the costs, and transaction by
actually paid. expenses incurred which the
by such breach of mortgagor
Right of guarantor to condition before reacquires or buys
proceed against the sale thereof back the property
debtor before (Sec 13, Act No. which may have
payment: 1508). passed under the
General Rule: mortgage, or
Guarantor has no Right to possession of divests the
cause of action against foreclosed property property of the
debtor until after the 1. Real mortgage lien which the
former has paid the After the mortgage may
obligation redemption have created.
Exceptions: (art.2071) period has
1. When he is sued expired, the A sale by the
for payment purchaser of the mortgagor to a
2. Insolvency of the property has the third party of the
principal debtor right to a mortgaged
3. Debtor has bound conveyance and property during
himself to relieve to be placed in the period for
him from the possession redemption
guaranty within a thereof. transfers only the
specified person, right to redeem
and this periods Purchaser is the property and
has expired not obliged the right to
4. Debt becomes to bring a possess, use and
demandable separate suit enjoy the same
5. Lapse of ten (10) for during said
years when there possession. period.
is no fixed period He must Where sale with
for its maturity invoke the assumption of
6. Reasonable aid of the mortgage not
grounds to fear courts and registered and
that the principal ask for a made without the
will abscond WRIT OF consent of the
7. The debtor is in POSSESSION. mortgagee, the
imminent danger Section 7 of buyer, thereof,
of becoming Act No. 3135 was not validly
insolvent. allows the substituted as
The guarantor cannot purchaser to debtor and,
be sued with his take hence, had no
principal much less possession of right to redeem
alone except in the (Bonnevie vs. CA,
(art.2059).
1. Notice to foreclosed 125 SCRA 122).
guarantor of the property
action: during the Kinds:
-the guarantor must period of 1. Equity of
be notified. redemption Redemption
-if the guarantor upon filing of right of mortgagor
appears, he is still an ex parte to redeem the
given the benefit application mortgaged
of exhaustion even and approval property after his
if judgment should of a bond. default in the
be rendered performance of
against him and 2. Chattel mortgage the conditions of
the principal When default the mortgage
debtor. Voluntary occurs and the within the 90-day
appearance does creditor desires to period from the
not constitute a foreclose, the date of the
renunciation of his creditor has the service of the
right to excussion right to take the order of
(see Art.2059[1]). property as a foreclosure or
-Guarantor cannot set preliminary step even thereafter
up the defenses if for its sale. but before the
he does not appear NOTE: Where the confirmation of
and it may no debtor refuses to the sale. Applies
longer be possible yield the to judicial
for him to question property, the foreclosure of real
the validity of the creditors remedy mortgage and
judgment. is to institute an chattel mortgage
2. a guarantor is action either to foreclosure.
entitled to be heard effect judicial
before execution can foreclosure NOTE: Redemption of
be issued against him directly or to the banking
where he is not a secure possession institutions is allowed
party in the case (REPLEVIN) as a within one year from
involving his principal preliminary to the confirmation of sale.
(procedural due sale
process) contemplated in 2. Right of
Section 14 or Act. Redemption
No. 1508 right of mortgagor
to redeem the
mortgaged
property within
one year from the
date of
registration of the
 certificate of sale.
Applies only to
extrajudicial
foreclosure of real
mortgage.

NOTE: The right of

redemption, as long as
within the period
prescribed, may be
exercised irrespective
of whether or not the
mortgagee has
subsequently
conveyed the property
to some other party
(Sta. Ignacia Rural
Bank, Inc. vs. CA, 230
SCRA 513)

Period of Redemption
1. Extra-judicial (Act
#3135)
a. natural
person one
year from
registration
of the
certificate of
sale with
Registry of
Deeds
b. juridical
person
same rule as
natural
person
c. juridical
person
(mortgagee
is bank) -
three
months after
foreclosure
 or before
registration
of certificate
of
foreclosure
which ever is
earlier (sec.
47, of
General
Banking Law)
2. Judicial before
confirmation of
the sale by the
court

NOTE: Allowing a
redemption after the
lapse of the statutory
period, when the
buyer at the
foreclosure sale does
not object but even
consents to the
redemption, will
uphold the policy of
the law which is to aid
rather than defeat the
right of redemption.
There is nothing in the
law which prevents a
waiver of the
statutory period for
redemption (Ramirez
vs CA, 219 SCRA 598).

Amount of the
redemption price:
1. Mortgagee is not
a bank (Act No.
3135, in relation
to Sec. 28, Rule 39
of Rules of Court)
a. purchase
price of the
 property
b. 1% interest
per month on
the purchase
price
c. taxes paid
and amount
of
purchasers
prior lien, if
any, with the
same rate of
interest
computed
from the date
of
registration
of sale, up to
the time of
redemption
2. Mortgagee is a
bank (GBL 2000)
a. amount due
under the
mortgage
deed
b. interest
c. cost and
expenses
NOTE:
Redemption
price in this case
is reduced by the
income received
from the
property