CATEGORY
GUARANTY
LAW
CIVIL CODE Articles 2047-2084
DEFINITION
SURETYSHIP
The second paragraph of Article 2047 states the law applicable to the contract of suretyship. It covers Articles 1207 to 1222, Title I (Obligations), Chapter 3 (Different Kinds of Obligations), Section 4 (Joint and Solidary Obligations), Book IV (Obligations and Contracts) of the CIVIL CODE By guaranty a person, If a person binds called the guarantor, himself solidarily binds himself to the with the principal creditor to fulfill the debtor, the obligation of the provisions of principal debtor in Section 4, case the latter should Chapter 3, fail to do so. Art. Title 1 of this 2047 (1) Book shall be observed. In such case the contract is called a suretyship. (Art.
PLEDGE
CIVIL CODE Articles 20852123
It is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable or a document involving incorporeal rights for the purpose of securing the fulfillment of a
MORTGAGE CHATTEL REAL MORTGAGE ESTATE MORTGAGE CIVIL CODE CIVIL CODE Articles 2085-2092 Articles 2140-2141 THE 2083-2092 CHATTEL 2124-2131 MORTGAGE LAW SUPREME (Act No. 1508, as COURT A.M. amended) NO. 99-10-05-0 AS AMENDED BY RESOLUTION OF JUNE 30, 2001 AND AUGUST 7, 2002 JUDICIAL FORECLOSU RE OF REAL ESTATE MORTGAGE (Rule 68, ROC) By a chattel mortgage, A real estate personal property is mortgage is a recorded in the Chattel contract Mortgage Register as whereby the a security for the debtor secures performance of an to the creditor obligation. If the the fulfillment movable, instead of of a principal being recorded, is obligation, delivered to the specially creditor or a third subjecting to person, such security the contract is a immovable
ANTICHRESIS
CIVIL CODE Articles 2085-2092 2132-2139
By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to app apply them to the payment of the interest, if owing, and thereafter to the
2047 (2))
PURPOSE
Special promise to answer for the debt, default or miscarriage of another
PARTIES
Guarantor, Creditor & Debtor personal: the guaranty is the credit given by the person who guarantees the fulfillment of the principal obligation (guarantor)
SUBJECT MATTER
real: the guaranty is property. If the guaranty is immovable property: real mortgage or antichresis; If the guaranty is movable property: pledge or chatter mortgage
Surety promises to answer for the debt, default or miscarriage of the principal. Obligor, surety and obligee personal: the guaranty is the credit given by the person who guarantees the fulfillment of the principal obligation (guarantor) real: the guaranty is property. If the guaranty is immovable property: real mortgage or antichresis; If the guaranty is movable property: pledge
principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. To secure fulfillment of a principal obligation. Pledgor & Pledgee All movables, which are within commerce, may be pledged, provided they are susceptible of possession. (Art. 2094) Incorporeal rights (Art. 2095. )
pledge and not a property chattel mortgage. (Art. or real rights 2140) over immovable property in case the principal obligation is not complied with at the time stipulated. To secure fulfillment To secure of principal obligation fulfillment of principal obligation
principal of his credit. (Art. 2132.)
Mortgagor & Mortgagee
Creditor & Debtor
personal or movable property.
1. Immovables 2. Alienable rights imposed upon immovables
It secures the performance of a principal obligation
Immovables or Real Property
or chatter mortgage KINDS/ CLASSIFICATION
1. Conventional- one constituted by agreement of the parties (art. 2051, par. 1)
1. Voluntary or conventional (created by agreement of the parties); 2. Legal (by operation of law).
2. Legal- one imposed by virtue of a provision of law; (Ibid) 3. Judicial- one required by a court to guarantee the eventual right of one of the parties in a case.
1. Accessory: It is NATURE AND CHARACTERISTICS dependent for its
existence upon the principal obligation guaranteed by it. 2. Subsidiary and Conditional: It takes effect only when the principal debtor fails in his obligation. 3. Unilateral: a. It gives rise to obligations on the part of
1. Contractual and Accessory BUT Direct: The contractual obligation of the surety is merely an accessory or collateral to the obligation contracted by the principal. BUT, his liability to the creditor is direct, primary, and
Real, because it is perfected by delivery of the thing pledged. 2. Acessory, because it has no independent existence. 3. Unilateral, because it creates an obligation
1. It is an accessory contract because it secures performance of a principal obligation 2. It is a formal contract because it requires registration in the Chattel Mortgage Register for its
1. Voluntary – Agreed to between the parties or constituted by the will of the owner of the property 2. Legal – Required by law to be executed in favor of certain persons 3. Equitable – Lacks the proper formalities of mortgage but shows the intention of the parties to make the property as a security for a debt Mortgage is a real, accessory, and subsidiary contract
1. Accessory – It secures the performance of a principal obligation. Manresa, however, believes that it is an independent contract. 2. Formal Contract – It must
the guarantor in relation to the creditor and not vice-versa. (Although after its fulfillment, the principal debtor should indemnify the guarantor, but this obligation is only incidental) b. It may be entered into even without the intervention of the principal debtor. 4. Distinct Person: It requires that the person of the guarantor must be distinct from the person of the principal debtor (you cannot guaranty your own debt). However, in a real guaranty, a person may guarantee his own obligation with his own properties. GENERAL RULE: Guaranty is gratuitous. EXCEPTION: Guaranty is onerous only if it is stipulated guarantee is given.
absolute. 2. Liability is limited by the terms of the contract: The extent of a surety’s liability is determined only by the terms of the contract and cannot be extended by implication. 3. Liability arises only if principal debtor is held liable: If the principal debtor and the surety are held liable, their liability to pay the creditor would be solidary. But, the surety does not incur liability unless and until the principal debtor is held liable. 4. Surety is not entitled to exhaustion: A surety is not entitled to the exhaustion of the properties of the principal debtor since the surety assumes a solidary liability for the fulfillment of the principal obligation. 5. The undertaking is to the CREDITOR, not to the principal debtor: The debtor cannot claim that the surety breached its obligation to pay for the principal
solely on the part of the creditor to return the thing pledged upon fulfillment of the principal obligation. 4. Subsidiary, because the obligation of the creditor does not arise until fulfillment of the principal obligation.
validity (but only against third persons) 3. It is a unilateral contract because it produces only obligations on the part of the creditor to free the thing from the encumbrance on fulfillment of the obligation.
be in specified form to be valid (in writing). 3. A third person, who is not a party to the principal contract, may offer his immovable under the contract of antichresis to secure the debt of another. (2085) 4. The contract of antichresis is indivisible. (2089) 5. The indivisibility of the antichresis is not affected by the fact that the debtors are not solidarily liable. (2090) 6. The contract of antichresis may secure all kinds of obligations – pure or conditional. (2091)
obligation because there is no obligation as between the surety and the debtor. If the surety does not pay, the principal debtor is still not relieved of his obligation.
PERFECTION
CONSENSUAL
CONSENSUAL
Real – There must CONSENSUAL be delivery of the thing.
REAL CONTRACT BUT NO DELIVERY
Delivery is not required for the validity of the contract itself. BUT, it is required in order that the creditor may receive the fruits. CONSENSUAL
FORMALITY
Must be in writing to be enforceable. It is govern by the Statute of Frauds.
Must be in writing
Must be in writing
Must be in writing, a specific form is required.
Must be in writing, otherwise it is void.
No registration needed
LIABILITY
Must be in writing, a specific form is required. Formal Registered in chattel mortgage register
Formal Written or oral But the oral mortgage is not binding against third persons. Registered public document
The amount of the principal and of the interest shall be specified in writing; otherwise, the contract of antichresis shall be void (Art. 2134).
Serves as an accessory contract *with regard to suretyship it is contractual and accessory but direct. In other words he is directly, primarily and equally bound with the principal as original promisor although he possesses no direct or personal interest over the latter’s obligations nor does he receive any benefit therfrom. (Garcia, Jr. Vs. CA)
DELIVERY
Delivery is not necessary
Delivery of the thing is not necessary
Delivery of the thing In Chattel Mortgage, pledge is necessary. delivery of the personal property to the
In Real Mortgage, delivery is not
Delivery may or may not be necessary.
mortgage is not necessary. OWNERSHIP
VALIDITY
PROHIBITION
RIGHTS AND OBLIGATIONS OF THE PARTIES
The guarantor need not be the owner. The contract of guaranty is valid only between the contracting parties.
Against unjust enrichment
Guarantor: 1) Guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and has resorted to all the legal remedies against the debtor. Creditor: 1) Exhaust all
Pledgor must be the owner of the thing pledge, otherwise the pledge is void. Not valid against third persons unless a description of the thing pledged and the date of the pledge appear in a public instrument. Against Pactum Commissorium
necessary.
Mortgagor must be the owner of the thing mortgaged, otherwise the mortgage is void. In Chattel Mortgage, not valid against third person unless registered in the Chattel Mortgage Register.
In Real Mortgage, not valid against third persons if not registered.
Against Pactum Commissorium
Pledgor’s Rights: ObligorIn Chattel Mortgage: 1) To demand the undertakes an return in case of obligation; he reasonable is the In Real Mortgage, grounds to fear principal Mortgagor’s Right: destruction or impairment of obligor 1) To alienate the thing mortgaged the thing property but the mortgage shall without the Surety- a remain attached to the property. pledgee’s fault, person who A stipulation forbidding the owner from subject to the engages alienating the immovable mortgage shall duty of replacement. himself to be be void being contrary to public policy 2) To bid and be answerable to inasmuch as the transmission of property preferred at the a third person should not be unduly impede. public auction. for debt, Mortgagee’s Right: 3) To alienate the default, 1) To claim from third a person in thing pledged provided the miscarriage possession of the mortgaged pledgee consent of another. property the payment of the part to the sale. of the credit secured by which 4) To ask that the Obligee- to said third person possesses. thing pledged
Creditor must be the owner The contract is valid only between the parties.
Against Pactum Commissorium Against Usurious Rates Creditor: 1) To pay the taxes and charges upon the estate unless there is a contrary stipulation. 2) To pay expenses for necessary repairs. Debtor: To pay what he owes the creditor in order to
the property whom the of the debtor obligation is unless the made. guarantor is not entitled to such benefit under art. 2059. 2) Resort to all the legal remedies against the debtor. 3) Prove that the debtor is still unable to pay. Debtor: Payment of his principal obligation.
be deposited in one of the following cases: a) F the creditor uses the thing without authority. b) He misuses the thing. c) The thing is endangered of being lost or impaired because of negligence or willful act of the pledgee. Pledgor’s Obligations: 1) To advise the pledgee of the flaws of the thing. 2) Not to demand the return of the thing until after full payment of the debt, including interest due thereon and expenses incurred for this preservation. Pledgee’s Rights: 1) Option to demand replacement or immediate payment of the debt in case of deception as to substance or quality.
It is necessary that prior demand for reacquire the payment must have been made on the enjoyment of the debtor and the latter failed to pat. immovable.
2) To sell at public auction in case of reasonable grounds to fear destruction or impairment of the thing without his fault. 3) To bring actions pertaining to the owner or to defend it against third persons. 4) To choose which of several things pledged shall be sold. 5) To collect and receive amount due on credit pledged. 6) To bid at public auction, unless he is the only bidder. To appropriate the thing
REMEDIES
In case of paying guarantor: 1) Right of indemnity or reimbursement 2) Right of subrogation
Other remedies: 1) Obtain release from the guaranty.
Demand a security that shall protect him from any proceedings
Sale of the thing pledged at a public auction. In case of legal pledge, it can be made from the date of demand otherwise; the debtor may require the return of the thing.
Foreclosure of Chattel Mortgage by public auction under Act 1508 but the parties may stipulate that it may be by private sale.
1) Action for specific performanc e 2) Petition for the sale of the mortgages under Rule 68 of the Rules of Court. 3) Judicial Foreclosure
SPECIAL REQUISITES
by the creditor and against the danger of insolvency of the debtor. 1) A guaranty cannot exist without a valid obligation. 2) May also be given as security for future debts.
1. Possession of In Chattel Mortgage, the thing pledged 1) It can cover must be only personal transferred to the or movable creditor or a third property in person by general; agreement however, the 2) Subject parties may matter: treat as movable and personal incorporeal rights property that evidenced by which by its documents of the nature would title and the be real instruments property. proving the right 2) Registration pledged shall be of the delivered to the mortgage creditor and if with the negotiable must Chattel be endorsed. Mortgage The description of Register the thing pledged where the and the date of must mortgagor appear in a public resides; if property is instrument to bind located in a third persons but not different for the validity of the province, contract. registration in both provinces is required. 3) Description of the property as would enable the
In Real Mortgage, 1) It can cover only immov able proper ty and aliena ble real rights impos ed upon immov able. 2) It must appea r in a public instru ment.
1) It can cover only the fruits of an immovabl e property 2) Delivery of the immovabl e is necessary for the creditor to receive the fruits and not that the contract shall be biding. 3) Amount of the principal and interest must be specified in writing.
Registration in the registry of property is necessary to bind third Express agreement persons but not that debtor will for the validity give possession of of the contract. the property to creditor and that the latter will apply the fruits to
parties or other persons to identify the same after reasonable investigation and inquiry. 4) Accompanied by an affidavit of good faith to bind thirds persons but not for the validity of the contract. 5) It can cover only obligations existing at the time the mortgage s constituted.
EXTINGUISHMENT OF A CONTRACT
1) Release in favor of one of the guarantors, without the consent of the other, benefits all to the extent of the share of all the guarantor to whom it has been granted. 2) If the creditor voluntarily accepts immovable or other properties in payment of the
1) For the same causes as all other obligations. 2) Return of the thing pledged by the pledgee to the pledgor. 3) Statement in writing by the pledge that he renounces or
the interest if any ten to the principal of his credit.
The debtor shall have the right to the extinguishment of the pledge or Extra-judicial – when mortgagee is given mortgage as the portion of the a special power of attorney to sell the debt for which mortgaged property by public auction each thing is under Act No. 3135 especially answerable is satisfied.
1) Foreclosure of the thing mortgaged. Judicial – ordinary action for foreclosure under Rule 68 of the Rules of Court
debt, even if he should afterwards lose the same trough eviction or conveyance of property. 3) Whenever by some act of the creditor, the guarantors even though they are solidarily liable cannot be subrogated to the rights, mortgages and preferences of the former. 4) For the same causes as all other obligations under art. 1231. 5) When the principal obligation is extinguished. 6) Extension granted to the debtor by the creditor without the consent of the guarantor.
abandons the pledge. 4) Payment of the debt. 5) Sale of the thing pledged at public auction. Appropriation under Art. 2112.
